UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
FORM 10-Q
 
☒
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
 
For the quarterly period ended DecemberMarch 31, 20172018
 
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
 
For the transition period from __________ to _________.
 
Commission File Number 001-34941
 
PARK CITY GROUP, INC.
(Exact name of small business issuer as specified in its charter)
 
Nevada 37-1454128
(State or other jurisdiction of incorporation or organization) (IRS Employer Identification No.)
 
299 South Main Street, Suite 2225 Salt Lake City, UT 84111
(Address of principal executive offices)
 
(435) 645-2000
(Registrant's telephone number)
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities and Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ Yes ☐ No
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Sec.232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). ☒ Yes ☐ No
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
 
 Large accelerated filer☐ Accelerated filer☒
 Non-accelerated filer☐ Smaller reporting company☐
   Emerging growth company☐
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐
 
Indicate by check mark if whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes  ☒ No 
 
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date:  Common Stock, $0.01 par value, 19,638,17419,766,486 shares as of February 7,May 8, 2018.
 


 
 
 
PARK CITY GROUP,GROUP, INC.
 
TABLE OF CONTENTS
 
  Page
 PART I -  FINANCIAL INFORMATION 
   
Item 1.
Financial Statements
 
   
 
Consolidated Condensed Balance Sheets as of DecemberMarch 31, 20172018 (Unaudited) and June 30, 2017
 1
 
Consolidated Condensed Statements of Operations for the Three and SixNine Months Ended DecemberMarch 31, 20172018 and 20162017 (Unaudited)
 2
 
Consolidated Condensed Statements of Cash Flows for the SixNine Months Ended DecemberMarch 31, 20172018 and 20162017 (Unaudited)
 3
 
Notes to Consolidated Condensed Financial Statements
 4
   
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
 89
   
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
 1517
   
Item 4.
Controls and Procedures
 1618
   
 
PART II – OTHER INFORMATION
 
   
Item 1.
Legal Proceedings
 1719
   
Item 1A.
Risk Factors
 1719
   
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
 1719
   
Item 3.
Defaults Upon Senior Securities
 1719
   
Item 5.
Other Information
 1719
   
Item 6.
Exhibits
 1719
   
Signatures
  1820
   
Exhibit 31Certification of Principal Executive Officer and Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 
Exhibit 32Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 
 

 
 
-i-
 
 
 PARK CITY GROUP, INC.
 PARK CITYGROUP, INC.
Consolidated CondensedCondensed Balance Sheets
 
Assets
 
December 31,
2017
 
 
June 30,
2017
 
 
March 31,
2018
 
 
June 30,
2017
 
Current Assets
 
Unaudited
 
 
 
 
 
Unaudited
 
 
 
 
Cash
 $14,818,508 
 $14,054,006 
 $14,828,160 
 $14,054,006 
Receivables, net allowance for doubtful accounts of $484,613 and $392,250 at December 31, 2017 and June 30, 2017, respectively
  5,860,874 
  4,009,127 
Receivables, net allowance for doubtful accounts of $584,193 and $392,250 at March 31, 2018 and June 30, 2017, respectively
  6,713,690 
  4,009,127 
Prepaid expense and other current assets
  789,057 
  643,600 
  1,282,667 
  643,600 
Total Current Assets
  21,468,439 
  18,706,733 
  22,824,517 
  18,706,733 
    
    
Property and equipment, net
  2,066,482 
  2,115,277 
  1,985,021 
  2,115,277 
    
    
Other Assets:
    
    
Long-term receivables, deposits, and other assets
  1,773,819 
  2,540,291 
  1,136,711 
  2,540,291 
Investments
  477,884 
  477,884 
Customer relationships
  985,500 
  1,051,200 
  952,650 
  1,051,200 
Goodwill
  20,883,886 
  20,883,886 
Capitalized software costs, net
  217,956 
  137,205 
  193,441 
  137,205 
Total Other Assets
  24,339,045 
  25,090,466 
  23,644,572 
  25,090,466 
    
    
Total Assets
 $47,873,966 
 $45,912,476 
 $48,454,110 
 $45,912,476 
    
    
Liabilities and Shareholders' Equity
    
Liabilities and Shareholders’ Equity
    
Current liabilities
    
    
Accounts payable
 $639,418 
 $565,487 
 $1,253,560 
 $565,487 
Accrued liabilities
  1,582,041 
  2,084,980 
  1,264,721 
  2,084,980 
Deferred revenue
  2,409,816 
  2,350,846 
  2,360,394 
  2,350,846 
Lines of credit
  2,850,000 
  3,230,000 
  2,850,000 
Current portion of notes payable
  255,071 
  318,616 
  186,495 
  318,616 
Total current liabilities
  7,736,346 
  8,169,929 
  8,295,170 
  8,169,929 
    
    
Long-term liabilities
    
    
Notes payable, less current portion
  1,951,412 
  1,996,953 
  1,641,064 
  1,996,953 
Other long-term liabilities
  22,009 
  36,743 
  14,642 
  36,743 
    
    
Total liabilities
  9,709,767 
  10,203,625 
  9,950,876 
  10,203,625 
    
    
Commitments and contingencies
    
    
    
    
Stockholders' equity:
    
Stockholders’ equity:
    
Preferred stock; $0.01 par value, 30,000,000 shares authorized;
    
    
Series B Preferred, 700,000 shares authorized; 625,375 shares issued and outstanding at December 31, 2017 and June 30, 2017;
  6,254 
Series B-1 Preferred, 550,000 shares authorized; 305,859 and 285,859 shares issued and outstanding at December 31, 2017 and June 30, 2017, respectively
  3,059 
  2,859 
Common stock, $0.01 par value, 50,000,000 shares authorized; 19,534,586 and 19,423,821 issued and outstanding at December 31, 2017 and June 30, 2017, respectively
  195,348 
  194,241 
Series B Preferred, 700,000 shares authorized; 625,375 shares issued and outstanding at March 31, 2018 and June 30, 2017;
  6,254 
Series B-1 Preferred, 550,000 shares authorized; 212,402 and 285,859 shares issued and outstanding at March 31, 2018 and June 30, 2017, respectively
  2,124 
  2,859 
Common stock, $0.01 par value, 50,000,000 shares authorized; 19,765,437 and 19,423,821 issued and outstanding at March 31, 2018 and June 30, 2017, respectively
  197,657 
  194,241 
Additional paid-in capital
  76,542,022 
  75,489,189 
  76,634,385 
  75,489,189 
Accumulated deficit
  (38,582,484)
  (39,983,692)
  (38,337,186)
  (39,983,692)
Total stockholders' equity
  38,164,199 
  35,708,851 
  38,503,234 
  35,708,851 
    
    
Total liabilities and stockholders' equity
 $47,873,966 
 $45,912,476 
Total liabilities and stockholders’ equity
 $48,454,110 
 $45,912,476 
 
See accompanying notes to consolidated condensed financial statements.
 
 
 
-1-
 
PARK CITY GROUP, INC.
Consolidated Condensed Statements ofOperations (unaudited)
 
   
 
Three Months Ended
March 31, 
 
 
Nine Months Ended
March 31,
 
 
 
2018
 
 
2017
 
 
2018
 
 
2017
 
 
 
 
 
 
 
 
Revenue
 $5,278,783 
 $4,748,652 
 $15,715,654 
 $13,750,786 
 
    
    
    
    
Operating expense:
    
    
    
    
Cost of services and product support
  1,805,256 
  1,342,772 
  4,649,620 
  3,736,691 
Sales and marketing
  1,574,663 
  1,350,726 
  4,781,752 
  3,702,975 
General and administrative
  1,293,727 
  1,006,605 
  3,569,584 
  2,967,842 
Depreciation and amortization
  165,189 
  106,899 
  487,815 
  336,340 
 
    
    
    
    
Total operating expense
  4,838,835 
  3,807,002 
  13,488,771 
  10,743,848 
 
    
    
    
    
Income from operations
  439,948
  941,650 
  2,226,883 
  3,006,938 
 
    
    
    
    
Other expense:
    
    
    
    
Interest expense
  17,730 
  (4,729)
  (12,157)
  (18,052)
 
    
    
    
    
Income before income taxes
  457,678 
  936,921 
  2,214,726 
  2,988,886 
 
    
    
    
    
(Provision) for income taxes:
  (349)
  (35,471)
  (76,063)
  (94,655)
Net income
  457,329 
  901,450 
  2,138,663 
  2,894,231 
 
    
    
    
    
Dividends on preferred stock
  (146,611)
  (202,036)
  (426,737)
  (584,288)
 
    
    
    
    
Net income applicable to common shareholders
 $310,718 
 $699,414 
 $1,711,926 
 $2,309,943 
 
    
    
    
    
Weighted average shares, basic
  19,648,000 
  19,390,000 
  19,519,000 
  19,331,000 
Weighted average shares, diluted
  20,321,000 
  20,353,000 
  20,250,000 
  20,251,000 
Basic income per share
 $0.02 
 $0.04 
 $0.09 
 $0.12 
Diluted income per share
 $0.02 
 $0.03 
 $0.08 
 $0.11 
   
 
Three Months Ended
December 31, 
 
 
Six Months Ended
December 31,
 
 
 
2017
 
 
2016
 
 
2017
 
 
2016
 
 
 
 
 
 
 
 
Revenues
 $5,724,706 
 $4,785,589 
 $10,436,871 
 $9,002,134 
 
    
    
