As filed with the Securities and Exchange Commission on January 17, 2007
Registration No. 333-136254
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM SB-2/A
Amendment No. 4
REGISTRATION STATEMENT
Under
The Securities Act of 1933
PARK CITY GROUP, INC.
------------------------------------------------------------
(Exact name of Small Business Issuer as specified in charter)
Nevada (7374) 37-1454128
---------------------------- ------------------------- ----------------
(State or Other Jurisdiction (Primary Standard (I.R.S. Employer
of Incorporation Industrial Classification Identification
or Organization) Code Number Number)
3160 Pinebrook Road
Park City, Utah 84098
(435) 645-2000
(Address and telephone number of principal executive office)
Randall K. Fields
Chief Executive Officer
3160 Pinebrook Road
Park City, Utah 84098
(435) 645-2000
--------------------------------------------------------
(Name, address and telephone number of agent for service)
with copies to:
A.O. Headman, Jr., Esq. Cohne, Rappaport & Segal
257 East 200 South, Seventh Floor
(801) 532-2666
Salt Lake City, Utah 84111
Approximate date of commencement of As soon as practicable after this proposed
sale to the public: Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
Proposed Proposed
Maximum Maximum
Title of Each Amount Offering Aggregate Amount of
Class of Securities Being Price Per Offering Registration
Being Registered Registered (1) Unit (2) Price Fee
----------------------------------------- ------------------- -------------- ------------------- --------------
Common Stock, $.01 par value (3) 3,142,842 $3.50 $11,000,063 $1,178
----------------------------------------- ------------------- -------------- ------------------- --------------
Common Stock Underlying Warrants (4) 816,837 $3.65 $ 2,858,937 $ 306
========================================= =================== ============== =================== ==============
Total 3,959,679 $13,859,000 $1,484
========================================= =================== ============== =================== ==============
(1) Includes shares of our common stock, par value $.01 per share which may be
offered pursuant to this Registration Statement and shares issuable upon the
exercise of warrants.
(2) Estimated solely for purposes of calculating the registration fee in
accordance with Rule 457(c) and Rule 457(g) under the Securities Act of
1933, using the average of the high and low price as reported on the
Over-The-Counter Bulletin Board on June 20, 2006, which was $3.65 per share.
(3) Includes 1,818,149 shares of common stock owned by selling stockholders
acquired in a private offering transaction which closed in June 2006 and
1,324,693 shares owned by one other selling stockholder.
(4) Includes shares of common stock issuable upon outstanding warrants. The
warrants are exercisable at prices ranging from $2.00 to $3.65 with
expiration dates ranging from August 16, 2007 to June 21, 2011.
In accordance with Rule 416 of the Securities Act, this Registration
also covers such indeterminate amount of additional shares of common stock as
may be issuable upon the exercise of the warrants to prevent dilution as a
result of stock splits, dividends and anti-dilution provisions of the warrants.
The Registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
TABLE OF CONTENTS
Page
Prospectus Summary 2
Risk Factors 4
Use of Proceeds 13
Dilution 13
Market for Common Equity and Related Stockholder Matters 13
Management's Discussion and Analysis 15
Business of Park City Group, Inc. 22
Description of Property 27
Legal Proceedings 27
Management 27
Management Compensation 30
Security Ownership of Certain Beneficial Owners and Management 33
Description of Securities 33
Commission's Position on Indemnification for Securities
Act Liabilities 35
Certain Relationships and Related Transactions 35
Plan of Distribution 36
Selling Security Holders 37
Experts 43
Legal Matters 44
Changes In and Disagreements With Accountants on Accounting
and Financial Disclosure 44
Additional Information 44
Financial Statements F-1
The information in this prospectus is not complete and may be changed. The
selling security holders may not sell these securities until the registration
statement filed with the Securities and Exchange Commission is effective. This
prospectus is not an offer to sell these securities and neither the selling
security holders nor we are soliciting offers to buy these securities in any
state where the offer or sale is not permitted.
SUBJECT TO COMPLETION, DATED JANUARY 17, 2007
PROSPECTUS
PARK CITY GROUP, INC.
3,959,714 SHARES OF COMMON STOCK
This prospectus relates to the sale by the selling stockholders of up
to 3,959,714 shares of our common stock, $.01 par value. The shares being
registered consist of the following: up to 1,818,149 shares of common stock
owned by selling stockholders who purchased such shares in a private offering
that was completed in June 2006, 1,324,693 shares of common stock owned by
Riverview Financial Corp, an affiliate of Randall K. Fields, our chief executive
officer, and up to 816,837 shares of common stock underlying warrants to
purchase common stock owned by selling shareholders. The warrants are
exercisable at prices ranging from $2.00 to $3.65 with expiration dates ranging
from August 16, 2007 to June 14, 2011.
The selling stockholders may sell common stock from time to time in the
principal market on which the stock is traded at the prevailing market price or
in negotiated transactions. The selling stockholders may be deemed underwriters
of the shares of common stock, which they are offering. We will pay the expenses
of registering these shares.
Our common stock is registered under Section 12(g) of the Securities
Exchange Act of 1934 and is traded on the Over-The-Counter Bulletin Board under
the symbol "PCYG". The last reported sales price per share of our common stock
as reported by the Over-The-Counter Bulletin Board on January 3, 2007, was
$2.35.
----------------------
INVESTING IN THESE SECURITIES INVOLVES SIGNIFICANT RISKS.
SEE "RISK FACTORS" BEGINNING ON PAGE 4.
----------------------
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
adequacy or accuracy of this prospectus. Any representation to the contrary is a
criminal offense.
----------------------
The date of this prospectus is ________, 2007
PROSPECTUS SUMMARY
The following summary highlights selected information contained in this
prospectus. This summary does not contain all the information you should
consider before investing in the securities. Before making any investment
decision, you should read the entire prospectus carefully, including the "risk
factors" section, the financial statements, and the notes to the financial
statements.
Overview
Park City Group, Inc. ("Park City Group", "We", `Us", or the "Company")
develops and markets patented and other proprietary computer software and profit
optimization consulting services for the retail industry. Our products and
services are designed to help our retail customers reduce their inventory and
labor costs, the two largest controllable expenses in the retail industry. The
technology was the foundation of the success of Mrs. Fields Cookies, also
co-founded by our CEO, Randall Fields. Park City Group is headquartered in Park
City, Utah and maintains a website at http://www.parkcitygroup.com.
Principal Products
Our primary products include the following:
Fresh Market Manager ("FMM") is a suite of software applications
primarily designed to manage perishable food department operations including
bakery, deli, seafood, produce, dairy, frozen foods, meat, home meal
replacement, and floral within supermarkets and convenience stores.
ActionManager(TM) is a suite of software applications that addresses
the second most important cost element facing today's retailers - labor.
ActionManager(TM) addresses labor issues by forecasting labor demand and
scheduling the right staff resources with the appropriate skills at the right
time. Additionally, ActionManager(TM) automates workflow and replaces costly
paper-based and manual processes with systems that substantially reduce time
spent on administrative tasks, non-productive (non-selling) labor costs, and
excess headcount in the retailer's corporate office. ActionManager(TM)
applications provide an automated method for managers to plan, schedule, and
administer virtually every time-consuming task in the store.
Supply Chain Profit Link. Supply Chain Profit Link is a software
application and consulting service that is designed to facilitate collaboration
between suppliers and their retail customers. Supply Chain Profit Link increases
the visibility of out-of-stocks and shrink (waste) for both the supplier and
retailer enabling better category management practices.
Customers
We have sold our products and/or provided services to a variety of
customers in the U.S. and abroad. Included in our customer base are The Home
Depot, Anheuser Busch Entertainment, Perdue, Monterey Mushrooms, Pacific
Sunwear, Wawa and Tesco Lotus.
Common Stock
Common stock outstanding 8,930,766 shares
Common Stock underlying all outstanding
Options and Warrants * 976,792 shares
2
Shares registered for selling stockholders 3,959,714 shares
All shares reflect a 1-for-50 reverse stock split that was made
effective August 11, 2006.
Common Stock Offered by Selling Stockholders
A total of 3,959,679 shares of our common stock are being registered
pursuant to the registration statement on Form SB-2 of which this prospectus is
a part. A total of 1,818,149 of these share were issued to investors in a
private offering that was completed in June 2006 (the "June 2006 Private
Offering"). A total of 1,324,693 of these shares are owned by Riverview
Financial Corp, an affiliate of Randall K. Fields our Chief Executive Officer. A
total of 816,837 of these shares are issuable upon the exercise of currently
outstanding warrants (the "Warrants"), including 181,818 shares underlying
warrants issued to Taglich Brothers, Inc., the placement agent in the June 2006
Private Offering.
Use of Proceeds
We will not receive any proceeds from the sale of the common stock by
the selling stockholders. We will receive proceeds from the exercise of the
Warrants to the extent the Warrants are exercised. Provided however, all of the
Warrants have cashless exercise provision which could result in the issuance of
shares of our common stock upon the exercise of the Warrants without our receipt
of cash. Any cash proceeds from the exercise of warrants will be used by the
Company for general corporate purposes.
Over-the-Counter Bulletin Board Symbol
Our common stock is traded in the over the counter market and is quoted
on the Over-the-Counter Bulletin Board (OTCBB). Our trading symbol is PCYG.
June 2006 Private Offering
In June 2006, we completed the sale of 1,818,149 shares of our common
stock to 100 accredited investors (the "Investors"), all of whom are included in
the selling stockholders group. In connection with our sale of common stock, we
entered into a Securities Purchase Agreement with each investor. The Securities
Purchase Agreement contained provision that requires us to register all of the
shares sold in the June 2006 private Offering. The shares of common stock sold
in the June 2006 private Offering were sold at a price of $2.75 per share. We
received a total of $5,000,000 of gross proceeds in the offering. In connection
with the June 2006 Private Offering, we hired Taglich Brothers, Inc. as our
placement agent. We paid Taglich Brothers, Inc. a cash placement fee of 8% of
the total offering proceeds or $400,000. As additional compensation, we issued
Taglich Brothers, Inc. a warrant to purchase 181,818 shares of our common stock
(1 shares for every 10 shares sold in the offering) at a price of $3.65 per
share and registration rights provisions with each of the Investors. We have
included all 1,818,149 shares of common stock issued to these investors in this
registration as well as all 181,818 shares issuable upon the exercise of the
Taglich Brothers warrant.
Offices
On December 2, 2006 the company relocated its principal place of
business to 3160 Pinebrook Road, Park City, UT 84098, telephone 435-645-2000,
fax 435-604-6582, or e-mail at randy@parkcitygroup.com. Our website is
parkcitygroup.com. Park City Group and its officers, directors, and significant
shareholders, file reports with the Securities and Exchange Commission under the
Securities Exchange Act of 1934.
3
RISK FACTORS
An investment in Park City Group has a high degree of risk. Before you invest
you should carefully consider the risks and uncertainties described below and
the other information in this prospectus. If any of the following risks actually
occur, our business, operating results, and financial condition could be harmed
and the value of our stock could go down. This means you could lose all or a
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 continually or consistently at a profit in the future. Resulting losses
could cause a reduction in operations and could have a detrimental effect on the
long-term capital appreciation of our stock.
Our marketing strategy emphasizes sales activities for the Fresh Market
Manager, ActionManager(TM), and Supply Chain Profit Link applications to
Supermarkets, Convenience Stores, Specialty Retail, Financial Services, and Food
Manufacturers. If this marketing strategy fails, revenues and operations will be
negatively affected. A reduction in revenues will result in increases in
operational losses.
For the years ended June 30, 2006 and for the three months ended
September 30, 2006, we had net income of $1,393,597 and a net loss of $544,064,
respectively. There can be no assurance that we will reliably or consistently
operate profitably during future fiscal years. If we do not operate profitably
in the future our current cash resources will be used to fund our operating
losses. If this were to continue, in order to continue with our operations, we
would need to raise additional capital. Continued losses would have an adverse
effect on the long term value of our common stock and your investment in the
Company. We cannot give any assurance that we will ever generate significant
revenue or have sustainable profits.
Our liquidity and capital requirements will be difficult to predict, which may
adversely affect our cash position in the future.
In June of 2006, we completed the sale of shares of our common stock
from which we received gross offering proceeds of $5,000,000. We anticipate that
we will have adequate cash resources to fund our operations for at least the
next 12 months. Thereafter, our liquidity and capital requirements will depend
upon numerous other factors, including the following:
o The extent to which our products and services gain market
acceptance;
o The progress and scope of product evaluations;
o The timing and costs of acquisitions and product and services
introductions;
o The extent of our ongoing research and development programs; and
o The costs of developing marketing and distribution capabilities.
If in the future, we are required to seek additional financing in order
to fund our operations and 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.
Operating results may fluctuate, which makes it difficult to predict future
performance.
Management expects a portion of the Company's revenue stream to come
from license sales, maintenance and services charged to new customers, which
will fluctuate in amounts because software sales to retailers are difficult to
4
predict. In addition, the Company may potentially experience significant
fluctuations in future operating results caused by a variety of factors, many of
which are outside of its control, including:
o Demand for and market acceptance of new products;
o Introduction or enhancement of products and services by the Company
or its competitors;
o Capacity utilization;
o Technical difficulties, system downtime;
o Fluctuations in data communications and telecommunications costs;
o Maintenance subscriber retention;
o The timing and magnitude of capital expenditures and requirements;
o Costs relating to the expansion or upgrading of operations,
facilities, and infrastructure;
o Changes in pricing policies and those of competitors;
o Composition and duration of product mix including license sales,
consulting fees, and the timing of software rollouts.
o Changes in regulatory laws and policies, and;
o General economic conditions, particularly those related to the
information technology industry.
Because of the foregoing factors, future operating results may
fluctuate. As a result of such fluctuations, it will be difficult to predict
operating results. Period-to-period comparisons of operating results are not
necessarily meaningful and should not be relied upon as an indicator of future
performance. In addition, a relatively large portion of our expenses will be
fixed in the short-term, particularly with respect to facilities and personnel.
Therefore, future operating results will be particularly sensitive to
fluctuations in revenues because of these and other short-term fixed costs.
We will need to effectively manage our growth in order to achieve and sustain
profitability. Our failure to manage growth effectively could reduce our sales
growth and result in continued net losses.
To achieve continual and consistent profitable operations on a fiscal
year on-going basis, we must have significant growth in our revenues from the
sale of our products and services. If we are able to achieve significant growth
in our future sales and to expand the scope of our operations, and our
management, financial, and other capabilities, our existing procedures and
controls could be strained. We cannot be certain that our existing or any
additional capabilities, procedures, systems, or controls will be adequate to
support our operations. We may not be able to design, implement, or improve our
capabilities, procedures, systems, or controls in a timely and cost-effective
manner. Failure to implement, improve and expand our capabilities, procedures,
systems, or controls in an efficient and timely manner could reduce our sales
growth and result in a reduction of profitability or increase of net losses.
Our officers and directors have significant control over us that may lead to
conflicts with other stockholders over corporate governance.
Our officers and directors, other than our Chief Executive Officer,
control approximately 6.88% of our common stock. Our Chief Executive Officer,
Randall K. Fields, individually, controls 48.51% of our common stock.
5
Consequently, Mr. Fields, individually, and our officers and directors, as
stockholders acting together, will be able to significantly influence all
matters requiring approval by our stockholders, including the election of
directors and significant corporate transactions, such as mergers or other
business combination transactions.
Our corporate charter contains authorized, unissued "blank check" preferred
stock that can be issued without stockholder approval with the effect of
diluting then current stockholder interests.
Our certificate of incorporation currently authorizes the issuance of
up to 30,000,000 shares of "blank check" preferred stock with designations,
rights, and preferences as may be determined from time to time by our board of
directors. Our board of directors is empowered, without stockholder approval, to
issue one or more additional series of preferred stock with dividend,
liquidation, conversion, voting, or other rights that could dilute the interest
of, or impair the voting power of, our common stockholders. The issuance of a
series of preferred stock could be used as a method of discouraging, delaying,
or preventing a change in control.
Because we have never paid dividends, you should exercise caution before making
an investment in our common stock.
We have never paid dividends nor do we anticipate the declaration or
payments of any dividends in the foreseeable future. We intend to retain
earnings, if any, to finance the development and expansion of our business. Our
Board of Directors will determine future dividend policy at their sole
discretion and future dividends will be contingent upon future earnings, if any,
our financial condition, capital requirements, general business conditions and
other factors. Future dividends may also be affected by covenants contained in
loan or other financing documents, which may be executed by us in the future.
Therefore, there can be no assurance that dividends of any kind will ever be
paid.
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 of our founder and Chief
Executive Officer, Randall K. Fields. Mr. Fields is essential to our operations.
Accordingly, you must rely on Mr. Fields' management decisions that will
continue to control our business affairs after the offering. We currently
maintain key man insurance on Mr. Fields' life in the amount of $10,000,000;
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.
If we are unable to attract and retain qualified personnel, we may be unable to
develop, retain or expand the staff necessary to support our operational
business needs.
Our current and future success depends on our ability to identify,
attract, hire, train, retain and motivate various employees, including skilled
software development, technical, managerial, sales, marketing and customer
service personnel. Competition for such employees is intense and we may be
unable to attract or retain such professionals. If we fail to attract and retain
these professionals, our revenues and expansion plans will be negatively
impacted.
Our officers and directors have limited liability and indemnification rights
under our organizational documents, which may impact our results.
6
Our officers and directors are required to exercise good faith and high
integrity in the management of our affairs. Our certificate of incorporation and
bylaws, however, provide, that the officers and directors shall have no
liability to the stockholders for losses sustained or liabilities incurred which
arise from any transaction in their respective managerial capacities unless they
violated their duty of loyalty, did not act in good faith, engaged in
intentional misconduct or knowingly violated the law, approved an improper
dividend or stock repurchase, or derived an improper benefit from the
transaction. As a result, you may have a more limited right to action than you
would have had if such a provision were not present. Our certificate of
incorporation and bylaws also require us to indemnify our officers and directors
against any losses or liabilities they may incur as a result of the manner in
which they operate our business or conduct our internal affairs, provided that
the officers and directors reasonably believe such actions to be in, or not
opposed to, our best interests, and their conduct does not constitute gross
negligence, misconduct or breach of fiduciary obligations.
Business Operations Risks
If our marketing strategy fails, our revenues and operations will be negatively
affected.
We plan to concentrate our future sales efforts towards marketing our
applications and services. These applications and services are designed to be
highly flexible so that they can work in multiple retail and supplier
environments such as grocery stores, convenience stores, quick service
restaurants, and route-based delivery environments. There is no assurance that
the public will accept our applications and services in proportion to our
increased marketing of this product line. We may face significant competition
that may negatively affect demand for our applications and services, including
the public's preference for our competitors' new product releases or updates
over our releases or updates. If our applications and services marketing
strategy fails, we will need to refocus our marketing strategy to our other
product offerings, which could lead to fincreased marketing costs, delayed
revenue streams, and otherwise negatively affect our operations.
Because we are changing the emphasis of our sales activities from an annual
license fee structure to a monthly fee structure, our revenues may be negatively
affected.
Historically, we offered our applications and related maintenance
contracts to new customers for a one-time up front license fee and provided an
option for annually renewing their maintenance agreements. Because our one-time
licensing fee approach was subject to inconsistent and unpredictable revenues,
we now offer prospective customers an option for monthly licensing of these
products. Our customers may now choose to acquire a license to use the software
on an Application Solution Provider basis (also referred to as ASP) resulting in
monthly charges for use of our software products and maintenance fees. Our
conversion from a strategy of one-time licensing fees to monthly-based fees is
subject to the following risks:
o Our customers may prefer one-time fees rather than monthly fees;
o Because public awareness pertaining to our Application Solution
Provider services will be delayed until we begin our marketing
campaign to promote those services, our revenues may decrease over
the short term; and
o There maybe a threshold level (number of locations) at which the
monthly based fee structure may not be economical to the customer,
and a request to convert from monthly fees to annual fee could
occur.
We face competition from competing and emerging technologies that may affect our
profitability. The markets for our type of software products and that of our
competitors are characterized by:
7
o Development of new software, software solutions, or enhancements
that are subject to constant change;
o Rapidly evolving technological change; and
o Unanticipated changes in customer needs.
Because these markets are subject to such rapid change, the life cycle
of our products is difficult to predict; accordingly, we are subject to the
following risks:
o Whether or how we will respond to technological changes in a timely
or cost-effective manner;
o Whether the products or technologies developed by our competitors
will render our products and services obsolete or shorten the life
cycle of our products and services; and
o Whether our products and services will achieve market acceptance.
If we are unable to adapt to our constantly changing markets and to continue to
develop new products and technologies to meet our customers' needs, our revenues
and profitability will be negatively affected.
Our future revenues are dependent upon the successful and timely
development and licensing of new and enhanced versions of our products and
potential product offerings suitable to our customer's needs. If we fail to
successfully upgrade existing products and develop new products, and those new
products do not achieve market acceptance, our revenues will be negatively
impacted.
We face risks with attracting new first-time clients from a limited global
prospect pool.
Our software licensing is currently reliant upon a limited number of
national and international prospect companies who require our unique product and
services as a result of consolidation in the global number of big-box retailers
specifically in the grocery and retail industries. As a consequence, future
revenue may be significantly impacted if we are unable to attract new license
customers from this limited prospect pool.
We expect that as a result of further industry consolidation and the
limited customer pool from which we can attract new software license prospects,
a small number of our new customers will account for a substantial portion of
current, non-recurring license revenues in future reporting periods. In 2006,
our top 5 new license customers accounted for 92% of total non-recurring license
revenue and 70% of total annual revenue. The remaining 30% of total revenue
included on-going recurring revenue attributable to product upgrades, consulting
revenues, maintenance and support revenue.
A substantial portion of our annual revenue is derived from a one-time,
non-recurring licensing fee for utilization of our patented software
A large portion of our customers rely on our patented software for
utilization during the normal course and scope of their business operations. New
customers are charged a license fee based on a "blanket" license agreement fee
for a particular software product or an initial license fee that is based on a
store by store opening basis. Although results vary from period to period, in
2006, non-recurring initial license fee revenue equaled $3,000,000 or 42% of
total revenue. Historically, over 94% of new, first-time customers will not
8
purchase products, license agreements, or services at the same financial level
in future periods as they do in the first year of installation. While the
company is not substantially dependent on any one particular customer for
providing a continued revenue stream, we are dependent on attracting new
first-time license clients in order to meet our operating and capital cash flow
needs since the initial fee represents, in most cases a substantial portion of
revenue. If we cannot attract new first-time license customers, our remaining
recurring revenue streams may not provide sufficient financial resources to
support capital and operating needs.
