DESCRIPTION OF BUSINESS AND ACQUISITION OF REPOSITRAK, INC.

12 Months Ended

Jun. 30, 2015

Notes to Financial Statements

NOTE 1 - DESCRIPTION OF BUSINESS AND ACQUISITION OF REPOSITRAK, INC.

Summary of Business

 The Company is incorporated in the state of Nevada.  The Company has three subsidiaries, PC Group, Inc. (formerly, Park City Group, Inc.), a Utah Corporation (98.76% owned), and Park City Group, Inc., (formerly, Prescient Applied Intelligence, Inc.), a Delaware Corporation (100% owned) and ReposiTrak, Inc., a Utah corporation (100% owned).  All intercompany transactions and balances have been eliminated in consolidation.

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

Acquisition of ReposiTrak, Inc.

On June 30, 2015, the Company consummated the acquisition of 100% of the outstanding capital stock of ReposiTrak, Inc.  As a result of this acquisition, the Company gained control of ReposiTrak a 100% owned subsidiary of the Company.   The accompanying audited consolidated financial statements of the Company as of and for the year ended June 30, 2015 contain the results of operations of ReposiTrak from June 30, 2015.  We issued 873,438 shares of our common stock for this acquisition which expands the service we can offer to our customer base.

We have accounted for the acquisition as the purchase of a business.  The assets acquired and the liabilities assumed of ReposiTrak have been recorded at their respective fair values.  The excess of the purchase price over the fair value of net tangible and identifiable intangible assets acquired was recorded as goodwill.  Goodwill is attributed to buyer-specific value resulting from expected synergies, including long-term cost savings, as well as industry relationships which are not included in the fair values of assets.  Goodwill will not be amortized.

The purchase price consisted of the 873,438 shares of Park City Group common stock.  The fair value of the shares issued was $10,821,897 and was determined using the closing price of our common stock on June 30, 2015.  The price paid to acquire ReposiTrak was $10,830,897, approximately $9,000 of which was for direct transaction costs associated with the issuance of equity.    The net acquisition cost of $10,799,778 which excludes $31,119 of cash acquired from ReposiTrak were allocated based on their estimated fair value of the assets acquired and liabilities assumed, as follows:

Receivables	$	152,340
Prepaid expenses		17,500
Customer relationships*		2,006,951
Goodwill*		15,385,002
Accounts payable		(128,126	)
Deferred revenue		(598,232	)
Net assets acquired		16,835,435

Common stock issued		10,821,897
Receivables eliminated in consolidation		6,035,657
Cash received in acquisition	$	22,119

*Customer relationship and goodwill are provisional estimates pending completion of a 3rd party valuation of the acquired enterprise.  Due to the fact that the acquisition took place on the last day of the fiscal year there has not been adequate time for the analysis to be done.

    Unaudited pro-forma results of operations for the twelve months ended June 30, 2015 and 2014, as though ReposiTrak had been acquired as of July 1, 2013, are as follows:

	Three Months Ended
	Sep 30, 2014		Dec 31, 2014			Mar 31, 2015			Jun 30, 2015		Year Ended 2015			Year Ended 2014
Revenue	$	2,826,813	$	2,932,825		$	2,870,646		$	2,941,511	$	11,571,795		$	9,777,431
Loss from Operations		(1,046,986)		(1,290,524)			(1,302,437)			(3,222,538)		(6,862,485	)		(5,232,552	)
Net Loss		(1,049,834)		(1,317,510)			(1,317,858)			(3,241,545)		(6,926,747	)		(5,303,773	)
Net Loss Applicable to Common Shareholders		(1,204,307)		(1,471,983)			(3,595,537)			(3,365,721)		(9,637,548	)		(5,921,664	)
Basic and Diluted EPS		(0.07)		(0.08	)		(0.20	)		(0.18)		(0.53	)		(0.34	)

Recent Developments

Acquisition of ReposiTrak

During the year ended June 30, 2015, the Company entered into agreements with each of the stockholders of ReposiTrak, Inc. (“ReposiTrak”), including Leavitt Partners, LP and LP Special Asset 4, LLC, to acquire all of the outstanding capital stock of ReposiTrak (the “ReposiTrak Shares”) in exchange for shares of the Company’s common stock (the “ReposiTrak Acquisition”). On June 30, 2015, the Company completed the ReposiTrak Acquisition and issued an aggregate total of 873,438 shares of its common stock in exchange for the ReposiTrak Shares. Immediately following the completion of the ReposiTrak Acquisition, ReposiTrak became a wholly owned subsidiary of the Company.

