The non-vested shares will be non-voting and will not participate in dividends during the restriction period. As a result, the weighted-average fair value of the non-vested share awards is based on the fair market value of the Company's equity shares on the grant date, less the present value of the expected dividends to be declared during the restriction period.

At September 30, 2007, there was $147 of compensation expense that has yet to be recognized related to stock options, which will be recognized over a weighted average period of 0.74 years. Related to non-vested restricted stock share awards, there was $3,140 of compensation expense that has yet to be recognized as of September 30, 2007, which will be recognized over a weighted average period of 4.39 years.

COMPREHENSIVE INCOME

Comprehensive income for the three-month periods ended September 30, 2007 and 2006 equals the Company's net income.

COMMON STOCK

The Board of Directors has authorized the Company to repurchase shares of its common stock. Under this authorization, the Company may finance its share repurchases with available cash reserves or short-term borrowings on its existing credit facility. The share repurchase program does not include specific price targets or timetables and may be suspended at any time. At June 30, 2007, there were 7,101 shares in treasury stock and the Company had the remaining authority to repurchase up to 2,890 additional shares. During the first quarter of fiscal 2008, the Company repurchased 200 treasury shares for $5,183. The total cost of treasury shares at September 30, 2007 is $155,367. At September 30, 2007, there were 7,301 shares remaining in treasury stock and the Company had the authority to repurchase up to 2,690 additional shares.

INTERIM FINANCIAL STATEMENTS

The accompanying condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q of the Securities and Exchange Commission and in accordance with accounting principles generally accepted in the United States of America applicable to interim condensed consolidated financial statements, and do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete consolidated financial statements. The condensed consolidated financial statements should be read in conjunction with the Company's audited consolidated financial statements and accompanying notes, which are included in its Annual Report on Form 10-K ("Form 10-K") for the year ended June 30, 2007. The accounting policies followed by the Company are set forth in Note 1 to the Company's consolidated financial statements included in its Form 10-K for the fiscal year ended June 30, 2007.

In the opinion of management of the Company, the accompanying condensed consolidated financial statements reflect all adjustments necessary (consisting solely of normal recurring adjustments) to present fairly the financial position of the Company as of September 30, 2007, and the results of its operations and its cash flows for the three-month periods ended September 30, 2007 and 2006.

The results of operations for the period ended September 30, 2007 are not necessarily indicative of the results to be expected for the entire year.

NOTE 2.     ADDITIONAL INTERIM FOOTNOTE INFORMATION

The following additional information is provided to update the notes to the Company's annual consolidated financial statements for the developments during the three months ended September 30, 2007.

ACQUISITION

On July 1, 2007, the Company acquired all of the capital stock of Gladiator Technology Services, Inc. ("Gladiator"). Gladiator is a provider of technology security services for financial institutions. The purchase price for Gladiator, $17,419 paid in cash, was preliminarily allocated to the assets and liabilities acquired based on then estimated fair values at the acquisition date, resulting in an allocation of $(454) to working capital, $779 to property and equipment, $4,859 to customer relationships, and $12,235 to goodwill. The acquired goodwill has been allocated to the banking systems and services segment. The Company and the former shareholders of Gladiator jointly made a IRC Section 338(h)(10) election for this acquisition. This election allows treatment of this acquisition as an asset acquisition, which permits the Company to amortize the customer relationships and goodwill for tax purposes.

The following unaudited pro forma consolidated financial information is presented as if the acquisitions completed in the current and prior fiscal years had occurred at the beginning of the earliest period presented. This unaudited pro forma financial information is provided for illustrative purposes only and should not be relied upon as being indicative of the historical results that would have been obtained if these acquisitions had actually occurred during those periods, or the results that may be obtained in the future as a result of these acquisitions.