The ability to attract new software license customers will depend on a
variety of factors, including the relative success of marketing strategies and
the performance, quality, features, and price of current and future products.
Accordingly, if we cannot attract new customer licensing accounts or existing
customer needs for our product and services decrease, revenues and operating
results will be negatively impacted.
We face risks associated with the loss of maintenance and other revenue
We have experienced the loss of long term maintenance customers because
the product is so reliable they do not want to continue to pay for maintenance
that they do not need or use, and in some cases, the customer has decided to
replace Park City Group applications or maintain the system on their own. We
continue to focus on these clients by providing new functionality and
applications to meet their business needs. We also may lose some maintenance
revenue due to consolidation of industries or customer operational difficulties
that lead to their reduction of size. In addition, future revenues will be
negatively impacted if we fail to add new maintenance customers that will make
additional purchases of our products and services.
We face risks associated with proprietary protection of our software.
Our success depends on our ability to develop and protect existing and
new proprietary technology and intellectual property rights. We seek to protect
our software, documentation and other written materials primarily through a
combination of patents, trademarks, and copyright laws, trade secret laws,
confidentiality procedures and contractual provisions. While we have attempted
to safeguard and maintain our proprietary rights, there are no assurances that
we will be successful in doing so. Our competitors may independently develop or
patent technologies that are substantially equivalent or superior to ours.
Despite our efforts to protect our proprietary rights, unauthorized
parties may attempt to copy aspects of our products or obtain and use
information that we regard as proprietary. In some types of situations, we may
rely in part on "shrink wrap" or "point and click" licenses that are not signed
by the end user and, therefore, may be unenforceable under the laws of certain
jurisdictions. Policing unauthorized use of our products is difficult. While we
are unable to determine the extent to which piracy of our software exists,
software piracy can be expected to be a persistent problem, particularly in
foreign countries where the laws may not protect proprietary rights as fully as
the United States. We can offer no assurance that our means of protecting our
proprietary rights will be adequate or that our competitors will not reverse
engineer or independently develop similar technology.
We incorporate a number of third party software providers' licensed technologies
into our products, the loss of which could prevent sales of our products or
increase our costs due to more costly substitute products.
We license technologies from third party software providers and such
technologies are incorporated into our products. We anticipate that we will
continue to license technologies from third parties in the future. The loss of
these technologies or other third-party technologies could prevent sales of our
products and increase our costs until substitute technologies, if available, are
developed or identified, licensed and successfully integrated into our products.
Even if substitute technologies are available, there can be no guarantee that we
will be able to license these technologies on commercially reasonable terms, if
at all.
We may discover software errors in our products that may result in a loss of
revenues or injury to our reputation.
9
Non-conformities or bugs ("errors") may be found from time to time in
our existing, new or enhanced products after commencement of commercial
shipments, resulting in loss of revenues or injury to our reputation. In the
past, we have discovered errors in our products and as a result, have
experienced delays in the shipment of products. Errors in our products may be
caused by defects in third-party software incorporated into our products. If so,
we may not be able to fix these defects without the cooperation of these
software providers. Since these defects may not be as significant to the
software provider as they are to us, we may not receive the rapid cooperation
that may be required. We may not have the contractual right to access the source
code of third-party software and, even if we do have access to the source code,
we may not be able to fix the defect. Since our customers use our products for
critical business applications, any errors, defects or other performance
problems could result in damage to our customers' business. These customers
could seek significant compensation from us for their losses. Even if
unsuccessful, a product liability claim brought against us would likely be time
consuming and costly.
Some competitors are larger and have greater financial and operational resources
that may give them an advantage in the market.
Many of our competitors are larger and have greater financial and
operational resources. This may allow them to offer better pricing terms to
customers in the industry, which could result in a loss of potential or current
customers or could force us to lower prices. Any of these actions could have a
significant effect on revenues. In addition, the competitors may have the
ability to devote more financial and operational resources to the development of
new technologies that provide improved operating functionality and features to
their product and service offerings. If successful, their development efforts
could render our product and service offerings less desirable to customers,
again resulting in the loss of customers or a reduction in the price we can
demand for our offerings.
Risks Relating To Our Common Stock
If we fail to remain current on our reporting requirements, we could be removed
from the OTC Bulletin Board, which would limit the ability of broker-dealers to
sell our securities and the ability of stockholders to sell their securities in
the secondary market.
Companies trading on the OTC Bulletin Board, like us, must be reporting
issuers under Section 12 of the Securities Exchange Act of 1934, as amended, and
must be current in our reports under Section 13 to maintain price quotation
privileges on the OTC Bulletin Board. If we fail to remain current on our
reporting requirements, we could be removed from the OTC Bulletin Board. As a
result, the market liquidity for our securities could be severely and adversely
affected by limiting the ability of broker-dealers to sell our securities and
the ability of stockholders to sell their securities in the secondary market.
Our common stock is subject to the "penny stock" rules of the SEC and the
trading market in our securities is limited, which makes transactions in our
stock cumbersome and may reduce the value of an investment in our stock.
The Securities and Exchange Commission has adopted Rule 15g-9, which
establishes the definition of a "penny stock," for the purposes relevant to us,
as any equity security that has a market price of less than $5.00 per share or
an exercise price of less than $5.00 per share, subject to certain exceptions.
For any transaction involving a penny stock, unless exempt, the rules require:
o that a broker or dealer approve a person's account for transactions
in penny stocks; and
10
o the broker or dealer receive from the investor a written agreement
to the transaction, setting forth the identity and quantity of the
penny stock to be purchased.
In order to approve a person's account for transactions in penny stocks, the
broker or dealer must:
o obtain financial information and investment experience objectives of
the person; and
o make a reasonable determination that the transactions in penny
stocks are suitable for that person and the person has sufficient
knowledge and experience in financial matters to be capable of
evaluating the risks of transactions in penny stocks.
The broker or dealer must also deliver, prior to any transaction in a
penny stock, a disclosure schedule prescribed by the Commission relating to the
penny stock market, which, in highlight form:
o sets forth the basis on which the broker or dealer made the
suitability determination; and
o that the broker or dealer received a signed, written agreement from
the investor prior to the transaction.
Generally, brokers may be less willing to execute transactions in
securities subject to the "penny stock" rules. This may make it more difficult
for investors to dispose of our common stock and cause a decline in the market
value of our stock.
Disclosure also has to be made about the risks of investing in penny
stocks in both public offerings and in secondary trading and about the
commissions payable to both the broker-dealer and the registered representative,
current quotations for the securities, and the rights and remedies available to
an investor in cases of fraud in penny stock transactions. Finally, monthly
statements have to be sent disclosing recent price information for the penny
stock held in the account and information on the limited market in penny stocks.
The limited public market for our securities may adversely affect your ability
to liquidate your investment
Although our common stock is currently quoted on the OTC Bulletin Board
(OTCBB), there is limited trading activity. We can give no assurance that an
active market will develop, or if developed, that it will be sustained. If you
acquire shares of our common stock, you may not be able to liquidate your
investment in such shares should you need or desire to do so.
Future issuances of our shares may lead to future dilution in the value of our
common stock, and will lead to a reduction in shareholder voting power, and
preventing a change in Company control.
The shares may be substantially diluted due to the following:
o Issuance of common stock in connection with funding agreements with
third parties and future issuances of common and preferred stock by
the Board of Directors; and
o The Board of Directors has the power to issue additional shares of
common stock and preferred stock and the right to determine the
voting, dividend, conversion, liquidation, preferences and other
conditions of the shares without shareholder approval.
Stock issuances may result in reduction of the book value or market
price of outstanding shares of common stock. If we issue any additional shares
11
of common or preferred stock, proportionate ownership of common stock and voting
power will be reduced. Further, any new issuance of common or preferred shares
may prevent a change in control or management.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus and any prospectus supplement contain forward-looking
statements. We have based these forward-looking statements on our current
expectations and projections about future events. In some cases, you can
identify forward-looking statements by words such as "may," "should," "expect,"
"plan," "could," "anticipate," "intend," "believe," "estimate," "predict,"
"potential," "goal," "continue," or similar terminology.
In addition, these forward-looking statements include, but are not
limited to, statements regarding:
o implementing our business strategy;
o marketing and commercialization of our products;
o pricing for our products;
o plans for future products and services and for enhancements of
existing products and services;
o our intellectual property;
o our estimates of future revenue and profitability;
o our estimates or expectations of continued losses;
o our expectations regarding future expenses, including research and
development, sales and marketing, and general and administrative
expenses;
o our analysis of the market, market opportunities, and customer
demand;
o difficulty or inability to raise additional financing, if needed, on
terms acceptable to us;
o our estimates regarding our capital requirements and our needs for
additional financing;
o attracting and retaining customers and employees;
o rapid technological changes in our industry and relevant markets;
o sources of revenue and anticipated revenue;
o plans for future acquisitions; and
o competition in our market.
These statements are only predictions. Although we believe that the
expectations reflected in these forward-looking statements are reasonable, we
cannot guarantee future results, levels of activity, performance or
achievements. We are not required to, and do not intend to, update any of the
forward-looking statements after the date of this prospectus or to conform these
statements to actual results. In light of these risks, uncertainties, and
assumptions, the forward-looking events discussed in this prospectus might not
occur. Actual results, levels of activity, performance, achievements, and events
may vary significantly from those implied by the forward-looking statements. A
description of risks that could cause our results to vary appears under the
heading "Risk Factors" in the annual and quarterly reports incorporated by
reference into this prospectus, and elsewhere in this prospectus.
In this prospectus, we refer to information regarding our potential
markets and other industry data. We believe that we have obtained this
information from reliable sources that customarily are relied upon by companies
in our industry, but we have not independently verified any of this information.
12
Unless we are required to do so under either U.S. federal securities or
other applicable laws, we do not intend to update or revise any forward-looking
statements.
USE OF PROCEEDS
This prospectus relates to shares of our common stock that may be
offered and sold from time to time by the selling stockholders. We will not
receive any proceeds from the sale of shares of common stock in this offering.
However, we will receive the sale price of any common stock we sell to the
selling stockholder upon exercise of the warrants. In addition, the holder's
warrants to purchase 506,448 shares of common stock at a weighted average
exercise price of $2.00 are also entitled to exercise their warrants on a
cashless basis. In the event that any investor exercises its warrants on a
cashless basis, then we will not receive any proceeds from the exercise of those
warrants. We expect to use the proceeds received from the exercise of the
warrants, if any, for general working capital purposes.
DILUTION
We are not selling any common stock in this offering. As such, there is
no dilution resulting from the Common Stock to be sold in this offering.
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Our common stock is quoted on the OTC "Bulletin Board" under the symbol
"PCYG." During the last two years, there has been only limited trading in our
common stock. The prices reported below reflect inter-dealer prices and are
without adjustments for retail markups, markdowns, or commissions, and may not
necessarily represent actual transactions.
High Bid Low Bid
------------ ------------
Calendar Year Ended December 31, 2004
First Quarter $10.00 $1.50
Second Quarter 8.50 3.50
Third Quarter 4.50 2.50
Fourth Quarter 4.50 2.00
Calendar Year Ended December 31, 2005
First Quarter $4.00 $2.00
Second Quarter 3.00 1.00
Third Quarter 3.00 1.50
Fourth Quarter 5.50 2.00
Calendar Year Ended December 31, 2006
First Quarter $4.00 $2.00
Second Quarter 5.50 2.00
Third Quarter 5.00 2.10
Fourth Quarter 3.50 2.30
All share information reflects a 1-for-50 reverse stock split that was made
effective August 11, 2006.
13
Holders of Common Equity
Our Common Stock is issued in registered form and the following
information is taken from the records of our transfer agent, Liberty Transfer
Co. located in Huntington, NY. As of January 4, 2007, we had 663 shareholders of
record and 8,930,766 shares of common stock outstanding. This number of
shareholders of record does not include an unknown number of persons who hold
shares through brokers and dealers in street name and who are not listed on our
shareholder records.
Dividends
We have not declared any dividends on any class of our equity
securities since incorporation and we do not anticipate that we will declare any
dividends in the foreseeable future. Our present policy is to retain future
earnings (if any) for use in our operations and the expansion of our business.
14
MANAGEMENT'S DISCUSSION AND ANALYSIS
The following discussion of our financial condition and results of
operations should be read in conjunction with our Financial Statements and Notes
thereto, and the other financial information included elsewhere in this
prospectus. This Management's Discussion and Analysis of Financial Condition and
Results of Operations contain descriptions of our expectations regarding future
trends affecting our business. The following discussion sets forth certain
factors that we believe could cause actual results to differ materially from
those contemplated by the forward-looking statements.
Overview
Park City Group develops and markets computer software and profit
optimization consulting services that help its retail customers to reduce their
inventory and labor costs; the two largest controllable expenses in the retail
industry, while increasing the customer's sales and gross margin. Our products,
Fresh Market Manager, ActionManager(TM) and Supply Chain Profit Link are
designed to address the needs of retailers 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 offerings and can also be expanded to support
related products.
We have experienced recent significant developments that we expect to
have a positive impact on our company, although there is no assurance that the
expected positive impact will take place. Recent developments include the
following:
o In March the Company signed new ActionManager license agreements
with Kwik Trip, an existing customer, and RaceTrac Petroleum, Inc.
o In March the Company signed an agreement to allow Oracle to use one
of the company's patents.
Liquidity and Capital Resources
At September 30, 2006 Compared to September 30, 2005
Net Cash used in operations for the three months ended September 30,
2006, was $726,790 compared to $2,242,219 provided by operating activities for
the same period in 2005. This comparative decrease is attributable to a
non-recurring one-time software license sale to one large customer during the
quarter ended September 30, 2005. Cash used in investing activities was $139,782
and $3,046 during the three months ended September 30, 2006 and 2005,
respectively. The increase in cash used in investing was due to procurement of
computers and other office equipment and the capitalization of new product
development costs in 2006. The company anticipates further utilization of its
investing cash into product development until such time as it releases its new
products and enhancements in early 2007.
Cash on hand was $2,611,486 at September 30, 2006, an increase of
$2,452,044 over the $159,442 on hand in the same period in 2005. This 1538%
increase is attributable to the Company restructuring its debt and equity
portfolio during 2006 which included refinancing note payables and paying off a
revolving line of credit from its net proceeds of issuing 3,636,364 shares of
restricted common stock. The total net proceeds to the company from this sale
were approximately $4,570,000. The Company anticipates a comparative reduction
in interest costs by
15
approximately $800,000 in 2007 as a result of this reduction in debt. Net cash
used in financing activities decreased from $2,289,401 for the three months
ended September 30, 2005 to $39,002 for the current period. This decrease is
attributable to the payoff of a note payable with Triplenet Investments during
the three months ended September 30, 2005.
Current assets at September 30, 2006 totaled $3,174,508, an increase of
$2,337,010 over the same period in 2005. The increase is due to issuance of
additional shares of stock for cash in 2006. Current liabilities as of September
30, 2006 and September 30, 2005 were $1,258,631 and $3,555,383 respectively. As
stated above, the company has utilized proceeds from the issuance of stock to
refinance its debt position, increase its operational presence in the Pacfic
Rim, and increase staffing to support current and future projects.
At September 30, 2006, the company had a working capital surplus of
$1,915,877, as compared to a working capital deficit of $2,717,885 for the three
months ended, September 30, 2005. This increase in working capital is due to the
issuance of additional stock in June of 2006 as stated above and the $3,000,000
non-recurring, large license sale that the company received in 2006. Management
believes the increase in working capital will allow the company to achieve its
objectives of its new product development, issue enhancements to existing
products, and provide sufficient cash flow to fund shortfalls in cash generated
from operations should they occur during 2007.
The Company has achieved profitability for the first time in the fiscal
year ended June 30, 2006. However, the Company has yet to consistently provide
sufficient cash flow from operations in order meet its ongoing capital and
operational cash flow requirements. The Company has been successful over the
past ten years in obtaining working capital and will continue to seek to raise
additional capital from time to time as needed and until consistent period to
period profitably can be maintained of which there can be no assurances. The
Company has a bank credit facility equal to 75% of our outstanding accounts
receivable up to 120 days with a maximum of $200,000. As of September 30, 2006,
we had no outstanding borrowings under this credit facility.
As a result of our sales cycle, large contracts, and the timing
differences associated with our business model, there can be no assurance that
we will be successful in our efforts to continue profitable operations on a
period to period basis. If we are unable to operate profitably on ongoing basis
we may be required to reduce operations, reduce or discontinue further research
and development, and/or reduce or eliminate further acquisition activities.
June 30, 2006, Compared to June 30, 2005
Net cash provided by operations for the year ended June 30, 2006, was
$725,134 compared to cash used in operating of $794,318 for the year ended June
30, 2005. The increase is attributable to the non-recurring $3 million license
fee received in 2006 and a 37% increase in consulting revenue for new and
existing clients. Furthermore, in refinancing its debt, the company also
utilized operating cash flow to reduce its accrued interest liability by
$848,258. The company believes that as a result of refinancing and debt
conversion, it will reduce interest expense by approximately $800,000 annualized
in 2007. Interest expense was $884,404 and $1,178,454 for 2006 and 2005,
respectively, a 25% decrease. This $294,050 decrease attributed to the
retirement of a note payable with proceeds from operations and the conversion of
the note payable with Riverview Financial into common stock. Management believes
this will allow the Company to direct non-interest cost resources toward the
development and implementation of its new products and enhancements expected for
release in 2007.
16
Cash on hand was $3,517,060 at June 30, 2006, an increase of $3,307,390
over the $209,670 on hand as of June 30, 2005. As stated herein, the annual
increase is attributable to the issuance of stock for cash, restructuring of the
company's equity and debt structure, and a substantial one-time non-recurring
license fee in 2006. In fiscal 2006, the company utilized $2,373,268 in order to
retire notes payable and capital lease obligations. Net cash provided by
financing activities totaled $3,169,053 in 2006 compared to $723,116 for the
year ended June 30, 2005. In 2006, the company made payments to reduce its
outstanding line of credit in the amount of $716,743 as opposed to utilizing its
credit facility to fund $619,743 towards operations in the same period 2005.
Current assets at June 30, 2006 totaled $4,031,578, an increase of
$3,428,509 over June 30, 2005. The Company had $3,517,060 in cash and cash
equivalents at June 30, 2006 compared with $209,670 at June 30, 2005, an
increase of $3,307,390. Through debt refinancing and stock issuance the company
believes that its increased cash position will allow it to continue to focus on
developing strategic sales channels and aligning itself with partners who
provide high margin, low operating costs, and developing symbiotic relationships
that enhance the core focus of Park City Group. Management believes the increase
in its reduced-leverage cash position will continue to allow the company to
target its software products toward Grocery Chains, Convenience-Store Chains,
and Specialty Retailers through Alliance Partners, Financial Services, Call
Center operations, and Perishable and Non Perishable Product Manufacturers.
Working capital at June 30, 2006 was $2,534,296, compared to a working
capital deficit of $4,994,269 at June 30, 2005. The increase in the working
capital is principally attributable to sale of equity in the fourth quarter of
2006, the retirement of a current note payable in Q1, as well as the pay-off of
the Company's lines of credit in the second half of the year. Management
believes the increase in working capital will allow the Company to target its
resources toward additional license sales and reduce monthly cash operating
costs as a result of decreased reliance on debt financing.
In prior years, the Company has financed its operations through
operating revenues, loans from directors, officers and stockholders, loans from
the CEO and majority shareholder, and private placements of equity securities.
The Company, through a private placement of equity reduced liabilities from
$8,772,879 to $3,344,826, 2005 to 2006, respectively. In addition, the loans
between the Company and its directors and CEO have been converted to stock. The
Company has secured a $1.9 million revolving line of credit that in combination
with a strict focus on cost control and increased revenue anticipation will
provide a level of working capital necessary to satisfy its operating needs for
fiscal 2007.
Results of Operations
Three Month Period Ended September 30, 2006 Compared to the Three Month Period
Ended September 30, 2005
Total revenues were $585,895 and $3,698,865 for the quarters ended
September 30, 2006 and 2005, respectively, an 84% decrease. There were no
software license revenues for the quarter ended September 30, 2006 as compared
to $2,630,453 for the quarter ended September 30, 2005, a 100% decrease. This
100% decrease is attributable to a $3,000,000 software license sale in the
quarter ended September 30, 2005 that did not occur in the same period in 2006.
As stated in the Business Operation Risk section of the prospectus, the company
historically realizes the bulk of its annual revenue via non-recurring blanket
license fees. For the three month period ended September 30, 2005, one-time
license fees equated to 42% of total revenue or $3 million. This is
characteristic of the Company's history of lump software license sales due to
the average size of our license sale, the sales cycle of our products, and
timing differences.
Maintenance and support revenues were $448,203 and $608,446 for the
quarters ended September 30, 2006 and 2005, respectively, a decrease of 26%. The
17
$160,243 decrease is due to the following: As a result of bankruptcy, one of our
customers has reduced the number of stores they operate over the last year. This
resulted in a $96,223 of the decrease. The remainder of $64,020 was a result of
clients switching over to an Application Service Provider, cancellations, and
clients who elected to not renew maintenance provisions. -
Application Service Provider (ASP) revenues were $21,250 and $48,900,
respectively for the quarters ending September 30, 2006 and 2005; a decrease of
57%. This $27,650 decrease was the result of the loss of two customers, and an
aggressive program the company has instituted to increase the number of
Manufacturers using the Supply Chain Profit Link.
Consulting and other revenue was $116,442 and $411,066 for the quarters
ended September 30, 2006 and 2005, respectively, a 72% decrease. This $294,624
decrease is due to the completion of a large project that was begun in the
quarter ended September 30, 2005, and the timing around current billings.
Cost of revenues, as a percent of total revenues was 61% and 11% for
the quarters ended September 30, 2006 and 2005, respectively. This $44,921
decrease in Cost of Revenues is attributable to lower total revenue for the
comparative period. While license sales reflects the largest portion of
categorical revenue it reflects disproportionately lower amount of cost of
revenues due to economies of scale as compared to other revenue categories. The
$3,000,000 license sale in Q1-2006 resulted in a lower cost of revenues as a
percent of total revenue comparatively.