Registered Direct Offering

On April 15, 2015, the Company offered and sold 572,500 shares of its common stock in a registered direct offering at a price of $12.50 per share. The Company received total net proceeds from the registered direct offering of approximately $6.7 million after deducting placement agent fees and other offering expenses.

Creation of Series B-1 Preferred

On March 31, 2015, the Company filed with the Nevada Secretary of State the Certificate of Designation of the Relative Rights, Powers and Preferences of the Series B-1 Preferred Stock (the “Series B-1 Certificate of Designation”) in order to designate 300,000 shares of the Company’s preferred stock as non-voting, non-convertible shares of Series B-1 Preferred Stock (“Series B-1 Preferred”). Each share of Series B-1 Preferred accrued dividends at a rate of 7% per annum if paid by the Company in cash, and 9% per annum if paid by the Company in additional shares of Series B-1 Preferred.

Series B Restructuring

On February 4, 2015, holders of the Company’s Series B Convertible Preferred Stock (“Series B Preferred”), consisting of the Company’s Chief Executive Officer, his spouse, and a director (the “Holders”), entered into a restructuring agreement (the “Restructuring Agreement”), pursuant to which the Holders consented to the filing of an amendment (the “Series B Amendment”) to the Certificate of Designation of the Relative Rights, Powers and Preference of the Series B Preferred (the “Series B Certificate of Designation”), pursuant to which (i) the rate at which the Series B Preferred accrues dividends was lowered to 7% per annum if paid by the Company in cash, or 9% if paid by the Company in PIK Shares (as defined below), (ii) the Company may now elect to pay accrued dividends on outstanding shares of Series B Preferred in either cash or by the issuance of additional shares of Series B Preferred (“PIK Shares”), (iii) the conversion feature of the Series B Preferred was eliminated, and (iv) the number of shares of the Company's preferred stock designated as Series B Preferred was increased from 600,000 to 900,000 shares (the “Series B Restructuring”). In consideration for the Series B Restructuring, the Company proposed to issue to the Holders: (y) an aggregate of 214,198 additional shares of Series B Preferred, which shares had a stated value equal to the amount that, but for the Series B Restructuring, would have been paid to the Holders as dividends over the next five years (“Additional Shares”), and (z) five-year warrants to purchase an aggregate of 1,085,068 shares of common stock for $4.00 per share (“Series B Warrants”), an amount and per share purchase price equal to what the Holders would otherwise be entitled to receive upon conversion of their shares of Series B Preferred (“Warrant Shares”).

The terms of the Series B Restructuring were amended on March 31, 2015 as follows: (i) the Series B Certificate of Designation was further amended (the “Second Series B Amendment”) to (x) reduce the number of shares of the Company’s preferred stock designated thereunder from 900,000 to 600,000, which number was subsequently increased to 700,000, (y) require that, should the Company pay dividends on the Series B Preferred in PIK Shares, shares Series B-1 Preferred will be issued, rather than shares of Series B Preferred, and (z) in the event any Holder elects to exercise a Series B Warrant, one share of Series B Preferred will be automatically converted into one share of Series B-1 Preferred for every 2.5 Warrant Shares received by such Holder; and (ii) the Restructuring Agreement was amended to substitute the Additional Shares for shares of Series B-1 Preferred. The Second Series B Amendment was filed with the Nevada Secretary of State on March 31, 2015. 

Private Placement

On January 26, 2015, we accepted subscription agreements from certain accredited investors, including certain members of the Company's Board of Directors, to purchase an aggregate total of 95,302 shares of the Company's common stock for $9.48 per share, and five year warrants to purchase an aggregate total of 23,737 shares of common stock for $10.00 per share. The Company received gross proceeds of approximately $900,000 from this private placement.