10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2008

or

o 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 0-5734

AGILYSYS, INC.

(Exact name of registrant as specified in its charter)

Ohio	34-0907152
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	Identification No.)
28925 Fountain Parkway, Solon, Ohio	44139
(Address of principal executive offices)	(ZIP Code)

(440) 519-8700

(Registrant’s telephone number, including area code)

2255 Glades Road, Suite 301E, Boca Raton, Florida, 33431

(Former name, former address and former fiscal year, if changed since last report)

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 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 o     No þ

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o  Accelerated filer þ  Non-accelerated filer   o
(Do not check if a smaller reporting company) Smaller Reporting Company o 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o      No þ

The number of Common Shares of the registrant outstanding as of December 26, 2008 was 22,672,040.

AGILYSYS, INC.

Index

Part I. Financial Information
Item 1 Financial Statements	3
Condensed Consolidated Statements of Operations — Three Months Ended June 30, 2008 and 2007 (Unaudited)	3
Condensed Consolidated Balance Sheets — June 30, 2008 (Unaudited) and March 31, 2008	4
Condensed Consolidated Statements of Cash Flows — Three Months Ended June 30, 2008 and 2007 (Unaudited)	5
Notes to Condensed Consolidated Financial Statements — June 30, 2008 (Unaudited)	6
Item 2 Management’s Discussion and Analysis of Financial Condition and Results of Operations	25
Item 3 Quantitative and Qualitative Disclosures About Market Risk	36
Item 4 Controls and Procedures	36
Part II. Other Information
Item 1 Legal Proceedings	37
Item 1A Risk Factors	38
Item 2 Unregistered Sales of Equity Securities and Use of Proceeds	38
Item 3 Defaults Upon Senior Securities	38
Item 4 Submission of Matters to a Vote of Security Holders	38
Item 5 Other Information	38
Item 6 Exhibits	38
Signatures	39
EX-10.1
EX-31.1
EX-31.2
EX-32.1
EX-32.2

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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

AGILYSYS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)

	Three Months Ended
	June 30
(In thousands, except share and per share data)	2008			2007
Net sales:
Products	$	150,347		$	103,402
Services		34,153			24,961
Total net sales		184,500			128,363
Cost of goods sold:
Products		124,842			89,791
Services		11,073			6,256
Total cost of goods sold		135,915			96,047
Gross margin		48,585			32,316
Selling, general and administrative expenses		57,339			37,623
Impairment of goodwill		33,623			—
Restructuring charges		23,063			26
Operating loss		(65,440	)		(5,333	)
Other (income) expenses:
Other (income)		(264	)		(1,180	)
Interest income		(247	)		(6,997	)
Interest expense		254			230
(Loss) income before income taxes		(65,183	)		2,614
Income tax benefit		(5,163	)		(43	)
(Loss) income from continuing operations		(60,020	)		2,657
Loss from discontinued operations, net of tax benefit of $(8) and $(39) for the three months ended June 30, 2008 and 2007, respectively		(16	)		(65	)
Net (loss) income	$	(60,036	)	$	2,592
Earnings per share — basic and diluted:
(Loss) income from continuing operations	$	(2.66	)	$	0.08
Income from discontinued operations		—			—
Net (loss) income	$	(2.66	)	$	0.08
Weighted average shares outstanding:
Basic		22,536,508			31,390,260
Diluted		22,536,508			32,304,529
Cash dividends per share	$	0.03		$	0.03

See accompanying notes to condensed consolidated financial statements.

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AGILYSYS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts at June 30, 2008 are unaudited)

	June 30			March 31
(In thousands)	2008			2008
ASSETS
Current assets
Cash and cash equivalents	$	29,509		$	70,596
Accounts receivable, net		155,842			170,357
Inventories, net		24,151			25,646
Deferred income taxes		6,549			3,788
Prepaid expenses and other current assets		3,292			3,056
Income taxes receivable		9,925			4,960
Assets of discontinued operations — current		—			369
Total current assets		229,268			278,772
Goodwill		250,646			298,420
Intangible assets, net		46,697			55,625
Investments in affiliated companies — held for sale		9,583			9,549
Other non-current assets		29,891			25,779
Property and equipment, net		26,758			27,726
Total assets	$	592,843		$	695,871
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities
Accounts payable	$	67,000		$	98,928
Floor plan financing		41,753			14,552
Deferred revenue		13,215			16,232
Accrued and other current liabilities		24,560			58,590
Liabilities of discontinued operations — current		1,517			610
Total current liabilities		148,045			188,912
Other non-current liabilities		24,206			27,262
Liabilities of discontinued operations — non-current		—			232
Shareholders’ equity
Common shares, without par value, at $0.30 stated value; authorized 80,000,000 shares; 31,568,818 shares outstanding		9,366			9,366
Treasury stock (8,896,778 in June 2008 and 8,978,378 in March 2008)		(2,669	)		(2,694	)
Capital in excess of stated value		(9,749	)		(11,469	)
Retained earnings		426,085			486,799
Accumulated other comprehensive loss		(2,441	)		(2,537	)
Total shareholders’ equity		420,592			479,465
Total liabilities and shareholders’ equity	$	592,843		$	695,871

See accompanying notes to condensed consolidated financial statements.

4

AGILYSYS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

	Three Months Ended
	June 30
(In thousands)	2008			2007
Operating activities:
Net (loss) income	$	(60,036	)	$	2,592
Add: Loss from discontinued operations		16			65
(Loss) income from continuing operations		(60,020	)		2,657
Adjustments to reconcile (loss) income from continuing operations to net cash used for operating activities (net of effects from business acquisitions):
Impairment of goodwill and intangible assets		54,203			—
Gain on redemption of investment in affiliated company		—			(1,330	)
(Gain) loss on equity investment		(34	)		1,056
Depreciation		992			385
Amortization		6,002			1,534
Deferred income taxes		(5,986	)		(628	)
Stock based compensation		1,745			1,846
Excess tax benefit from exercise of stock options		—			(97	)
Changes in working capital:
Accounts receivable		14,800			23,561
Inventories		1,540			(1,108	)
Accounts payable		(32,559	)		(14,102	)
Accrued liabilities		(37,012	)		(13,767	)
Income taxes payable		(4,883	)		(129,270	)
Other changes, net		(236	)		28
Other non-cash adjustments		(4,349	)		(1,403	)
Total adjustments		(5,777	)		(133,295	)
Net cash used for operating activities		(65,797	)		(130,638	)
Investing activities:
Change in cash surrender value of company owned life insurance policies		(36	)		(35	)
Proceeds from redemption of investment in affiliated company		—			4,770
Acquisition of businesses, net of cash acquired		(2,381	)		(112,074	)
Purchase of property and equipment		(764	)		(1,679	)
Net cash used for investing activities		(3,181	)		(109,018	)
Financing activities:
Floor plan financing agreement, net		27,201			—
Dividends paid		(678	)		(941	)
Issuance of common shares		—			690
Principal payment under long term obligations		260			(51	)
Excess tax benefit from exercise of stock options		—			97
Net cash provided by (used for) financing activities		26,783			(205	)
Effect of exchange rate changes on cash		80			1,019
Cash flows used for continuing operations		(42,115	)		(238,842	)
Cash flows of discontinued operations Operating cash flows		1,028			98
Net decrease in cash		(41,087	)		(238,744	)
Cash at beginning of period		70,596			604,667
Cash at end of period	$	29,509		$	365,923

See accompanying notes to condensed consolidated financial statements.