Research and development expenses were $84,442 and $235,909 for the
quarters ended September 30, 2006 and 2005 respectively, an 64% decrease. This
$151,467 decrease is due to an increase in the amount of costs that qualified to
be capitalized associated with new projects. The company has also started to
utilize off-shore development resources in order to reduce overall development
costs.
Sales and marketing expenses were $259,115 and $283,200 for the
quarters ended September 30, 2006 and 2005, respectively, a 9% decrease over the
previous year. The company continues to deploy a commissioned based sales force
to maintain a lower fixed level of costs to generate sales. The Company decided
in March of this year to expand its sales force and marketing efforts whose cost
were offset by the exit of the company's president at that time. We believe that
this additional sales effort will take at least 9 months to generate sales
increases.
General and administrative expenses were $457,207 and $313,155 for the
quarters ended September 30, 2006 and 2005, respectively a 46% increase. This
$144,052 increase is due to additional Investor Relations consulting work,
payment to a recruiter for a new hire and additional legal fees associated with
a pending patent lawsuit. The Company has identified several of its patents that
it believes have been violated. Management intends to take action to defend both
current and future patents on its software development.
In addition to an increase in consulting and legal fees, the Company
has increased its accounting and finance personnel to improve the reporting and
managerial accounting function within the organization and allow Mr. Dunlavy to
increase his participation with operational directives.
Year Ended June 30, 2006, as Compared to Year Ended June 30, 2005
During the year ended June 30, 2006, the Company had total revenues of
$7,085,125 compared to $3,631,812 in 2005, a 95% increase. Software license
sales were $3,626,821 and $479,615 for 2006 and 2005, respectively, a 656%
increase. This $3,147,206 increase was attributable to the license sale of a new
customer for $3,000,000 in a non-recurring blanket license sale in the first
quarter of 2006. As previously stated, the Company historically realizes the
majority of its annual revenues through blanket or non-recurring license
agreements for use of its patented software. For the year ended, June 30, 2006
and 2005, 49% and 12% of total revenue were based on one-time non-recurring
license revenue, respectively. Maintenance and support revenues decreased by 2%.
18
ASP revenues increased by 74% over 2005, as a result in growth of necessity in
the manufacturing industry. Consulting revenue increased by 37% to $1,004,224
for 2006, compared to $735,522 for 2005. This $268,702 increase is driven
specifically by consulting services associated with the large license sale in
Q1.
Total research and development expenditures were $292,191 and
$1,019,411 for the years ended June 30, 2006 and 2005, respectively; a 71%
decrease. This comparative decrease of $727,220 is attributable to an overall
reduction of research and development and the capitalization of $613,717 in
labor and overhead costs for the Fiscal Year Ended, June 30, 2006 as a result of
one new product development and two significant enhancements that reached
technological feasibility during 2006. The Company anticipates this new product
and two significant enhancements will be available for sale in the later part of
FYE 2007
Sales and marketing expenses were $1,375,794 and $1,337,318 for 2006
and 2005, respectively, an increase of 3%. During the current fiscal year the
Company continued to develop several strategic sales channels that are headed up
by commissioned alliance partners.
General and administrative expenses were $1,518,092 and $2,055,940 for
2006 and 2005, respectively, a 26% decrease. This $537,848 decrease was from one
time charges in 2005. These charges include a bad debt write off of $307,500 and
settlement of a legal issue that arose from the reverse acquisition with
Amerinet.com that has been pending since 2002.
Interest expense was $884,404 and $1,178,454 for 2006 and 2005,
respectively, a 25% decrease. This $294,050 decrease attributed to the
retirement of a note payable with proceeds from operations and the conversion of
the note payable with Riverview Financial into common stock. See Notes 12 and
16 to the financial statements.
In accordance with generally accepted accounting principles (GAAP),
earnings per share basic and diluted for the year ended, June 30, 2006 was $ .23
and $ .22 per share, respectively. NOTE: The Company believes providing some
additional information on a non GAAP basis for earnings per share (EPS) that has
significant benefit to the reader. These GAAP results reflect a weighted average
of 6 million shares for the fiscal year. As previously reported, Park City Group
raised $5 million in a private placement of shares during the fourth quarter,
and this placement had a significant impact on the weighted average share count
for the year. At year end, Park City Group had 8.9 million shares outstanding.
Excluding the effects a weighted average share count, Park City Group's earnings
per share for the fiscal year 2006 was $0.16. Park City Group believes utilizing
the full year share count provides a more meaningful view into the company's
profitability at the per share level. This non-GAAP EPS amount is less than the
GAAP basis EPS by $.07 and $.06 on a weighted average of shares, basic and
dilutive, respectively.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements that have or are
reasonably likely to have a current or future effect on our financial condition,
changes in financial condition, revenues or expenses, results of operations,
liquidity, capital expenditures, or capital resources that are material to
investors.
Critical Accounting Policies
This Management's Discussion and Analysis of Financial Condition and
Results of Operations discuss the Company's Financial Statements, which have
been prepared in accordance with accounting principles generally accepted in the
United States.
19
We commenced operations in the software development and professional
services business during 1990. The preparation of our financial statements
requires management to make estimates and assumptions that affect reported
amounts of assets and liabilities and the disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. On an ongoing basis,
management evaluates its estimates and assumptions, including those related to
inventory, deferred income tax assets, revenue recognition and restructuring
initiatives. We anticipate that management will base its estimates and judgments
on historical experience of the operations we may acquire and on various other
factors that are believed to be reasonable under the circumstances, the results
of which form the basis for making judgments about the carrying value of assets
and liabilities that are not readily apparent from other sources. Actual results
may differ from these estimates under different assumptions or conditions.
Management believes the following critical accounting policies, among
others, will affect its more significant judgments and estimates used in the
preparation of our Consolidated Financial Statements.
Deferred Income Tax Assets. In determining the carrying value of the
Company's net deferred income tax assets, the Company must assess the likelihood
of sufficient future taxable income in certain tax jurisdictions, based on
estimates and assumptions, to realize the benefit of these assets. If these
estimates and assumptions change in the future, the Company may record a
reduction in the valuation allowance, resulting in an income tax benefit in the
Company's Statements of Operations. Management evaluates the realizability of
the deferred income tax assets and assesses the valuation allowance quarterly.
Goodwill and Other Long-Lived Asset Valuations. In June 2001, the FASB
issued SFAS 141, "Business Combinations", and SFAS 142, "Goodwill and Other
Intangible Assets", effective for fiscal years beginning after December 15, 2001
with early adoption permitted for companies with fiscal years beginning after
March 15, 2001. We adopted the new rules on accounting for goodwill and other
intangible assets during the fiscal year beginning July 1, 2002. Under the new
rules, goodwill and intangible assets deemed to have indefinite lives will no
longer be amortized but will be subject to annual impairment tests in accordance
with the statements. Other intangible assets will continue to be amortized over
their useful lives.
Revenue Recognition. The Company's revenues are derived from the
licensing of software, maintenance of software, professional consulting services
and software hosting services. Revenue from the licensing of software is
recognized at the time the software is shipped to the customer. The company also
defers a portion of the software license fee equal to the cost of maintenance
for the warranty period on all license sales that are either to a new customer
or are a new product being sold to an existing customer. Customers who purchase
additional licenses for software which they already have and for which they are
paying maintenance, waive the warranty period. Revenue from maintenance of
software, professional consulting services and software hosting services is
recognized during the month the services are performed.
Stock-Based Compensation. The Company accounts for its employee
stock-based compensation plans using the intrinsic value method, as prescribed
by APB Opinion No. 25, Accounting for Stock Issued to Employees, and related
interpretations. Accordingly, the Company records deferred compensation costs
related to its employee stock options when the current market price of the
underlying stock exceeds the exercise price of each stock option on the
measurement date (usually the date of grant). The Company records and measures
deferred compensation for stock options granted to non-employees, other than
members of the Company's Board of Directors, using the fair value based method.
Deferred compensation is expensed on a straight-line basis over the vesting
period of the related stock option. During 2005 and 2004, the Company did not
grant any stock options to employees or members of the Company's Board of
Directors with exercise prices below the market price on the measurement date.
An alternative method to the intrinsic value method of accounting for
stock-based compensation is the fair value based method prescribed by Statement
of Financial Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based
Compensation," as amended by SFAS No. 148, "Accounting for Stock-Based
Compensation - Transition and Disclosure." If the Company used the fair value
based method, the Company would be required to record deferred compensation
based on the fair value of the stock option at the date of grant as computed
using an option-pricing model, such as the Black-Scholes option pricing model.
The deferred compensation calculated under the fair value based method would
then be amortized over the vesting period of the stock option.
20
Capitalization of Software Development Costs. 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
and meets or exceeds design specifications including functions, features, and
technical performance requirements. Costs incurred after technological
feasibility is established have been and will continue to be capitalized until
such time as when the product or enhancement is available for general release to
customers.
Recent Accounting Pronouncements
In December 2004, the FASB issued SFAS No. 123R (revised 2004)
"Share-Based Payment." SFAS No. 123R requires employee stock-based compensation
to be measured based on the grant-date fair value of the awards and the cost to
be recognized over the period during which an employee is required to provide
service in exchange for the award. The Statement eliminates the alternative use
of Accounting Principles Board (APB) No. 25's intrinsic value method of
accounting for awards, which is the company's accounting policy for stock
options. See Note 1 to the Consolidated Financial Statements for the pro forma
impact of compensation expense from stock options on net earnings and earnings
per share. SFAS No. 123R is effective for the Company's fiscal year beginning
July 1, 2006. The company will adopt the provisions of SFAS No. 123R on a
prospective basis. The financial statement impact will be dependent on future
stock-based awards and any unvested stock options outstanding at the date of
adoption.
In May 2005, the FASB issued SFAS No. 154, "Accounting Changes and
Error Correction - a replacement of APB No. 20 and SFAS No. 3, Reporting
Accounting Changes in Interim Financial Statements." SFAS 154 changes the
requirements for the accounting for and reporting of a change in accounting
principle. It also applies to changes required by an accounting pronouncement in
the unusual instance that the pronouncement does not include specific transition
provisions.
In March 2005, the FASB issued FASB Interpretation No. 47 (FIN 47)
"Accounting for Conditional Asset Retirement Obligations, an Interpretation of
FASB Statement No. 143." This Interpretation clarifies that a conditional
retirement obligation refers to a legal obligation to perform an asset
retirement activity in which the timing and (or) method of settlement are
conditional on a future event that may or may not be within the control of the
entity. The obligation to perform the asset retirement activity is unconditional
even though uncertainty exists about the timing and (or) method of settlement.
Accordingly, an entity is required to recognize a liability for the fair value
of a conditional asset retirement obligation if the fair value of the liability
can be reasonably estimated. The liability should be recognized when incurred,
generally upon acquisition, construction or development of the asset. FIN 47 is
21
effective no later than the end of fiscal years ending after December 15, 2005.
The Company is in the process of evaluating the impact of FIN 47 but does not
expect the adoption to have a material impact on the financial statements.
Interest Rate Risk
We currently have notes payable that accrue interest at a fixed rate.
We do not anticipate that a substantial amount of our future debt and the
associated interest expense will be subject to changes in the level of interest
rates. Increases in interest rates would result in incremental interest expense.
Inflation
We do not believe that inflation will negatively impact our business
plans.
BUSINESS OF PARK CITY GROUP, INC.
General
Park City Group develops and markets patented computer software and
profit optimization consulting services that are intended to help its retail
customers to reduce their inventory and labor costs; the two largest
controllable expenses in the retail industry. The technology has its genesis in
the operations of Mrs. Fields Cookies co-founded by Randall K. Fields, CEO of
Park City Group, Inc. Industry leading customers such as The Home Depot,
Anheuser Busch Entertainment, Perdue, Monterey Mushrooms, Pacific Sunwear, Wawa
and Tesco Lotus benefit from the Company's software. Because the product
concepts originated in the environment of actual multi-unit retail chain
ownership, the products are strongly oriented to an operations' bottom line
results.
The Company was incorporated in the State of Delaware on December 8,
1964 as Infotec, Inc. From June 20, 1999 to approximately June 12, 2001, it was
known as Amerinet Group.com, Inc. In 2001, the name was changed from Amerinet
Group.com to Fields Technologies, Inc. On June 13, 2001, the Company entered
into a "Reorganization Agreement" with Randall K. Fields and Riverview Financial
Corporation whereby it acquired substantially all of the outstanding stock of
Park City Group, Inc., a Delaware corporation, which became a 98.67% owned
subsidiary. Operations are conducted through this subsidiary which was
incorporated in the State of Delaware in May 1990. The Company develops and
licenses its software applications identified as "Fresh Market Manager", "Supply
Chain Profit Link", and "ActionManager(TM)". The Company also provides
implementation and profit optimization consulting services for its application
products.
On August 7, 2002, Fields Technologies, Inc., (OTCBB:FLDT) changed its
name from Fields Technologies, Inc., to Park City Group, Inc., and
reincorporated in Nevada. Therefore, both the parent-holding company (Nevada)
and its operating subsidiary (Delaware) are named Park City Group, Inc. Park
City Group, Inc. (Nevada) has no other business operations other than in
connection with its subsidiary. In this Registration Statement when the terms
"we", "Company" or "Park City Group" are used, it is referring to the Park City
Group, Inc., a Delaware corporation, as well as to Fields Technologies, Inc.,
the Delaware corporation, which was reincorporated in Nevada under the name of
the Park City Group, Inc. The stock trades under the symbol PKCY.
The principal executive offices are located at 3160 Pinebrook Road,
Park City, Utah 84098. The telephone number is (435) 645-2000. The website
address is http://www.parkcitygroup.com.
22
Supermarket
The Supermarket industry is under increased competitive pressure from
Value Retailers such as Wal-Mart, Costco, Target, and others. One of the
strategies that traditional supermarkets are implementing is to increase the
quantity and quality of their perishable offerings. Perishable departments, such
as bakery, meat and seafood, dairy, and deli have historically been loosely
managed but now have been forced to become a focus for profitability
improvement. The Company's software and consulting are designed to address this
specific business problem; increasing the profitability of perishable products.
Convenience Store
For Convenience Stores, recent trends of contracting gasoline margins
and declining tobacco sales increases the need for improved cost controls and
better decision support. To magnify their issues, other industry segments such
as value retailers and grocery stores are now cutting into the convenience store
stronghold by offering gasoline. To offset declining gasoline profits, the
C-Store industry is pushing into Fresh Food as an avenue of increased sales and
profitability. Only the most progressive convenience store operations have
automated systems to help store managers, leaving the majority of the operators
without any technology to ease their administrative and operations burdens.
Supplier
As stated above, Supermarkets and Convenience Stores are increasingly
dependent upon perishable departments for increased profitability. Suppliers are
increasingly being pressured by retailers to provide economic incentives or
assistance. Park City Group has developed Supply Chain Profit link to enable
suppliers to provide that assistance.
Specialty Retail
Specialty Retailers are faced with a shrinking labor force and strong
competition for qualified managers and staff. Managers are time-constrained due
to increased labor and inventory demands, margins are increasingly tight, due to
higher labor and lease expenses, and customer satisfaction demands are higher
than ever before. Park City Group has developed a range of applications that
enable managers in specialty retail to improve their labor scheduling efficiency
and reduce their total paperwork and administrative workload.
Fresh Market Manager
Addressing the inventory issues that plague today's retailers, Fresh
Market Manager is a suite of software product applications designed to help
manage perishable food departments including bakery, deli, seafood, produce,
meat, home meal replacement, dairy, frozen food, and floral. Although the
supermarket and convenience store industries have invested substantial sums on
Point-of-Sale, scanning systems, etc., those systems are, almost without
exception, limited to proving price look-up functions rather than decision
support functions. These industries are a classic representation of "data rich"
and "information poor". Park City Group is capitalizing on that environment to
bring together information from disparate legacy applications and databases to
provide an end-to-end integrated merchandising, production planning, demand
forecasting and perpetual inventory system to address the industry's perishable
department needs.
Fresh Market Manager helps identify true cost of goods and provides
accurate and actionable profitability data on a corporate, regional,
store-by-store, and/or item-by-item basis. Fresh Market Manager also can produce
23
hour-by-hour forecasts, production plans, perpetual inventory, and
places/receives orders. Fresh Market Manager automates the majority of the
planning, forecasting, ordering, and administrative functions associated with
fresh merchandise or products.
ActionManager(TM)
The second most important cost element typically facing today's
retailers is labor. ActionManager(TM) addresses labor needs by providing a suite
of solutions that forecast labor demand, schedules staff resources, and provides
store managers with the necessary tools to keep labor costs under control while
improving customer service, satisfaction and sales. Daily availability of this
information can help a retailer to address issues more quickly.
ActionManager applications provide an automated method for managers to
plan, schedule, and administer many of the administrative tasks including new
hire paperwork and time and attendance. In addition to automating most
administrative processes, ActionManager provides the local manager with a
"dashboard" view of the business. ActionManager also has extensive reporting
capabilities for corporate, field, and store-level management to enable improved
decision support.
Supply Chain Profit Link
Supply Chain Profit Link (SCPL) allows suppliers an opportunity to work
with their retail partners on optimizing profits, while reducing stock outs and
minimizing shrink (or waste). SCPL is capable of providing daily or weekly
store-by-store item level information to a supplier to facilitate decision
support. SCPL allows suppliers opportunities to customize assortment plans,
promotions, and pricing strategies on a store-by-store level.
Professional Services
Park City Group's Professional Services offering include project
management, technical implementation, and end-user training. In addition, Park
City Group offers a variety of traditional consulting services configured to
meet specific customer needs. Beyond these traditional services, Park City Group
provides consulting, including merchandising and store operations, that is
focused on the primary objective of helping customers to improve their
profitability through the full use of the Company's products.
Sales and Marketing
Through a focused and dedicated sales effort designed to address the
requirements of each of its business, Park City Group believes its sales force
is positioned to understand its customers' businesses, trends in the
marketplace, competitive products and opportunities for new product development.
The Company's deep industry knowledge enables it to take a consultative approach
in working with its prospects and customers. Park City Group's sales personnel
focus on selling its technology solutions to major customers, both domestically
and internationally.
To date, Park City Group's primary marketing objectives have been to
increase awareness of Park City Group's technology solutions and generate sales
leads. To this end, Park City Group attends industry trade shows, conducts
direct marketing programs, publishes industry trade articles and white papers,
participates in interviews, and selectively advertises in industry publications.
Customers
Our customers include some of the most notable names in retailing,
including: Schnuck's, Tesco-Lotus, Circle K Midwest, Home Depot, Wawa, Sheetz,
Williams-Sonoma, and others.
24
Competition
The market for Park City Group's products and services is very
competitive. Park City Group believes the principal competitive factors include
product quality, reliability, performance, price, vendor and product reputation,
financial stability, features and functions, ease of use, quality of support and
degree of integration effort required with other systems. While our competitors
are often larger companies with larger sales forces and marketing budgets, we
believe that our deep industry knowledge and the breadth and depth of our
offerings give us a competitive advantage. Park City Group's ability to
continually improve its products, processes and services, as well as its ability
to develop new products, enables the Company to meet evolving customer
requirements. Park City Group competes with companies such as Workbrain, Radient
Systems, Kronos, Tomax, Capgemini, Electronic Data Systems, and others.
Product Development
The products sold by the Company are subject to rapid and continual
technological change. Products available from the Company, as well as from its
competitors, have increasingly offered a wider range of features and
capabilities. The Company believes that in order to compete effectively in its
selected markets, it must provide compatible systems incorporating new
technologies at competitive prices. In order to achieve this, the Company has
made a substantial ongoing commitment to research and development.
Park City Group's product development strategy is focused on creating
common technology elements that can be leveraged in applications across its core
markets. The Company's software architecture is based on open platforms and is
modular, thereby allowing it to be phased into a customer's operations. In order
to remain competitive, Park City Group is currently designing, coding and
testing a number of new products and developing expanded functionality of its
current products.
Patents and Proprietary Rights
The Company owns and controls 9 U.S., 8 U.S. trademarks and 37 U.S.
copyrights relating to its software technology that are approved and issued. In
addition, the Company has 3 patents currently pending. The Company has 14
international patents and patent applications pending. The patents referred to
above are continuously reviewed and renewed as their expiration dates come due.
Company policy is 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 other confidential and proprietary
information. The Company intends to vigorously defend its intellectual property
rights to the extent its resources permit.
Future success may depend upon the strength of the Company's
intellectual property. Although management believes that the scope of
patents/patent applications are sufficiently broad to prevent competitors from
introducing devices of similar novelty and design to compete with the Company's
current products and that such patents and patent applications are or will be
valid and enforceable, there are no assurances that if such patents are
challenged, this belief will prove correct. The Company has, however,
successfully defended one of these patents in two separate instances and as
such, has some level of confidence in the Company's ability to maintain its
patents. In addition, patent applications filed in foreign countries and patents
granted in such countries are subject to laws, rules and procedures, which
differ from those in the U.S. Patent protection in such countries may be
different from patent protection provided by U.S. Laws and may not be as
favorable.
25
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,
the Company's resources may be diverted from other planned activities, and
result in a materially adverse effect on the Company's operations and financial
condition.
The Company relies on a combination of patent, copyright, trademark,
and other laws to protect its proprietary rights. There are no assurances that
the Company's attempted compliance with patent, copyrights, trademark or other
laws will adequately protect its proprietary rights or that there will be
adequate remedies for any breach of our trade secrets. In addition, should the
Company fail to adequately comply with laws pertaining to its proprietary
protection, the Company may incur additional regulatory compliance costs.
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.
Research and Development
Total research and development expenditures were $292,191 and
$1,019,411 for the years ended June 30, 2006 and 2005, respectively; a 71%
decrease. This comparative decrease is attributable to the capitalization of
software costs in accordance with Statement of Financial Accounting Standards
(SFAS) No. 86. The Company capitalized $613,717 in labor and overhead costs for
the Fiscal Year Ended, June 30, 2006 as a result of 1 new product development
and two significant enhancements that reached feasibility during 2006. The
Company anticipates this new product and 2 significant enhancements will be
available for sale in the later part of FYE 2007.
Reports to Security Holders
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934. Accordingly, it files annual, quarterly and
other reports and information with the Securities and Exchange Commission. You
may read and copy these reports and other information at the Securities and
Exchange Commission's public reference rooms in Washington, D.C. and Chicago,
Illinois. The Company's filings are also available to the public from commercial
document retrieval services and the Internet world wide website maintained by
the Securities and Exchange Commission at www.sec.gov.
