The Company's Annual Report on Form 10-K for the year ended June 30, 2012 is incorporated herein by reference.

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, 2012 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 a Software-as-a-Service ("SaaS") provider that brings unique visibility to the consumer goods supply chain, delivering actionable information that ensures product is on the shelf when the consumer expects it. Our service increases our customers' sales and profitability while making lower inventory levels possible for both retailers and their suppliers.

The Company is incorporated in the state of Nevada. The Company's 98.76% and 100% owned subsidiaries, Park City Group, Inc. and Prescient Applied Intelligence, Inc. ("Prescient"), respectively, are incorporated in the state of Delaware. All intercompany transactions and balances have been eliminated in consolidation.

The Company designs, develops, markets and supports proprietary software products. These products are designed for use in businesses having multiple locations to assist in the management of business operations on a daily basis and communicate results of operations in a timely manner. In addition, the Company has built a consulting practice for business process improvement that centers around the Company's proprietary software products and through establishment of a neutral and "trusted" third party relationship between retailers and suppliers. 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.

The Company has also established a relationship with Levitt Partners, an internationally known health care and food safety-consulting firm, which formed ReposiTrak, Inc., formerly, Global Supply Chain Systems, Inc. ("ReposiTrak"). ReposiTrak provides a targeted solution for improving supply chain visibility for food and drug safety. ResposiTrak's solution, similarly called ResposiTrakTM, is powered by the Company's technology and was developed in response to the passage of the Food Safety and Modernization Act in January of 2011. ResposiTrakTM enables grocery, supermarkets, packaged goods manufacturers, food processing facilities, drug stores and drug manufacturers, as well as logistics partners, to track and trace products and components to products throughout the food, drug and dietary supplement supply chains. In the event of a product recall, the solution quickly identifies the supply chain path taken by the recalled product or product component, and allows for the removal of affected products in a matter of minutes, rather than weeks. Additionally, ResposiTrakTM reduces risk of further contamination in the supply chain by identifying backward chaining sources and forward chaining recipients of affected products in near real time.

We market our products to businesses primarily on a subscription basis. However, we also deliver our products on a license basis. Our efforts are focused on a direct sales model and indirectly through qualified partners and service providers.

The principal executive offices of the Company are located at 299 S Main Street, Suite 2370, Salt Lake City, Utah 84111. The telephone number is (435) 645-2000. The website address is http://www.parkcitygroup.com.

Results of Operations

Comparison of the Three Months Ended December 31, 2012 to the Three Months Ended
December 31, 2011.

Revenue

                   Fiscal Quarter Ended
                       December 31,                     Variance
                   2012            2011           Dollars       Percent
Subscription    $ 1,955,562     $ 1,681,000     $   274,562         16.3 %
Other revenue       703,340         886,122       (182,782)        -20.6 %
Total revenue   $ 2,658,902     $ 2,567,122     $    91,780          3.6 %

Total revenue was $2,658,902 and $2,567,122 for the three months ended December 31, 2012 and 2011, respectively, a 3.6% increase. This $91,780 increase in total revenue was principally due to an increase of $274,562 in subscription revenue, partially offset by a decrease of $182,782 in other revenue, as more particularly described below.

Management believes that the Company's strategy of pursuing contracts with suppliers ("spokes") to connect to retail customers ("hubs") that have been added in the most recently completed fiscal year, including the service agreement with CVS Pharmacy, Inc., announced in July 2012, should result in increased revenue during the fiscal year ending June 30, 2013, and in subsequent periods. In addition, management believes that revenue in subsequent periods will increase as a result of the receipt of subscription payments from ReposiTrak resulting from the license of the Company's technology necessary to power ResposiTrakTM. ResposiTrakTM enables grocery, supermarkets, packaged goods manufacturers, food processing facilities, drug stores and drug manufacturers, as well as logistics partners, to track and trace products and components to products throughout the food, drug and dietary supplement supply chains.

Subscription Revenue

Subscription revenue was $1,955,562 and $1,681,000 for the three months ended December 31, 2012 and 2011, respectively, a 16.3% increase in the three months ended December 31, 2012 when compared with the three months ended December 31, 2011. The net increase of $274,562 is principally due to (i) the increase of subscription customers added to the Company's customer base which contributed approximately $330,000 in new subscription revenue and (ii) a $172,000 increase attributable to the growth of existing retailer and supplier subscriptions. The increase in subscription revenue was partially offset by a decrease of approximately $228,000 resulting from the non-renewal of existing clients, including the non-renewal of a significant retail client and related connections in January 2012.

The Company continues to focus its strategic initiatives on increasing the number of retailers, suppliers and manufacturers that use its software on a subscription basis. However, while management believes that marketing its suite of software solutions as a renewable and recurring subscription is an effective strategy, it cannot be assured that subscribers will renew the service at the same level in future years, propagate services to new categories or recognize the need for expanding the service offering of the Company's suite of actionable products and services.