5

AGILYSYS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Table amounts in thousands, except per share data)

1. Financial Statement Presentation

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements include the accounts of Agilysys, Inc. and its subsidiaries (the “company”). Investments in affiliated companies are accounted for by the cost method because the company does not have significant influence over the entity, as appropriate, under U.S. generally accepted accounting principles (“GAAP”). All inter-company accounts have been eliminated. The company’s fiscal year ends on March 31. References to a particular year refer to the fiscal year ending in March of that year. For example, 2009 refers to the fiscal year ending March 31, 2009.

The unaudited interim financial statements of the company are prepared in accordance with GAAP for interim financial information and pursuant to the instructions for Form 10-Q under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and Article 10 of Regulation S-X under the Exchange Act. Certain information and footnote disclosures normally included in the financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations relating to interim financial statements.

The condensed consolidated balance sheet as of June 30, 2008, as well as the condensed consolidated statements of operations for the three month periods ended June 30, 2008, and 2007 and the condensed consolidated statements of cash flows for the three month periods ended June 30, 2008, and 2007 have been prepared by the company without audit. However, these financial statements have been prepared on the same basis as those used in preparation of the audited annual financial statements. In the opinion of management, all adjustments necessary to fairly present the results of operations, financial position, and cash flows have been made. Such adjustments were of a normal recurring nature.

The company experiences a disproportionately large percentage of quarterly sales in the last month of its fiscal quarters. In addition, the company’s Technology Solutions Group experiences a seasonal increase in sales during its fiscal third quarter ending in December. Accordingly, the results of operations for the three months ended June 30, 2008, are not necessarily indicative of the operating results for the full fiscal year or any future period.

Reclassifications

Certain amounts in the prior periods’ condensed consolidated financial statements have been reclassified to conform to the current period’s presentation.

2. Summary of Significant Accounting Policies

A detailed description of the company’s significant accounting policies can be found in the audited financial statements for the fiscal year ended March 31, 2008, included in the company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission. There have been no material changes in the company’s significant accounting policies and estimates from those disclosed therein other than the company’s accounting for income tax uncertainties, as discussed below.

6

Recently Issued Accounting Standards.

In May 2008, the FASB issued Statement No. 162, The Hierarchy of Generally Accepted Accounting Principles (“Statement 162”). Statement 162 identifies the sources of accounting principles and the framework for selecting the principles to be used in the preparation of financial statements of nongovernmental entities that are presented in conformity with GAAP. Statement 162 is effective 60 days following the SEC’s approval of the Public Company Accounting Oversight Board amendments to AU Section 411, The Meaning of Present Fairly in Conformity with Generally Accepted Accounting Principles. The company is currently evaluating the impact, if any, that Statement 162 will have on its financial position, results of operations and cash flows.

In March 2008, the FASB issued Statement No. 161, Disclosures about Derivative Instruments and Hedging Activities — an Amendment of FASB Statement No. 133 (“Statement 161”). Statement 161 enhances the disclosures about an entity’s derivative and hedging activities. Statement 161 is effective for fiscal periods beginning after November 15, 2008, or January 1, 2009, for the company. The company is currently evaluating the impact, if any, that Statement 161 will have on its financial position, results of operations and cash flows.

In December 2007, the FASB issued Statement No. 141(R), Business Combinations (“Statement 141(R)”). Statement 141(R) significantly changes the accounting for and reporting of business combination transactions. Statement 141(R) is effective for fiscal years beginning after December 15, 2008, or fiscal 2010 for the company. The company is currently evaluating the impact that Statement 141(R) will have on its financial position, results of operations and cash flows.

In December 2007, the FASB issued Statement No. 160, Accounting and Reporting for Noncontrolling Interests in Consolidated Financial Statements, an amendment of ARB No. 51 (“Statement 160”). Statement 160 clarifies the classification of noncontrolling interests in consolidated statements of financial position and the accounting for and reporting of transactions between the reporting entity and holders of such noncontrolling interests. Statement 160 is effective for the first annual reporting period beginning after December 15, 2008, or fiscal 2010 for the company. The company is currently evaluating the impact that Statement 160 will have on its financial position, results of operations and cash flows.

In February 2007, the FASB issued Statement No. 159, The Fair Value Option for Financial Assets and Financial Liabilities—including an Amendment of FASB Statement No. 115 (“Statement 159”). Statement 159 allows measurement at fair value of eligible financial assets and liabilities that are not otherwise measured at fair value. If the fair value option for an eligible item is elected, unrealized gains and losses for that item will be reported in current earnings at each subsequent reporting date. Statement 159 also establishes presentation and disclosure requirements designed to draw comparison between the different measurement attributes the company elects for similar types of assets and liabilities. Statement 159 is effective for fiscal years beginning after November 15, 2007, or fiscal 2009 for the company. During the first quarter of fiscal year 2009, the company has not elected to measure any financial instruments at fair value under SFAS No. 159.

In September 2006, the FASB issued Statement No. 157, Fair Value Measurements (“Statement 157”). Statement 157 provides a single definition of fair value, a framework for measuring fair value, and expanded disclosures concerning fair value. Previously, different definitions of fair value were contained in various accounting pronouncements creating inconsistencies in measurement and disclosures. Statement 157 applies under those previously issued pronouncements that prescribe fair value as the relevant measure of value, except SFAS No. 123R and related interpretations and pronouncements that require or permit measurement similar to fair value but are not intended to measure fair value. Statement 157 is effective for fiscal years beginning after November 15, 2007, or fiscal 2009 for the company. The adoption of Statement 157 during the first quarter of fiscal year 2009 did not result in any adjustments to the financial assets and liabilities reported or disclosed in the financial statements.