Employees
As of January 4, 2007, the Company had 31 employees, including 10
software developers and programmers, 6 sales, marketing and account management
employees, 10 software service and support employees and 5 accounting and
administrative employees. During 2006 the Company has contracted with 4
programmers and one Business Analyst in India. The company is planning to expand
their Indian workforce in the future to support their sales in Asia and to
provide additional programming resources. All of these contractors work for the
Company on a full time basis. The international workforce is not represented by
any labor union.
26
DESCRIPTION OF PROPERTY
The Company has relocated its principal place of business operations
from 333 Main Street, Park City, UT to its new location at 3160 Pinebrook Road,
Park City, Utah. The Company leases approximately 10,000 square feet at this
home office location, consisting primarily of office space, conference rooms and
storage areas.
The Company entered into a lease with the Lessor 3160 Pinebrook LLC
which commenced on December 15, 2006. The Company has entered into the lease for
a period of 3 years, with an option to renew for additional 3 year increments.
The payment terms are based on a step-rate lease and are as follows:
Period Annualized Monthly
Year 1 $ 137,250.00 $ 11,437.50
Year 2 $ 141,367.50 $ 11,780.63
Year 3 $ 145,608.53 $ 12,134.04
LEGAL PROCEEDINGS
The Company has filed a lawsuit against Workbrain Corporation titled
Park City Group, Inc. vs. Workbrain Corporation Case No. 2:06 cv 289, which is
pending in the Federal District Court for the District of Utah. The Company
claims that Workbrain Corporation is infringing upon its patent # 5,111,391. The
Company will vigorously pursue this matter.
MANAGEMENT
The following table sets forth the name, address, age and position of
each officer and director of the Company:
Name Age Position - Committee
---------------------- ------------- -------------------------------------------
Randall K. Fields 59 Chief Executive Officer
Chairman of the Board and Director
William Dunlavy 51 Chief Financial Officer/Secretary
Thomas W. Wilson 74 Director
Edward C. Dmytryk 60 Director
Randall K. Fields has been the Chief Executive Officer, and Chairman of
the Board of Directors since June, 2001. Mr. Fields founded Park City Group,
Inc., a software development company based in Park City, Utah, in 1990 and has
been its President, Chief Executive Officer, and Chairman of the Board since its
inception in 1990. Mr. Fields has been responsible for the strategic direction
27
of Park City Group, Inc. since its inception. Mr. Fields co-founded Mrs. Fields
Cookies with his then wife, Debbi Fields. He served as Chairman of the Board of
Mrs. Fields Cookies from 1978 to 1990. In the early 1970's Mr. Fields
established a financial and economic consulting firm called Fields Investment
Group. Mr. Fields received a Bachelor of Arts degree in 1968 and a Masters of
Arts degree in 1970 from Stanford University, where he was Phi Beta Kappa,
Danforth Fellow and National Science Foundation Fellow.
William Dunlavy has been appointed CFO and Secretary as of August,
2004. Mr. Dunlavy joined Fresh Market Manager LLC in 1999 as its Chief Operating
Officer and continued in the same capacity with the acquisition of Fresh Market
Manager LLC in 2001. He has been responsible for the design of the business
functionality in the Fresh Market Manager product in addition to his business
operations activities for Park City Group. He was formerly the Chief Operating
Officer at Mrs. Fields Cookies, Director of Operations at Golden Corral Family
Restaurants, head of Fresh Foods at Harris Teeter, Inc. and head of Fresh Foods
at Raley's and Bel Air Supermarkets. He has also served as a board member of the
International Deli, Dairy, Bakery Association.
Thomas W. Wilson, Jr. has been a director since August, 2001. From 1995
to 1999, Mr. Wilson was the Chairman of the Board Information Resources, Inc., a
Chicago, Illinois-based provider of point-of-sale information based business
solutions to the consumer packaged goods industry. From 1998 to 1999, Mr. Wilson
was the Interim Chief Executive Officer of Information Resources, Inc. From 1966
to 1990, Mr. Wilson was employed in various capacities with McKinsey & Co., a
management consulting company. In 1968, Mr. Wilson was elected a Partner of
McKinsey and Co., and in 1972 he was elected a Senior Partner. Mr. Wilson
received a Bachelor of Arts Degree from Dartmouth College and a Masters of
Business Administration Degree from the Wharton School of the University of
Pennsylvania.
Edward C. Dmytryk has been a director since June, 2000. In October
2002, Mr. Dmytryk took on additional responsibilities as acting Chief Financial
Officer and as such resigned from the Audit Committee. He served in this
capacity until June 2003. Later in 2003, Mr. Dmytryk became the Chief Executive
Officer of Safescript Pharmacies, Inc (SAFS) due to a request by the Safescript
Pharmacies, Inc. Board of Directors to restructure the company during a
liquidity crisis and a SEC investigation. He restructured the company and helped
arranged the sale of assets to a group of interested investors. He remains the
CEO due to the complications of the sale and the damage caused by hurricane
Katrina in New Orleans where 3 operating pharmacies were located. Currently, Mr.
Dmytryk is the CEO of RxPert, Inc., a Pharmacy company located in Ponte Vedra,
Florida. Mr. Dmytryk graduated Summa Cum Laude from the Citadel, the Military
College of South Carolina in 1968 with a Bachelor of Science Degree and was an
Instructor Pilot in the United States Air Force.
Our Executive Officers are elected by the Board on an annual basis and
serve at the discretion of the Board.
Compliance with Section 16(a)
Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires the Company's directors and executive officers, and persons who
beneficially own more than 10% of a registered class of the Company's equity
securities, to file reports of beneficial ownership and changes in beneficial
ownership of the Company's securities with the SEC on Forms 3 (Initial Statement
of Beneficial Ownership), 4 (Statement of Changes of Beneficial Ownership of
Securities) and 5 (Annual Statement of Beneficial Ownership of Securities).
Directors, executive officers and beneficial owners of more than 10% of the
Company's Common Stock are required by SEC regulations to furnish the Company
with copies of all Section 16(a) forms that they file. The Company believes
that, during the year ended December 31, 2004, the Reporting Persons met all
applicable Section 16(a) filing requirements
28
Code of Ethics
The company adopted their code of ethics by unanimous board of
directors vote in our October 2005 Board Meeting and is included by reference
herein in Item 27, Exhibits.
Committees of the Board of Directors
Our board of directors has an audit committee, a compensation committee
and a nominating and corporate governance committee, each of which has the
composition and responsibilities described below:
Audit Committee. The audit committee provides assistance to the board
of directors in fulfilling its legal and fiduciary obligations in matters
involving our accounting, auditing, financial reporting, internal control and
legal compliance functions by approving the services performed by our
independent accountants and reviewing their reports regarding our accounting
practices and systems of internal accounting controls. The audit committee also
oversees the audit efforts of our independent accountants and takes those
actions as it deems necessary to satisfy itself that the accountants are
independent of management. The audit committee currently consists of Edward C.
Dmytryk (Chairman) and Thomas W. Wilson Jr., each of whom is a non-management
member of our board of directors. Edward C. Dmytryk is also our audit committee
financial expert as currently defined under Securities and Exchange Commission
rules. We believe that the composition of our audit committee meets the criteria
for independence under, and the functioning of our audit committee complies with
the applicable requirements of, the Sarbanes-Oxley Act of 2002, the current
rules of the Over-the-Counter Bulletin Board Stock Market and Securities and
Exchange Commission rules and regulations. We intend to comply with future audit
committee requirements as they become applicable to us.
Compensation Committee. The compensation committee determines our
general compensation policies and the compensation provided to our directors and
officers. The compensation committee also reviews and determines bonuses for our
officers and other employees. In addition, the compensation committee reviews
and determines equity-based compensation for our directors, officers, employees
and consultants and administers our stock option plans and employee stock
purchase plan. The current member of the compensation committee is Thomas W.
Wilson Jr. (Chairman), and Edward C. Dmytryk, each of whom is a non-management
member of our board of directors. We believe that the composition of our
compensation committee meets the criteria for independence under, and the
functioning of our compensation committee complies with the applicable
requirements of, the Sarbanes-Oxley Act of 2002, the current rules of the
Over-the-Counter Bulletin Board Stock Market and Securities and Exchange
Commission rules and regulations. We intend to comply with future compensation
committee requirements as they become applicable to us.
Nominating and Corporate Governance Committee. The nominating and
corporate governance committee is responsible for making recommendations to the
board of directors regarding candidates for directorships and the size and
composition of the board. In addition, the nominating and corporate governance
committee is responsible for overseeing our corporate governance guidelines and
reporting and making recommendations to the board concerning corporate
governance matters. The current members of the nominating and governance
committee are Randall K Fields (Chairman), and Edward C. Dmytryk. We believe
that the composition of our nominating and governance committee meets the
criteria for independence under, and the functioning of our nominating and
corporate governance committee complies with the applicable requirements of, the
Sarbanes-Oxley Act of 2002, the current rules of the Over-the-Counter Bulletin
Board Stock Market and Securities and Exchange Commission rules and regulations.
We intend to comply with future nominating and corporate governance committee
requirements as they become applicable to us.
29
MANAGEMENT COMPENSATION
The following table sets forth the aggregate cash compensation paid by
the Company for services rendered during the last three years to the Company's
Chief Executive Officer and to the Company's most highly compensated executive
officers other than the CEO, whose annual salary and bonus exceeded $100,000:
SUMMARY COMPENSATION TABLE
Annual Compensation Long-Term Compensation Awards
----------------------------------------------- --------------------------------------------
Restricted Securities LTIP
Year/ Other Annual Stock Awards Underlying Payouts
Name and Principal Position Period Salary ($) Bonus ($) Compensation ($) ($) Options/SARs (#) ($)
------------------------------ -------- -------------- ------------- ------------------ -------------- ------------------ ----------
Randall K. Fields 2006 279,167* - 71,126 (1) 45,833 - -
Chairman and CEO 2005 317,500* - 61,037 (1) 50,000 - -
2004 317,500* 4,377 46,760 (1) 50,000 - -
James Horton 2006 243,750** - - - -
President and COO 2005 270,833** - - - 416,823 -
William Dunlavy 2006 197,625 - (2) 22,500 -
CFO 2005 198,958 - - - 338,601 -
2004 100,000 4,377 - 50,000 - -
* A significant part of Mr. Fields compensation is paid to a management company
wholly owned by Mr. Fields. Effective October 2002, Mr. Fields agreed to a
voluntary reduction of cash compensation in exchange for restricted stock.
** Mr. Horton joined the company in September 2004 and resigned March 2006.
(1) These amounts include premiums paid on Life Insurance policies of $52,958,
$46,622 and $27,614 for 2006, 2005 and 2004, respectively, Company car
related expenses of $15,347, $13,003 and $14,880 for 2006, 2005 and 2004,
respectively; and medical premiums of $2,821 and $1,412 for 2006 and 2005,
respectively.
(2) 80,000 warrants were granted to Mr. Dunlavy effective June 30, 2006
incorporated by reference. See Exhibit 10.11.
Stock Options and Warrants Granted in the Last Fiscal Year
The following table sets forth information on grants of options to
purchase shares of our common stock in fiscal year 2006 to our officers and
directors.
Individual Grants
--------------------------------------------------------------------------------
Number of Securities % of Total Options and
Underlying Options and Warrants Granted to Exercise
Warrants Granted Employees in Fiscal Price Expiration Date
Name Year ($/Sh)(1)
- ------------------------------------ ------------------------ ------------------------ ------------- ----------------
William Dunlavy 80,000 86% $3.25 06/30/2011
Edward Dmytryk 6,667 7% $3.00 01/01/2008
Thomas Wilson 6,667 7% $3.00 01/01/2008
(1) The exercise price was equal to 100% of the fair market value on the date of grant.
30
Aggregated Option and Warrant Exercises in Last Fiscal Year and Fiscal Year-end
Option and Warrant Values
Securities Underlying Value of Unexercised
Shares Acquired on Value June Unexercised Options and Warrant In-the-Money Options at June
30, 2006 at June 30, 2006 30, 2006
Name Exercise (#) Realized ($) Exercisable Unexercisable Exercisable Unexercisable
- ---- ------------ ------------ ----------- ------------- ----------- -------------
James Horton - N/A 128,571 - N/A -
Riverview Financial(1) - N/A 175,232 - 175,232.28 -
William Dunlavy - N/A 10,000 - 15,000.00 -
William Dunlavy - N/A 6,772 - N/A -
William Dunlavy - N/A 80,000 - N/A -
(1) Riverview Financial is an affiliate of Mr. Fields.
Employment Agreement
Park City Group has an employment agreement with its chief executive
officer, Randall K. Fields, dated July 1, 2005 The compensation for Mr. Fields,
under the terms of the agreement, provides for a portion of the compensation to
be provided pursuant to an employment agreement and the balance to be provided
pursuant to the terms of a services agreement between the Company and Fields
Management, Inc., an executive management services provider, a company wholly
owned by Mr. Fields. The term of the two agreements is five years ending June
30, 2008, with automatic one-year renewals. The combined agreements provide for:
o An annual base compensation of $350,000. Effective October 2002,
voluntary reduction of cash compensation, reduction paid in
restricted stock,
o Use of a company vehicle,
o Employee benefits that are generally provided to Park City Group,
Inc. employees, and
o A bonus to be determined annually by the Compensation Committee of
the Board of Directors.
Park City Group had an employment agreement with its President and
chief operating officer, James Horton, dated effective September 1, 2004. Mr.
Horton resigned from the Company on March 31, 2006. This agreement provided Mr.
Horton with the following compensation:
o An annual base compensation of $325,000,
o An annual bonus based on the percent of his base pay that is equal
to the revenue growth of the Company provided that the company's
revenue grows at least 25% and that the pretax profits grow at an
equal or greater percent, 1/2 of this bonus will be paid in cash and
1/2 will be paid in stock,
o Employee benefits that are generally provided to Park City Group,
Inc. employees, and
o Stock options equal to 3 to 1 for each share of stock purchased at a
cost of $3.50 or the current market price, which ever is higher,
through September 30, 2005 with an exercise price of $3.50 or the
current market price, which ever is higher,
o Stock options equal to 2 to 1 for each share of stock purchased at a
cost of $3.50 or the current market price, which ever is higher,
$3.50 or the current market price, which ever is higher, there
after.
Park City Group has an employment agreement with its Chief Financial
Officer, William Dunlavy, dated effective July 1, 2006. This agreement provides
Mr. Dunlavy with the following compensation:
o An annual base compensation of $225,000,
o Employee benefits that are generally provided to Park City Group,
Inc. employees,
o Participation in Senior Executive Bonus Plan, and
31
o Stock options equal to 2 to 1 for each share of stock purchased,
with an exercise price of $3.50 or the current market price, which
ever is higher.
Director Compensation
The continuing outside directors, Edward C. Dmytryk, and Thomas W.
Wilson, Jr., receive the following compensation:
Annual cash compensation of $10,000 payable at the rate of $2,500 per
quarter. The Company has the right to pay this amount in the form of
shares of Company Stock.
Annual options to purchase $20,000 of the Company restricted common
stock at the market value of the shares on the date of the grant, which
is to be the first day the stock market is open in January of each
year.
401(k) Retirement Plan.
The Company offers an employee benefit plan under Benefit Plan Section
401(k) of the Internal Revenue Code. Employees who have attained the age of 21
are immediately eligible to participate. The Company, at its discretion, matches
50% of the first 4% of each employee's contributions. No matching contribution
has been made after September 30, 2002.
Indemnification for Securities Act Liabilities
Nevada law authorizes, and the Company's Bylaws and Indemnity
Agreements provide for, indemnification of the Company's directors and officers
against claims, liabilities, amounts paid in settlement and expenses in a
variety of circumstances. Indemnification for liabilities arising under the Act
may be permitted for directors, officers and controlling persons of the Company
pursuant to the foregoing or otherwise. However, the Company has been advised
that, in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable.
Stock Options and Warrants
The Company has stock option plans that enable it to issue to officers,
directors, consultants and employees nonqualified and incentive options to
purchase common stock. At June 30, 2006, a total of 93,288 of such options were
outstanding with exercise prices ranging from $1.50 to $7.00 per share.
At June 30, 2006 a total of 896,837 warrants to purchase shares of
common stock were outstanding. Of those warrants, 506,448 were issued in
connection with certain debt financings; 128,571 were issued in connection with
an equity investment by an officer; 181,818 were issued as a commission for
placement of equity securities; and 80,000 were issued to an officer as
additional compensation. These warrants have exercise prices ranging from $2.00
to $3.65 per share and expire between August 16, 2007 and June 30, 2011.
Compensation Committee Interlocks and Insider Participation
No executive officers of the Company serve on the Compensation
Committee (or in a like capacity) for the Company or any other entity.
32
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The following table sets forth information regarding shares of our
common stock beneficially owned as of January 4, 2007 by: (i) each of our
officers and directors; (ii) all officers and directors as a group; and (iii)
each person known by us to beneficially own five percent or more of the
outstanding shares of our common stock.
Common Stock Common Stock
Options Purchase Warrant Total Stock and
Exercisable Exercisable Stock Based
Name Common Stock Within 60 Days Within 60 days Holdings (1) % Ownership (1)
- -------------------------- --------------- ------------------ ------------------ ------------------ ------------------
Randall K. Fields(2)(4) 4,157,114 - 175,232 4,332,346 48.51%
Riverview Financial,
Corp. (3) 4,157,114 - 175,232 4,332,346 48.51%
William Dunlavy(4) 35,542 16,772 80,000 132,314 1.49%
Edward C. Dmytryk(4) 27,973 24,167 - 52,140 *
Thomas W. Wilson(4) 200,204 24,167 75,847 300,218 3.37%
* Less than 1%
(1) For purposes of this table "beneficial ownership" is determined in
accordance with Rule 13d-3 of the Securities Exchange Act of 1934, pursuant
to which a person or group of persons is deemed to have "beneficial
ownership" of any common shares that such person or group has the right to
acquire within 60 days after January 4, 2007. For purposes of computing
the percentage of outstanding common shares held by each person or group of
persons named above, any shares that such person or group has the right to
acquire within 60 days after January 4, 2007, are deemed outstanding but
are not deemed to be outstanding for purposes of computing the percentage
ownership of any other person or group. As of January 4, 2007, there were
8,930,766 shares of our common stock issued and outstanding. There were
also outstanding options, and warrants entitling the holders to purchase
407,185 shares of our common stock owned by officers and/or directors of
Park City Group.
(2) Includes 3,660,908 shares of common stock and 175,232 warrants to purchase
common shares held in the name of Riverview Financial Corp. of which
Randall K Fields is the beneficial owner.
(3) Includes 487,206 shares of common stock held in the name of Randall K.
Fields. Riverview Financial Corp. is beneficially controlled by Randall K.
Fields.
(4) These are the officers and directors of Park City Group.
DESCRIPTION OF SECURITIES
We are authorized to issue up to 50,000,000 shares of common stock,
$.01 par value and 30,000,000 shares of preferred stock, $.01 Par value. As of
October 20, there were 8,930,766 shares of our common stock issued and
outstanding and no shares of preferred stock issued or outstanding. The total
shares outstanding reflect the results of a 1-for-50 reverse stock split made
effective August 11, 2006. The following is a summary of the material rights and
privileges of our common stock and preferred stock.
33
Common Stock
Subject to the rights of the holders of any preferred stock that may be
outstanding, each holder of common stock on the applicable record date is
entitled to receive such dividends as may be declared by the Board of Directors
out of funds legally available therefore, and in the event of liquidation, to
share pro rata in any distribution of our assets after payment, or providing for
the payment, of liabilities and the liquidation preference of any outstanding
preferred stock. Each holder of common stock is entitled to one vote for each
share held of record on the applicable record date on all matters presented to a
vote of stockholders, including the election of directors. Holders of common
stock have no cumulative voting rights or preemptive rights to purchase or
subscribe for any stock or other securities. Except as disclosed herein, there
are no conversion rights or redemption or sinking fund provisions with respect
to the common stock. All outstanding shares of common stock are, and the shares
of common stock offered hereby will be, when issued, fully paid and
nonassessable.
Preferred Stock
Our Board of Directors is empowered, without approval of the
stockholders, to cause shares of preferred stock to be issued in one or more
series, with the numbers of shares of each series to be determined by the Board.
The Board of Directors is also authorized to fix and determine variations in the
designations, preferences, and special rights (including, without limitation,
special voting rights, preferential rights to receive dividends or assets upon
liquidation, rights of conversion into common stock or other securities,
redemption provisions and sinking fund provisions) between the preferred stock
or any series thereof and the common stock. The shares of preferred stock or any
series thereof may have full or limited voting powers or be without voting
powers.
Although we have no present intent to issue shares of preferred stock,
the issuance of shares of preferred stock, or the issuance of rights to purchase
such shares, could be used to discourage an unsolicited acquisition proposal.
For instance, the issuance of a series of preferred stock might impede a
business combination by including class voting rights that would enable the
holders to block such a transaction, or such issuance might facilitate a
business combination by including voting rights that would provide a required
percentage vote of the stockholders. In addition, under certain circumstances,
the issuance of preferred stock could adversely affect the voting power of the
holders of the common stock. Although the Board of Directors is required to make
any determination to issue such stock based on its judgment as to the best
interests of our stockholders, the Board of Directors could act in a manner that
would discourage an acquisition attempt or other transaction that some or a
majority of the stockholders might believe to be in their best interests or in
which stockholders might receive a premium for their stock over the then market
price of such stock.
Transfer Agent
Our transfer agent is Liberty Transfer Co telephone (631) 385-1616.
Warrants
We are registering 816,837 shares of common stock underlying warrants
as part of this Prospectus. The warrants vary in exercise price from $2.00 to
$3.65 and have terms expiring from August 16, 2007 to June 21, 2011. The number
of shares and price at which the warrants are exercisable is subject to
adjustment in certain events, such as mergers, reorganizations or stock splits,
to prevent dilution. If one of these events occurs, the number of shares into
which the warrants may be converted and the exercise price will be adjusted as
needed to ensure that the warrant holder continues to have the right to receive
a comparable number of shares or cash consideration as the holder would have
received had the holder already exercised its warrant prior to the event. The
warrants have no price protection features, and may not be redeemed by the
Company.