Other Revenue

Other revenue was $703,340 and $886,122 for the three months ended December 31, 2012 and 2011, respectively, a decrease of 20.6% in the three months ended December 31, 2012 compared with the three months ended December 31, 2011. The net decrease of $182,782 is principally due to (i) the non-renewal of maintenance contracts, partially offset by increasing existing contracts resulting in a net reduction of maintenance revenue of approximately $32,000;
(ii) a decrease in license revenue of $204,000; and (iii) a decrease in professional service revenue of $63,000. These decreases were partially offset by an increase in other revenue related to a management agreement with ReposiTrak.

While these other sources of revenue will continue in future periods, management's focus on recurring subscription-based revenue will cause license, maintenance, and consulting services to fluctuate and be difficult to predict.

Cost of Services and Product Support

                                              Fiscal Quarter Ended
                                                   December 31,                    Variance
                                              2012            2011          Dollars        Percent
Cost of services and product support       $ 1,099,165     $ 1,115,113     $ (15,948)           -1.4 %
Percent of total revenue                          41.3 %          43.4 %

Cost of services and product support was $1,099,165 and $1,115,113 for the three months ended December 31, 2012 and 2011, respectively, a 1.4% decrease in the three months ended December 31, 2012 compared with the three months ended December 31, 2011. This decrease of $15,948 for the quarter ended December 31, 2012 when compared with the same period ended December 31, 2011 is principally due to a $54,000 decrease in employee related expenses. This decrease was partially offset by a $38,000 increase in infrastructure expansion and upgrades.

Sales and Marketing Expense

                             Fiscal Quarter Ended
                                 December 31,                   Variance
                              2012           2011         Dollars       Percent
Sales and marketing        $   763,301     $ 568,797     $ 194,504          34.2 %
Percent of total revenue          28.7 %        22.2 %

Sales and marketing expense was $763,301 and $568,797 for the three months ended December 31, 2012 and 2011, respectively, a 34.2% increase. This $194,504 increase over the comparable quarter was primarily the result of (i) an increase of approximately $138,000 in employee related expenses, (ii) an increase of $68,000 in marketing costs. These increases were partially offset by a decrease of approximately $12,000 in other selling expenses.

General and Administrative Expense

                               Fiscal Quarter Ended
                                   December 31,                    Variance
                                2012           2011          Dollars       Percent
General and administrative   $   595,407     $ 790,855     $ (195,448)        -24.7 %
Percent of total revenue            22.4 %        30.8 %

General and administrative expense was $595,407 and $790,855 for the three months ended December 31, 2012 and 2011, respectively, a 24.7% decrease in the three months ended December 31, 2012 compared with the three months ended December 31, 2011. This $195,448 decrease when comparing expenditures for the quarter ended December 31, 2012 with the same period ended December 31, 2011 is principally due (i) a decrease of approximately $154,000 in employee related expenses, (ii) a decrease of $27,000 in bad debt expense, and (iii) a decrease of approximately $24,000 in other professional fees. These decreases were partially offset by an increase of $10,000 in other operational expenses.

Depreciation and Amortization Expense

                                  Fiscal Quarter Ended
                                      December 31,                   Variance
                                   2012           2011        Dollars       Percent
Depreciation and amortization   $   230,455     $ 220,835     $  9,620           4.4 %
Percent of total revenue                8.7 %         8.6 %

Depreciation and amortization expense was $230,455 and $220,835 for the three months ended December 31, 2012 and 2011, respectively, an increase of 4.4% in the three months ended December 31, 2012 compared with the three months ended December 31, 2011. This increase of $9,620 for the quarter ended December 31, 2012 when compared to the quarter ended December 31, 2011 is due to an increase in depreciation expense related to new equipment.

Other Income and Expense

                             Fiscal Quarter Ended
                                 December 31,                   Variance
                              2012            2011        Dollars       Percent
Interest expense           $    34,435      $ 47,394     $ (12,959)        -27.3 %
Percent of total revenue           1.3 %         1.8 %

Interest expense was $34,435 and $47,394 for the three months ended December 31, 2012 and 2011, respectively, a decrease of 27.3% in the three months ended December 31, 2012 compared with the three months ended December 31, 2011. This decrease of $12,959 for the quarter ended December 31, 2012 when compared to the quarter ended December 31, 2011 is due to reduced principal balances in the current year.