    
    
Operating expenses:
    
    
    
    
Cost of services and product support
  1,426,351 
  1,190,404 
  2,844,364 
  2,393,919 
Sales and marketing
  1,621,149 
  1,159,073 
  3,207,089 
  2,352,249 
General and administrative
  1,140,085
  938,087 
  2,275,855
  1,961,237 
Depreciation and amortization
  163,825
  112,861 
  322,628
  229,441 
 
    
    
    
    
Total operating expenses
  4,351,410 
  3,400,425 
  8,649,936 
  6,936,846 
 
    
    
    
    
Income from operations
  1,373,296 
  1,385,164 
  1,786,935 
  2,065,288 
 
    
    
    
    
Other expense:
    
    
    
    
Interest expense
  (7,696)
  (6,836)
  (29,887)
  (13,323)
Income before income taxes
  1,365,600 
  1,378,328 
  1,757,048 
  2,051,965 
 
    
    
    
    
(Provision) benefit for income taxes:
  (15,116)
  - 
  (75,714)
  (59,184)
Net income
  1,350,484 
  1,378,328 
  1,681,334 
  1,992,781 
 
    
    
    
    
Dividends on preferred stock
  (162,966)
  (195,448)
  (280,126)
  (382,252)
 
    
    
    
    
Net income applicable to common shareholders
 $1,187,518 
 $1,182,880 
 $1,401,208 
 $1,610,529 
 
    
    
    
    
Weighted average shares, basic
  19,487,000 
  19,338,000 
  19,455,000 
  19,302,000 
Weighted average shares, diluted
  20,338,000 
  20,313,000 
  20,340,000 
  19,493,000 
Basic income per share
 $0.06 
 $0.06 
 $0.07 
 $0.08 
Diluted income per share
 $0.06 
 $0.06 
 $0.07 
 $0.08 
  
See accompanying notes to consolidated condensed financial statements.
 

 
-2-
 
 
PARK CITY GROUP,GROUP, INC.-
Consolidated Condensed Statements of Cash Flows (Unaudited)
 
 
Six Months
Ended December 31,
 
 
Nine Months
Ended March 31,
 
 
2017  
 
 
2016
 
 
2018
 
 
2017
 
Cash Flows Operating Activities:
 
 
 
 
 
 
Net income
 $1,681,334 
 $1,992,781 
 $2,138,663 
 $2,894,231 
Adjustments to reconcile net income to net cash provided by operating activities:
    
    
Depreciation and amortization
  322,628 
  229,441 
  487,815 
  336,340 
Stock compensation expense
  388,099 
  578,080 
  489,748 
  961,589 
Bad debt expense
  195,050 
  155,700 
  295,050 
  230,700 
(Increase) decrease in:
    
    
Trade receivables
  (2,046,797)
  (2,269,610)
  (2,999,613)
  (444,022)
Long-term receivables, prepaids and other assets
  621,015 
  43,232 
  764,513 
  (1,722,362)
(Decrease) increase in:
    
    
Accounts payable
  73,931 
  (97,020)
  688,073 
  169,504 
Accrued liabilities
 74,383
  21,385 
  (98,821)
  92,281 
Deferred revenue
 58,970
  (274,922)
  9,548 
  (558,576)
    
    
Net cash provided by operating activities
  1,368,613 
  379,067 
  1,774,976 
  1,959,685 
    
    
Cash Flows From Investing Activities:
    
Cash Flows from Investing Activities:
    
Capitalization of software costs
  (111,241)
  - 
  (111,241)
  - 
Purchase of property and equipment
  (177,643)
  (19,499)
  (204,004)
  (337,777)
Purchase of long-term investments
  -  
  (3,150)
    
Net cash used in investing activities
  (288,884)
  (19,499)
  (315,245)
  (340,927)
    
    
Cash Flows From Financing Activities:
    
Cash Flows from Financing Activities:
    
Proceeds from exercise of options and warrants
  666,903
 
  121,625
 
Net increase in lines of credit
  380,000
 
  130,432
 
Proceeds from employee stock purchase plans
  119,790 
  113,987 
  244,417 
  223,465 
Proceeds from issuance of note payable
  56,078 
  - 
  56,078 
  207,345 
Net increase in lines of credit
  - 
  250,000 
Proceeds from exercise of options and warrants
  - 
  35,000 
Dividends paid
  (488,897)
  (7,932)
Payments on notes payable and capital leases
  (165,164)
  (133,891)
  (544,088)
  (194,539)
Dividends paid
  (325,931)
  (5,288)
    
Redemption of Series B-1 Preferred
  (999,990)
  - 
Net cash provided by (used in) financing activities
  (315,227)
  259,808 
  (685,577)
  480,396 
    
    
Net increase in cash and cash equivalents
  764,502 
  619,376 
  774,154 
  2,099,154 
    
    
Cash and cash equivalents at beginning of period
  14,054,006 
  11,443,388 
  14,054,006 
  11,443,388 
    
    
Cash and cash equivalents at end of period
 $14,818,508 
 $12,062,764 
 $14,828,160 
 $13,542,542 
    
    
Supplemental Disclosure of Cash Flow Information:
    
    
Cash paid for income taxes
 $75,714 
 $59,184 
 $79,820 
 $64,655 
Cash paid for interest
 $123,921 
 $22,452 
 $136,500 
 $31,004 
    
    
Supplemental Disclosure of Non-Cash Investing and Financing Activities:
    
    
Common stock to pay accrued liabilities
 $734,350 
 $655,107 
 $971,127 
 $770,858 
Preferred stock to pay accrued liabilities
 $200,000 
 $100,000 
 $200,000 
 $300,000 
Dividends accrued on preferred stock
 $280,126 
 $382,252 
 $426,737 
 $584,288 
Dividends paid with preferred stock
 $- 
 $364,271 
 $- 
 $557,071 
 
See accompanying notes to consolidated condensed financial statements. 
 

 
-3-
 
 
PARK CITTYY GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(unaudited)
 
NOTE 1.  DESCRIPTION OF BUSINESS
 
Overview
Park City Group, Inc. (the “Company”) is the parent company of ReposiTrak Inc., a compliance, supply chain, and MarketPlace B2B e-commerce services platform that partners with retailers and wholesalers, and their suppliers, to accelerate sales, control risks, and improve supply chain efficiencies.
 
The Company’s supply chain and MarketPlace services provide its customers with greater flexibility in sourcing products by enabling them to choose new suppliers and integrate them into their supply chain faster and more cost effectively, and we helpit helps them to more efficiently manage these relationships, enhancing revenue while lowering working capital, labor costs and waste. OurThe Company’s food safety and compliance solutions help reduce a company’s potential regulatory, legal, and criminal risk from its supply chain partners by providing a way for them to ensure these suppliers are compliant with food safety regulations, such as the Food Safety Modernization Act (“FSMA”).
 
The Company’s services are delivered though proprietary software products designed, developed, marketed and supported by the Company. These products are designed to provide transparency and to facilitate improved business processes among all key constituents in the supply chain, starting with the retailer and moving back to suppliers and eventually to raw material providers. The Company provides cloud-based applications and services that address e-commerce, supply chain, and food safety and compliance activities. The principal customers for the Company’s products are multi-store food retail store chains and their suppliers, branded food manufacturers, food wholesalers and distributors, and other food service businesses.
 
The Company has a hub and spoke business model. The Company is typically engaged by retailers and distributors (“Hubs”), which in turn have it engage their suppliers (“Spokes”) to sign upcontract for itsthe Company's services. The bulk of the Company’s revenue is from recurring subscription payments from these suppliers often based on a monthly volume metric between the Hub and the Spoke. The Company also has a professional services business, which conducts customization, implementation, and training, for which revenue is recognized on a percentage-of-completion or pro rata basis over the life of the subscription, depending on the nature of the engagement. In a few instances, the Company will also sell its software in the form of a use license.
 
The Company is incorporated in the state of Nevada. The Company has three principal subsidiaries: PC Group, Inc., a Utah corporation (98.76% owned); Park City Group, Inc., a Delaware corporation (100% owned); and ReposiTrak, Inc., a Utah corporation (100% owned). All intercompany transactions and balances have been eliminated in consolidation.
 