DEBT

The Company renewed a bank credit line on March 7, 2007 which provides for funding of up to $8,000 and bears interest at the Federal Reserve Board's prime rate (7.75% at September 30, 2007). The credit line expires March 7, 2008 and is secured by $1,000 of investments. At September 30, 2007, no amount was outstanding.

An unsecured revolving bank credit facility allows short-term borrowings of up to $150,000 which may be increased by the Company at any time until maturity to $225,000. The unsecured revolving bank credit facility bears interest at a rate equal to (a) LIBOR or (b) an alternate base rate (the greater of (a) the Federal Funds Rate plus ½% or (b) the Prime Rate), plus an applicable percentage in each case determined by the Company's leverage ratio. The unsecured revolving credit line terminates May 31, 2012. At June 30, 2007, the revolving bank credit facility balance was $70,000. At September 30, 2007, no amount was outstanding.

During the prior two fiscal years, the Company has entered into various capital lease obligations for the use of certain computer equipment totaling $1,168. Those amounts are included in property and equipment and the related depreciation is included in total depreciation expense. At September 30, 2007, $455 was outstanding, of which $284 is included in current maturities.

During the quarter ended September 30, 2007, the Company incurred interest totaling $173, $90 of which was capitalized.

COMMITMENTS AND CONTINGENCIES

For fiscal 2008, the Board of Directors approved bonus plans for its executive officers and general managers for the current fiscal year. Under the plan, bonuses will be paid following the end of the current fiscal year based upon achievement of operating income targets and upon achievement of a superior return on average assets in comparison with a group of peer companies selected by the Compensation Committee.

The Company has also entered into agreements that provide its executive officers with compensation totaling two years' base salary and bonus in the event the Company terminates the executive without cause within the period from 90 days before to two years after a change in control of the Company.

NOTE 3.     RECENT ACCOUNTING PRONOUNCEMENTS

On July 1, 2007, the Company adopted the provisions of Financial Accounting Standards Board ("FASB") Interpretation No. 48 ("FIN 48") - "Accounting for Uncertainty in Income Taxes - an interpretation of FASB Statement No. 109," which provides a financial statement recognition threshold and measurement attribute for a tax position taken or expected to be taken in a tax return. Under FIN 48, the Company may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based upon the technical merits of the position. The tax benefits recognized in the financial statements from such a position should be measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. FIN 48 also provides guidance on derecognition of income tax assets and liabilities, classification of current and deferred income tax assets and liabilities, accounting for interest and penalties associated with tax positions, and income tax disclosures.

Adopting FIN 48 had the following impact on our financial statements: decreased net deferred tax liability by $2,914 and retained earnings by $3,850; and increased long term liabilities by $6,764. As of July 1, 2007, the Company had $5,838 of unrecognized tax benefits of which $3,366, if recognized, would affect our effective tax rate. Our policy is to include interest and penalties related to unrecognized tax benefits in income tax expense. As of July 1, 2007, we had accrued interest and penalties of $1,345 related to uncertain tax positions.

We are currently under audit by the IRS for tax years 2005 through 2007. While it is possible that the audit cycle may conclude in the next 12 months and that the unrecognized tax benefits we have recorded may change, it is not possible to estimate the effect, if any, of the amount of such change during the next 12 months to previously recorded uncertain tax positions.

In September 2006, the Securities and Exchange Commission ("SEC") issued Staff Accounting Bulletin ("SAB") No. 108, "Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements" ("SAB 108"). SAB 108 provides guidance on how prior year misstatements should be considered when quantifying misstatements in current year financial statements for purposes of assessing materiality. SAB 108 requires that a registrant assess the materiality of a current period misstatement by determining how the current period's balance sheet would be affected in correcting a misstatement without considering the year(s) in which the misstatement originated and how the current period's income statement is misstated, including the reversing effect of prior year misstatements. SAB 108 was effective for the Company on June 30, 2007. The cumulative effect of applying SAB 108 may be recorded by adjusting current year beginning balances of the affected assets and liabilities with a corresponding adjustment to the current year opening balance in retained earnings if certain criteria are met. The adoption of this bulletin did not have a material impact on the Company's consolidated financial statements.