Preferred Dividends

                             Fiscal Quarter Ended
                                 December 31,                   Variance
                              2012           2011        Dollars       Percent
Preferred dividends        $   289,300     $ 208,867     $ 80,433          38.5 %
Percent of total revenue          10.9 %         8.1 %

Dividends accrued on the Company's Series A Preferred and Series B Preferred was $289,300 and $208,867 for the three months ended December 31, 2012 and 2011, respectively. Through the quarter ended September 30, 2012, holders of Series A Preferred were entitled to a 5.00% annual dividend payable quarterly in either cash or additional Series A Preferred at the option of the Company with fractional shares paid in cash. Holders of Series B Preferred are entitled to a 12.00% annual dividend payable quarterly in cash. The dividend rate with respect the Series A Preferred increased to 10% per annum as a result of the average closing price of the Company's common stock during the last thirty (30) trading days of the quarter ending December 31, 2012 being less than $3.00 per share (a "Dividend Adjustment"). A holder of Series A Preferred has notified the Company that a Dividend Adjustment was required as a result of the average closing price of the Company's common stock for the thirty-day period ended March 31, 2012, and subsequent quarters. Management disagrees with the method of calculation used by the holder and believes that the Company's calculation determining that a Dividend Adjustment was not required during the quarters ended March 31 and September 30, 2012, is reasonable, and that an ultimate determination that an alternative method should be employed is doubtful. The pro-forma effect of a Dividend Adjustment for the six months ended December 31, 2012 is shown in the table below:

                                                 Six Months Ended
                                                 December 31, 2012                   Variance
                                            As Reported      Pro-forma       Dollars         Percent
Dividends on Series A Preferred              $   252,124     $   342,817     $   90,693           36.0 %
Net loss applicable to common shareholders   $ (358,749)     $ (449,442)     $ (90,693)           25.4 %
Basic and diluted loss per share             $    (0.03)     $    (0.04)     $   (0.01)           25.4 %

Comparison of the Six Months Ended December 31, 2011 to the Six Months Ended
December 31, 2010.

Revenues

                     Six Months Ended
                       December 31,                     Variance
                   2012            2011           Dollars       Percent
Subscription    $ 3,910,157     $ 3,423,131     $   487,026         14.2 %
Other revenue     1,461,572       1,723,271       (261,699)        -15.2 %
Total revenue   $ 5,371,729     $ 5,146,402     $   225,327          4.4 %

Total revenue was $5,371,729 and $5,146,402 for the six months ended December 31, 2012 and 2011, respectively, a 4.4% increase. This $225,327 increase in total revenues is principally due to an increase of $487,026 in subscription revenue, partially offset by a decrease of $261,699 in other revenue, as more particularly described below. Management believes that, as a percentage of total revenue, subscription revenue will continue to increase and license and maintenance revenue will continue to decrease, or remain volatile, as the Company continues its emphasis of marketing its services based on the SaaS model.

Subscription Revenue

Subscription revenue was $3,910,157 and $3,423,130 for the six months ended December 31, 2012 and 2011, respectively, an increase of 14.2% in the six months ended December 31, 2012 when compared with the six months ended December 31, 2011. The net increase of $487,026 is principally due to (i) the increase of subscription customers added to the Company's customer base caused by the expected addition of new contracts with suppliers ("spokes") connected to existing retail clients acquired by the Company ("hubs"), which contributed approximately $647,000 of new subscription revenue; and (ii) a $383,000 increase attributable to the growth of existing retailer and supplier subscriptions. The increase in subscription revenue was partially offset by a decrease of approximately $543,000 resulting from the non-renewal of existing customers, including the non-renewal of a significant retail client and related connections in January 2012. While no assurances can be given, the Company anticipates that revenue from subscription-based services will continue to increase on a year-over-year basis.

The Company continues to focus its strategic initiatives on increasing the number of retailers, suppliers and manufacturers that use its software on a subscription basis. However, while management believes that marketing its suite of software solutions as a renewable and recurring subscription is an effective strategy, it cannot be assured that subscribers will renew the service at the same level in future years, propagate services to new categories or recognize the need for expanding the service offering of the Company's suite of actionable products and services.

Other Revenue

Other revenue was $1,461,572 and $1,723,271 for the six months ended December 31, 2012 and 2011, respectively, a decrease of 15.2% in the six months ended December 31, 2012 compared with the six months ended December 31, 2011. The net decrease of $261,699 is principally due to (i) the non-renewal of maintenance contracts, partially offset by increasing existing contracts resulting in a net reduction of maintenance revenue of approximately $67,000; (ii) a decrease in license revenue of $312,000; and (iii) a decrease in professional service revenue of $172,000. These decreases were partially offset by an increase in other revenue related to a management agreement with ReposiTrak.

While these other sources of revenue will continue in future periods, management's focus on recurring subscription-based revenue will cause license, maintenance, and consulting services to fluctuate and be difficult to predict.