OurThe Company’s principal executive offices of the Company are located at 299 South Main Street, Suite 2225, Salt Lake City, Utah 84111. OurIts telephone number is (435) 645-2000. OurIts website address is http://www.parkcitygroup.com, and ReposiTrak’s website address is http://repositrak.com.
Recent Developments
Redemption of Shares of Series B Preferred Stock
The Company’s First Amended and Restated Certificate of Designation of the Relative Rights, Powers and Preferences of the Series B-1 Preferred Stock(the “Series B-1 Preferred”), as amended (the “Series B-1 COD”), provides the Company’s Board of Directors with the right to redeem any or all of the outstanding shares of the Company’s Series B-1 Preferred for a cash payment of $10.70 per share at any time upon providing the holders of Series B-1 Preferred at least ten days written notice that sets forth the date on which the redemption will occur (the “Redemption Notice”).
On January 27, 2018, the Company’s Board of Directors approved the redemption of 93,457 of the 305,859 issued and outstanding shares of the Company’s Series B-1 Preferred (the “Redemption Shares”), and on February 6, 2018, the Company delivered a Redemption Notice to certain holders of the Series B-1 Preferred notifying the holders of the Company’s intent to redeem their Redemption Shares on February 7, 2018 (the “Redemption Date”) (the “Series B-1 Redemption”). On the Redemption Date, the Company paid an aggregate total of $1.0 million to the holders of shares of Series B-1 Preferred, resulting in the redemption of 93,457 shares of Series B-1 Preferred. Following the Series B-1 Redemption, 212,402 shares of Series B-1 Preferred remain issued and outstanding.
-4-
 
Basis of Financial Statement Presentation
 
The interim financial information of the Company as of DecemberMarch 31, 20172018 and for the three and sixnine months ended DecemberMarch 31, 20172018 and 20162017 is unaudited, and the balance sheet as of June 30, 2017 is derived from audited financial statements. The accompanying condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles for interim financial statements. Accordingly, they omit or condense notes and certain other information normally included in financial statements prepared in accordanceinaccordance with U.S. generally accepted accounting principles. The accounting policies followed for quarterly financial reporting conform with the accounting policies disclosed in Note 2 to the Notes to Financial Statements included in our Annual Report on Form 10-K10­-K for the year ended June 30, 2017. In the opinion of management, all adjustments necessary for a fair presentation of the financial information for the interim periods reported have been made. All such adjustments are of a normal recurring nature. The results of operations for the three and sixnine months ended DecemberMarch 31, 20172018 are not necessarily indicative of the results that can be expected for the fiscal year ending June 30, 2018. The unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and the notes thereto included in our Annual Report on Form 10-K10-­K for the year ended June 30, 2017.
 
NOTE 2.  SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation
 
The financial statements presented herein reflect the consolidated financial position of Park City Group, Inc. and our subsidiaries. All inter-company transactions and balances have been eliminated in consolidation.  
-4-
 
Use of Estimates
 
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 Securities and Exchange Commission has defined the most critical accounting policies as those 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: income taxes, goodwill and other long-lived asset valuations, revenue recognition, stock-basedstock­based compensation, and capitalization of software development costs.
 
Earnings Per Share
 
Basic net income per common share (“Basic EPS”) excludes dilution and is computed by dividing net income by the weighted average number of common shares outstanding during the period. Diluted net income per common share (“Diluted EPS”) reflects the potential dilution that could occur if stock options or other contracts to issue shares of common stock were exercised or converted into common stock. The computation of Diluted EPS does not assume exercise or conversion of securities that would have an anti-dilutiveanti­dilutive effect on net income per common share.
The following table presents the components of the computation of basic and diluted earnings per share for the periods indicated:
 
  Three Months Ended
 
 
  Six Months Ended
 
 
  Three Months Ended
 
 
  Nine Months Ended
 
 
  December 31,
 
 
  March 31,
 
 
 2017
 
 
2016
 
 
2017
 
 
2016
 
 
 2018
 
 
2017
 
 
2018
 
 
2017
 
Numerator
 
 
 
 
 
 
Net income applicable to common shareholders
 $1,187,518 
 $1,182,880 
 $1,401,208 
 $1,610,529 
 $310,718 
 $699,414 
 $1,711,926 
 $2,309,943 
    
    
Denominator
    
    
Weighted average common shares outstanding, basic
  19,487,000 
  19,338,000 
  19,455,000 
  19,302,000 
  19,648,000 
  19,390,000 
  19,519,000 
  19,331,000 
Warrants to purchase common stock
  851,000 
  975,000 
  885,000 
  191,000 
  673,000 
  963,000 
  731,000 
  920,000 
Weighted average common shares outstanding, diluted
  20,338,000 
  20,313,000 
  20,340,000 
  19,493,000 
  20,321,000 
  20,353,000 
  20,250,000 
  20,251,000 
    
    
Net income per share
    
    
Basic
 $0.06 
 $0.07 
 $0.08 
 $0.02 
 $0.04 
 $0.09 
 $0.12 
Diluted
 $0.06 
 $0.07 
 $0.08 
 $0.02 
 $0.03 
 $0.08 
 $0.11 
-5-
 
Reclassifications
 
            Certain prior-yearprior year amounts have been reclassified to conform with the current year’s presentation.These reclassifications have no impact on the previously reported results.
  
NOTE 3.  EQUITY
 
Restricted Stock Units
 
Restricted
Stock Units
 
 
Weighted Average Grant Date Fair Value
($/share)
 
 
Restricted
Stock Units
 
 
Weighted Average Grant Date Fair Value
($/share)
 
 
 
 
 
 
 
Outstanding at June 30, 2017
  982,613 
 $6.01 
  982,613 
 $6.01 
Granted
  9,897 
  12.12 
  9,897 
  12.12 
Vested and issued
  (95,201)
  7.21 
  (119,186)
  7.36 
Forfeited
  (13,669)
  11.89 
  (28,264)
  10.96 
Outstanding at December 31, 2017
  883,640 
 $5.86 
Outstanding at March 31, 2018
  845,060
 $5.73 
 
The number of restricted stock units outstanding at DecemberMarch 31, 20172018 included 3,380638 units that have vested but for which shares of common stock had not yet been issued pursuant to the terms of the agreement.
 
As of DecemberMarch 31, 2017,2018, there was approximately $5.2MM$4.8 million of unrecognized stock-based compensation expense under our equity compensation plans, which is expected to be recognized on a straight-line basis over a weighted average period of 4.5 years.
 
-5-
Warrants
 
 The following tables summarize information about warrants outstanding and exercisable at DecemberMarch 31, 2017:2018:
 
 
 
 
 
Warrants Outstanding
at December 31, 2017
 
 
Warrants Exercisable
at December 31, 2017
 
 
Range of
exercise prices
 
 
Number
Outstanding
 
 
Weighted average
remaining contractual life (years)
 
 
Weighted average exercise price
 
 
Number
exercisable
 
 
Weighted average
exercise price
 
 $3.45 – 4.00 
  1,271,618 
  1.82 
 $3.94 
  1,271,618 
 $3.94 
 $6.45 – 10.00 
  100,481 
  .99 
 $7.29 
  100,481 
 $7.29 
    
  1,372,099 
  1.76 
 $4.18 
  1,372,099 
 $4.18 
 
 
 
 
Warrants
 
 
Warrants
 
 
 
 
 
Outstanding
 
 
Exercisable
 
 
 
 
 
at March 31, 2018
 
 
at March 31, 2018
 
 
 
Range of
exercise prices
Warrants
 
 
Number
outstanding
 
 
Weighted
 average
remaining
contractual
life (years)
 
 
Weighted
average
exercise
price
 
 
Number
exercisable
 
 
Weighted
average
exercise
price
 
 $4.00
  1,085,068 
  1.85
 $4.00 
  1,085,068 
 $4.00 
 $6.45-10.00
  100,481 
  .74 
 $7.29 
  100,481 
 $7.29 
    
  1,185,549 
  1.75 
 $4.28 
  1,185,549 
 $4.28 
 
Preferred Stock
 
The Company’s 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 the Company’s Board of Directors, of which 700,000 shares are currently designated as Series B Preferred Stock (“Series B Preferred”) and 550,000 shares are designated as Series B-1 Preferred Stock (“Series B-1 Preferred”).B-­1 Preferred. As of DecemberMarch 31, 2017,2018, a total of 625,375 shares of Series B Preferred and 305,859212,402 shares of Series B-1B­-1 Preferred were issued and outstanding. Both classes of Series B Preferred Stock pay dividends at a rate of 7% per annum if paid by the Company in cash, or 9% if paid by the Company in additional shares of Series B Preferred (“PIK Shares”), the Company may elect to pay accrued dividends on outstanding shares of Series B Preferred in either cash or by the issuance ofPIK Shares.Shares.
 
In July 2017, the Company issued 20,000 shares of Series B-1 Preferred in satisfaction of an accrued bonus payable to the Company’s Chief Executive Officer.
-6-

On February 6, 2018, the Company delivered a Redemption Notice to certain holders of the Series B-­1 Preferred notifying the holders of the Company’s intent to redeem their Redemption Shares on February 7, 2018 (the “Redemption Date”) (the “Series B­-1 Redemption”). On the Redemption Date, the Company paid an aggregate total of $999,990 to the holders of shares of Series B-­1 Preferred, resulting in the redemption of 93,457 shares of Series B­-1 Preferred.
Management believes the Series B-1B-­1 Preferred favorably impacts the Company’s overall cost of capital in that it isis: (i) is perpetual and, therefore, an equity instrument that positively impacts the Company’s coverage ratios;ratios. (ii) posessespossesses a below-marketbelow market dividend rate relative to similar instruments;instruments. (iii) offers the flexibility of a paid-in-kindpaid­-in-­kind (PIK) payment option;option. and (iv) is without covenants. After exploring alternative options for redeeming the Series B-1B-­1 Preferred, management determined that alternative financing options were materially more expensive, or would impair the Company’s net cash position, which management believes could cause customer concerns and negatively impact the Company’s ability to attract new business.
  
NOTE 4.  RELATED PARTY TRANSACTIONS
 
During the sixnine months ended DecemberMarch 31, 2017,2018, the Company continued to be a party to a Service Agreement with Fields Management, Inc. (“FMI”), pursuant to which FMI provided certain executive management services to the Company, including designating Randall K. Fields to perform the functions of President and Chief Executive Officer for the Company. Mr. Fields also serves as the Company’s Chairman of the Board of Directors and controls FMI. The Company had payables of $45,200$230,150 and $77,628 to FMI at DecemberMarch 31, 20172018 and June 30, 2017, respectively, under this agreement.Agreement. In addition, in the first quarter of fiscal 2017, 20,000 shares of Series B-1 Preferred were paid to FMI in satisfaction of an accrued bonus payable to Mr. Fields.
 