7

Effective April 1, 2007, the company adopted the provisions of FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes — an Interpretation of FASB Statement No. 109 (“FIN 48”). FIN 48 prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more-likely-than-not to be sustained upon examination by taxing authorities. As a result of the implementation of FIN 48, the company recognized approximately $2.9 million increase in the liability for unrecognized tax benefits, which was accounted for as a reduction to the April 1, 2007 balance of retained earnings. As of June 30, 2008, the company had a liability for uncertain tax positions, excluding interest, penalty, and federal benefit of $5.5 million. A reconciliation of the beginning and ending balance of unrecognized tax benefits is as follows:

Balance at April 1, 2008	$	5,997
Additions:
Relating to positions taken during current year		216
Reductions:
Relating to tax settlements		(228	)
Due to business acquisitions		(455	)
Balance at June 30, 2008	$	5,530

The company recognizes interest accrued on any unrecognized tax benefits as a component of income tax expense. Penalties are recognized as a component of selling, general and administrative expenses. As of June 30, 2008, the company had approximately $1.2 million of interest and penalties accrued.

The company anticipates the completion of a state income tax audit in the next 12 months which could reduce the accrual for unrecognized tax benefits by $53,000. The company believes that, other than the changes noted above, it is impractical to determine the positions for which it is reasonably possible that the total of uncertain tax benefits will significantly increase or decrease in the next twelve months.

The company is currently being audited by multiple state and federal taxing jurisdictions. In material jurisdictions, the company has potential tax examination years open back to and including 1998 which may be subject to tax authority examination.

3. Recent Acquisitions

In accordance with FASB Statement No. 141, Business Combinations, the company allocates the cost of its acquisitions to the assets acquired and liabilities assumed based on their estimated fair values. The excess of the cost over the fair value of the net assets acquired is recorded as goodwill.

2009 Acquisition

Triangle Hospitality Solutions Limited

On April 9, 2008, the company acquired all of the shares of Triangle Hospitality Solutions Limited (“Triangle”), the UK-based reseller and specialist for the company’s InfoGenesis products and services for $2.7 million. Accordingly, the results of operations for Triangle have been included in the accompanying condensed consolidated financial statements from that date forward. Triangle will be instrumental in enhancing the company’s international presence and growth strategy in the UK, as well as solidifying the company’s leading position in the hospitality and stadium and arena markets. Triangle will also add to the company’s hospitality solutions suite with the ability to offer customers the Triangle mPOS solution, which is a handheld point-of-sale solution which seamlessly integrates with InfoGenesis products. Based on management’s preliminary allocation of the acquisition cost to the net assets acquired, approximately $2.7 million was assigned to goodwill. The company is still in the process of valuing certain intangible assets; accordingly, allocation of the acquisition cost is

8

subject to modification in the future. Goodwill resulting from the Triangle acquisition will not be deductible for income tax purposes.

2008 Acquisitions

Eatec

On February 19, 2008, the company acquired all of the shares of Eatec Corporation (“Eatec”), a privately held developer and marketer of inventory and procurement software. Accordingly, the results of operations for Eatec have been included in the accompanying condensed consolidated financial statements from that date forward. Eatec’s software, EatecNetX (now called Eatec Solutions by Agilysys), is a recognized leading, open architecture-based, inventory and procurement management system. The software provides customers with the data and information necessary to enable them to increase sales, reduce product costs, improve back-office productivity and increase profitability. Eatec customers include well-known restaurants, hotels, stadiums and entertainment venues in North America and around the world as well as many public service institutions. The acquisition further enhances the company’s position as a leading inventory and procurement solution provider to the hospitality and foodservice markets. Eatec was acquired for a total cost of $25.0 million. Based on management’s preliminary allocation of the acquisition cost to the net assets acquired, approximately $24.6 million was assigned to goodwill. The company is still in the process of valuing certain intangible assets; accordingly, allocation of the acquisition cost is subject to modification in the future. Goodwill resulting from the Eatec acquisition will not be deductible for income tax purposes. In the first quarter of 2009, a non-cash goodwill impairment charge was taken in the amount of $1.3 million relating to the Eatec acquisition. This is an estimate as of June 30, 2008, pending the completion of the company’s step-two analysis in accordance with FASB Statement 142, Goodwill and Other Intangible Assets (“Statement 142”), which the company expects to have completed in time for its second quarter Form 10-Q filing. Refer to Note 11 for further discussion of the company’s goodwill and intangible assets.

Innovative Systems Design, Inc.

On July 2, 2007, the company acquired all of the shares of Innovative Systems Design, Inc. (“Innovative”), the largest U.S. commercial reseller of Sun Microsystems servers and storage products. Accordingly, the results of operations for Innovative have been included in the accompanying condensed consolidated financial statements from that date forward. Innovative is an integrator and solution provider of servers, enterprise storage management products and professional services. The acquisition of Innovative establishes a new and significant relationship between Sun Microsystems and the company. Innovative was acquired for an initial cost of $108.6 million. Additionally, the company is required to pay an earn-out of two dollars for every dollar of earnings before interest, taxes, depreciation, and amortization, or EBITDA, greater than $50.0 million in cumulative EBITDA over the first two years after consummation of the acquisition. The earn-out will be limited to a maximum payout of $90.0 million. During the fourth quarter of 2008, the company recognized $35.0 million of the $90.0 million maximum earn-out, which was paid in the first quarter of 2009. In addition, the company amended its agreement with the Innovative shareholders whereby the maximum payout available to the Innovative shareholders was limited to $58.65 million, inclusive of the $35 million. The EBITDA target required for the shareholders to be eligible for an additional payout is now $67.5 million in cumulative EBITDA over the first two years after the close of the acquisition.

During the fourth quarter of 2008, management completed its purchase price allocation and assigned $29.7 million of the acquisition cost to identifiable intangible assets as follows: $4.8 million to non-compete agreements, $5.5 million to customer relationships, and $19.4 million to supplier relationships which will be amortized over useful lives ranging from two to five years.

Based on management’s allocation of the acquisition cost to the net assets acquired, approximately $97.8 million was assigned to goodwill. Goodwill resulting from the Innovative acquisition will be deductible for income tax purposes.