In September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements" ("SFAS 157"). SFAS 157 defines fair value, establishes a framework for measuring fair value in GAAP and requires enhanced disclosures about fair value measurements. SFAS 157 does not require any new fair value measurements. SFAS 157 is effective for the Company beginning July 1, 2008. We do not anticipate that the adoption of this Standard will have a material impact on the Company's consolidated financial statements when adopted.

In February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for Financial Assets and Financial Liabilities-Including an amendment of FASB Statement No. 115" ("SFAS 159"). SFAS 159 expands the use of fair value accounting but does not affect existing standards which require assets or liabilities to be carried at fair value. Under SFAS 159, a company may elect to use fair value to measure its financial assets and liabilities. If the use of fair value is elected, any upfront costs and fees related to the item must be recognized in earnings and cannot be deferred. The fair value election is irrevocable and generally made on an instrument-by-instrument basis, even if a company has similar instruments that it elects not to measure based on fair value. At the adoption date, unrealized gains and losses on existing items for which fair value has been elected are reported as a cumulative adjustment to retained earnings. Subsequent to the adoption of SFAS 159, changes in fair value are recognized in earnings. SFAS 159 is effective for the Company beginning July 1, 2008. The Company is currently determining whether fair value accounting is appropriate for any of its eligible items and cannot estimate the impact, if any, which SFAS 159 will have on its financial statements.

NOTE 4.      SHARES USED IN COMPUTING NET INCOME PER SHARE

Per share information is based on the weighted average number of common shares outstanding for the three month periods ended September 30, 2007 and 2006. Stock options have been included in the calculation of income per share to the extent they are dilutive. Non-dilutive stock options to purchase approximately 384 and 1,488 shares for the three-month periods ended September 30, 2007 and 2006, respectively, were not included in the computation of diluted income per common share.

NOTE 5.     BUSINESS SEGMENT INFORMATION

The Company is a leading provider of integrated computer systems that perform data processing (both in-house and outsourced) for banks and credit unions. The Company's operations are classified into two business segments: bank systems and services and credit union systems and services. The Company evaluates the performance of its segments and allocates resources to them based on various factors, including prospects for growth, return on investment, and return on revenue.

NOTE 6.     SUBSEQUENT EVENTS

Effective October 1, 2007, the Company completed its acquisition of all of the capital stock of Texas-based AudioTel Corporation for $32,000 paid in cash. In addition, contingent purchase consideration of up to $3,000,000 may be due based upon AudioTel's net operating income over the two-year period ending September 30, 2009. AudioTel provides remittance, merchant capture, check imaging, document imaging and management, and telephone and Internet banking solutions.

On October 30, 2007, the Company's Board of Directors declared a quarterly cash dividend of $.065 per share of common stock, payable on December 4, 2007, to shareholders of record on November 14, 2007.

Background and Overview

We provide integrated computer systems for in-house and outsourced data processing to commercial banks, credit unions and other financial institutions. We have developed and acquired banking and credit union application software systems that we market, together with compatible computer hardware, to these financial institutions. We also perform data conversion and software implementation services regarding our systems and provide continuing customer support services after the systems are implemented. For our customers who prefer not to make an up-front capital investment in software and hardware, we provide our full range of products and services on an outsourced basis through our eight data centers in six physical locations and 23 item-processing centers located throughout the United States.

A detailed discussion of the major components of the results of operations for the three months ended September 30, 2007 follows. All amounts are in thousands and discussions compare the current three-month period ended, September 30, 2007, to the prior year three-month period ended September 30, 2006.

License revenue represents the delivery of application software systems contracted with us by the customer. We license our proprietary software products under standard license agreements that typically provide the customer with a non-exclusive, non-transferable right to use the software on a single computer and for a single financial institution location.