Randall K. Fields and Robert W. Allen each beneficially own Series B-1 Preferred. As a result of the Series B-1 Redemption, the Company paid an aggregate of $889,159 and $110,831 to Messrs. Fields and Allen, respectively, in consideration for the redemption of 83,099 and 10,358 shares of Series B-1 Preferred. See Note 3.
NOTE 5.  RECENT ACCOUNTING PRONOUNCEMENTS
 
In May 2014, August 2015, April 2016, May 2016, September 2017 and SeptemberNovember 2017, the Financial Accounting Standards Board (“FASB”) issued ASU 2014-092014­-09 (ASC Topic 606), Revenue from Contracts with Customers, ASU 2015-142015­-14 (ASC Topic 606) Revenue from Contracts with Customers, Deferral of the Effective Date, ASU 2016-102016-­10 (ASC Topic 606) Revenue from Contracts with Customers, Identifying Performance Obligations and Licensing, and ASU 2016-122016­-12 (ASC Topic 606) Revenue from Contracts with Customers, Narrow-ScopeNarrow­Scope Improvements and Practical Expedients, ASU 2017-14, Income Statement - Reporting Comprehensive Income (ASC Topic 606),Revenue Recognition (ASC Topic 606), and Revenue from Contracts with Customers (ASC Topic 606): Amendments to SEC Paragraphs pusuant to Staff Accounting Bulletin No. 116 and SEC Release No. 33-10403, respectively. ASC Topic 606 outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specificindustry­specific guidance. It also requires entities to disclose both quantitative and qualitative information that enable financial statements users to understand the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. The amendments in these ASUs are effective for fiscal years, and interim periods within those years, beginning after December 15, 2017. Early adoption is permitted for annual periods beginning after December 15, 2016. This standard may be applied retrospectively to all prior periods presented, or retrospectively with a cumulative adjustment to retained earnings in the year of adoption. The Company currently anticipates adopting the standard using the full retrospective method. We are in the process of completing our analysis on the impact this guidance will have on our Consolidated Financial Statements and related disclosures, as well as identifying the required changes to our policies, processes and controls. The Company is still conducting its assessment and will continuein order to evaluatebe able to state the impact of this ASU on our financial position and results of operation.
 
-6-
In January 2017, the FASB issued ASU 2017-04,2017-­04, Intangibles—Goodwill and Other (Topic 350), Simplifying the Test for Goodwill Impairment. The amendments in this update simplify how an entity is required to test goodwill for impairment by eliminating Step 2 from the goodwill impairment test. An entity should apply the amendments in this update on a prospective basis. The Company notes that this guidance applies to its reporting requirements and will implement the new guidance accordingly.
 
In August 2016, the FASB issued ASU 2016-15,2016­-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments. Historically, there has been a diversity in practice in how certain cash receipts/payments are presented and classified in the statement of cash flows under Topic 230. To reduce the existing diversity in practice, this update addresses multiple cash flow issues. The amendments in this update are effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted. The Company notes that this guidance applies to its reporting requirements and will implement the new guidance accordingly.

-7-
 
In March 2016, the FASB issued ASU 2016-09 (ASC Topic 718), Stock Compensation—Improvements to Employee Share-Based Payment Accounting. The amendments in this ASU are intended to simplify several areas of accounting for share-based compensation arrangements, including the income tax consequences, classification on the consolidated statement of cash flows and treatment of forfeitures. The amendments in this ASU are effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods. Early adoption is permitted. The Company is in the process of assessing the impact, if any, of this ASU on its consolidated financial statements.
 
In February 2016, the FASB issued ASU 2016-02 (ASC Topic 842), Leases. The ASU amends a number of aspects of lease accounting, including requiring lessees to recognize operating leases with a term greater than one year on their balance sheet as a right-of-use asset and corresponding lease liability, measured at the present value of the lease payments. The amendments in this ASU are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted. The Company is in the process of assessing the impact, but based on current commitments does not anticipate adoption to have a material impact on its consolidated financial statements.
 
NOTE 6.  SUBSEQUENT EVENTS

Redemption of Shares of Series B Preferred Stock

Section 4 of the Company’s First Amended and Restated Certificate of Designation of the Relative Rights, Powers and Preferences of the Series B-1 Preferred Stock, as amended (the “Series B-1 COD”) provides the Company’s Board of Directors with the right to redeem any or all of the outstanding shares of the Company’s Series B-1 Preferred for a cash payment of $10.70 per share at any time upon providing the holders of Series B-1 Preferred at least ten days written notice that sets forth the date on which the redemption will occur (the “Redemption Notice”).
 
On January 27, 2018, the Company’s Board of Directors approved the redemption of 93,457 of the 305,859 issued and outstanding shares of the Company’s Series B-1 Preferred (the “Redemption Shares”), and on February 6,Subsequent to March 31, 2018, the Company delivered a Redemption Notice to the holders of the Series B-1 Preferred notifying the holders of the Company’s intent to redeem the Redemption Shares, on a pro rata basis, on February 7, 2018 (the “Redemption Date”) (the “Series B-1 Redemption”). On the Redemption Date, the Company paid an aggregate total of $1.0 million to the holders ofissued 1,049 shares of Series B-1 Preferred forcommon stock in connection with the redemptionvesting of a total of 93,457 shares of Series B-1 Preferred.employee stock grants.  Following the Series B-1 Redemption, a total of 212,402 shares of Series B-1 Preferred remain issued and outstanding.
 
In accordance with the Subsequent Events Topic of the FASB ASC 855, we have evaluated subsequent events, through the filing date and noted no additional subsequent events that are reasonably likely to impact the financial statements.
 
 
-7--8-
 
 
ITEM 2.  MANMANAGEMEANGEMENT’ST’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
  
Forward-Looking Statements
 
This Quarterly Report on Form 10-Q contains forward-looking statements. The words or phrases “would be,” “will allow,” “intends to,” “will likely result,” “are expected to,” “will continue,” “is anticipated,” “estimate,” “project,” or similar expressions are intended to identify “forward-looking statements.” Actual results could differ materially from those projected in the forward-looking statements as a result of a number of risks and uncertainties, including those risks factors contained in our June 30, 2017 Annual Report on Form 10-K, incorporated herein by reference. Statements made herein are as of the date of the filing of this Form 10-Q with the Securities and Exchange Commission and should not be relied upon as of any subsequent date. Unless otherwise required by applicable law, we do not undertake, and specifically disclaim any obligation, to update any forward-looking statements to reflect occurrences, developments, unanticipated events or circumstances after the date of such statement.
 
Overview
 
Park City Group, Inc. (the “Company”) is the parent company of ReposiTrak Inc., a compliance, supply chain, and MarketPlace B2B e-commerce services platform that partners with retailers and wholesalers, and their suppliers, to accelerate sales, control risks, and improve supply chain efficiencies.
 
The Company’s supply chain and MarketPlace services provide its customers with greater flexibility in sourcing products by enabling them to choose new suppliers and integrate them into their supply chain faster and more cost effectively, and we helpit helps them to more efficiently manage these relationships, enhancing revenue while lowering working capital, labor costs and waste. Our food safety and compliance solutions help reduce a company’s potential regulatory, legal, and criminal risk from its supply chain partners by providing a way for them to ensure these suppliers are compliant with food safety regulations, such as the Food Safety Modernization Act (“FSMA”).
 
The Company’s services are delivered though proprietary software products designed, developed, marketed and supported by the Company. These products are designed to provide transparency and facilitate improved business processes among all key constituents in the supply chain, starting with the retailer and moving back to suppliers and eventually to raw material providers. The Company provides cloud-based applications and services that address e-commerce, supply chain, and food safety and compliance activities. The principal customers for the Company’s products are multi-store food retail store chains and their suppliers, branded food manufacturers, food wholesalers and distributors, and other food service businesses.
 
The Company has a hub and spoke business model. The Company is typically engaged by retailers and distributors (“Hubs”), which in turn have it engage their suppliers (“Spokes”) to sign upcontract with the Company for its services. The bulk of the Company’s revenue is from recurring subscription payments from these suppliers often based on a monthly volume metric between the Hub and the Spoke. The Company also has a professional services business, which conducts customization, implementation, and training, for which revenue is recognized on a percentage-of-completion or pro rata basis over the life of the subscription, depending on the nature of the engagement. In a few instances, the Company will also sell its software in the form of a license.
 
The Company is incorporated in the state of Nevada. The Company has three principal subsidiaries: PC Group, Inc., a Utah corporation (98.76% owned); Park City Group, Inc., a Delaware corporation (100% owned); and ReposiTrak, Inc., a Utah corporation (100% owned). All intercompany transactions and balances have been eliminated in consolidation.
 
Our principal executive offices of the Company are located at 299 South Main Street, Suite 2225, Salt Lake City, Utah 84111. Our telephone number is (435) 645-2000. Our website address is http://www.parkcitygroup.com, and ReposiTrak’s website address is http://repositrak.com.
 