9

InfoGenesis

On June 18, 2007, the company acquired all of the shares of IG Management Company, Inc. and its wholly-owned subsidiaries, InfoGenesis and InfoGenesis Asia Limited (collectively, “InfoGenesis”), an independent software vendor and solution provider to the hospitality market. InfoGenesis offers enterprise-class point-of-sale solutions that provide end users a highly intuitive, secure and easy way to process customer transactions across multiple departments or locations, including comprehensive corporate and store reporting. InfoGenesis has a significant presence in casinos, hotels and resorts, cruise lines, stadiums and foodservice. The acquisition provides the company a complementary offering that extends its reach into new segments of the hospitality market, broadens its customer base and increases its software application offerings. InfoGenesis was acquired for a total acquisition cost of $90.6 million.

Based on management’s allocation of the acquisition cost to the net assets acquired, approximately $71.8 million was assigned to goodwill. InfoGenesis had intangible assets with a net book value of $18.3 million as of the acquisition date, which were included in the acquired net assets to determine goodwill. Intangible assets were assigned values as follows: $3.0 million to developed technology, which will be amortized between six months and three years; $4.5 million to customer relationships, which will be amortized between two and seven years; and $10.8 million to trade names, which have an indefinite life. Goodwill resulting from the InfoGenesis acquisition will not be deductible for income tax purposes. In the first quarter of 2009, a non-cash goodwill impairment charge was taken in the amount of $3.9 million relating to the Infogenesis acquisition. This is an estimate as of June 30, 2008, pending the completion of the company’s step-two analysis in accordance with Statement 142, which the company expects to have completed in time for its second quarter Form 10-Q filing. Refer to Note 11 for further discussion of the company’s goodwill and intangible assets.

Pro Forma Disclosure of Financial Information

The following table summarizes the company’s unaudited consolidated results of operations as if the InfoGenesis and Innovative acquisitions occurred on April 1, 2007:

	Actual			Proforma
	Three Months Ended			Three Months Ended
	June 30, 2008			June 30, 2007
Net Sales	$	184,500		$	209,296
(Loss) income from continuing operations	$	(60,020	)	$	4,142
Net (loss) income	$	(60,036	)	$	4,088
Earnings per share — basic and diluted
(Loss) income from continuing operations	$	(2.66	)	$	0.13
Net (loss) income	$	(2.66	)	$	0.13

Stack Computer, Inc.

On April 2, 2007, the company acquired all of the shares of Stack Computer, Inc. (“Stack”). Stack’s customers include leading corporations in the financial services, healthcare and manufacturing industries. Stack also operates a highly sophisticated solution center, which is used to emulate customer IT environments, train staff and evaluate technology. The acquisition of Stack strategically provides the company with product solutions and services offerings that significantly enhance its existing storage and professional services business. Stack was acquired for a total acquisition cost of $25.2 million.

Management made an adjustment of $0.8 million to the fair value of acquired capital equipment and assigned $11.7 million of the acquisition cost to identifiable intangible assets as follows: $1.5 million to non-compete agreements, which will be amortized over five years using the straight-line amortization

10

method; $1.3 million to customer relationships, which will be amortized over five years using an accelerated amortization method; and $8.9 million to supplier relationships, which will be amortized over ten years using an accelerated amortization method.

Based on management’s allocation of the acquisition cost to the net assets acquired, approximately $13.3 million was assigned to goodwill. Goodwill resulting from the Stack acquisition is deductible for income tax purposes. In the first quarter of 2009, a non-cash goodwill impairment charge was taken in the amount of $7.8 million relating to the Stack acquisition. This is an estimate as of June 30, 2008, pending the completion of the company’s step-two analysis in accordance with Statement 142, which the company expects to have completed in time for its second quarter Form 10-Q filing. Refer to Note 11 for further discussion of the company’s goodwill and intangible assets.

2007 Acquisition

Visual One Systems Corporation

On January 23, 2007, the company acquired all the shares of Visual One Systems Corporation (“Visual One Systems”), a leading developer and marketer of Microsoft^® Windows^®-based software for the hospitality industry. The acquisition provides the company additional expertise around the development, marketing and sale of software applications for the hospitality industry, including property management, condominium, golf course, spa, point-of-sale, and sales and catering management applications. Visual One Systems customers include well-known North American and international full-service hotels, resorts, conference centers and condominiums of all sizes. The aggregate acquisition cost was $14.4 million.

During the second quarter of 2008, management assigned $4.9 million of the acquisition cost to identifiable intangible assets as follows: $3.8 million to developed technology, which will be amortized over six years using the straight-line method; $0.6 million to non-compete agreements, which will be amortized over eight years using the straight-line amortization method; and $0.5 million to customer relationships, which will be amortized over five years using an accelerated amortization method.

Based on management’s allocation of the acquisition cost to the net assets acquired, including identified intangible assets, approximately $9.4 million has been assigned to goodwill. Goodwill resulting from the Visual One Systems acquisition is not deductible for income tax purposes. In the first quarter of 2009, a non-cash goodwill impairment charge was taken in the amount of $0.5 million relating to the Visual One acquisition. This is an estimate as of June 30, 2008, pending the completion of the company’s step-two analysis in accordance with Statement 142, which the company expects to have completed in time for its second quarter Form 10-Q filing. Refer to note 11 for further discussion of the company’s goodwill and intangible assets.

4. Discontinued Operations

Sale of Assets and Operations of KeyLink Systems Distribution Business

On March 31, 2007, the company sold the assets and operations of its KeyLink Systems Distribution Business (“KSG”) for $485.0 million in cash, subject to a working capital adjustment. During the second and third quarters of 2008, the final working capital adjustment of $10.8 million was settled and paid, contingencies were resolved and financial adjustments were recorded. Through the sale of KSG, the company exited all distribution-related businesses and now exclusively sells directly to end-user customers. By monetizing the value of KSG, the company significantly increased its financial flexibility and intends to redeploy the proceeds to accelerate the growth of its ongoing business both organically and through acquisition. The sale of KSG represented a disposal of a component of an entity. As such, the operating results of KSG, along with the gain on sale, have been reported as a component of discontinued operations.

11

In connection with the sale of KSG, the company entered into a product procurement agreement (“PPA”) with Arrow Electronics, Inc. Under the PPA, the company is required to purchase a minimum of $330 million worth of products each year during the term of the agreement (5 years), adjusted for product availability and other factors.

Loss from discontinued operations for the quarter ended June 30, 2008, consists primarily of the resolution and settlement of obligations and contingencies of KSG that existed as of the date the assets and operations of KSG were sold.