34
COMMISSION'S POSITION ON INDEMNIFICATION FOR SECURITIES ACT LIABILITIES
We are a Nevada corporation. Our Certificate of Incorporation will
provide to the fullest extent permitted under Section 78.138 of the Nevada
Revised Statutes, that our directors or officers shall not be personally liable
to us or our shareholders for damages for breach of such director's or officer's
fiduciary duty. The effect of this provision of our Articles of Incorporation,
as amended and restated, is to eliminate our rights and our shareholders' rights
(through shareholders' derivative suits on behalf of our company) to recover
damages against a director or officer for breach of the fiduciary duty of care
as a director or officer (including breaches resulting from negligent or grossly
negligent behavior), except under certain situations defined by statute. We
believe that the indemnification provisions in our Articles of Incorporation, as
amended, are necessary to attract and retain qualified persons as directors and
officers.
Our Bylaws also provide that the Board of Directors may also authorize
us to indemnify our employees or agents, and to advance the reasonable expenses
of such persons, to the same extent, following the same determinations, and upon
the same conditions as are required for the indemnification of, and advancement
of, expenses to our directors and officers. As of the date of this Registration
Statement, the Board of Directors has not extended indemnification rights to
persons other than directors and officers.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers or persons controlling us
pursuant to the foregoing provisions, or otherwise, we have been advised that in
the opinion of the Securities and Exchange Commission, such indemnification is
against public policy as expressed in the Securities Act of 1933 and is,
therefore, unenforceable.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company had a note payable to Riverview Financial Corporation
(Riverview), in the principal amount of $3,296,406 at June 30, 2005 with accrued
interest of $841,995. The chief executive of Riverview is also the chief
executive of the Company. In June 2004, the Company issued 49,600 shares of
common stock to Riverview to subordinate to the extended Whale Investments note.
In March 2006 the note payable and accrued interest of $294,334 were converted
to 1,324,693 shares of common stock. The remaining $981,149 of accrued interest
was paid with cash proceeds from the note payable funding from a bank.
Riverview has loaned the Company $345,000 under a note payable bearing
interest at 18%. Payments are made monthly for interest only, with the principal
due in December 2005. Riverview was issued 17,143 shares of common stock as an
inducement to make the loan. The note was extended in June 2004 to December 2005
and again in January 2006 to December 2006. The loan was retired with cash
proceeds form the note payable funding from a bank in March 2006.
The Company's CEO has made loans to the Company through Riverview
Financial Corp. a wholly owned entity, to cover short term cash needs pursuant
to a line of credit promissory note payable. Repayments are made as funds are
available, with an extended due date of June 15, 2007 and interest is at 12%. In
February 2006, the line of credit the company had with Riverview was cancelled
and reissued in the amount of $800,000. The reissued line of credit carries an
interest rate of 12% with a per draw fee of $1,000 for draws on the line. The
extended due date of June 15, 2007 remained the same. There was no balance due
under the line of credit at September 30, 2006.
In December 2002 the Company obtained a $2,000,000 note payable funding
from Whale Investment, Ltd. The note bears interest at 18%, payable monthly, and
is due in December 2005, as extended. Whale Investment, Ltd. is controlled by an
individual who was already a shareholder of the Company at the time of the loan.
The extended note is due December 2005 and the Company paid to Whale Investments
$40,000 in cash and 20,000 in common stock valued at $80,000 as consideration
for the extension. The loan was retired with cash generated from operations in
August 2005.
35
FINANCIAL STATEMENTS
See the Condensed Consolidated Financial Statements beginning on page
F-1, "Index to Consolidated Financial Statements."
PLAN OF DISTRIBUTION
The selling stockholders and any of their respective pledgees, donees,
assignees, and other successors-in-interest may, from time to time, sell any or
all of their shares of common stock on any stock exchange, market, or trading
facility on which the shares are traded or in private transactions. These sales
may be at fixed or negotiated prices. The selling stockholders may use any one
or more of the following methods when selling shares:
o ordinary brokerage transactions and transactions in which the
broker-dealer solicits the purchaser;
o block trades in which the broker-dealer will attempt to sell the
shares as agent but may position and resell a portion of the block
as principal to facilitate the transaction;
o purchases by a broker-dealer as principal and resale by the
broker-dealer for its account;
o an exchange distribution in accordance with the rules of the
applicable exchange;
o privately-negotiated transactions;
o broker-dealers may agree with the selling stockholders to sell a
specified number of such shares at a stipulated price per share;
o a combination of any such methods of sale; and
o any other method permitted pursuant to applicable law.
The selling stockholders may also sell shares under Rule 144 under the
Securities Act, if available, or Regulation S, rather than under this
prospectus. The selling stockholders shall have the sole and absolute discretion
not to accept any purchase offer or make any sale of shares if they deem the
purchase price to be unsatisfactory at any particular time.
The selling stockholders or their respective pledgees, donees,
transferees, or other successors in interest, may also sell the shares directly
to market makers acting as principals and/or broker-dealers acting as agents for
themselves or their customers. Such broker-dealers may receive compensation in
the form of discounts, concessions, or commissions from the selling stockholders
and/or the purchasers of shares for whom such broker-dealers may act as agents
or to whom they sell as principal or both, which compensation as to a particular
broker-dealer might be in excess of customary commissions. Market makers and
block purchasers purchasing the shares will do so for their own account and at
their own risk. It is possible that a selling stockholder will attempt to sell
shares of common stock in block transactions to market makers or other
purchasers at a price per share which may be below the then market price. The
selling stockholders cannot assure that all or any of the shares offered in this
prospectus will be issued to, or sold by, the selling stockholders. The selling
stockholders and any brokers, dealers, or agents, upon effecting the sale of any
36
of the shares offered in this prospectus, may be deemed to be "underwriters" as
that term is defined under the Securities Act of 1933, as amended, or the
Securities Exchange Act of 1934, as amended, or the rules and regulations under
such acts. In such event, any commissions received by such broker-dealers or
agents and any profit on the resale of the shares purchased by them may be
deemed to be underwriting commissions or discounts under the Securities Act.
We are required to pay all fees and expenses incident to the
registration of the shares, including fees and disbursements of counsel to the
selling stockholders, but excluding brokerage commissions or underwriter
discounts.
The selling stockholders, alternatively, may sell all or any part of
the shares offered in this prospectus through an underwriter. No selling
stockholder has entered into any agreement with a prospective underwriter and
there is no assurance that any such agreement will be entered into.
The selling stockholders may pledge their shares to their brokers under
the margin provisions of customer agreements. If a selling stockholders defaults
on a margin loan, the broker may, from time to time, offer and sell the pledged
shares. The selling stockholders and any other persons participating in the sale
or distribution of the shares will be subject to applicable provisions of the
Securities Exchange Act of 1934, as amended, and the rules and regulations under
such act, including, without limitation, Regulation M. These provisions may
restrict certain activities of, and limit the timing of purchases and sales of
any of the shares by, the selling stockholders or any other such person. In the
event that the selling stockholders are deemed affiliated purchasers or
distribution participants within the meaning of Regulation M, then the selling
stockholders will not be permitted to engage in short sales of common stock.
Furthermore, under Regulation M, persons engaged in a distribution of securities
are prohibited from simultaneously engaging in market making and certain other
activities with respect to such securities for a specified period of time prior
to the commencement of such distributions, subject to specified exceptions or
exemptions.
We have agreed to indemnify the selling stockholders, or their
transferees or assignees, against certain liabilities, including liabilities
under the Securities Act of 1933, as amended, or to contribute to payments the
selling stockholders or their respective pledgees, donees, transferees, or other
successors in interest, may be required to make in respect of such liabilities.
If the selling stockholders notify us that they have a material
arrangement with a broker-dealer for the resale of the common stock, then we
would be required to amend the registration statement of which this prospectus
is a part, and file a prospectus supplement to describe the agreements between
the selling stockholders and the broker-dealer.
SELLING SECURITY HOLDERS
The Selling Stockholders include (i) 100 accredited investors who
purchased 1,818,149 shares of our commons stock in a private placement
transaction that closed in June 2006; (ii) 1,324,693 shares of our common stock
issued to Riverview Financial Corporation, an affiliate of Randall K. Fields,
our Chief Executive Officer as consideration for conversion of a note payable
and accrued interest in the amount of $3,179,263 and $294,334, respectively as
reported in the 10QSB March 31, 2006; (iii) 635,019 shares of our common stock
underlying warrants owned by various warrant holders in accordance with
piggy-back registration rights; and (iv) 181,818 shares of our common stock
underlying warrants issued to Taglich Brothers, Inc., the placement agent of our
June 2006 private offering transaction. The shares of common stock sold in the
June 2006 private Offering were sold at a price of $2.75 per share. We received
a total of $5,000,000 of gross proceeds in the offering. In connection with the
June 2006 Private Offering, we hired Taglich Brothers, Inc. as our placement
agent. We paid Taglich Brothers, Inc. a cash placement fee of 8% of the total
offering proceeds or $400,000 as well as a conversion exchange of one warrant
for every ten shares issued as a result of the private placement.
This prospectus is part of a registration statement filed by us with
the Securities and Exchange Commission under the Securities Act of 1933, as
amended (the "Securities Act"), covering the resale of such shares of our common
stock from time to time by the selling stockholders.
37
The securities are being offered by the named selling security holders
below. There is no Preferred Stock issued at this time and the table below
assumes the exercise of all warrants to purchase common stock owned by the
selling stockholders. These factors include, but are not limited to, the other
rights associated with the terms of the warrant agreements, whether there is a
specific exemption to registration under federal and state securities laws for
the exercise, and the specific exercise price of the securities held by each
selling security holder and its relation to the market price.
The selling stockholders may from time to time offer and sell, pursuant
to this prospectus, up to an aggregate of 3,959,679 shares of our common stock
underlying the shares of Preferred Stock now owned by them. The selling security
holders may, from time to time, offer and sell any or all of the shares that are
registered under this prospectus, although they are not obligated to do so.
We do not know when or in what amounts the selling stockholders may
offer the shares described in this prospectus for sale. The selling security
holders may decide not to sell any of the shares that this prospectus covers.
Because the selling security holders may offer all or some of the shares
pursuant to this prospectus, and because there are currently no agreements,
arrangements, or understandings with respect to the sale of any of the shares
that the selling stockholders will hold after completion of the offering, we
cannot estimate the number of the shares that the selling stockholders will hold
after completion of the offering. For purposes of the following tables, we have
assumed that, after completion of the offering, the selling security holders
will sell all of the securities that this Prospectus covers.
Number of Shares Percentage of
of Common Stock Number of Shares Shares of Common
Owned Before Number of Shares Owned After Stock Owned After
Name Offering (1) to Be Offered (2) Offering Offering
----------------------------------------------------------- ------------------ ----------------- ----------------- -----------------
Riverview Financial Corp. (3)(27) 4,332,346 1,499,925 2,832,421 31.72%
Hillson Partnership, LP (4)(5) 218,181 218,181 - -
E.H. Arnold (4) 145,454 145,454 - -
Anthony Meyer (6)(27) 215,895 135,478 80,417 -
James Horton (7) 174,207 128,571 45,636 *
Michael N. Taglich (4)(8) 138,091 138,091 - -
Thomas Wilson (9)(27) 300,218 75,847 224,371 2.5%
Nite Capital LP (4)(10) 72,727 72,727 - -
Shadow Capitol LLC; Attn: B. Kent Garlinghouse (4)(11) 72,727 72,727 - -
Robert F. Taglich (4)(12) 120,958 120,958 - -
John Bertsch Trust; John Bertsch Trustee (4) 56,000 56,000 - -
Bernard Brennan (13)(27) 259,920 55,970 203,950 2.4%
Paul Higbee (14)(27) 89,508 55,970 33,538 -
Robert C. Schroeder (15) 40,000 40,000 - -
Guerino Deluca & Francis Deluca JT/WROS (4) 36,363 36,363 - -
Gary Arnold and Patricia Arnold Ten Com (4) 36,363 36,363 - -
Polaris Partners, LP. (4)(16) 36,363 36,363 - -
Ashok Kumar Narang (4) 36,363 36,363 - -
Sep FBO Ed Brody Pershing LLC as Custodian (4) 27,272 27,272 - -
Michael E. and Naoma T. Cahr (4) 27,000 27,000 - -
Dennis Fortin (4) 20,000 20,000 - -
38
Number of Shares Percentage of
of Common Stock Number of Shares Shares of Common
Owned Before Number of Shares Owned After Stock Owned After
Name Offering (1) to Be Offered (2) Offering Offering
----------------------------------------------------------- ------------------ ----------------- ----------------- -----------------
Sara Bower Penn Ttee. Sara Bower Penn Living Trust DTD
4/30/02 (4) 20,000 20,000 - -
Philip Baroni & Rachel Baroni Trust DTD 8/1/95 (4) 18,181 18,181 - -
Robert Louis Fisher & Carroll Fisher JT Ten Wros (4) 18,181 18,181 - -
Roger W. Lunstra (4) 18,181 18,181 - -
Robert W. Allen & Susan M. Allen JT/Wros (4) 18,181 18,181 - -
William C. Steele Ttee. William C. Steele Living Trust 18,181 18,181
UAD 5/11/98 (4) - -
Robert Edmondson (4) 18,181 18,181 - -
Paul R. Winter (4) 18,181 18,181 - -
David A. Random (4) 18,181 18,181 - -
Eugene Szczepanski (4) 18,181 18,181 - -
Norper Investments (4)(17) 18,181 18,181 - -
Leo Jones (4) 18,181 18,181 - -
Robert L. Debruyn Trust UAD 10/5/94 Robert L. Debruyn & 18,181 18,181
Tracey H. Debruyn Ttee. (4) - -
Tracey H. Debruyn Trust UAD 10/5/94 Tracey H. Debruyn & 18,181 18,181
Robert Debruyn Ttee. (4) - -
Richard Buchakjian (4) 18,181 18,181 - -
IRA FBO David Random Pershing LLC as Custodian (4) 18,181 18,181 - -
Ira Fbo Starr F. Schlobohm Pershing LLC as Custodian 18,181 18,181
Rollover Account (4) - -
James R. Foutch (4) 18,181 18,181 - -
Howard Smith (4) 18,181 18,181 - -
Allen R. Rowland (4) 18,181 18,181 - -
Andrew K. Light (4) 18,181 18,181 - -
Matthew A. Keefer (4) 18,181 18,181 - -
Shirley J. Lewis & Guy W. Lewis Co-Ttee. The Shirley J.
Lewis Rev. Trust U A DTD 6/26/01 (4) 18,000 18,000 - -
Andrew M. Schatz & Barbara F. Wolf JTWROS (4) 16,000 16,000 - -
Thomas J. Bean (4) 16,000 16,000 - -
Spahr-Derebery Family Trust & A/D 10/11/90 Gregory E.
Spahr & M. Jennifer Derebery Ttee. (4) 14,545 14,545 - -
IRA FBO Kenneth W. Cleveland Pershing LLC as Custodian
Rollover Account (4) 14,545 14,545 - -
Douglas E. Hailey (18) 13,636 13,636 - -
Douglas Friedrich & Melanie Friedrich JT/WROS (4) 12,000 12,000 - -
Lawrence D. Feldhacker (4) 12,000 12,000 - -
Glenn R. Hubbard (4) 10,909 10,909 - -
Stephen Hughes (4) 10,909 10,909 - -
39
Number of Shares Percentage of
of Common Stock Number of Shares Shares of Common
Owned Before Number of Shares Owned After Stock Owned After
Name Offering (1) to Be Offered (2) Offering Offering
----------------------------------------------------------- ------------------ ----------------- ----------------- -----------------
Vincent M. Palmieri (19) 10,000 10,000 - -
Richard Oh (20) 10,000 10,000 - -
Robert D. Vanroijen Jr. Trust U A DTD 12/14/82 Robert D.
Vanroijen Ttee. (4) 10,000 10,000 - -
P. Kenneth Nitz (4) 9,090 9,090 - -
Paul G. Detkin (4) 9,090 9,090 - -
Lucille Solomon (4) 9,090 9,090 - -
Maurice Solomon (4) 9,090 9,090 - -
Wafgal Limited (4)(21) 9,090 9,090 - -
Michael P. Hagerty (4) 9,090 9,090 - -
Steven A. Boggs (4) 8,000 8,000 - -
Louis and Judith Miller Family Trust; Lois & Judith
Miller Ttees. (4) 8,000 8,000 - -
StevenJ. Dennis (4) 8,000 8,000 - -
Randall s. Knox (4) 8,000 8,000 - -
Richard S. Benson (4) 8,000 8,000 - -
Corbet L. Clark, Jr. (4) 8,000 8,000 - -
Mark L. Rochester (4) 8,000 8,000 - -
A.F. Lehmkuhl (4) 8,000 8,000 - -
Patricia Tschohl Tod DTD 05/04/06 (4) 8,000 8,000 - -
Frank M. Elliott (4) 8,000 8,000 - -
Nutie Dowdle (4) 8,000 8,000 - -
Larry S. Kaplan Marla B. Kaplan JT/WROS (4) 8,000 8,000 - -
Garry L. Gray (4) 8,000 8,000 - -
Keith Liggett (4) 8,000 8,000 - -
Thomas A. Prendergast 8,000 8,000 - -
Robert W. Main Ttee. Under the Robert W. Main Trust DTD 8,000 8,000
9/7/05 (4) - -
Phillip L. Burnett & Allyson Burnett JTWROS (4) 8,000 8,000 - -
Terry Peets (22)(27) 9,419 7,951 1,468 -
William Spielberger (4) 7,272 7,272 - -
Edward J. Cook & Eleanor A. Cook JTWROS (4) 7,272 7,272 - -
W.C. Smith, Jr. (4) 7,272 7,272 - -
Jeffrey G. Hipp & Mary Ann Hipp JT/WROS (4) 7,272 7,272 - -
Michael Brunone (23) 7,000 7,000 - -
Bart and Wendy Baker JTWROS (4) 6,000 6,000 - -
Terry J. Kuras (4) 6,000 6,000 - -
Stephen D. Kasle (4) 6,000 6,000 - -
Charles E. Klabunde Trust Charles E. Klabunde Ttee. U/A
Dated 4/9/03 (4) 5,500 5,500 - -
Russell Bernier (24) 4,720 4,720 - -
David Frank Rios & Margaret Jo Rios Ttee DTD 6/22/99 (4) 4,000 4,000 - -
Marvin J. Loutsenhizer (4) 4,000 4,000 - -
Joseph D Chamberlain (4) 4,000 4,000 - -
Dr. Thomas Heirigs & Sheryl Heirigs JT/WROS (4) 4,000 4,000 - -
40
Number of Shares Percentage of
of Common Stock Number of Shares Shares of Common
Owned Before Number of Shares Owned After Stock Owned After
Name Offering (1) to Be Offered (2) Offering Offering
----------------------------------------------------------- ------------------ ----------------- ----------------- -----------------
Robert H. Mapp (4) 4,000 4,000 - -
D & M Partnership C/O Dean Weinberg (4)(25) 4,000 4,000 - -
John Pratt (4) 4,000 4,000 - -
Carolyn L. Foutch (4) 4,000 4,000 - -
Kenneth M. Cleveland (4) 4,000 4,000 - -
Fabian Calvo (4) 4,000 4,000 - -
Janepapin Holdings, Inc.; Attn: Peter Inouye (4)(26) 4,000 4,000 - -
IRA Fbo Thomas Heirigs Pershing LLC as Custodian (4) 4,000 4,000 - -
Joel E. Hipp & Patricia N. Hipp JTRWROS (4) 4,000 4,000 - -
Michael A. Stiegel (4) 4,000 4,000 - -
Mark P. Wood & Lynn T. Wood JTWROS (4) 4,000 4,000 - -
Donald V. Moline (4) 4,000 4,000 - -
William Chaney Tod DTD 4/20/04 (4) 4,000 4,000 - -
Robert Lonze (4) 4,000 4,000 - -
C. Mark Casey (4) 4,000 4,000 - -
Joseph Martha (4) 4,000 4,000 - -
Angus Bruce Lauralee Bruce (4) 3,640 3,640 - -
Samuel E. Leonard Trust UAD 2/5/90 Samuel E. Leonard
Ttee. (4) 3,636 3,636 - -
Jerry Schmitz & Norma Schmitz JT/WROS (4) 3,636 3,636 - -
- -----------------------
(1) The Selling Stockholders have no obligations to sell all or any of their
shares.
(2) Assumes all shares offered are sold.
(3) The number of shares owned before offering are shares of common stock
beneficially owned by Riverview Financial Corporation. Riverview Financial
is an affiliate of Randall K. Fields the Chief Executive Officer of Park
City Group. This amount includes 487,206 shares owned directly by Mr.
Fields. Mr. Fields has the voting and investment power over these
securities. Additional information about certain transaction between
Riverview Financial/Randall K Fields and the Company is set forth in the
Certain Relationships and Related Transaction section of this Prospectus.
The total shares owned before offering were acquired over the course of the
past 5 years through a number of transactions with the Company. These
transactions include the initial sale of Park City Group, Inc. (Subsidiary)
to Park City Group, Inc (formerly Amerinetgroup.com), conversion of a
number of notes payable to common stock as well as related fees for
extensions also paid in stock, and exercise of warrants. The shares being
offered include 1,324,693 shares of stock acquired through the conversion
of a note payable in March 2006 (See Certain Relationships and Related
Transaction section of this Prospectus.) The remaining amount is warrants
to acquire 175,232 shares of common stock at an exercise price of $2.00.
The warrants were acquired in connection with a bridge loan funding in
2002. See (27) below.
(4) Each of these Selling Stockholders, who names as listed above include a
reference to this footnote 4, purchased these shares of our common stock in
an accredited investor-only private offering that was completed in June
2006. This transaction provided each of the accredited investors shares at
$2.75. Gross proceeds of the transaction were valued at $5,000,000. The
placement agent for the transaction was Taglich Brothers, Inc. which
41
received 8% commission paid in cash as well as a conversion exchange of one
warrant for every ten shares issued as a result of the private placement in
June 2006. For details of the members of Taglich brothers who received said
warrants, please see (8), (12), (15), (18-20), (23-24). Except for the
purchase of shares in such offering, none of these Selling Stockholders
have been involved in any material transaction with Park City Group or had
any material relationship with Park City Group during the last three years.
Information about Selling Shareholder Riverview Financial Corp., and
affiliate our CEO, Randall K. Fields, is set forth in Footnote 3 above.