Redemption of Shares of Series B Preferred Stock
Section 4 of the Company’s First Amended and Restated Certificate of Designation of the Relative Rights, Powers and Preferences of the Series B-1 Preferred Stock (“Series B-1 Preferred”), as amended (the “Series B-1 COD”), provides the Company’s Board of Directors with the right to redeem any or all of the outstanding shares of the Company’s Series B-1 Preferred for a cash payment of $10.70 per share at any time upon providing the holders of Series B-1 Preferred at least ten days written notice that sets forth the date on which the redemption will occur (the “Redemption Notice”).
-9-
On January 27, 2018, the Company’s Board of Directors approved the redemption of 93,457 of the 305,859 issued and outstanding shares of the Company’s Series B-1 Preferred (the “Redemption Shares”), and on February 6, 2018, the Company delivered a Redemption Notice to certain holders of the Series B-1 Preferred notifying the holders of the Company’s intent to redeem their Redemption Shares on February 7, 2018 (the “Redemption Date”) (the “Series B-1 Redemption”). On the Redemption Date, the Company paid an aggregate total of $1.0 million to the holders of shares of Series B-1 Preferred, resulting in the redemption of 93,457 shares of Series B-1 Preferred. Following the Series B-1 Redemption, 212,402 shares of Series B-1 Preferred remain issued and outstanding.  
Results of Operations
 
Comparison of the Three Months Ended DecemberMarch 31, 20172018 to the Three Months Ended DecemberMarch 31, 2016.2017.
 
Revenue
 
 
 
Fiscal Quarter Ended
December 31,
 
 
Variance
 
 
 
2017
 
 
2016
 
 
Dollars
 
 
Percent
 
Revenue
 $5,724,706 
 $4,785,589 
 $939,117 
  20% 
 
 
Fiscal Quarter Ended
March 31,
 
 
Variance
 
 
 
2018
 
 
2017
��
 
Dollars
 
 
Percent
 
Revenue
 $5,278,783 
 $4,748,652 
 $530,131 
  11%
 
Revenue was $5,724,706$5,278,783 and $4,785,589$4,748,652 for the three months ended DecemberMarch 31, 20172018 and 2016,2017, respectively, a 20%11% increase. This increase was driven by growth in all services, and in particular growththe addition of supply chain revenues.
-8-
transaction fees from MarketPlace, while one-time consulting fees were down versus the comparable period. Management anticipates that total revenue in subsequent periods will continue to grow compared to comparable year-ago periods due to the continued roll-out of MarketPlace and higher subscription revenue, including revenue attributable to ReposiTrak.
 
Cost of Services and Product Support
 
 
Fiscal Quarter Ended
 December 31,
 
 
Variance
 
 
Fiscal Quarter Ended
March 31,
 
 
Variance
 
 
2017
 
 
2016
 
 
Dollars
 
 
Percent
 
 
2018
 
 
2017
 
 
Dollars
 
 
Percent
 
Cost of services and product support
 $1,426,351 
 $1,190,404 
 $235,947 
  20% 
 $1,805,256 
 $1,342,772 
 $462,484 
  34%
Percent of total revenue
  25%
    
  34%
  28%
    
 
Cost of services and product support was $1,426,351$1,805,256 and $1,190,404$1,342,772 for the three months ended DecemberMarch 31, 20172018 and 2016,2017, respectively, a 20%34% increase. This increase is primarily attributable to costs related to new product introductions, including MarketPlace and expansion of ReposiTrak compliance capabilities to include new attributes. In particular, the Company incurred certain expenses categorized at Cost of Services associated with the introduction of new business lines for the Company’s MarketPlace e­commerce platform, as well as higher development costs associated with the introduction of new compliance applications and the convergence of the Company’s service offerings.

Sales and Marketing Expense
 
 
Fiscal Quarter Ended
 December 31,
 
 
Variance
 
 
Fiscal Quarter Ended
 March 31,
 
 
Variance
 
 
2017
 
 
2016
 
 
Dollars
 
 
Percent
 
 
2018
 
 
2017
 
 
Dollars
 
 
Percent
 
Sales and marketing
 $1,621,149 
 $1,159,073 
 $462,076 
  40% 
 $1,574,663 
 $1,350,726 
 $223,937 
  17%
Percent of total revenue
  28%
  24%
    
  30%
  28%
    
 
Sales and marketing expense was $1,621,149$1,574,663 and $1,159,073$1,350,726 for the three months ended DecemberMarch 31, 20172018 and 2016,2017, respectively, a 40%17% increase. This increase in sales and marketing expense is due to an increase in head count and salary expense associated with the expansion of the Company’s sales team and associated expenses,expense, and to a lesser extent higher marketing expense associated with advertising, trade shows and promotional activities.
  
-10-
General and Administrative Expense
 
 
Fiscal Quarter Ended
 December 31,
 
 
Variance
 
 
Fiscal Quarter Ended
 March 31,
 
 
Variance
 
 
2017
 
 
2016
 
 
Dollars
 
 
Percent
 
 
2018
 
 
2017
 
 
Dollars
 
 
Percent
 
General and administrative
 $1,140,085
 $938,087 
 $201,998
  22% 
 $1,293,727
 
 $1,006,605 
 $287,122 
  29%
Percent of total revenue
  20%
    
  25%
  21%
    
 
  General and administrative expense was $1,140,085$1,293,727 and $938,087$1,006,605 for the three months ended DecemberMarch 31, 2018 and 2017, and 2016, respectively, an 22%a 29% increase. This increase is primarily attributable to an increase in salary expense and higher software expense and professional fees associated with the execution of the Company’s Project 10x plan to automate and optimize processes to accommodate growth, and to a lesser extent higher general administrative expenses, offset in part by lower stock compensation expense. While no assurances can be given, management currently anticipates that the percentage increase in general and administrative expense will decrease in subsequent periods as the Company completes its Project 10x plan.

Depreciation and Amortization Expense
 
 
Fiscal Quarter Ended
 December 31,
 
 
Variance
 
 
Fiscal Quarter Ended
 March 31,
 
 
Variance
 
 
2017
 
 
2016
 
 
Dollars
 
 
Percent
 
 
2018
 
 
2017
 
 
Dollars
 
 
Percent
 
Depreciation and amortization
 $163,825
 $112,861 
 $50,964
  45% 
 $165,189 
 $106,899 
 $58,290 
  55%
Percent of total revenue
  3%
  2%
    
  3%
  2%
    
 
  Depreciation and amortization expense was $163,825$165,189 and $112,861$106,899 for the three months ended DecemberMarch 31, 20172018 and 2016,2017, respectively, an increase of 45%55%. This increase is primarily due to the purchase of fixed assets during the quarter ended September 30, 2017 to support the growth of the business.
 
Other Income and Expense
 
 
Fiscal Quarter Ended
 December 31,
 
 
Variance
 
 
Fiscal Quarter Ended
 March 31,
 
 
Variance
 
 
2017
 
 
2016
 
 
Dollars
 
 
Percent
 
 
2018
 
 
2017
 
 
Dollars
 
 
Percent
 
Net other expense
 $7,696 
  6,836 
 $860 
  13% 
Net other income (expense)
 $17,730 
 $(4,729)
 $22,459 
 NM%
Percent of total revenue
 
NM
 
 
NM
 
    
    
 
  Net other expenseincome was $7,696$17,730 for the three months ended DecemberMarch 31, 20172018 compared to net other expense of $6,836$4,729 for the three months ended DecemberMarch 31, 2016. This increase in other2017. Other income and expense is primarily due to increased interest expense associated with investmentwas positive in the growth ofquarter versus negative in the business. The increase is partially offset bycomparable period a year ago due to an increase in interest income fromas a result of a higher yields on the company’s cash equivalents.balance and lower fees on equipment financing versus the comparable period a year ago.
 
 
-9-
Preferred Dividends
 
 
Fiscal Quarter Ended
 December 31,
 
 
Variance
 
 
Fiscal Quarter Ended
 March 31,
 
 
Variance
 
 
2017
 
 
2016
 
 
Dollars
 
 
Percent
 
 
2018
 
 
2017
 
 
Dollars
 
 
Percent
 
Preferred dividends
 $162,966 
 $195,448 
 $32,482 
  (17)%
 $146,611 
 $202,036 
 $(55,425)
  -27%
Percent of total revenue
  3%
  4%
    
 3%
  4%
    
 
Dividends accrued on the Company’s Series B-1 Preferred was $162,966 $146,611for the three months ended DecemberMarch 31, 2017,2018, compared to dividends accrued on the Series B-1 Preferred of $195,448202,036 for the year ended DecemberMarch 31, 2016.2017. This decrease iswas due to the redemption of $1.0 million of the Company’s Series B-1 Preferred in the period as well as the Company’s decision to begin paying the dividend related to its Series B-1 Preferred in cash as opposed to additional shares of Series B-1 Preferred. 
  
-11-
Comparison of the SixNine Months Ended DecemberMarch 31, 20172018 to the Six NineMonths Ended DecemberMarch 31, 2016.2017.
 