Components of Results of Discontinued Operations

For the years ended June 30, 2008, and 2007, income from discontinued operations was comprised of the following:

	Three Months Ended
	June 30
	2008			2007
Discontinued operations:
Resolution of contingencies	$	(13	)	$	(36	)
Loss from operations of IED		(11	)		(68	)
		(24	)		(104	)
Provisions for income taxes		(8	)		(39	)
Loss from discontinued operations	$	(16	)	$	(65	)

5. Comprehensive Income

Comprehensive income (loss) is the total of net income (loss) plus all other changes in net assets arising from non-owner sources, which are referred to as other comprehensive income (loss). Changes in the components of accumulated other comprehensive loss for 2009 are as follows:

	Foreign
	currency			Unrealized			Minimum			Accumulated other
	translation			gain on			pension			comprehensive			Comprehensive
	adjustment			securities			liability			income			Income/(Loss)
Balance at April 1, 2008	$	(243	)	$	(74	)	$	(2,220	)	$	(2,537	)
Change during first quarter 2009		97			(1	)		—			96		$	96
Balance at June 30, 2008	$	(146	)	$	(75	)	$	(2,220	)	$	(2,441	)
Net Loss for first quarter 2009														(60,036	)
Total Comprehensive Loss													$	(59,940	)

	Foreign								Accumulated
	currency		Unrealized			Minimum			other
	translation		gain on			pension			comprehensive			Comprehensive
	adjustment		securities			liability			income			Income/(Loss)
Balance at April 1, 2007	$	1,260	$	95		$	(3,019	)	$	(1,664	)
Change during first quarter 2008		1,111		(84	)		—			1,027		$	1,027
Balance at June 30, 2007	$	2,371	$	11		$	(3,019	)	$	(637	)
Net Income for first quarter 2008													2,592
Total Comprehensive Income												$	3,619

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6. Restructuring Charges

2009 Restructuring Activity

During the first quarter of 2009, the company performed a detailed review of the business to identify opportunities to improve operating efficiencies and reduce costs. As part of this cost reduction effort, management reorganized the professional services go-to-market strategy by consolidating its management and delivery groups. The company will continue to offer specific proprietary professional services, including identity management, security, and storage virtualization, however it will increase the use of external business partners.

The cost reduction resulted in a $2.5 million charge for one-time termination benefits relating to a workforce reduction. The workforce reduction was comprised mainly of sales personnel. Payment of the one-time termination benefits will be substantially complete in 2009. This restructuring also resulted in a $20.6 million impairment to goodwill and intangible assets, related to the company’s 2005 acquisition of the CTS Corporations. The entire $23.1 million restructuring charge relates to the TSG segment.

2007 Restructuring Activity

During 2007, the company recorded a restructuring charge of approximately $0.5 million for one-time termination benefits resulting from a workforce reduction that was executed in connection with the sale of KSG. The workforce reduction was comprised mainly of corporate personnel. Payment of the one-time termination benefits was substantially complete in 2008.

2006 Restructuring Activity

During 2006, the company recorded restructuring charges of $4.2 million to consolidate a portion of its operations in order to reduce costs and increase operating efficiencies. Costs incurred in connection with the restructuring comprised one-time termination benefits and other associated costs resulting from workforce reductions as well as facilities costs relating to the exit of certain leased facilities. Costs of $2.5 million were incurred to reduce the workforce of KSG, professional services business and to execute a senior management realignment and consolidation of responsibilities. Facilities costs of $1.7 million represented the present value of qualifying exit costs, offset by an estimate for future sublease income.

Following is a reconciliation of the beginning and ending balances of the restructuring liability:

	Severance
	and other
	employee						Long-lived
	costs			Facilities			Intangibles			Total
Balance at April 1, 2008	$	1		$	43		$	—		$	44
Additions		2,492			—			20,571			23,063
Accretion of lease obligations		—			1			—			1
Payments		(95	)		(17	)		—			(112	)
Write-off of intangibles		—			—			(20,571	)		(20,571	)
Balance at June 30, 2008	$	2,398		$	27		$	—		$	2,425

Of the remaining $27,000 facilities liability at June 30, 2008, approximately $17,000 is expected to be paid during 2009 for ongoing facility obligations. Facility obligations are expected to continue through 2010.

Components of Restructuring Charge

Included in the consolidated statement of operations is a $23.1 restructuring charge for 2009, which is comprised of a $20.6 million expense for the impairment of goodwill and intangible assets and a $2.5 million expense for the one-time termination benefits resulting from workforce reductions.

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7. Stock Based Compensation

The company has a stock incentive plan. Under the plan, the company may grant stock options, stock appreciation rights, restricted shares, restricted share units, and performance shares for up to 3.2 million shares of common stock. The maximum aggregate number of restricted shares, restricted share units and performance shares that may be granted under the plan is 1.6 million. For stock option awards, the exercise price must be set at least equal to the closing market price of the company’s stock on the date of grant. The maximum term of option awards is 10 years from the date of grant. Stock option awards vest over a period established by the Compensation Committee of the Board of Directors. Stock appreciation rights may be granted in conjunction with, or independently from, a stock option granted under the plan. Stock appreciation rights, granted in connection with a stock option, are exercisable only to the extent that the stock option to which it relates is exercisable and the stock appreciation rights terminate upon the termination or exercise of the related stock option. Restricted shares, restricted share units and performance shares may be issued at no cost or at a purchase price that may be below their fair market value, but which are subject to forfeiture and restrictions on their sale or other transfer. Performance share awards may be granted, where the right to receive shares in the future is conditioned upon the attainment of specified performance objectives and such other conditions, restrictions and contingencies. The company generally issues authorized but unissued shares to satisfy share option exercises.

As of June 30, 2008, there were no stock appreciation rights or restricted share units awarded from the plan.

Stock Options

The following table summarizes stock option activity for the three months ended June 30, 2008 for stock options awarded by the company under the stock incentive plan and prior plans.

				Weighted
				average
	Number of			exercise
	shares			price
Outstanding at April 1, 2008		3,526,910		$	14.24
Granted		246,000			9.82
Exercised		—			—
Cancelled/expired		(92,800	)		12.25
Forfeited		(12,501	)		20.09
Outstanding at June 30, 2008		3,667,609		$	13.97
Options exercisable at June 30, 2008		2,812,864		$	13.62

The fair market value of each option granted is estimated on the grant date using the Black-Scholes method. The following assumptions were made in estimating fair value of the stock option grant during the three months ended June 30, 2008:

Dividend yield		0.72	%
Risk-free interest rate		4.19	%
Expected life	6.0 years
Expected volatility		43.39	%

The dividend yield reflects the company’s historical dividend yield on the date of award. The risk-free interest rate is based on the yield of a zero-coupon U.S. Treasury bond whose maturity period equals the option’s expected term. The expected term reflects employee-specific future exercise expectations and historical exercise patterns, as appropriate. The expected volatility is based on historical volatility of the company’s common stock. The fair market value of options granted during the three months ended June 30, 2008 was $4.39.