The reduction in license revenue for the quarter compared to the same quarter a year ago is mainly attributable to the banking systems and services segment. When compared to last year, several of our software solutions experienced a decrease in license revenue, particularly within our complementary products. Those products that had the most significant decreases included Yellow Hammer Fraud Detective™ (our fraud detection/prevention solution) and Synergy Enterprise Content Management (our modular ECM solution). During the first quarter of fiscal 2007, Synergy experienced unusually strong revenue and appears to have returned to historically normal levels in the first quarter of fiscal 2008.

A significant portion of the decrease in license revenue can be attributed to the continuing shift in demand from banks and credit unions from an in-house delivery to our outsourcing services, which do not require software license agreements. Another contributing factor is the high market penetration we have with several of our products which has caused us to anticipate reduced license sales for these products compared to prior years.

Support and services fees are generated from implementation services (including conversion, installation, configuration and training), annual support to assist the customer in operating their systems and to enhance and update the software, outsourced data processing services and EFT Support services.

There was strong growth in all of the support and service revenue components for the quarter ended September 30, 2007. In-house support and other services increased partially as a result of recent acquisitions and partially as a result of new license agreements for which implementation was completed during the period since the first quarter of fiscal 2007. In addition, because annual maintenance fees are based on supported institutions' asset size, in-house support revenues increase as our customers' assets grow. EFT support, including ATM and debit card transaction processing, online bill payment services, remote deposit capture and Check 21 transaction processing services, experienced the largest percentage and dollar growth. Outsourcing services for banks and credit unions continue to drive revenue growth at a strong pace as we add new bank and credit union customers and increase volume. The growth in implementation services revenue is primarily due to an increase in merger conversions for existing customers that acquired other financial institutions.

Hardware revenue increased mainly due to an increase in the number of hardware systems and components delivered in the current quarter compared to a year ago. In particular, there has been a significant increase in revenue from hardware components used in our remote deposit capture product for imaging and exchanging of checks. There was also significant growth in revenue related to IBM System i upgrades.

Our backlog increased 7% at September 30, 2007 to $237,600 ($64,000 in-house and $173,600 outsourcing) from $222,400 ($69,700 in-house and $152,700 outsourcing) at September 30, 2006.

Cost of license represents the cost of software from third party vendors through remarketing agreements. These costs are recognized when license revenue is recognized. Cost of support and service represents costs associated with conversion and implementation efforts, ongoing support for our in-house customers, operation of our data and item processing centers providing services for our outsourced customers, EFT processing services and direct operating costs. These costs are recognized as they are incurred. Cost of hardware consists of the direct and related costs of purchasing the equipment from the manufacturers and delivery to our customers. These costs are recognized at the same time as the related hardware revenue is recognized. Ongoing operating costs to provide support to our customers are recognized as they are incurred.

Cost of license increased for the current quarter due to greater third party reseller agreement software vendor costs. Cost of support and service increased due to additional headcount and depreciation expense for new facilities and equipment as compared to last year. Cost of hardware increased due to an increase in hardware sales. Also, hardware incentives and rebates received from vendors fluctuate quarterly due to changing thresholds established by the vendors.

Gross margin on license revenue decreased to 94% for the current quarter compared to 96% in the same quarter last year due to an increase in third party software sales and the related costs. The gross margin on third party software is significantly lower than on our owned products. The gross profit margin remained at 37% in support and service. Hardware gross margin in the first quarter of fiscal 2008 decreased to 26% from 30% in the first quarter of fiscal 2007, primarily due to sales mix and decreased incentives and rebates received from vendors during the quarter.

For the three months ended September 30, 2007, selling and marketing expenses increased mainly due to increasing personnel costs, particularly commission expenses related to the increase in support and service revenue. Selling and marketing expense remained even as a percentage of sales compared to the first quarter of last fiscal year at 8%.