Revenue
 
 
 
Six Months Ended
December 31,
 
 
Variance
 
 
 
2017
 
 
2016
 
 
Dollars
 
 
Percent
 
Revenue
 $10,436,871 
 $9,002,134 
 $1,434,737 
  16% 
 
 
Nine Months Ended
March 31,
 
 
Variance
 
 
 
2018
 
 
2017
 
 
Dollars
 
 
Percent
 
Revenue
 $15,715,654 
 $13,750,786 
 $1,964,868 
  14%
 
Revenue was $10,436,871$15,715,654 and $9,002,134$13,750,786 for thesix nine months ended DecemberMarch 31, 20172018 and 2016,2017, respectively, a 16%14% increase. This increase was driven by growth in all services, as well asand in particular the addition of incremental revenues associated with ourfrom the sale of Supply Chain products and services and revenue from the Company’s MarketPlace initiative.e­commerce services, the latter of which did not exist in the prior comparable period. By revenue type, recurring subscription revenue, including revenue attributable to ReposiTrak, grew year-­over­-year and were enhanced by the addition of transaction fees from MarketPlace, while one­time consulting fees were down versus the comparable period.
 
Cost of Services and Product Support
 
 
Six Months Ended
 December 31,
 
 
Variance
 
 
Nine Months Ended
 March 31,
 
 
Variance
 
 
2017
 
 
2016
 
 
Dollars
 
 
Percent
 
 
2018
 
 
2017
 
 
Dollars
 
 
Percent
 
Cost of services and product support
 $2,844,364 
 $2,393,919 
 $450,445 
  19% 
 $4,649,620 
 $3,736,691 
 $912,929 
  24%
Percent of total revenue
  27%
    
  30%
  27%
    
 
Cost of services and product support was $2,844,364$4,649,620 and $2,393,919$3,736,691 for thesix nine months ended DecemberMarch 31, 20172018 and 2016,2017, respectively, a 19%24% increase. This increase is primarily attributable to costs related to new product introductions, including MarketPlace and expansion of ReposiTrak compliance capabilities to include new featuresattributes. In particular, the Company incurred certain expenses categorized as Cost of Services associated with the introduction of new business lines for the Company’s MarketPlace e­commerce platform, as well as higher development costs associated with the introduction of new compliance applications and attributes.the convergence of the Company’s service offerings.
 
Sales and Marketing Expense
 
 
Six Months Ended
 December 31,
 
 
Variance
 
 
Nine Months Ended
 March 31,
 
 
Variance
 
 
2017
 
 
2016
 
 
Dollars
 
 
Percent
 
 
2018
 
 
2017
 
 
Dollars
 
 
Percent
 
Sales and marketing
 $3,207,089 
 $2,352,249 
 $854,840 
  36% 
 $4,781,752 
 $3,702,975 
 $1,078,777 
  29%
Percent of total revenue
  31%
  26%
    
  30%
  27%
    
 
Sales and marketing expense was $3,207,089$4,781,752 and $2,352,249$3,702,975 for the sixnine months ended DecemberMarch 31, 20172018 and 2016,2017, respectively, a 36%29% increase. This increase in sales and marketing and salary expense is due to an increase in head count associated with the expansion of the Company’s sales team and associated expenses, and to a lesser extent higher marketing expense associated with advertising, trade shows and promotional activities.
 
General and Administrative Expense
 
 
Six Months Ended
 December 31,
 
 
Variance
 
 
Nine Months Ended
 March 31,
 
 
Variance
 
 
2017
 
 
2016
 
 
Dollars
 
 
Percent
 
 
2018
 
 
2017
 
 
Dollars
 
 
Percent
 
General and administrative
 $2,275,855
 $1,961,237 
 $314,618 
  16% 
 $3,569,584 
 $2,967,842 
 $601,742 
  20%
Percent of total revenue
  22%
    
  23%
  22%
    
 
  General and administrative expense was $2,275,855$3,569,584 and $1,961,237$2,967,842 for the sixnine months ended DecemberMarch 31, 20172018 and 2016,2017, respectively, a 16%20% increase.  This increase is primarily attributable to an increase in software expense and professional fees associated with the execution of the Company’s plan to automate and optimize processes to accommodate growth, and to a lesser extent higher general administrative expenses,salary expense, offset in part by lower stock compensation expense.
 
 
-10--12-
 
 
Depreciation and Amortization Expense
 
 
Six Months Ended
 December 31,
 
 
Variance
 
 
Nine Months Ended
 December 31,
 
 
Variance
 
 
2017
 
 
2016
 
 
Dollars
 
 
Percent
 
 
2018
 
 
2017
 
 
Dollars
 
 
Percent
 
Depreciation and amortization
 $322,628
 $229,441 
 $93,187
  41% 
 $487,815 
 $336,340 
 $151,475 
  45%
Percent of total revenue
  3%
    
  3%
  2%
    
 
  Depreciation and amortization expense was $322,628$487,815 and $229,441$336,340 for the sixnine months ended DecemberMarch 31, 20172018 and 2016,2017, respectively, an increase of 41%45%.  This increase is primarily due to the purchase of fixed assets in the quarter ended September 30, 2017 to support the growth of the business.
 
Other Income and Expense
 
 
Six Months Ended
 December 31,
 
 
Variance
 
 
Nine Months Ended
 December 31,
 
 
Variance
 
 
2017
 
 
2016
 
 
Dollars
 
 
Percent
 
 
2018
 
 
2017
 
 
Dollars
 
 
Percent
 
Net other expense
 $29,887 
 $13,323 
 $16,564 
  124%
 
Net other (expense)
 $(12,157)
  (18,052)
 $5,895 
  -33%
Percent of total revenue
 
NM
 
 
NM
 
    
    
 
  Net other expense was $29,887$12,157 for the sixnine months ended DecemberMarch 31, 20172018 compared to net other expense of $13,323$18,052 for the sixnine months ended DecemberMarch 31, 2016.2017.  This increase in other expense is primarilydecrease was due to increases interest expense associated with investment in the growth of the business. The increase is partially offset bya higher cash balance and an increase in interest income fromon that cash equivalents.balance as a result of a higher yields, and lower fees on equipment financing, versus the comparable period a year ago.
 
Preferred Dividends
 
 
Six Months Ended
 December 31,
 
 
Variance
 
 
Nine Months Ended
 December 31,
 
 
Variance
 
 
2017
 
 
2016
 
 
Dollars
 
 
Percent
 
 
2018
 
 
2017
 
 
Dollars
 
 
Percent
 
Preferred dividends
 $280,126 
 $382,252 
 $(102,126) 
  (27)%
 $426,737 
 $584,288 
 $157,551 
  -27%
Percent of total revenue
  3%
  4%
    
  3%
  4%
    
 
Dividends accrued on the Company’s Series B-1 Preferred was $280,126 $426,737for the sixnine months ended DecemberMarch 31, 2017,2018, compared to dividends accrued on the Series B-1 Preferred of $382,252584,288 for the sixnine months ended DecemberMarch 31, 2016.2017. This decrease iswas due to the Company’s redemption of $1.0 million of the Company’s Series B-1 Preferred in the period as well as the Company’s decision to begin paying the dividend related to its Series B-1 Preferred in cash as opposed to shares of Series B-1 Preferred. 
 
Inflation

We do not believe that inflation or changing prices have had a material impact on our historical operations or profitability.
 
Financial Position, Liquidity and Capital Resources
 
We believe our existing cash and short-term investments, together with funds generated from operations, are sufficient to fund operating and investment requirements for at least the next twelve months. Our future capital requirements will depend on many factors, including our rate of revenue growth and expansion of our sales and marketing activities, the timing and extent of spending required for research and development efforts and the continuing market acceptance of our products.
 
 
 
As of
 
 
Variance
 
 
 
December 31, 2017
 
 
June 30, 2017
 
 
Dollars
 
 
Percent
 
Cash and cash equivalents
 $14,818,508 
 $14,054,006 
 $764,502 
  5% 
 
 
As of
 
 
Variance
 
 
 
March 31, 2018
 
 
June 30, 2017
 
 
Dollars
 
 
Percent
 
Cash and cash equivalents
 $14,828,160 
 $14,054,006 
 $774,154 
 6%
  
We have historically funded our operations with cash from operations, equity financings, and borrowings from the issuance of debt. Cash was $14,818,508$14,828,160 and $14,054,006 at DecemberMarch 31, 20172018 and June 30, 2017, respectively. This 5%6% increase is principally the result of increased cash flows from operations,operation, due to higher revenue and increaseoffset by the payment of net income.$999,990 resulting from the redemption of Series B-1 Preferred. Management currently does not have any plans to redeem any additional shares of Series B-1 Preferred in the near term.
 
 
-11--13-
 
 
Net Cash Flows from Operating Activities
 
 
 
Six Months Ended
 December 31,
 
 
Variance
 
 
 
2017
 
 
2016
 
 
Dollars
 
 
Percent
 
Cash provided by operating activities
 $1,368,613 
  379,067 
 $989,546 
  261% 
 
 
Nine Months Ended
 March 31,
 
 
Variance
 
 
 
2018
 
 
2017
 
 
Dollars
 
 
Percent
 
Cash provided by operating activities
 $1,774,976 
 $1,959,685 
 $(184,709)
  -9%
 
  Net cash provided by operating activities is summarized as follows:
 
 
Six Months Ended
 December 31,
 
 
Nine Months Ended
 March 31,
 
 
2017
 
 
2016
 
 
2018
 
 
2017
 
Net Income
 $1,681,334 
 $1,992,781 
 $2,138,663 
 $2,894,231 
Noncash expense and income, net
  905,777 
  963,221 
  1,272,613 
  1,528,629 
Net changes in operating assets and liabilities
  (1,218,498)
  (2,576,935)
  (1,636,300)
  (2,463,175)
 $1,368,613 
 $379,067 
 $1,774,976 
 $1,959,685 
 
Net cash used in operating activities decreased as a result of lower net income and non-cash expenses, offset in part by a lower reduction in operating assets and liabilities. Noncash expense decreased by $57,444$256,016 in the sixnine months ended DecemberMarch 31, 20172018 compared to DecemberMarch 31, 2016.2017. Noncash expense decreased as a result of a decrease in stock compensation, offset in part by an increase in bad debt expense.
accrual. The reduction in operating assets fell versus the comparable period due to reduction in trade receivables, offset in part by an increase in accounts payable.
 