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Compensation expense charged to operations during the three months ended June 30, 2008, and 2007 relating to stock options was $0.5 and $0.8 million, respectively. There was no income tax benefit recognized in operations during the three months ended June 30, 2008. As of June 30, 2008, total unrecognized stock based compensation expense related to non-vested stock options was $2.1 million, which is expected to be recognized over a weighted-average period of 14 months. During the three months ended June 30, 2008, no stock options were exercised.

The following table summarizes the status of stock options outstanding at June 30, 2008.

		Options outstanding						Options exercisable
						Weighted
						average remaining				Weighted
				Weighted average		contractual life				average
Exercise price range		Number		exercise price		in years		Number		exercise price
$	6.63 - $8.29		138,400	$	7.63		4.59		138,400	$	7.63
$	8.29 - $9.95		476,876		9.29		6.32		219,476		8.71
$	9.95 - $11.61		30,000		11.17		3.07		30,000		11.17
$	11.61 - $13.26		272,000		13.01		2.95		272,000		13.01
$	13.26 - $14.92		1,602,500		13.88		4.92		1,602,500		13.88
$	14.92 - $16.58		899,167		15.70		7.91		464,831		15.75
$	16.58 - $22.21		248,666		22.21		8.75		85,657		22.21
			3,667,609						2,812,864

Non-vested Shares

Compensation expense related to non-vested share awards is recognized over the restriction period based upon the closing market price of the company’s shares on the grant date. Compensation expense charged to operations for non-vested share awards was $1.0 million and $0.1 million for the three months ended June 30, 2008 and 2007, respectively. As of June 30, 2008, there was $0.8 million of total unrecognized compensation cost related to non-vested share awards, which is expected to be recognized over a weighted-average period of 21 months.

The following table summarizes non-vested share activity during the three months ended June 30, 2008, for restricted shares awarded by the company under the stock incentive plan and prior plans.

Outstanding at April 1, 2008	80,900
Granted	81,600
Vested	(94,100	)
Forfeited	—
Outstanding at June 30, 2008	68,400

The fair market value of non-vested shares is determined based on the closing price of the company’s shares on the grant date.

In October 2008, 36,000 restricted share awards were forfeited due to management restructuring (refer to Note 15 for more information regarding the restructuring).

Performance Shares

Compensation expense charged to operations for performance share awards was $0.3 million and $0.1 million for the three months ended June 30, 2008, and 2007, respectively. As of June 30, 2008, there was $2.0 million of total unrecognized compensation cost related to performance share awards, which is expected to be recognized over a weighted-average period of 21 months.

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The following table summarizes performance share activity during the three months ended June 30, 2008:

Outstanding at April 1, 2008	101,334
Granted	—
Vested	—
Forfeited	—
Outstanding at June 30, 2008	101,334

The company granted shares to certain executives of the company, the vesting of which is contingent upon meeting various company-wide performance goals. The performance shares contingently vest over three years. The fair value of the performance share grant is determined based on the closing market price of the company’s shares on the grant date and assumes that performance goals will be met. If such goals are not met, no compensation cost will be recognized and any compensation cost previously recognized during the vesting period will be reversed.

In October 2008, 80,000 performance share grants were forfeited due to management restructuring (refer to Note 15 for more information regarding the restructuring).

8. Income Taxes

Income tax expense for the three months ended June 30, 2008 and 2007 is based on the company’s estimate of the effective tax rate expected to be applicable for the respective full year. The effective tax rates from continuing operations were 7.9% and 43.3% for the three months ended June 30, 2008 and 2007, respectively. The decrease in the effective tax rate from the same period in the prior year was primarily due to the $50.4 million of goodwill impairment recognized for the three months ended June 30, 2008, which is a discrete item, the majority of which has no corresponding tax benefit. The effective tax rate for continuing operations for the first quarter of the prior year were higher than the statutory rates principally due to compensation expense associated with incentive stock option awards which was partially offset by the recognition of a discrete income tax benefit of $1.2 million related to previously unrecognized tax benefits.

As of June 30, 2008, the Company had gross unrecognized tax benefits of $5.5 million, of which approximately $3.9 million of this, if recognized, would favorably affect the Company’s effective tax rate. Gross unrecognized tax benefits decreased approximately $0.5 million from March 31, 2008 primarily due to expiration of the statute of limitations associated with uncertain tax positions from a business combination completed in a previous year. As of June 30, 2008, the company continues to have approximately $1.2 million of interest and penalties accrued.

Due to the ongoing nature of current examinations in multiple jurisdictions, other changes could occur in the amount of gross unrecognized tax benefits during the next 12 months which cannot be estimated at this time.

9. Earnings (Loss) Per Share

The following data show the amounts used in computing earnings (loss) per share from continuing operations and the effect on income and the weighted average number of shares of dilutive potential common stock.

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	Three Months Ended
	June 30
	2008			2007
Numerator:
(Loss) income from continuing operations – basic and diluted	$	(60,020	)	$	2,657
Denominator:
Weighted average shares outstanding – basic		22,537			31,390
Effect of dilutive securities:
Stock options and unvested restricted stock		—			915
Weighted average shares outstanding — diluted		22,537			32,305
(Loss) earnings per share from continuing operations
Basic and diluted	$	(2.66	)	$	0.08

Diluted earnings per share is computed by sequencing each series of potential issuance of common shares from the most dilutive to the least dilutive. Diluted earnings per share is determined as the lowest earnings or highest (loss) per incremental share in the sequence of potential common shares.

For the three months ended June 30, 2008, and 2007, options on 3.3 million and 0.3 million shares of common stock, respectively, were not included in computing diluted earnings per share because their effects were anti-dilutive.

10. Contingencies

The company is the subject of various threatened or pending legal actions and contingencies in the normal course of conducting its business. The company provides for costs related to these matters when a loss is probable and the amount can be reasonably estimated. The effect of the outcome of these matters on the company’s future results of operations and liquidity cannot be predicted because any such effect depends on future results of operations and the amount or timing of the resolution of such matters. While it is not possible to predict with certainty, management believes that the ultimate resolution of such individual or aggregated matters will not have a material adverse effect on the consolidated financial position, results of operations or cash flows of the company.