Cost of Services and Product Support

                                                Six Months Ended
                                                   December 31,                    Variance
                                              2012            2011          Dollars        Percent
Cost of services and product support       $ 2,179,649     $ 2,255,374     $ (75,725)           -3.4 %
Percent of total revenue                          40.6 %          43.8 %

Cost of services and product support was $2,179,649 and $2,255,374 for the six months ended December 31, 2012 and 2011, respectively, a 3.4% decrease in the six months ended December 31, 2012 compared with the six months ended December 31, 2011. This decrease of $75,725 for the six months ended December 31, 2012 when compared with the same period ended December 31, 2011 is principally due to a $137,000 decrease in employee related expenses. This decrease was partially offset by a $61,000 increase in infrastructure expansion and upgrades.

Sales and Marketing Expense

                                Six Months Ended
                                  December 31,                    Variance
                              2012            2011          Dollars       Percent
Sales and marketing        $ 1,343,657     $ 1,230,545     $ 113,112           9.2 %
Percent of total revenue          25.0 %          23.9 %

Sales and marketing expense was $1,343,657 and $1,230,545 for the six months ended December 31, 2012 and 2011, respectively, a 9.2% increase. This $113,112 increase over the comparable period ended December 31, 2011 was primarily the result of (i) an increase of $117,000 in marketing costs and (ii) an increase of approximately $12,000 in employee related expenses. These increases were partially offset by a decrease of approximately $16,000 in other selling expenses.

General and Administrative Expense

                                  Six Months Ended
                                    December 31,                     Variance
                                2012            2011           Dollars       Percent
General and administrative   $ 1,169,501     $ 1,550,392     $ (380,891)        -24.6 %
Percent of total revenue            21.8 %          30.1 %

General and administrative expense was $1,169,507 and $1,550,392 for the six months ended December 31, 2012 and 2011, respectively, a 24.6% decrease in the six months ended December 31, 2012 compared with the six months ended December 31, 2011. This $380,891 decrease when comparing expenditures for the six months ended December 31, 2012 with the same period ended December 31, 2011 is principally due to (i) a decrease of approximately $136,000 in employee related expenses; (ii) a decrease in professional fees of $135,000; (iii) a $69,000 decrease in bad debt due to increased collection efforts; and (iv) a decrease of $41,000 in other operational expenses.

Depreciation and Amortization Expense

                                   Six Months Ended
                                     December 31,                  Variance
                                  2012          2011        Dollars       Percent
Depreciation and amortization   $ 460,523     $ 444,800     $ 15,723           3.5 %
Percent of total revenue              8.6 %         8.6 %

Depreciation and amortization expense was $460,523 and $444,800 for the six months ended December 31, 2012 and 2011, respectively, an increase of 3.5% in the six months ended December 31, 2012 compared with the six months ended December 31, 2011. This increase of $15,723 for the six months ended December 31, 2012 when compared to the six months ended December 31, 2011 is due to increased depreciation expense related to new hardware.

Other Income and Expense

                              Six Months Ended
                                December 31,                 Variance
                             2012         2011         Dollars       Percent
Interest expense           $ 77,868     $ 120,884     $ (43,016)        -35.6 %
Percent of total revenue        1.4 %         2.3 %

Net interest expense was $77,868 and $120,884 for the six months ended December 31, 2012 and 2011, respectively. This $43,016 decrease is principally due to reduced note payable balances in the current year.

Preferred Dividends

                              Six Months Ended
                                December 31,                  Variance
                             2012          2011        Dollars       Percent
Preferred dividends        $ 499,280     $ 417,220     $ 82,060          19.7 %
Percent of total revenue         9.3 %         8.1 %

Dividends accrued on the Company's Series A Preferred and Series B Preferred was $499,280 and $417,220 for the six months ended December 31, 2012 and 2011, respectively. Through the quarter ended September 30, 2012, holders of Series A Preferred were entitled to a 5.00% annual dividend payable quarterly in either cash or additional Series A Preferred at the option of the Company with fractional shares paid in cash. Holders of Series B Preferred are entitled to a 12.00% annual dividend payable quarterly in cash. The dividend rate with respect the Series A Preferred increased to 10% per annum as a result of the average closing price of the Company's common stock during the last thirty (30) trading days of the quarter ending December 31, 2012 being less than $3.00 per share (a "Dividend Adjustment"). A holder of Series A Preferred has notified the Company that a Dividend Adjustment was required as a result of the average closing price of the Company's common stock for the thirty-day period ended March 31, 2012. Management disagrees with the method of calculation used by the holder and believes that the Company's calculation determining that a Dividend Adjustment was not required during the quarters ended March 31 and September 30, 2012, is reasonable, and that an ultimate determination that an alternative method should be employed is doubtful. The pro-forma effect of a Dividend Adjustment for the six months ended December 31, 2012 is shown in the table below:

                                                 Six Months Ended
                                                 December 31, 2012                   Variance
                                            As Reported      Pro-forma       Dollars         Percent
Dividends on Series A Preferred              $   252,123     $   342,816     $   90,693           36.0 %
. . .