Information about other Selling Stockholders is set forth in footnotes 5-26
below.
(5) Daniel Abramowitz has voting and /or investment power over these
securities.
(6) Number of share owned before offering include 80,417 shares underlying the
Common Stock and 135,478 shares under Warrants. Mr. Meyer acquired his
shares through the following transactions with the Company, 76,954 shares
from conversion of a bridge note payable in April 2004 and 10,503 shares as
compensation for acting in the capacity of a Director of the Company from
October 2002 through November 2004. Mr. Meyer has sold 7,040 of the shares
acquired from these transactions. Only the warrants issued in connection
with the Bridge Loan funding in 2002 are being offered as part of this
registration. See (27) below.
(7) Number of share owned before offering include 45,636 shares underlying the
Common Stock and 128,571 shares under Warrants. The shares and warrants
were acquired through a private placement with Mr. Horton in December 2004.
(8) Number of share owned before offering include 78,769 shares underlying the
Common Stock and 48,231 shares under Warrants. The selling stockholder
advised us that it is affiliated with a broker-dealer, Taglich Brothers,
Inc., and that it purchased these securities solely for investment and not
with a view to or for resale or distribution of such securities. The
warrants were issued to Mr. Taglich as part of a commission package for the
equity placement referred to in footnote 4 above.
(9) Number of share owned before offering include 200,204 shares underlying the
Common Stock, 24,167 shares under Options, and 75,847 shares under
Warrants. Mr. Wilson acquired his shares through the following transactions
with the Company. A total of 82,143 shares were issued from an investment
in a Private Placement in December 2001 and though anti-dilution provisions
included in the Placement, 56,333 shares were issued though exercise of
Options/Warrants in March 2004, 44,392 shares from conversion of a bridge
note payable, and 17,336 as compensation for acting in the capacity of a
Director of the Company from January2002 though present. Only the warrants
issued in connection with the Bridge Loan funding in 2002 are being offered
as part of this registration. See (27) below.
(10) Chris Casey has voting and /or investment power over these securities.
(11) B Kent Garlinghouse has voting and /or investment power over these
securities.
(12) Number of share owned before offering include 72,727 shares underlying the
Common Stock and 48,231 shares under Warrants. The selling stockholder
advised us that it is affiliated with a broker-dealer, Taglich Brothers,
Inc., and that it purchased these securities solely for investment and not
with a view to or for resale or distribution of such securities. The
warrants were issued to Mr. Taglich as part of a commission package for the
equity placement referred to in footnote 4 above.
(13) Number of share owned before offering include 201,450 shares underlying the
Common Stock, 2,500 shares under Options, and 55,970 shares under Warrants.
Mr. Brennan acquired his shares through the following transactions with the
Company. A total of 98,571shares were issued from an investment in a
Private Placement in December 2001 and through anti-dilution provisions
included in the Placement, 63,000 shares were issued through the exercise
of Options/Warrants in March 2004, 33,538 shares from conversion of a
bridge note payable, and 16,501 as compensation for acting in the capacity
of a Director of the Company from January 2002 through January 2006. Mr.
Brennan has sold 10,160 of the shares acquired from these transactions.
Only the warrants issued in connection with the Bridge Loan funding in 2002
are being offered as part of this registration. See (27) below.
(14) Number of share owned before offering include 33,538 shares underlying the
Common Stock and 55,970 shares under Warrants. The selling stockholder
advised us that it is affiliated with a broker-dealer, G.C. Anderson
Partners Capital, LLC, and that it purchased these securities solely for
investment and not with a view to or for resale or distribution of such
securities. Mr. Higbee acquired his shares through Conversion of a bridge
note payable. The warrants were issued in connection with the Bridge Loan
funding in 2002. See (27) below.
(15) Number of share owned before offering include 40,000 shares under Warrants.
The selling stockholder advised us that it is affiliated with a
broker-dealer, Taglich Brothers, Inc., and that it purchased these
securities solely for investment and not with a view to or for resale or
distribution of such securities. The warrants were issued to Mr. Schroeder
as part of a commission package for the equity placement referred to in
footnote 4 above.
(16) Peter Melhaldo has voting and /or investment power over these securities.
(17) Norm Perry has voting and /or investment power over these securities.
42
(18) Number of share owned before offering include 13,636 shares under Warrants.
The selling stockholder advised us that it is affiliated with a
broker-dealer, Taglich Brothers, Inc., and that it purchased these
securities solely for investment and not with a view to or for resale or
distribution of such securities. The warrants were issued to Mr. Hailey as
part of a commission package for the equity placement referred to in
footnote 4 above.
(19) Number of share owned before offering include 10,000 shares under Warrants.
The selling stockholder advised us that it is affiliated with a
broker-dealer, Taglich Brothers, Inc., and that it purchased these
securities solely for investment and not with a view to or for resale or
distribution of such securities. The warrants were issued to Mr. Palmieri
as part of a commission package for the equity placement referred to in
footnote 4 above.
(20) Number of share owned before offering include 10,000 shares under Warrants.
The selling stockholder advised us that it is affiliated with a
broker-dealer, Taglich Brothers, Inc., and that it purchased these
securities solely for investment and not with a view to or for resale or
distribution of such securities. The warrants were issued to Mr. Oh as part
of a commission package for the equity placement referred to in footnote 4
above.
(21) Bruce Campbell has voting and /or investment power over these securities.
(22) Number of share owned before offering include 1,468 shares underlying the
Common Stock and 7,951 shares under Warrants. Mr. Peets acquired his shares
through participation in a bridge note payable. The warrants were issued in
connection with the Bridge Loan funding in 2002. See (27) below.
(23) Number of share owned before offering include 7,000 shares under Warrants.
The selling stockholder advised us that it is affiliated with a
broker-dealer, Taglich Brothers, Inc., and that it purchased these
securities solely for investment and not with a view to or for resale or
distribution of such securities. The warrants were issued to Mr. Brunone as
part of a commission package for the equity placement referred to in
footnote 4 above.
(24) Number of share owned before offering include 4,720 shares under Warrants.
The selling stockholder advised us that it is affiliated with a
broker-dealer, Taglich Brothers, Inc., and that it purchased these
securities solely for investment and not with a view to or for resale or
distribution of such securities. The warrants were issued to Mr. Bernier as
part of a commission package for the equity placement referred to in
footnote 4 above.
(25) Dean Weinberg has voting and /or investment power over these securities.
(26) Peter Inouye has voting and /or investment power over these securities.
(27) Bridge Loan funding was initiated in August 2002, and refinanced in
November 2002, and again in July of 2003, totaling $868,334 at a stated
interest rate of 18% with a due date of July 31, 2004. The new Bridge Note
required an incentive fee of 34,773 shares of common stock to be issued to
the note holders. The fair value of these shares was $86,933 ($.05 per
share), which was amortized into interest expense over the term of the
Bridge Note. The Bridge Note lenders include an officer, certain directors
of the Company and an outside investor. The warrants included in this
transaction carry an exercise price of $2.00 and were issued in the first
two financings; no additional warrants were issued in the July 2004
refinancing. The Bridge Note payable was converted to common stock in April
2004.
EXPERTS
The balance sheet of Park City Group as of June 30, 2006 and 2005, and
the related consolidated statements of operations, stockholders' equity, and
cash flows for the year ended June 30, 2006 and 2005, have been audited by HJ&
Associates, LLC, independent registered public accountants, as set forth in
their report thereon.
43
LEGAL MATTERS
The validity of the common stock to be sold by the selling stockholders
under this prospectus will be passed upon for us by Cohne, Rappaport & Segal.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
On August 16, 2005 we filed a Form 8-K to announce the dismissal of our
previous independent registered public accounting firm and the appointment of HJ
& Associates, LLC as our new independent registered public accounting firm.
There were no disagreements with the former accountant on any matter of
accounting principles or practices, financial statement disclosure, or auditing
scope or procedure.
ADDITIONAL INFORMATION
We have filed with the SEC a registration statement on Form SB-2 under
the Securities Act for the common stock offered by this prospectus. This
prospectus, which is a part of the registration statement, does not contain all
of the information in the registration statement and the exhibits filed with it,
portions of which have been omitted as permitted by SEC rules and regulations.
For further information concerning us and the securities offered by this
prospectus, please refer to the registration statement and to the exhibits filed
with it.
The registration statement, including all exhibits, may be inspected
without charge at the SEC's Public Reference Room at the public reference
facility of the SEC at 100 F Street, N.E., Washington, D.C. 20549. You may
obtain information on the operation of the SEC's public reference facility by
calling the SEC at 1-800-SEC-0330. The registration statement, including all
exhibits and schedules and amendments, has been filed with the SEC through the
Electronic Data Gathering, Analysis and Retrieval system, and is publicly
available through the SEC's Website located at http://www.sec.gov.
44
PARK CITY GROUP, INC. AND SUBSIDIARIES
Index to Consolidated Financial Statements
------------------------------------------
Page
Report of Independent Registered Public Accounting Firm F-2
Consolidated Balance Sheet as of June 30, 2006 and
September 30, 2006 (unaudited) F-3
Consolidated Statement of Operations for the years ended
June 30, 2006 and 2005 and the three months ended September 30, 2006
(unaudited) and 2005 (unaudited) F-6
Consolidated Statement of Stockholders' Deficit for the years
ended June 30, 2006 and 2005 and the three months ended
September 30, 2006 (unaudited) F-7
Consolidated Statement of Cash Flows for the years ended
June 30, 2006 and 2005 and the three months ended September 30, 2006
(unaudited) and 2005 (unaudited) F-8
Notes to Consolidated Financial Statements F-9
F-1
REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
Board of Directors and Shareholders of
Park City Group, Inc and Subsidiaries
Park City, Utah
We have audited the accompanying consolidated balance sheets of Park City Group,
Inc. and Subsidiaries as of June 30, 2006, and the consolidated statements of
operations, stockholders' deficit and cash flows for the years ended June 30,
2006 and 2005. These consolidated financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall consolidated financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Park
City Group, Inc. and Subsidiaries as of June 30, 2006, and the results of their
operations and their cash flows for the years ended June 30, 2006 and 2005 in
conformity with accounting principles generally accepted in the United States of
America.
/s/ HJ & Associates, LLC
HJ & Associates, LLC
Salt Lake City, Utah
September 22, 2006
F-2
PARK CITY GROUP, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
September 30,
2006
(unaudited) June 30, 2006
--------------- ---------------
Assets
Current Assets:
Cash and cash equivalents $ 2,611,486 $ 3,517,060
Receivables, net of allowance of $138,716 and $126,324
at September 30, 2006 and June 30, 2006, respectively 113,643 103,190
Unbilled receivables 249,905 237,641
Prepaid expenses and other current assets 199,474 173,687
--------------- ---------------
Total current assets 3,174,508 4,031,578
--------------- ---------------
Property and equipment, net 84,220 84,741
--------------- ---------------
Other assets:
Deposits and other assets 27,997 29,958
Capitalized software costs, net 737,982 680,187
--------------- ---------------
Total other assets 765,979 710,145
--------------- ---------------
Total assets $ 4,024,707 $ 4,826,464
=============== ===============
Liabilities and Stockholders' Equity (Deficit)
Current liabilities:
Accounts payable $ 218,446 $ 112,136
Accrued liabilities 179,271 230,062
Deferred revenue 413,358 648,686
Current portion of capital lease obligations 14,193 16,774
Derivative liability 433,363 489,624
--------------- ---------------
Total current liabilities 1,258,631 1,497,282
--------------- ---------------
Long-term liabilities:
Long-term note payable, net of discount of $80,025 at
September 30, 2006 and June 30, 2006, respectively 1,859,975 1,842,596
Capital lease obligations, less current portion 1,714 4,948
--------------- ---------------
Total long-term liabilities 1,861,689 1,847,544
--------------- ---------------
Total liabilities 3,120,320 3,344,826
--------------- ---------------
Commitments and contingencies
Stockholders' equity (deficit):
Preferred stock, $0.01 par value, 30,000,000 shares authorized,
none issued - -
Common stock, $0.01 par value, 50,000,000 shares authorized;
8,930,766 and 8,931,312 issued and outstanding at September 30,
2006 and June 30, 2006, respectively 89,308 89,312
Additional paid-in capital 20,531,750 20,564,933
Accumulated deficit (19,716,671) (19,172,607)
--------------- ---------------
Total stockholders' equity (deficit) 904,387 1,481,638
--------------- ---------------
Total liabilities and stockholders' equity (deficit) $ 4,024,707 $ 4,826,464
=============== ===============
See accompanying notes to consolidated financial statements.
F-3
PARK CITY GROUP, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
Three Months Ended
September 30,
2006 2005 Year Ended June 30,
(unaudited) (unaudited) 2006 2005
--------------- -------------- --------------- --------------
Revenues:
Software licenses $ - $ 2,630,453 $ 3,626,821 $ 479,615
Maintenance and support 448,203 608,446 2,271,997 2,312,308
Application service provider (ASP) 21,250 48,900 182,083 104,367
Consulting and other 116,442 411,066 1,004,224 735,522
--------------- -------------- --------------- --------------
585,895 3,698,865 7,085,125 3,631,812
Cost of revenues 359,730 404,651 1,586,535 1,448,726
--------------- -------------- --------------- --------------
Gross margin 226,165 3,294,214 5,498,590 2,183,086
--------------- -------------- --------------- --------------
Operating expenses:
Research and development 84,442 235,909 292,191 1,019,411
Sales and marketing 259,115 283,200 1,375,794 1,337,318
General and administrative 457,207 313,155 1,518,092 2,055,940
--------------- -------------- --------------- --------------
Total operating expenses 800,764 832,264 3,186,077 4,412,669
--------------- -------------- --------------- --------------
Income (loss) from operations (574,599) 2,461,950 2,312,513 (2,229,583)
Other income (expense):
Gain (loss) on derivative liability 56,261 - (34,513) -
Interest expense (25,726) (297,135) (884,404) (1,178,454)
--------------- -------------- --------------- --------------
Income (loss) before income taxes (544,064) 2,164,815 1,393,596 (3,408,037)
(Provision) benefit for income taxes - - - -
--------------- -------------- --------------- --------------
Net income (loss) $ (544,064) $ 2,164,815 $ 1,393,596 $ (3,408,037)
=============== ============== =============== ==============
Weighted average shares, basic 8,931,000 5,657,000 6,084,000 5,489,000
=============== ============== =============== ==============
Weighted average shares, diluted 8,931,000 5,680,000 6,263,000 5,489,000
=============== ============== =============== ==============
Basic income (loss) per share $ (0.06) $ 0.38 $ 0.23 $ (0.62)
=============== ============== =============== ==============
Diluted income (loss) per share $ (0.06) $ 0.38 $ 0.22 $ (0.62)
=============== ============== =============== ==============
See accompanying notes to consolidated financial statements.
F-4
Park City Group, Inc. and Subsidiaries
Consolidated Statements of Stockholders' Equity (Deficit)
For the Years Ended June 30, 2006 and 2005 and Three Months Ended September 30, 2006 (unaudited)
Common Stock Additional
------------------- Paid-In Treasury Accumulated
Shares Amount Capital Stock Deficit Total
------ ------ ------- ----- ------- -----
Balance, June 30, 2004 5,374,323 $53,743 $11,966,546 $ - $(17,158,166) $(5,137,877)
Common stock issued for:
Compensation 173,817 1,738 470,517 - - 472,255
Services 14,320 143 39,617 - - 39,760
Settlement 41,300 413 164,787 - - 165,200
Debt refinancing 4,500 45 15,705 - - 15,750
Cash, net of offering
costs 42,857 429 149,571 - - 150,000
Net loss - - - - (3,408,037) (3,408,037)
------------ ----------- ------------- ------------- ------------ ------------
Balance, June 30, 2005 5,651,118 56,511 12,806,743 - (20,566,203) (7,702,949)
Common stock issued for:
Compensation 74,248 742 204,105 - - 204,847
Debt refinancing 4,500 45 15,705 - - 15,750
Debt conversion 1,324,693 13,247 3,460,356 - - 3,473,603
Exercise of options 58,571 586 116,557 - - 117,143
Cash, net of offering
costs 1,818,182 18,181 3,961,467 - - 3,979,648
Net income - - - - 1,393,596 1,393,596
------------ ----------- ------------- ------------- ------------ ------------
Balance, June 30, 2006 8,931,312 $89,312 $20,564,933 $ - $(19,172,607) $ 1,481,638
Cancellation of partial
shares (unaudited) (546) (4) (42) - - (46)
Offering cost asssociated
with issuance of stock
(unaudited) (33,141) (33,141)
Net loss (unaudited) - - - - (544,064) (544,064)
------------ ----------- ------------- ------------- ------------ ------------
Balance, September 30, 2006
(unaudited) 8,930,766 $89,308 $20,531,750 $ - $(19,716,671) $ 904,387
============ =========== ============= ============= ============ ============
See accompanying notes to consolidated financial statements.
F-5
PARK CITY GROUP, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Three Months Ended September 30,
(unaudited) Years Ended June 30,
2006 2005 2006 2005
------------- -------------- --------------- ---------------
Cash flows from operating activities:
Net income (loss) $ (544,064) $ 2,164,815 $ 1,393,596 $ (3,408,037)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization 82,508 83,571 288,433 337,851
Bad debt expense 12,392 (3,000) 70,324 358,158
(Gain) loss on derivative liability (56,261) - 34,513 -
Stock issued for services and expenses - 21,499 204,849 677,215
Amortization of discounts on debt 17,379 73,887 224,389 177,506
(Increase) decrease in:
Trade Receivables (22,845) (194,521) 153,700 457,786
Unbilled receivables (12,264) - (208,515) (29,125)
Prepaids and other assets (23,826) (87,136) (141,585) 169,109
(Decrease) increase in:
Accounts payable 106,310 (454,484) (516,262) 301,227
Accrued liabilities (50,791) (127,345) (86,646) (108,377)
Deferred revenue (235,328) 626,089 (234,738) (228,490)
Related party payable - - 97,000 -
Accrued interest, related party - 138,844 (553,924) 500,859
------------- -------------- --------------- ---------------
Net cash provided by (used in) operating activities (726,790) 2,242,219 725,134 (794,318)
------------- -------------- --------------- ---------------
Cash Flows From Investing Activities:
Purchase of property and equipment (15,518) (3,046) (22,146) (35,345)
Capitalization of software costs (124,264) - (564,651) -
Proceeds from disposal of property - - - 3,400
------------- -------------- --------------- ---------------
Net cash used in investing activities (139,782) (3,046) (586,797) (31,945)
------------- -------------- --------------- ---------------
Cash Flows From Financing Activities:
Net (payments) proceeds in lines of credit - (283,556) (716,743) 619,743
Proceeds from issuances of stock, net of offering
costs of $33,187 and $431,577 for September 30, 2006 and
June 30, 2006, repectively (33,187) - 4,434,764 150,000
Payment to extend note - - (9,000) (9,000)
Proceeds from debt - - 1,833,300 -
Payment on notes payable and capital leases (5,815) (2,005,845) (2,373,268) (37,627)
------------- -------------- --------------- ---------------
Net cash provided by financing activities (39,002) (2,289,401) 3,169,053 723,116
------------- -------------- --------------- ---------------
Net increase (decrease) in cash and cash equivalents (905,574) (50,228) 3,307,390 (103,147)
Cash and cash equivalents at beginning of period 3,517,060 209,670 209,670 312,817
------------- -------------- --------------- ---------------
Cash and cash equivalents at end of period $ 2,611,486 $ 159,442 $ 3,517,060 $ 209,670
============= ============== =============== ===============
See accompanying notes to consolidated financial statements.
F-6
PARK CITY GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
-------------------------------------------
1. Summary of Significant Accounting Policies, Organization and Principles
of Consolidation
Business Activity
- -----------------
Park City Group, Inc. and Subsidiaries (the "Company") designs, develops,
markets and supports proprietary software products. These products are designed
to be used in retail 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. The principal markets for the Company's products
are retail companies, financial services, branded food manufacturers and display
manufacturing companies which have operations in North America and, to a lesser
extent, in Europe and Asia.
Principles of Consolidation
- ---------------------------
The financial statements presented herein reflect the consolidated financial
position of Park City Group, Inc. and Subsidiaries. All inter-company
transactions and balances have been eliminated in consolidation.
Unaudited Interim Financial Statements
- --------------------------------------
The accompanying unaudited interim financial statements as of September 30, 2006
and for the three months ended September 30, 2006, and 2005 have been prepared
on substantially the same basis as the audited financial statements and include
all adjustments, consisting only of normal recurring adjustments, necessary for
a fair presentation on the financial information set forth herein. The results
for the three months ended September 30, 2006 are not necessarily indicative of
future results.
Use of Estimates and Reclassifications
- --------------------------------------
The preparation of consolidated financial statements in conformity with U.S.
generally accepted accounting principles requires management to make estimates
and assumptions that materially affect the amounts reported in the consolidated
financial statements. Actual results could differ from these estimates. The
methods, estimates and judgments the Company uses in applying its most critical
accounting policies have a significant impact on the results it reports in its
financial statements. The U.S. Securities and Exchange Commission has defined
the most critical accounting policies as the ones that are most important to the
portrayal of the Company's financial condition and results, and require the
Company to make its most difficult and subjective judgments, often as a result
of the need to make estimates of matters that are inherently uncertain. Based on
this definition, the Company's most critical accounting policies include:
revenue recognition, allowance for doubtful accounts, capitalization of software
development costs and impairment of long-lived assets.
Cash and Cash Equivalents
- -------------------------
The Company considers all short-term instruments with an original maturity of
three months or less to be cash equivalents.
Concentration of Credit Risk and Significant Customers
- ------------------------------------------------------
The Company maintains cash in bank deposit accounts, which, at times, may exceed
federally insured limits. The Company has not experienced any losses in such
accounts and believes it is not exposed to any significant credit risk on cash
and cash equivalents.
Financial instruments which potentially subject the Company to concentration of
credit risk consist primarily of trade receivables. In the normal course of
business, the Company provides credit terms to its customers. Accordingly, the
Company performs ongoing credit evaluations of its customers and maintains
allowances for possible losses which when realized have been within the range of
management's expectations. The Company does not require collateral from its
customers.
The Company's accounts receivable are derived from sales of products and
services primarily to customers operating multi-location retail and grocery
stores. At June 30, 2006, net accounts receivable includes amounts due from
customers totaling $103,190.