11. Goodwill and Intangible Assets

Goodwill

Goodwill is tested for impairment at the reporting unit level. Statement 142 describes a reporting unit as an operating segment or one level below the operating segment (depending on whether certain criteria are met), as that term is used in FASB Statement 131, Disclosures About Segments of an Enterprise and Related Information. Goodwill has been allocated to the company’s reporting units that are anticipated to benefit from the synergies of the business combinations generating the underlying goodwill. As discussed in Note 14, the company has three operating segments and six reporting units.

The company conducts its annual goodwill impairment test on February 1, and did so in 2008 without a need to expand the impairment test to step-two of Statement 142. However, during fiscal 2009, indictors of potential impairment caused the company to conduct an interim impairment test. Those indicators included the following: a significant decrease in market capitalization, a decline in recent operating results, and a decline in the company’s business outlook primarily due to the macroeconomic environment. In accordance with Statement 142, the company completed step one of the impairment analysis and concluded that, as of June 30, 2008, the fair value of three of its six reporting units was below their respective carrying values, including goodwill. The three reporting units that showed potential impairment were Retail Solutions Group, Hospitality Solutions Group, and Stack (a reporting unit within the Technology Solutions Group). As such, step two of the impairment test was initiated in accordance with Statement 142. Due to its time consuming nature, the step-two analysis has not been completed as of the date of this filing. In accordance with paragraph 22 of Statement 142, the company has recorded an estimate in the amount of $33.6 million as a non-cash goodwill impairment charge as of June 30, 2008, not including the $16.8 million of goodwill write-off relating to the restructuring actions taken in 2009 related to the company’s 2005 acquisition of the CTS Corporations (see Note 6). The company expects to complete the step-two analysis in time for the second quarter Form 10-Q filing. Due to changing factors that occurred in the second quarter of 2009, primarily a decline in the company’s

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business outlook, the company expects to incur an additional goodwill impairment charge of up to $250 million as of September 30, 2008, after the step-two analysis is complete.

During the three months ended June 30, 2008, changes in the carrying amount of goodwill related to the company’s past acquisitions are as follows:

Balance at April 1, 2008	$	298,420
Acquisition of Triangle		2,707
Goodwill adjustments to Innovative of $38, Infogensis of $108, and Eatec of ($215) related to FIN 48 adoption and purchase price adjustments		(69	)
Goodwill impairment – Kyrus		(18,361	)
Goodwill impairment – IAD		(1,658	)
Goodwill impairment – Visual One		(517	)
Goodwill impairment – Stack		(7,797	)
Goodwill impairment – Infogenesis		(3,941	)
Goodwill impairment – Eatec		(1,349	)
Goodwill impairment – CTS (refer to Note 6)		(16,811	)
Impact of foreign currency translation		22
Balance at June 30, 2008	$	250,646

Intangible Assets

The following table summarizes the company’s intangible assets at June 30, 2008, and March 31, 2008:

	June 30, 2008							March 31, 2008
	Gross					Net		Gross					Net
	carrying		Accumulated			carrying		carrying		Accumulated			carrying
	amount		Amortization			amount		amount		amortization			amount
Amortized intangible assets:
Customer relationships	$	22,757	$	(15,028	)	$	7,729	$	26,526	$	(13,627	)	$	12,899
Supplier relationships		28,280		(11,025	)		17,255		28,280		(8,336	)		19,944
Non-competition agreements		8,210		(2,418	)		5,792		8,210		(2,015	)		6,195
Developed technology		8,285		(4,064	)		4,221		8,285		(3,398	)		4,887
Patented technology		80		(80	)		—		80		(80	)		—
		67,612		(32,615	)		34,997		71,381		(27,456	)		43,925
Unamortized intangible assets:
Trade names		11,700		N/A			11,700		11,700		N/A			11,700
Total intangible assets	$	79,312	$	(32,615	)	$	46,697	$	83,081	$	(27,456	)	$	55,625

Customer relationships are being amortized over estimated useful lives between two and seven years; non-competition agreements are being amortized over estimated useful lives between four and eight years; developed technology are being amortized over estimated useful lives between six months and eight years; patented technology is amortized over an estimated useful life of three years; supplier relationships are being amortized over estimated useful lives between two and ten years.

Amortization expense relating to intangible assets for the three months ended June 30, 2008, and 2007 was $5.2 million and $0.7 million, respectively.

The estimated amortization expense relating to intangible assets for the remainder of fiscal year 2009 and each of the five succeeding fiscal years is as follows:

	Amount
Year ending March 31
2009 (remaining nine months)	$	13,812
2010		7,487
2011		3,884

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	Amount
2012		3,652
2013		2,527
2014		1,634
Total estimated amortization expense	$	32,996

During the first quarter of 2009, the company took steps to realign its cost structure. Management reorganized the professional services organizational structure, resulting in a $2.5 million restructuring charge for one-time termination benefits. In addition, this restructuring resulted in a $16.8 million goodwill impairment charge and a $3.8 million customer relationship intangible asset impairment charge, both relating to the CTS acquisition.

As stated above, the company has initiated a step-two analysis for Goodwill and Intangible Asset impairment in accordance with Statement 142. The company expects to complete the step-two analysis in time for the second quarter Form 10-Q filing. The completion of the step-two analysis may result in an adjustment to the estimated impairment charges recognized by the company at June 30, 2008, and may also result in additional impairment of other intangible assets at September 30, 2008.

12. Investment in Magirus — Held For Sale

During the first quarter of fiscal 2009, the company maintained an equity interest in Magirus AG (“Magirus”), a privately-owned European enterprise computer systems distributor headquartered in Stuttgart, Germany. The company held a 20% interest in Magirus as of June 30, 2008.

Prior to March 31, 2008, the company decided to sell its 20% investment in Magirus and met the qualifications to consider the asset as held for sale. As a result, the company reclassified its Magirus investment to investment held for sale in accordance with FASB issued Statement No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets (“Statement 144”). At June 30, 2008, the investment remained held for sale.

Because of the company’s inability to obtain and include audited financial statements of Magirus for fiscal years ended March 31, 2008 and 2007 as required by Rule 3-09 of Regulation S-X, the SEC has stated that it will not permit effectiveness of any of the company’s securities registration statements or post-effective amendments, if any, until such time as the company files audited financial statements that reflect the disposition of Magirus and the company requests and the SEC grants relief to the company from the requirements of Rule 3-09. As part of this restriction, the company is not permitted to file any new securities registration statements that are intended to automatically go into effect when they are filed, nor can the company make offerings under effective registration statements or under Rules 505 and 506 of Regulation D where any purchasers of securities are not accredited investors under Rule 501(a) of Regulation D. These restrictions do not apply to: offerings or sales of securities upon the conversion of outstanding convertible securities or upon the exercise of outstanding warrants or rights; dividend or interest reinvestment plans; employee benefit plans, including stock option plans; transactions involving secondary offerings; or sales of securities under Rule 144.