Net Cash Flows used in Investing Activities
 
 
 
Six Months Ended
 December 31,
 
 
Variance
 
 
 
2017
 
 
2016
 
 
Dollars
 
 
Percent
 
Cash used in investing activities
 $288,884 
 $19,499 
 $269,385 
 NM% 
 
 
Nine Months Ended
 March 31,
 
 
Variance
 
 
 
2018
 
 
2017
 
 
Dollars
 
 
Percent
 
Cash used in investing activities
 $315,245 
 $340,927 
 $(25,682)
  -8%
 
Net cash used in investing activities for the sixnine months ended DecemberMarch 31, 20172018 was $288,884$315,245 compared to net cash used in investing activities of $19,499$340,927 for the sixnine months ended DecemberMarch 31, 2016.2017.  This increasedecrease in cash used in investing activities for the sixnine months ended DecemberMarch 31, 20172018 is due to an increasedecrease in fixed asset purchase as well aspurchases offset in part by the capitalization of software costs.
  
Net Cash Flows from Financing Activities
 
 
 
Six Months Ended
 December 31,
 
 
Variance
 
 
 
2017
 
 
2016
 
 
Dollars
 
 
Percent
 
Cash (used in) provided by financing activities
 $(315,227) 
 $259,808 
 $(575,035) 
 NM% 
 
    
    
    
    
 
 
Nine Months Ended
 March31,
 
 
Variance
 
 
 
2018
 
 
2017
 
 
Dollars
 
 
Percent
 
Cash (used in) provided by financing activities
 $(685,577)
 $480,396 
 $(1,165,973)
 NM%
 
    
    
    
    
 
Net cash used in financing activities totaled $315,227$685,577 for the sixnine months ended DecemberMarch 31, 20172018 as compared to cash flows provided by financing activities of $259,808$480,396 for the sixnine months ended DecemberMarch 31, 2016.2017. The decrease in net cash provided by financing activities is primarily attributable to the redemption of $1.0 million of the Company’s Series B-1 Preferredas well the payment of dividends andon the absentSeries B-1 Preferred in cash, offset in part by proceeds from the exercise of an increase in borrowing from our line of credit.warrants.
  
Working Capital
 
At DecemberMarch 31, 2017,2018, the Company had working capital of $13,732,093$14,529,347 when compared with working capital of $10,536,804 at June 30, 2017. This $3,195,289$3,992,543 increase in working capital is primarily due to an increase of $764,502$2,704,563 in accounts receivable, an increase of $774,154 in cash, an increase of $1,851,747 in accounts receivable, and an increase of $145,457$639,067 in prepaid expenses and other current assets, a reduction of $820,259 in accrued liabilities, and partiallya reduction of $132,121 in notes payable, offset in part by an increase of $58,970$688,073 in deferred revenue, decrease of $502,939 in accrued liabilities,accounts payable, an increase of $73,931$380,000 in accounts payablelines of credit, and a decreasethe redemption of $63,545$999,990 of Series B-1 Preferred. Management currently does not have any plans to redeem any additional shares of Series B-1 Preferred in current portion notes payable.the near term. While no assurances can be given, management currently believes that the Company will increase its working capital position in subsequent periods.
 
 
 
As of
December 31,  
 
 
As of
June 30,
 
 
Variance
 
 
 
2017
 
 
2017
 
 
 Dollars
 
 
 Percent
 
Current assets
 $21,468,439 
 $18,706,733 
 $2,761,706 
  15%
 
 
As of
March 31,  
 
 
As of
June 30,
 
 
Variance
 
 
 
2018
 
 
2017
 
 
 Dollars
 
 
 Percent
 
Current assets
 $22,824,517 
 $18,706,733 
 $4,117,784 
  22%
 
 
 
-12--14-
 
 
Current assets as of DecemberMarch 31, 20172018 totaled $21,468,439,$22,824,517 an increase of $2,761,706$4,117,784 when compared to $18,706,733 as of June 30, 2017. The increase in current assets is attributable to an increase of $2,704,563 in accounts receivable, an increase in cash of $774,154 in cash, and accounts receivable.an increase of $639,067 in prepaid expenses and other current assets.
  
 
 
As of
December 31,
 
 
 As of
June 30,
 
 
Variance
 
 
 
2017
 
 
 2016
 
 
 Dollars
 
 
 Percent  
 
Current liabilities
 $7,736,346 
 $8,169,929 
 $(433,583) 
  (5)%
 
 
As of
March 31,
 
 
 As of
June 30,
 
 
Variance
 
 
 
2018
 
 
 2016
 
 
 Dollars
 
 
 Percent  
 
Current liabilities
 $8,295,170 
 $8,169,929 
 $125,241 
 2%
 
Current liabilities totaled $7,736,346$8,295,170 as of DecemberMarch 31, 20172018 as compared to $8,169,929 as of June 30, 2017. The comparative decreaseincrease in current liabilities is principally due to an increase of $73,931$688,073 in accounts payable, an increase of $380,000 in lines of credit, and a $58,970an increase of $9,548 in deferred revenue. These wererevenue, offset in part by a decreasereduction of $502,939$820,259 in accrued liabilities and a decreasereduction of $63,545$132,121 in the current portion of notes payable.
 
Off-Balance Sheet Arrangements
 
The Company does not have any off-balance sheet arrangements that are reasonably likely to have a current or future effect on our financial condition, revenues, and results of operation, liquidity or capital expenditures.
 
Contractual Obligations
 
Total contractual obligations and commercial commitments as of DecemberMarch 31, 20172018 are summarized in the following table (in thousands):
 
 
Payment Due by Year
 
 
Payment Due by Year
 
 
Total
 
 
Less than 1 Year
 
 
1-3 Years
 
 
3-5 Years
 
 
More than 5 Years
 
��
 
Total
 
 
Less than 1 Year
 
 
1-3 Years
 
 
3-5 Years
 
 
More than 5 Years
 
Long-Term Debt Obligations
 $2,206,483 
 $255,071 
 $400,180 
 $426,812 
 $1,124,420 
 $1,827,559
 $190,138
 $391,419
 $425,540
 $820,462
Capital Lease Obligations
  - 
  -
 
  - 
  -
 - 
Operating Lease Obligations
  301,994 
  267,186 
  34,808 
  - 
 233,066 
 - 
Purchase Obligations
  - 
    -
 - 
Other Long-Term Liabilities Reflected on the Balance Sheet under GAAP
  - 
  -
 - 
Total
 $2,508,477 
 $522,257 
 $434,988 
 $426,812 
 $1,124,420 
 $2,060,625
 $423,204
 $391,419
 $425,540
 $820,462
 
Recent Accounting Pronouncements 
In May 2014, August 2015, April 2016, May 2016, September 2017 and SeptemberNovember 2017, the Financial Accounting Standards Board (“FASB”) issued ASU 2014-092014­-09 (ASC Topic 606), Revenue from Contracts with Customers, ASU 2015-142015­-14 (ASC Topic 606) Revenue from Contracts with Customers, Deferral of the Effective Date, ASU 2016-102016-­10 (ASC Topic 606) Revenue from Contracts with Customers, Identifying Performance Obligations and Licensing, and ASU 2016-122016­-12 (ASC Topic 606) Revenue from Contracts with Customers, Narrow-ScopeNarrow­Scope Improvements and Practical Expedients, ASU 2017-14, Income Statement - Reporting Comprehensive Income (ASC Topic 606),Revenue Recognition (ASC Topic 606), and Revenue from Contracts with Customers (ASC Topic 606): Amendments to SEC Paragraphs pusuant to Staff Accounting Bulletin No. 116 and SEC Release No. 33-10403, respectively. ASC Topic 606 outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specificindustry­specific guidance. It also requires entities to disclose both quantitative and qualitative information that enable financial statements users to understand the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. The amendments in these ASUs are effective for fiscal years, and interim periods within those years, beginning after December 15, 2017. Early adoption is permitted for annual periods beginning after December 15, 2016. This standard may be applied retrospectively to all prior periods presented, or retrospectively with a cumulative adjustment to retained earnings in the year of adoption. The Company currently anticipates adopting the standard using the full retrospective method. We are in the process of completing our analysis on the impact this guidance will have on our Consolidated Financial Statements and related disclosures, as well as identifying the required changes to our policies, processes and controls. The Company is still conducting its assessment and will continuein order to evaluatebe able to state the impact of this ASU on our financial position and results of operation.
-15-
 
In January 2017, the FASB issued ASU 2017-04, Intangibles—Goodwill and Other (Topic 350), Simplifying the Test for Goodwill Impairment. The amendments in this update simplify how an entity is required to test goodwill for impairment by eliminating Step 2 from the goodwill impairment test. An entity should apply the amendments in this update on a prospective basis. The Company notes that this guidance applies to its reporting requirements and will implement the new guidance accordingly.
-13-
 
In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments. Historically, there has been a diversity in practice in how certain cash receipts/payments are presented and classified in the statement of cash flows under Topic 230. To reduce the existing diversity in practice, this update addresses multiple cash flow issues. The amendments in this update are effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted. The Company notes that this guidance applies to its reporting requirements and will implement the new guidance accordingly.
 