F-7
PARK CITY GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
-------------------------------------------
During the year ended June 30, 2006, the Company received approximately $4.57
million of its revenue from new customers and approximately $2.5 million in
revenue from existing customers for continued support and additional license
sales.
During the year ended June 30, 2006 and 2005, the Company had sales to major
customers that exceeded 10 percent of revenues are as follows:
2006
Customer A $3,547,185
2005
Customer B $489,045
Customer C $374,249
The Company also has an account receivable from a major customer as of June 30,
2006 as follows:
Customer D $141,623
Allowance for Doubtful Accounts Receivable The Company offers credit terms on
the sale of the Company's products to a significant majority of the Company's
customers and require no collateral from these customers. The Company performs
ongoing credit evaluations of the Company's customers' financial condition and
maintains an allowance for doubtful accounts receivable based upon the Company's
historical experience and a specific review of accounts receivable at the end of
each period. As of June 30, 2006, the allowance for doubtful accounts was
$126,324.
Depreciation and Amortization Depreciation and amortization of property and
equipment is computed using the straight line method based on the following
estimated useful lives:
Years
Furniture and fixtures 7
Computer equipment 3
Equipment under capital leases 3
Leasehold improvements see below
Leasehold improvements are amortized over the shorter of the remaining lease
term or the estimated useful life of the improvements.
F-8
PARK CITY GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
-------------------------------------------
Warranties
- ----------
The Company offers a limited warranty against software defects for a general
period of ninety days. Customers who are not completely satisfied with their
software purchase may attempt to be reimbursed for their purchases outside the
warranty period. The Company accrues amounts for such warranty settlements that
are probable and can be reasonably estimated.
Revenue Recognition
- -------------------
Revenue from the sale of software licenses is recognized upon delivery of the
software unless specific delivery terms provide otherwise. If not recognized
upon delivery, revenue is recognized upon meeting specified conditions, such as,
meeting customer acceptance criteria. In no event is revenue recognized if
significant Company obligations remain. Customer payments are typically received
in part upon signing of license agreements, with the remaining payments received
in installments pursuant to the agreements. Until revenue recognition
requirements are met, the cash payments received are treated as deferred
revenue.
Maintenance and support services that are sold with the initial license fee are
recorded as deferred revenue and recognized ratably over the initial service
period. Revenues from maintenance and other support services provided after the
initial period are generally paid in advance and are recorded as deferred
revenue and recognized on a straight-line basis over the term of the agreements.
Consulting service revenues are recognized in the period that the service is
provided or in the period such services are accepted by the customer if
acceptance is required by agreement.
ASP Services are sold, on a contractual bases, for one or more years. These fees
are collected in advance of the services being performed and the revenue is
recognized ratably over the respective months, as services are provided.
Software Development Costs 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
From inception through January 2001, the Company viewed the software as an
evolving product. Therefore, all costs incurred for research and development of
the Company's software products through January 2001 were expensed as incurred.
During January 2001, technological feasibility of a major revision to the
Company's Fresh Market Manager and the Company's ActionManager 4x development
platform was established. Development costs for Fresh Market Manager software
incurred from January 2001 through September 2002, totaling $1,063,515, were
capitalized. These costs are being amortized on a straight-line basis over four
years, beginning in September 2002 when the product was available for general
release to customers. During 2006 and 2005, $265,876 of the capitalized
development costs were amortized into expense each year.
F-9
PARK CITY GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
-------------------------------------------
In July 2005 the Company reached technological feasibility on 1 new product and
2 major enhancements to existing product offerings. During the period July 2005
through June 2006 the Company capitalized $613,717 of development costs
associated with these products and enhancements. We anticipate these products
being available for general release in the later part of FY2007. We will
continue capitalization until that time.
Research and Development Costs Research and development costs include personnel
costs, engineering, consulting, and contract labor and are expensed as incurred
for software that has not achieved technological feasibility.
Income Taxes
The Company accounts for income taxes under the provision of Statement of
Financial Accounting Standards No. 109, Accounting for Income Taxes. This method
requires the recognition of deferred tax liabilities and assets for the expected
future tax consequences of temporary differences between tax bases and financial
reporting bases of other assets and liabilities.
Earnings Per Share
The computation of basic (loss) earnings per common share is based on the
weighted average number of shares outstanding during each year. The computation
of diluted earnings per common share is based on the weighted average number of
shares outstanding during the year, plus the common stock equivalents that would
arise from the exercise of stock options and warrants outstanding, using the
treasury stock method and the average market price per share during the year.
Options and warrants to purchase 990,125 and 1,052,760 shares of common stock at
prices ranging from $1.50 to $7.00 per share were outstanding at June 30, 2006
and 2005, respectively. Of these 431,807 and 1,052,760 for 2006 and 2005,
respectively, were not included in the diluted loss per share calculation
because the effect would have been anti-dilutive. The shares used in the
computation of the Company's basic and diluted earnings per common share are
reconciled as follows:
Three Months ended
September 30,
(unaudited) Year ended June 30,
2006 2005 2006 2005
------------- ------------- ------------- -------------
Weighted average 8,931,000 5,657,000 6,084,000 5,489,000
Dilutive effect of options and warrants - 23,000 179,000 -
--------- --------- --------- ---------
Weighted average shares outstanding assuming
dilution 8,931,000 5,680,000 6,263,000 5,489,000
========= ========= ========= =========
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation" (FAS
123) which established financial accounting and reporting standards for
stock-based compensation. The new standard defines a fair value method of
accounting for an employee stock option or similar equity instrument. This
statement gives entities the choice between adopting the fair value method or
continuing to use the intrinsic value method under Accounting Principles Board
(APB) Opinion No. 25 with footnote disclosures of the pro forma effects if the
fair value method had been adopted. The Company has opted for the latter
approach.
F-10
PARK CITY GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
-------------------------------------------
Had compensation expense for the Company's option plan been determined based on
fair value at the grant dates, as prescribed in SFAS No. 123 as amended by SFAS
No. 148, the Company's net income (loss) would have been as follows:
Year Ended Year Ended
June 30, 2006 June 30, 2005
------------- -------------
Net Income (loss)
As reported $1,393,596 $(3,408,037)
Pro forma $1,113,946 (4,038,715)
Income (loss) per common share-basic-as reported $0.23 $(0.62)
Income (loss) per common share-diluted-as reported $0.22 $(0.62)
Income (loss) per common share-basic-pro forma $0.18 $(0.74)
Income (loss) per common share-diluted-pro forma $0.18 $(0.74)
The weighted-average grant-date fair value of options granted during year ended
June 30, 2006 and 2005 were $3.00 and $3.24 per share, respectively. The fair
value for the options granted in 2006 and 2005 were estimated at the date of
grant using a Black-Scholes option pricing model with the following
weighted-average assumptions:
6/30/06 6/30/05
Risk-free interest rate 4.34% - 5.16% 1.63% - 3.73%
Expected life (in years) 2 - 5 2 - 10
Expected volatility 369.58% 404.47%
Expected dividend yield 0.00% 0.00%
The following table summarizes information about fixed stock options and
warrants outstanding at June 30, 2006:
Options and Warrants
Options and Warrants Outstanding Exercisable at
at June 30, 2006 June 30, 2006
Weighted
average Weighted Weighted
Number remaining average Number average
Range of Outstanding at contractual exercise Exercisable at exercise
exercise prices June 30, 2006 life(years) price June 30, 2006 price
--------------- ------------- ----------- ----------- ------------- ------------
$1.50 - $2.50 558,318 1.62 $ 1.98 558,318 $ 1.98
$3.00 - $4.00 421,807 4.25 3.51 421,807 3.53
$7.00 10,000 0.36 7.00 10,000 7.00
------- -------
990,125 2.74 $2.69 990,125 $2.69
======= =======
Fair Value of Financial Instruments
- -----------------------------------
The Company's financial instruments consist of cash, receivables, payables,
accruals and notes payable. The carrying amount of cash, receivables, payables
and accruals approximates fair value due to the short-term nature of these
items. The notes payable also approximate fair value based on evaluations of
market interest rates.
F-11
PARK CITY GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
-------------------------------------------
2. Liquidity
---------
As shown in the consolidated financial statements for the fiscal year ended,
June 30, 2006, the Company has achieved positive cash flow provided by
operations in the amount of $725,134, compared to a ($794,318) cash deficit from
operations in FYE 2005. Furthermore, during Fiscal Year Ending, June 30, 2006,
the Company restructured its debt and equity portfolio, refinancing note
payables and paying off a revolving line of credit from its net proceeds of
issuing 3,636,364 shares of restricted common stock. The total net proceeds to
the company from this sale were approximately $4,570,000. The Company
anticipates a comparative reduction in interest costs by approximately $800,000
during Fiscal Year Ending, June 30, 2007.
In addition, the Company believes that cash flow from new business development
and renewed contracts, as well as a reduction of liabilities from $8,772,879 to
$3,344,826 combined with access to a $1.9 million revolving line of credit will
provide the funds necessary to operate, and will allow the Company to fund its
currently anticipated working capital, capital spending and debt service
requirements during the year ended June 30, 2007.
For the year ended, June 30, 2006, the Company experienced a surge in revenue.
The 95% increase in total comparative revenue, including seven new Supply Chain
Profit Link business contracts that were initiated in 2006, the Company's
anticipated release of SR5, and 2 new significant enhancements to existing
products will provide current and future operating cash flows. The Company
believes that anticipated revenue growth will allow the Company to meet its
minimum operating cash requirements for Fiscal Year 2007. The financial
statements do not reflect any adjustments should the Company's operations not be
achieved.
Although the Company anticipates that it will meet its working capital
requirements primarily through increased revenue, pay-downs on debt and other
liabilities while controlling costs 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.
3. Receivables
-----------
Trade accounts receivable consist of the following at June 30, 2006:
Trade accounts receivable $ 229,514
Allowance for doubtful accounts (126,324)
--------------
$ 103,190
==============
Unbilled receivables consists of amounts due under contractual arrangements as
of June 30, 2006 for which invoices were sent subsequent to June 30, 2006.
F-12
PARK CITY GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
-------------------------------------------
4. Property and Equipment
----------------------
Property and equipment are stated at cost and consist of the following at June
30, 2006:
Computer equipment $ 1,455,396
Furniture and equipment 207,251
Leasehold improvements 85,795
--------------
1,748,442
Less accumulated depreciation and amortization (1,663,701)
--------------
$ 84,741
==============
5. Capitalized Software Costs
--------------------------
Capitalized software costs consists of the following at June 30, 2006:
Capitalized software costs $ 1,677,234
Less accumulated amortization (997,047)
-------------
$ 680,187
=============
Estimated aggregate amortization expenses for each of the next five years is as
follows:
Year ending June 30:
2007 $ 66,470
2008 153,429
2009 153,430
2010 153,429
2011 153,429
--------------
$ 680,187
==============
6. Accrued Liabilities
-------------------
Accrued liabilities consist of the following at June 30, 2006:
Accrued $ 110,717
vacation
Other accrued liabilities 55,160
Accrued compensation 59,185
Accrued board compensation 5,000
-------------
$ 230,062
=============
7. Related Party Line of Credit
----------------------------
In February 2006 the Company arranged an unsecured, revolving line of credit
with Riverview Financial Corp, a wholly owned affiliate of the Company's CEO.
The line bears interest at 12% with a fee for advances, and is repaid as funds
availability permits. The line of credit expires on June 15, 2007. The limit on
this line of credit is $800,000; there was no balance due at June 30, 2006.
F-13
PARK CITY GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
-------------------------------------------
8. Derivative Liability
--------------------
In conjunction with raising capital through the issuance of convertible debt,
the Company has issued various warrants that have registration rights for the
underlying shares. As the contracts must be settled by the delivery of
registered shares and the delivery of the registered shares is not controlled by
the Company, pursuant to EITF 00-19, "Accounting for Derivative Financial
Instruments Indexed to, and Potentially Settled in, a Company's own Stock," the
net value of the warrants at the date of issuance was recorded as a derivative
liability on the balance sheet as of June 21, 2006 $ 455,111 and the change in
fair value from the date of issuance to June 30, 2006 has been included as a
loss on derivative liability in the amount of $ 34,513 reflected on the
Consolidated Statement of Operations. The total derivative liability as of June
30, 2006 was $489,624.
9. Long-Term Notes Payable and Capital Lease Obligations
-----------------------------------------------------
The Company had the following long-term notes payable and capital lease
obligations at June 30, 2006:
Note payable to a Bank bearing interest at 6.7%, due
March 31, 2008, secured by a certificate of deposit
issued by the same bank in and held in the name of
Riverview Financial Corp., net of discount of $97,404 $ 1,842,596
Note payable to Riverview bearing interest at 12%
compounding, due July 31, 2007, unsecured, net of
discount of $122,992 -
Capital lease obligation on computer equipment, due in
monthly installments of $3,303 decreasing through
December 2007, imputed interest rates of 10.9% 21,722
-------------
1,864,318
Less current portion of capital lease obligations (16,774)
-------------
$ 1,847,544
=============
Maturities of long-term debt and capital lease obligations at June 30, 2006 are
as follows:
Year ending June 30:
2007 $ 16,774
2008 1,847,544
--------------
$ 1,864,318
==============
Capital Leases: Amortization expense related to capitalized leases is included
in depreciation expense and was $29,350 and $25,926 for the years ended June 30,
2006 and 2005, respectively. Accumulated depreciation was $88,159 at June 30,
2006. This amortized depreciation expenses relates to $122,825 of equipment
purchased under capital lease agreements of which $54,908 is still under capital
lease at June 30, 2006.
F-14
PARK CITY GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
-------------------------------------------
10. Deferred Revenue
----------------
Deferred revenue consisted of the following at June 30, 2006:
License Sales $ 17,817
Consulting Services 118,020
Maintenance and Support 512,849
-------------
$ 648,686
=============
11. Income Taxes
------------
Deferred taxes are provided on a liability method whereby deferred tax assets
are recognized for deductible temporary differences and operating loss and tax
credit carryforwards and deferred tax liabilities are recognized for taxable
differences. Temporary differences are the differences between the reported
amounts of assets and liabilities and their tax bases. Deferred tax assets are
reduced by a valuation allowance when, in the opinion of management, it is more
likely than not that some portion or all of the deferred tax assets will not be
realized. Deferred tax assets and liabilities are adjusted for the effects of
changes in tax laws and rates on the date of enactment.
Net deferred tax liabilities consists of the following components as of June 30,
2006:
Deferred tax assets:
NOL Carryover $ 2,032,290
Depreciation 58,260
Allowance for Bad Debts 57,655
Accrued Expenses 296,165
Deferred tax liabilities
Valuation allowance (2,444,370)
---------------
Net deferred tax asset $ -
===============
The income tax provision differs form the amounts of income tax determined by
applying the US federal income tax rate to pretax income from continuing
operations for the years ended June 30, 2006 due to the following:
Book Income $ 543,310
Stock for Services 128,960
Life Insurance 34,220
Meals and Entertainment 5,065
NOL Utilization (711,555)
Other
Valuation allowance -
---------------
$ -
===============
F-15
PARK CITY GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
-------------------------------------------
At June 30, 2006, the Company had net operating loss carryforwards of
approximately $5,200,000 that may be offset against future taxable income from
the year 2006 through 2026. No tax benefit has been reported in the June 30,
2006 consolidated financial statements since the potential tax benefit is offset
by a valuation allowance of the same amount.
Due to the change in ownership provisions of the Tax Reform Act of 1986, net
operating loss carryforwards for Federal income tax reporting purposes are
subject to annual limitations. Should a change in ownership occur, net operating
loss carryforwards may be limited as to use in future years.
12. Supplemental Disclosure of Cash Flow Information
------------------------------------------------
Interest paid during the years ended June 30, 2006 and 2005 was $1,177,320 and
$460,085, respectively. No income taxes were paid during the years ended June
30, 2006 or 2005.
Non-Cash Transactions Disclosure
2006 2005
------------ --------------
Common stock issued for debt refinancing $ 15,750 $15,750
Common stock issued for debt conversion $ 3,473,606 $ -
Property and Equipment purchased by capital lease $ 24,703 $35,345
13. Commitments and Contingencies
-----------------------------
Operating Leases.
- -----------------
Under terms originally entered into in September 1998 for office space the
Company is currently paying $10,500 on a month-to-month basis. Total rent
expense under this agreement for each of the years ended June 30, 2006 and 2005
was $122,000 and $114,000, respectively. The Company is currently negotiating a
new office space lease agreement at another location.
The Company has entered into a lease at 3160 Pinebrook Drive, Park City, UT,
84098 and anticipates relocating to the new facility on or about November 1,
2006, possession to be determined by timing of build-out of leasehold
improvements. The Company will lease approximately 10,000 square feet for a
period of 3 years, with an option to renew for an additional 3 year increments.
Monthly rent is $11,438 with annual increases of 3%.
14. Employee Benefit Plan
---------------------
The Company offers an employee benefit plan under Benefit Plan Section 401(k) of
the Internal Revenue Code. Employees who have attained the age of 21 are
eligible to participate. The Company, at its discretion, matches 50% of the
first 4% of each employee's contributions. The company currently does not match
employee contributions. There were no expenses for the years ended June 30, 2006
and 2005.
F-16
15. Stock Compensation Plans
------------------------
Stock in Lieu of Cash Compensation. Beginning October 1, 2002, officers and
management of the Company received a portion of their compensation in common
stock of the Company. The number of shares was calculated based on the fair
value of the shares at the end of each payroll period, with a floor price of
$2.50 per share. During the year ended June 30, 2006 46,893 shares were issued
with a fair value of $139,473.
Officers and Directors Stock Compensation. In February 2004 to be effective
January 2004, the Board of Directors approved the following compensation for
directors who are not employed by the Company.
o Annual cash compensation of $10,000 payable at the rate of
$2,500 per quarter. The Company has the right to pay this
amount in the form of shares of common stock of the Company.
o Annual options to purchase $20,000 of the Company restricted
common stock at the market value of the shares on the date of
the grant, which is to be the first day the stock market is
open in January of each year.
o Reimbursement of all travel expenses related to performance of
Directors duties on behalf of the Company.
As of June 30, 2006 there were outstanding to directors fully vested options
outstanding to purchase 53,334 common shares at $2.00 to $7.00 per share, and
expiring at various dates through January 2008.
Officers, Key Employees, Consultants and Directors Stock Compensation
In January 2000, the Company entered into a non-qualified stock option & stock
incentive plan. Officers, key employees, consultants and directors of the
Company are eligible to participate. The maximum aggregate number of shares
which may be granted under this plan was originally 20,000 and was subsequently
amended to 40,000 on March 8, 2000. The plan is administered by a Committee. The
exercise price for each share of common stock purchasable under any incentive
stock option granted under this plan shall be not less than 100% of the fair
market value of the common stock, as determined by the stock exchange on which
the common stock trades on the date of grant. If the incentive stock option is
granted to a shareholder who possesses more than 10% of the Company's voting
power, then the exercise price shall be not less than 110% of the fair market
value on the date of grant. Each option shall be exercisable in whole or in
installments as determined by the Committee at the time of the grant of such
options. All incentive stock options expire after 10 years. If the incentive
stock option is held by a shareholder who possesses more than 10% of the
Company's voting power, then the incentive stock option expires after five
years. If the option holder is terminated, then the incentive stock options
granted to such holder expire no later than three months after the date of
termination. For options holders granted incentive stock options exercisable for
the first time during any fiscal year and in excess of $100,000 (determined by
the fair market value of the shares of common stock as of the grant date), the
excess shares of common stock shall not be deemed to be purchased pursuant to
incentive stock options.
F-17
A schedule of the options and warrants at June 30, 2006 is as follows:
Number of Price per
Options Warrants Share
------- -------- -----
Outstanding at July 1, 2004 66,181 1,437,224 $1.50-37.50
Granted 85,980 128,571 $1.50-3.50
Exercised - - -
Called - - -
Cancelled (21,020) (10,500) $1.50-4.00
Expired (22,210) (611,465) $2.00-37.50
-------- --------- -----------
Outstanding at June 30, 2005 108,931 943,830 $1.50-7.00
Granted 13,334 261,818 $3.00-3.65
Exercised - (58,572) $2.00
Called - - -
Cancelled - - -
Expired (28,977) (250,239) $1.50-4.00
-------- --------- ----------
Outstanding at June 30, 2006 93,288 896,837 $1.50-7.00
======== ========= ==========
16. Related Party Transactions
--------------------------
In March 2006, the Company obtained a Note Payable from a bank in the amount of
$1,940,000. Riverview Financial Corporation (Riverview), a wholly owned
affiliate of the Company's CEO, currently is the guarantor on this note payable
and receives a fee of 3% of the outstanding balance of the note payable as
consideration for the guarantee. See note 9.
The Company has a revolving Line of Credit with Riverview to cover short term
cash needs pursuant to a promissory note payable. The credit facility has a
maximum draw amount of $800,000 and bears interest at 12% with a fee for
advances. Repayments are made as funds are available, with a due date of June
15, 2007. See note 7.
The Company had a note payable to Riverview Financial Corporation (Riverview),
in the principal amount of $3,296,406 at June 30, 2005 with accrued interest of
$841,995. In March 2006 the note payable and accrued interest of $294,334 were
converted to 1,324,693 shares of common stock. See Note 12.
Riverview had loaned the Company $345,000 under a note payable bearing interest
at 18% and an extended due date of December 2006. The loan was retired with cash
proceeds from a note payable funding from a bank in March 2006.
17. Subsequent Events
-----------------
In July 2006, the Company filed an amendment to its articles of incorporation in
the state of Nevada in order to effect a 1-for-50 reverse split and reduce the
number of common shares authorized from 500,000,000 to 50,000,000. The split had
an effective date of August 11, 2006. See exhibit 3.4 incorporated herein by
reference. All references to common stock have been retroactively restated. In
F-18
September 2006, the Company entered into a lease at 3160 Pinebrook Drive, Park
City, UT, 84098 and anticipates relocating to the new facility on or about
November 1, 2006, possession to be determined by timing of build-out of
leasehold improvements. The Company will lease approximately 10,000 square feet
for a period of 3 years, with an option to renew for an additional 3 year
increments.
18. Recent Accounting Pronouncements
--------------------------------
In December 2004, the FASB issued SFAS No. 123R (revised 2004) "Share-Based
Payment." SFAS No. 123R requires employee stock-based compensation to be
measured based on the grant-date fair value of the awards and the cost to be
recognized over the period during which an employee is required to provide
service in exchange for the award. The Statement eliminates the alternative use
of Accounting Principles Board (APB) No. 25's intrinsic value method of
accounting for awards, which is the company's accounting policy for stock
options. See Note 1 to the Consolidated Financial Statements for the pro forma
impact of compensation expense from stock options on net earnings and earnings
per share. SFAS No. 123R is effective for the Company's fiscal year beginning
July 1, 2006. The company will adopt the provisions of SFAS No. 123R on a
prospective basis. The financial statement impact will be dependent on future
stock-based awards and any unvested stock options outstanding at the date of
adoption.
In May 2005, the FASB issued SFAS No. 154, "Accounting Changes and Error
Correction - a replacement of APB No. 20 and SFAS No. 3, Reporting Accounting
Changes in Interim Financial Statements." SFAS 154 changes the requirements for
the accounting for and reporting of a change in accounting principle. It also
applies to changes required by an accounting pronouncement in the unusual
instance that the pronouncement does not include specific transition provisions.
In March 2005, the FASB issued FASB Interpretation No. 47 (FIN 47) "Accounting
for Conditional Asset Retirement Obligations, an Interpretation of FASB
Statement No. 143." This Interpretation clarifies that a conditional retirement
obligation refers to a legal obligation to perform an asset retirement activity
in which the timing and (or) method of settlement are conditional on a future
event that may or may not be within the control of the entity. The obligation to
perform the asset retirement activity is unconditional even though uncertainty
exists about the timing and (or) method of settlement. Accordingly, an entity is
required to recognize a liability for the fair value of a conditional asset
retirement obligation if the fair value of the liability can be reasonably
estimated. The liability should be recognized when incurred, generally upon
acquisition, construction or development of the asset. FIN 47 is effective no
later than the end of the fiscal years ending after December 15, 2005. The
Company is in the process of evaluating the impact of FIN 47 but does not expect
the adoption to have a material impact on the financial statements.
On July 13, 2006, the Financial Accounting Standards Board issued Interpretation
No. 48, "Accounting for Uncertainty in Income Taxes, an interpretation of FASB
Statement 109 (" FIN 48")", which sets forth a specific recognition threshold
and measurement method for the financial statement recognition and measurement
of a tax position taken or expected to be taken on a tax return. The effective
date of FIN 48 is for fiscal years beginning after December 15, 2006. The
Company has not completed an assessment of the impact of FIN 48 on its financial
statements.
F-19
19. Stock-Based Compensation at September 30, 2006 (unaudited)
----------------------------------------------------------
Prior to July 1, 2006, as permitted under Statement of Financial Accounting
Standards ("SFAS") No. 123, the Company accounted for its stock options,
warrants and plans following the recognition and measurement principles of
Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock issued
to Employees," and related interpretations. Accordingly, no stock-based
compensation expense had been reflected in the Company's statements of
operations as all options granted had an exercise price equal to the market
value of the underlying common stock on the date of grant and the related number
of shares granted was fixed at that point in time.
In December 2004, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 123(R), "Share Based Payment." This statement revised SFAS No. 123 by
eliminating the option to account for employee stock options under APB No. 25
and requires companies to recognize the cost of employee services received in
exchange for awards of equity instruments based on the grant-date fair value of
those awards.
Effective July 1, 2006, the Company adopted the fair value recognition
provisions of SFAS No. 123(R) using the modified prospective application method.
Under this transition method, the Company recorded compensation expense on a
straight-line basis for the three months ended September, 2006, for: (a) the
vesting of options granted prior to July 1, 2006 (based on the grant-date fair
value estimated in accordance with the original provisions of SFAS No. 123, and
previously presented in the pro-forma footnote disclosures), and (b) stock-based
awards granted subsequent to July 1, 2006 (based on the grant-date fair value
estimated in accordance with the provisions of SFAS No. 123(R)). In accordance
with the modified prospective application method, results for the three months
ended September 30, 2005 have not been restated.
The following pro-forma information, as required by SFAS No. 148, "Accounting
for Stock-Based Compensation-Transition and Disclosure, an amendment of FASB
Statement No. 123," is presented for comparative purposes and illustrates the
effect on net income (loss) and net income (loss) per common share for the three
months ended September 31, 2005 as if the Company had applied the fair value
recognition provisions of SFAS No. 123 to stock-based employee compensation
prior to July 1, 2006:
Three Months ended
September 30,
2005
--------------------
Net Income available to common shareholders, as reported $ 2,164,815
Add: Stock-based employee compensation expense included in
reported net income, net of related tax effects -
Deduct: Total stock-based employee compensation expense
determined under the fair value based method for all awards,
net of related tax effects. (14,325)
--------------------
Net income - pro forma $ 2,150,490
====================
Income per share:
Basic - as reported $ 0.38
====================
Diluted - as reported $ 0.38
====================
Basic - pro forma $ 0.38
====================
Diluted - pro forma $ 0.38
====================
Park City Group has employment agreements with executives. One provision of
these agreements is for a stock bonus. 25% of these bonuses are to be paid on
each of their first four anniversary dates.
o Agreement with Vice President, dated effective December 28, 2005 is payable
in 3,571 share increments for a total of 14,284 shares.
o Agreement with Director of Marketing, dated effective January 1, 2006 is
payable in 3,571 share increments for a total of 14,284 shares.
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Directors and Officers
Our Articles of Incorporation, as amended and restated, provide to the
fullest extent permitted by the General Corporation Law of the State of Nevada,
that our directors or officers shall not be personally liable to us or our
shareholders for damages for breach of such director's or officer's fiduciary
duty. The effect of this provision of our Articles of Incorporation, as amended
and restated, is to eliminate our rights and our shareholders lights (through
shareholders' derivative suits on behalf of our company) to recover damages
against a director or officer for breach of the fiduciary duty of care as a
director or officer (including breaches resulting from negligent or grossly
negligent behavior), except under certain situations defined by statute. We
believe that the indemnification provisions in our Articles of Incorporation, as
amended, are necessary to attract and retain qualified persons as directors and
officers.
Our By Laws also provide that the Board of Directors may also authorize
us to indemnify our employees or agents, and to advance the reasonable expenses
of such persons, to the same extent, following the same determinations, and upon
the same conditions as are required for the indemnification of, and advancement
of, expenses to our directors and officers. As of the date of this Registration
Statement, the Board of Directors has not extended indemnification rights to
persons other than directors and officers.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933, as amended, may be permitted to directors, officers, or persons
controlling us pursuant to the foregoing provisions, or otherwise, we have been
advised that in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in the Securities Act of
1933, as amended, and is, therefore, unenforceable.
Item 25. Other Expenses of Issuance and Distribution
We estimate that our expenses in connection with this registration
statement will be as follows:
Securities and Exchange Commission registration fee $ 1,500
Legal fees and expenses 35,000
Accounting fees and expenses 15,000
Miscellaneous 3,500
-------
Total $55,000
=======
Item 26. Recent Sales of Unregistered Securities
The Company issued shares of common stock in the following described
transactions during the last three full fiscal years.
II-1
o In September 2003 we issued 10,500 shares at $3.65 per share in
settlement of a lawsuit with Debra Elenson arising from the
Reorganization with Amerinet in June 2001.
o In September 2003 we issued 2,000 shares of common stock to Edward
Elenson for Public Relations consulting services valued at $7,300.
o In October 2003 we issued 34,774 shares of common stock to certain
directors, an officer and other accredited investors in connection
with the extension of the Bridge Loan notes payable. This 10% fee
was valued at $86,933.
o In October 2003 we issued 2,000 shares of common stock to Edward
Elenson for Public Relations consulting services valued at $7,300.
o In November 2003 we issued 2,000 shares of common stock were to
Edward Elenson for Public Relations consulting services valued at
$7,300.
II-2
o In November 2003 we issued 34,774 shares of common stock to certain
directors, an officer and other accredited investors in connection
with the extension of the Bridge Loan notes payable. This 10% fee
was valued at $86,933.
o In December 2003 we issued 2,000 shares of common stock were issued
to Edward Elenson for Public Relations consulting services valued at
$7,300.
o In December 2003 we issued 314,286 shares of common stock to
Riverview Financial Corporation ("Riverview") for conversion of
$1,100,000 of outstanding accrued interest at a price of $3.50 per
share. A new note was signed for the remaining accrued interest and
original principal balance.
o In January 2004, we granted options to board members to purchase
10,000 shares of common stock each. These warrants carry an exercise
price of $2.00 and expire January 1, 2007 or 90 days from
termination of director status.
o In January 2004 we issued 3,360 shares of common stock to Coast to
Coast Group for Investor Relations services valued at $6,720.
o In January 2004 we issued 2,000 shares of common stock to Edward
Elenson for Public Relations consulting services valued at $7,300.
o In January 2004 we issued 37,922 shares at $2.00 per share in
settlement of a lawsuit with Leonard Tucker arising from the
Reorganization with Amerinet in June 2001.
o In February 2004 we issued 11,250 shares of common stock to the CEO
in lieu of cash compensation of $29,167.
o In February 2004 we issued 2,000 shares of common stock to Edward
Elenson for Public Relations consulting services valued at $7,300.
o In February 2004 we issued 28,978 shares of common stock to certain
directors, an officer and other accredited investors in connection
with the extension of the Bridge Loan notes payable. This 10% fee
was valued at $86,933.
o In February 2004 we issued 1,320 shares of common stock to Coast to
Coast Group for Investor Relations consulting services valued at
$3,960.
o In March 2004 we issued 2,320 shares of common stock to Coast to
Coast Group for Investor Relations consulting services valued at
$15,240.
o In March 2004 we issued 3,368 shares of common stock to board
members in lieu of cash compensation of $16,000.
o In March 2004 we issued 1,738 shares of common stock to Kies
Consulting for sales channel consulting services valued at $10,600.
II-3
o In March 2004 we issued 159,333 shares of common stock at $2.00 to
certain directors and an officer as exercise of options. These
shares included 40,000 to Riverview.
o In March 2004 we issued 21,856 and 8,742 for conversion of a note
payable with Goodman Family Ventures of $76,496 and a note payable
with an accredited investor of $30,598, respectively.
o In March 2004 we issued 52,176 shares of common stock to officers
and members of management in lieu of cash compensation of $120,833.
These shares included 1,435 to the CEO and 12,685 to the CFO.
o In April 2004 we issued 1,320 shares of common stock to Coast to
Coast Group for Investor Relations consulting services valued at
$7,920.
o In April 2004 we issued 287,085 shares of common stock ($3.50 per
share) to certain directors, an officer and other accredited
investors as conversion of the Bridge Loan notes payable into common
stock. As part of the conversion agreement 97,057 shares were
surrendered the quarterly extension fees, which had previously been
issued October 2003, November 2003 and February 2004.
o In May 2004 we issued 1,320 shares of common stock to Coast to Coast
Group for Investor Relations consulting services valued at $5,940.
o In June 2004 we issued 1,320 shares of common stock to Coast to
Coast Group for Investor Relations consulting services valued at
$5,280.
o In June 2004 we issued 12,177 shares of common stock to officers and
members of management in lieu of cash compensation of $62,500. These
shares included 2,435 to the CEO and 2,435 to the CFO.
o In June 2004 we issued 49,600 shares of common stock ($3.50 per
share) to Riverview for extension and re-subordination of the
Riverview Note Payable.
o In July 2004 we issued 20,000 shares of common stock ($3.50 per
share) to Triplenet Investments, Ltd, a sister company to Whale
Investments, Ltd., as consideration for extension of payment on the
Note Payable to Whale Investments to December 2005. At the time of
the extension the note payable was assigned to Triplenet
Investments, Ltd.
II-4
o In July 2004 we granted options to purchase 25,000 shares of common
stock to members of management. These options carry an exercise
price of $1.50 and expire July 18, 2013 or 90 days from termination
of employment.
o In September 2004 we issued 48,780 shares of common stock to board
members in lieu of cash compensation of $170,167.
o In September 2004, we granted options to purchase 7,950 shares of
common stock to employees. The options have a two year vesting
period and carry an exercise price of $2.50. The options expire
September 12, 2013 or 90 days from termination of employment.
o In November 2004 we issued 6,600 shares of common stock to Coast to
Coast Group for Investor Relations consulting services valued at
$19,800.
o In December 2004 we issued 4,500 shares of common stock ($3.50 per
share) as consideration for extension of payment on the Note Payable
to Riverview Financial until December 2005.
o In December 2004 we issued 42,857 shares of common stock ($3.50 per
share) to an James Horton as part of a private purchase agreement.
As part of the private purchase agreement we also issued Mr. Horton
a warrant to purchase 128,571 shares of common stock at an exercise
price of $3.50, this warrant expires August 28, 2009.
o In December 2004 we issued 2,619 shares of common stock to board
members in lieu of cash compensation of $9,167.
o In January 2005, we granted options to board members to purchase
5,000 shares of common stock each. These warrants carry an exercise
price of $4.00 and expire January 1, 2007 or 90 days from
termination of director status.
o In January 2005 we issued 41,300 shares of common stock ($4.00 per
share) to settle lawsuit with Calvo family interests arising from
the Reorganization with Amerinet in June 2001.
o In February 2005 we issued 28,934 shares of common stock to members
of management in lieu of cash compensation of $93,750. This included
8,462 shares to the CEO and 3,025 shares to the CFO.
o In February 2005 we issued 6,400 shares of common stock to Jonathan
Eichner for Public Relations consulting services valued at $16,000.
II-5
o In June 2005 we issued 35,276 shares to management in lieu of cash
compensation $76,092. This included 9,861 shares to the CEO and
2,257 shares to the CFO.
o In July 2005 we granted options to purchase 16,420 shares of common
stock to members of management per employment agreements. The
options carry an exercise price of $3.50 and expire July 7, 2015 or
90 days from termination of employment.
o In July 2005 we issued 1,320 shares to Coast to Coast Group for
Investor Relations consulting services valued at $3,960.
o In July 2005 we issued 3,115 shares per an anti-dilution agreement
with the CEO. This dilution reduces the effective price per share of
the CEO's cash investments to $3.05.
o In August 2005 we issued 2,688 shares to Fields Management in lieu
of cash compensation of $5,376.
o In November 2005 we issued 14,667 shares of common stock to members
of management in lieu of cash compensation of $30,017. This included
5,000 shares to the CEO and 1,000 shares to the CFO.
o In November 2005, we issued 10,500 shares of common stock to board
members in lieu of cash compensation of $22,500.
o In January 2006, we issued 4,500 shares of common stock ($3.50 per
share) to Riverview as consideration for extension of a note payable
to December 2006.
o In January 2006, we granted options to board members to purchase
6,667 shares of common stock each. These warrants carry an exercise
price of $3.00 and expire January 1, 2008 or 90 days from
termination of director status.
o In February 2006, we issued 58,571 shares of common stock ($2.00 per
share) to Riverview due to exercise of warrants.
o In March 2006, we issued 2,500 shares of common stock to board
members in lieu of cash compensation of $7,500.
o In March 2006, we issued 18,097 shares of common stock to members of
management in lieu of cash compensation of $58,333. This included
6,463 shares to the CEO and 3,877 shares to the CFO.
o In March 2006, we issued 1,324,693 shares of common stock ($2.71 per
share) to Riverview for conversion of a note payable of $3,179,263
and accrued interest of $294,334.
o In April 2006, we issued 1,667 shares of common stock to board
members in lieu of cash compensation of $5,000.
II-6
o In April 2006, we issued 3,889 shares of common stock to members of
management in lieu of cash compensation. This included 1,388 shares
to the CEO and 833 shares to the CFO.
o In April 2006, we issued 10,000 shares of common stock ($2.50 per
share) to a Aaron Prevo for the vested portion of a signing bonus.
o In June 2006, we issued 1,818,149 shares of common stock ($2.75) to
accredited investors (see list of selling shareholders) in
connection with a Placement Agreement.
o In June 2006, we granted warrants to purchase 181,818 shares of
common stock to employees (see list of selling shareholders) of
Taglich Brothers, Inc. as part of a commission agreement for acting
as Placement agent for the June 2006 placement. The warrants have an
exercise price of $3.65 and expire on June 14, 2011.
o In June 2006, we granted warrants to purchase 80,000 shares of
common stock to William Dunlavy as compensation. The warrants have
an exercise price of $3.25 and expire on June 30, 2011.
All of the above offerings and sales were deemed to be exempt under
Rule 506 of Regulation D and/or Section 4(2) of the Securities Act of 1933, as
amended. No advertising or general solicitation was employed in offering the
securities. All certificates evidencing the shares issued in such transactions
bear restrictive legends as shares issued in non-registered transactions that
may only be resold in compliance with applicable federal and state securities
laws. The subscription or other purchase agreements relating to such sales
transaction contained acknowledgments by the purchaser of such securities that
the securities being acquired had not been registered, were restricted
securities, could only be resold in compliance with applicable federal and state
securities laws and the certificates evidencing such shares would bear
restrictive legends.
Item 27. Exhibits.
The following exhibits are filed as part of this registration
statement. Exhibit numbers correspond to the exhibit requirements of Regulation
S-B.
Exhibit
Number Description
------ -----------
2.1 Reorganization Agreement by and Among Amerinet.com, Inc.,
Randall K. Fields and Riverview Financial Corp. (1) 2.2 First
Amendment to Reorganization Agreement (1) 2.3 Second Amendment
to Reorganization Agreement (1)
3.1 Article Of Incorporation (2)
3.2 Certificate Of Amendment (3)
3.3 Bylaws (2)
3.4 Certificate of Amendment (4)
5.1 Opinion of Counsel
10.1 Warrant To Purchase Common Stock, Dated November 12, 2002 (5)
10.2 Securities Purchase Agreement(11)
10.3 Placement Agent Agreement (6)
10.4 Warrant To Purchase Common Stock, Dated June 14, 2006(11)
10.6 Software License Agreement(7)
10.7 Consulting Services Agreement(7)
10.8 Right Of First Offer Agreement(7)
10.9 Warrant To Purchase Common Stock, Dated August 12, 2002 (8)
10.10 Amended Employment Agreement Randall K. Fields (9)
II-7
10.11 Services Agreement with Fields Management, Inc. (9)
10.12 Commercial Real Estate Lease - Pinebrook (4)
10.13 Warrant to Purchase Common Stock, Dated June 30, 2006 (4)
10.14 Accord and Satisfaction of an Employment Agreement with
William Dunlavy (9)
10.15 Employment Agreement with William Dunlavy (9)
14.1 Code of Ethics (10)
23.1 Consent of HJ & Associates, LLC
(1) Incorporated by reference from our Form 8-K dated June 13, 2001.
(2) Incorporated by reference from our Form DEF 14C dated June 5, 2002.
(3) Incorporated by reference from our Form 10-QSB for the year ended
Sept 30, 2005.
(4) Incorporated by reference from our Form 10-KSB dated September 29,
2006.
(5) Incorporated by reference from our Form 8-K dated November 27,
2002.
(6) Incorporated by reference from our Form 8-K dated June 14, 2006.
(7) Incorporated by reference from our Form 8-K dated August 05, 2005.
(8) Incorporated by reference from our Form 8-K dated August 16, 2002.
(9) Incorporated by reference from our Form 10KS/A dated October 13,
2006.
(10) Incorporated by reference from our Form 10-QSB dated November 10,
2005.
(11) Incorporated by reference from our Form SB-2/A dated October 20,
2006.
Item 28. Undertakings.
The undersigned small business issuer hereby undertakes
with respect to the securities being offered and sold in this offering:
(1) To file, during any period in which it offers or sells securities, a post-
effective amendment to this Registration Statement to:
(a) Include any prospectus required by Section 10(a)(3) of the Securities
Act;
(b) Reflect in the prospectus any facts or events which, individually or
together, represent a fundamental change in the information in this
registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering
range may be reflected in the form of prospectus filed with the
Securities and Exchange Commission pursuant to Rule 424(b) if, in the
aggregate, the changes in volume and price represent no more than a 20
percent change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective registration
statement; and
(c) Include any additional or changed material information on the plan of
distribution.
(2) For determining liability under the Securities Act, treat each post-
effective amendment as a new registration statement of the securities offered,
and the offering of the securities at that time to be the initial bona fide
offering.
(3) File a post-effective amendment to remove from registration any of the
securities that remain unsold at the end of the offering.
II-8
Each prospectus filed pursuant to Rule 424(b) as part of a registration
statement relating to an offering, other than registration statements relying on
Rule 430B or other than prospectuses filed in reliance on Rule 430A, shall be
deemed to be part of and included in the registration statement as of the date
it is first used after effectiveness. Provided, however, that no statement made
in a registration statement or prospectus that is part of the registration
statement or made in a document incorporated or deemed incorporated by reference
into the registration statement or prospectus that is part of the registration
statement will, as to a purchaser with a time of contract of sale prior to such
first use, supersede or modify any statement that was made in the registration
statement or prospectus that was part of the registration statement or made in
any such document immediately prior to such date of first use.
Insofar as indemnification by the undersigned small business issuer for
liabilities arising under the Securities Act of 1933 may be permitted to
directors, officers and controlling persons of the small business issuer
pursuant to the foregoing provisions, or otherwise, the small business issuer
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities
Act, and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities (other
than the payment by the small business issuer of expenses incurred or paid by a
director, officer or controlling person of the small business issuer in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the small business issuer will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
II-9
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form SB-2 and authorizes this registration
statement to be signed on its behalf by the undersigned, in Park City, State of
Utah on January 17, 2007.
PARK CITY GROUP, INC.
By: /s/ Randall K. Fields
-------------------------------------
Randall K. Fields
Principal Executive Officer, CEO
By: /s/ William Dunlavy
-------------------------------------
William Dunlavy
Principal Financial Officer and
Principal Accounting Officer, CFO
In accordance with the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
Signature Title Date
------------------------- ------------------------------------ -----------------
/s/ Randall K. Fields Principal Executive Officer, CEO January 17, 2007
----------------------
Randall K. Fields
/s/ William Dunlavy Principal Financial Officer, January 17, 2007
---------------------- Principal Accounting Officer, CFO
William Dunlavy
/s/ Edward C. Dmytryk Director and Audit Committee Chair January 17, 2007
----------------------
Edward C. Dmytryk
/s/ Thomas W. Wilson Director and Compensation January 17, 2007
---------------------- Committee Chair
Thomas W. Wilson
II-10