In March 2016, the FASB issued ASU 2016-09 (ASC Topic 718), Stock Compensation—Improvements to Employee Share-Based Payment Accounting. The amendments in this ASU are intended to simplify several areas of accounting for share-based compensation arrangements, including the income tax consequences, classification on the consolidated statement of cash flows and treatment of forfeitures. The amendments in this ASU are effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods. Early adoption is permitted. The Company is in the process of assessing the impact, if any, of this ASU on its consolidated financial statements.
 
In February 2016, the FASB issued ASU 2016-02 (ASC Topic 842), Leases. The ASU amends a number of aspects of lease accounting, including requiring lessees to recognize operating leases with a term greater than one year on their balance sheet as a right-of-use asset and corresponding lease liability, measured at the present value of the lease payments. The amendments in this ASU are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted. The Company is in the process of assessing the impact, but based on current commitments does not anticipate adoption to have a material impact on its consolidated financial statements.
 
Critical Accounting Policies
 
This Management’s Discussion and Analysis of Financial Condition and Results of Operations discusses the Company’s financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles.
 
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, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenue and expenses during the reporting period. On an ongoing basis, management evaluates its estimates and assumptions. Management bases its estimates and judgments on historical experience of operations 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.
 
Income Taxes
 
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 whether or not to realize the deferred income tax assets and assesses the valuation allowance quarterly.
 
Goodwill and Other Long-Lived Asset Valuations
 
Goodwill is assigned to specific reporting units and is reviewed for possible impairment at least annually or more frequently upon the occurrence of an event or when circumstances indicate that a reporting unit’s carrying amount is greater than its fair value. Management reviews the long-lived tangible and intangible assets for impairment when events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. Management evaluates, at each balance sheet date, whether events and circumstances have occurred which indicate possible impairment. The carrying value of a long-lived asset is considered impaired when the anticipated cumulative undiscounted cash flows of the related asset or group of assets is less than the carrying value. In that event, a loss is recognized based on the amount by which the carrying value exceeds the estimated fair market value of the long-lived asset. Economic useful lives of long-lived assets are assessed and adjusted as circumstances dictate.
  
 
 
-14--16-
 
 
Revenue Recognition
 
We recognize revenue when all of the following conditions are satisfied: (i) there is persuasive evidence of an arrangement, (ii) the service has been provided to the customer, (iii) the collection of our fees is probable, and (iv) the amount of fees to be paid by the customer is fixed or determinable.
 
We recognize subscription, hosting, premium support, and maintenance revenue ratably over the length of the agreement beginning on the commencement dates of each agreement or when revenue recognition conditions are satisfied. Revenue from license and professional services agreements are recognized as delivered.
 
Amounts that have been invoiced are recorded in accounts receivable and in deferred revenue or revenue, depending on whether the revenue recognition criteria have been met.
 
Agreements with multiple deliverables such as subscriptions, support, and professional services, are accounted for separately if the deliverables have standalone value upon delivery. Subscription services have standalone value as the services are typically sold separately. When considering whether professional services have standalone value, the Company considers the following factors: (i) availability of services from other vendors, (ii) the nature and timing of professional services, and (iii) sales of similar services sold separately. Multiple deliverable arrangements are separated into units of accounting and the total contract consideration is allocated to each unit based on relative selling prices.
 
Stock-Based Compensation
 
The Company recognizes the cost of employee services received in exchange for awards of equity instruments based on the grant-date fair value of those awards. The Company records compensation expense on a straight-line basis. The fair value of options granted are estimated at the date of grant using a Black-Scholes option pricing model with assumptions for the risk-free interest rate, expected life, volatility, dividend yield and forfeiture rate.
  
ITEM 3. QUANTQUANTIITTATIVEATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 
Our business is currently conducted principally in the United States. As a result, our financial results are not affected by factors such as changes in foreign currency exchange rates or economic conditions in foreign markets. We do not engage in hedging transactions to reduce our exposure to changes in currency exchange rates, although if the geographical scope of our business broadens, we may do so in the future.
 
Our exposure to risk for changes in interest rates relates primarily to our investments in short-term financial instruments. Investments in both fixed rate and floating rate interest earning instruments carry some interest rate risk. The fair value of fixed rate securities may fall due to a rise in interest rates, while floating rate securities may produce less income than expected if interest rates fall. Partly as a result of this, our future interest income may fall short of expectations due to changes in interest rates or we may suffer losses in principal if we are forced to sell securities that have fallen in estimated fair value due to changes in interest rates. However, as substantially all of our cash consist of bank deposits and short-term money market instruments, we do not expect any material change with respect to our net income as a result of an interest rate change. 
 
Our exposure to interest rate changes related to borrowing has been limited, and we believe the effect, if any, of near-term changes in interest rates on our financial position, results of operations and cash flows should not be material. At DecemberMarch 31, 2017,2018, the debt portfolio was composed of approximately 93% variable-rate94% variable rate debt and 7% fixed-rate6% fixed rate debt.
 
 
December 31, 2017
(unaudited)
 
 
Percent of
 Total Debt
 
 
March 31, 2018
(unaudited)
 
 
Percent of
 Total Debt
 
Fixed rate debt
 $330,867 
  7%
 $322,099 
  6%
Variable rate debt
  4,725,616
  93%
  4,735,460
  94%
Total debt
 $5,056,483 
  100%
 $5,057,559
  100%
 
The table that follows presents fair values of principal amounts and weighted average interest rates for our investment portfolio as of DecemberMarch 31, 2017:2018:
 
Cash:
Aggregate
Fair Value
Weighted Average Interest Rate
  Cash
$14,818,508
<1%
Cash:
 
Aggregate 
Fair Value
 
 
Weighted Average
Interest Rate
 
    Cash
 $14,828,160 
 1.55%
 
 
-15--17-
 
 
ITEM 4.  CONCONTROLSTROLS AND PROCEDURESPROCEDURES
 
(a)
Evaluation of disclosure controls and procedures. Under the supervision and with the participation of our Management, including our principal executive officer and principal financial officer, periodically evaluates the effectiveness of the design and operations of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as of DecemberMarch 31, 2017.2018. Based on this evaluation, the Company’s Chief Executive Officer and Chief Financial Officer believe that our disclosure controls and procedures are effective to ensure that information required to be disclosed in the reports submitted under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms, including to ensure that information required to be disclosed by the Company is accumulated and communicated to management, including the principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.
 
(b)
Changes in internal controls over financial reporting. The Company’s Chief Executive Officer and Chief Financial Officer have determined that there have been no changes in the Company’s internal control over financial reporting during the period covered by this report identified in connection with the evaluation described in the above paragraph that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
 
 
 
 
-16--18-
 
 
PART II
PART II
 
OTHER INFORMATION
 
ITEM 1. LEGLEGAL PROCEEDINGS
 
              We are, from time to time, involved in various legal proceedings incidental to the conduct of our business. Historically, the outcome of all such legal proceedings has not, in the aggregate, had a material adverse effect on our business, financial condition, results of operations or liquidity. There is currently no pending or threatened material legal proceeding that, in the opinion of management, could have a material adverse effect on our business or financial condition.
 
ITEM 1A.  RIRSIKSK FACTORS
 
There are no risk factors identified by the Company in addition to the risk factors previously disclosed in Part I, Item 1A, “Risk Factors” in our Annual Report on Form 10-K for the year ended June 30, 2017.
 
ITEM 2. UNRUNREGISTERED EGISTEREDSALES OF EQUITY SECURITIES AND USE OF PROCEEDS
 
None
 
ITEM 3. DEFAUDEFALUTSLTS UPON SENIOR SECURITIES
 
None.
 
ITEM 5.  OTHEOTHER INFORMATION
 
None.
 
ITEM 6. EXHEIXBITSHIBITS
 
10.1
Amendment No. 1 to Services Agreement, by and between the Company, Randall K. Fields, and Fields Management, Inc., dated May 8, 2018.
31.1
 Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2 
 Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1
 Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2
 Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS XBRL Instance Document
101.SCH XBRL Taxonomy Extension Schema
101.CAL XBRL Taxonomy Extension Calculation Linkbase
101.DEF XBRL Taxonomy Extension Definition Linkbase
101.LAB XBRL Taxonomy Extension Label Linkbase
101.PRE XBRL Taxonomy Extension Presentation Linkbase
 
 
 
 
-17--19-
 
 
SIGNATNUATURESRES
 
 In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
 
 PARK CITY GROUP, INC.  
    
Date:  February 8,May 10, 2018By:  /s/  Randall K. Fields 
  Randall K. Fields  
  
Chief Executive Officer, Chairman and Director
(Principal Executive Officer)
 
 
    
Date:  February 8,May 10, 2018By:  /s/  Todd Mitchell 
  Todd Mitchell  
  
Chief Financial Officer
(Principal Financial Officer & Principal Accounting Officer)
 
 
 
 
 
-18--20-