As of April 1, 2008, the company has invoked FASB Interpretation No. 35, Criteria for Applying the Equity Method of Accounting for Investments in Common Stock (“Financial Interpretation Number 35”), for its investment in Magirus. The invocation of Financial Interpretation Number 35 (“FIN 35”) requires the company to account for its investment in Magirus via cost, rather than equity accounting. FIN 35 clarifies the criteria for applying the equity method of accounting for investments of 50% or less of the voting stock of an investee enterprise. The cost method is being used by the company because management does not have the ability to exercise significant influence over Magirus, which is one of the presumptions in APB Opinion No. 18, The Equity Method of Accounting for Investments in Common Stock necessary to account for an investment in common stock under the equity method.

In July, 2008, the company received a dividend from Magirus (as a result of Magirus selling a portion of its distribution business in fiscal 2008) of approximately $7.3 million. In November 2008, the company sold

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its 20% ownership interest in Magirus for approximately $2.3 million, resulting in approximately $9.6 million of total proceeds received in fiscal 2009. The company adjusted the fair market value of the investment as of March 31, 2008, to the net present value of the subsequent cash proceeds, resulting in a (i) $5.5 million reversal of the cumulative currency translation adjustment in accordance with EITF 01-5, Application of FASB Statement No. 52 to an Investment Being Evaluated for Impairment That Will Be Disposed of, and (ii) an impairment charge of $4.9 million to write the held-for-sale investment to its fair value less cost to sell.

During the quarter ended June 30, 2008, the company recognized interest of $34,083 on its investment in Magirus.

13. Capital Stock

In August 2007, in fulfillment of the company’s previously disclosed intention to return capital to shareholders, the company announced a modified “Dutch Auction” tender offer for up to 6,000,000 of the company’s common shares. In September 2007, the company accepted for purchase 4,653,287 of the company’s common shares at a purchase price of $18.50 per share, for a total cost of approximately $86.1 million, excluding related transaction costs. The tender offer was funded through cash on hand. The company uses the par value method to account for treasury stock. Accordingly, the treasury stock account is charged only for the aggregate stated value of the shares reacquired, or $0.30 per share. The capital in excess of stated value is charged for the difference between cost and stated value.

In September 2007, the company entered into a written trading plan that complies with Rule 10b5-1 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), which provided for the purchase of up to 2,000,000 of the company’s common shares. In December 2007, the company announced it had completed the repurchase of the shares on the open market for a total cost of $30.4 million, excluding related transaction costs. Also in December 2007, the company entered into an additional Rule 10b5-1 plan that provided for the purchase of up to an additional 2,500,000 of the company’s common shares. The Board of Directors only authorized a cash outlay of $150 million, which complied with the credit facility approval limit. By February 2008, 2,321,787 of the 2,500,000 shares were redeemed for a total cost of $33.5 million. The $150 million maximum cash outlay was achieved; therefore the purchase of the company’s common shares for treasury was completed.

14. Business Segments

Description of Business Segments

The company has three reportable segments: Hospitality Solutions Group, Retail Solutions Group, and Technology Solutions Group. The reportable segments are each managed separately and are supported by various practices for storage and network solutions, professional services, and software services, as well as company-wide functional departments. The segment information for 2007 that is provided below has been restated as a result of the company’s identification of reportable operating segments.

The Hospitality Solutions Group (HSG) is a leading technology provider to the hospitality industry, offering application software and services that streamline management of operations, property and inventory for customers in the gaming, hotel and resort, cruise lines, food management services, and sports and entertainment markets.

The Retail Solutions Group (RSG) is a leader in designing solutions that help make retailers more productive and provide their customers with an enhanced shopping experience. RSG solutions help improve operational efficiency, technology utilization, customer satisfaction and in-store profitability, including customized pricing, inventory and customer relationship management systems. The group also provides implementation plans and supplies the complete package of hardware needed to operate the systems, including servers, receipt printers, point-of-sale terminals and wireless devices for in-store use by the retailer’s store associates.

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The Technology Solutions Group (TSG) is an aggregation of the company’s IBM, HP, Sun and Stack reporting units due to the similarity of their economic and operating characteristics. TSG is a leading provider of HP, Sun, IBM and EMC enterprise IT solutions for the complex needs of customers in a variety of industries – including education, finance, government, healthcare and telecommunications, among others. The solutions offered include enterprise architecture and high availability, infrastructure optimization, storage and resource management, identity management and business continuity.

Measurement of Segment Operating Results and Segment Assets

The company evaluates performance and allocates resources to its reportable segments based on operating income and “adjusted EBITDA,” which is defined as operating income plus depreciation and amortization expense. Certain costs and expenses arising from the company’s functional departments are not allocated to the reportable segments for performance evaluation purposes. The accounting policies of the reportable segments are the same as those described in the summary of significant accounting policies elsewhere in the footnotes to the consolidated financial statements.

As a result of the March 2007 divestiture of KSG and acquisitions, and due to the debt covenant definitions, the company believes that adjusted EBITDA is a meaningful measure and reflects the company’s performance. Adjusted EBITDA differs from U.S. GAAP and should not be considered an alternative measure required by U.S. GAAP. Management has reconciled adjusted EBITDA to operating income (loss) in the following chart.

Intersegment sales are recorded at pre-determined amounts to allow for intercompany profit to be included in the operating results of the individual reportable segments. Such intercompany profit is eliminated for consolidated financial reporting purposes.

The company’s chief operating decision maker does not evaluate a measurement of segment assets when evaluating the performance of the company’s reportable segments. As such, financial information relating to segment assets is not provided in the financial information below.

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The following table presents segment profit and related information for each of the company’s reportable segments for the three months ended June 30. Please refer to Note 6 for further information on the TSG restructuring charge, and Note 11 for the TSG, RSG, and HSG goodwill impairment charges:

	2008			2007
Hospitality
Total revenue	$	24,754		$	13,413
Elimination of intersegment revenue		(39	)		(63	)
Revenue from external customers	$	24,715		$	13,350
Gross margin	$	15,166		$	8,265
		61.4	%		61.9	%
Goodwill impairment	$	7,465		$	—
Depreciation and Amortization	$	1,331		$	303
Operating (loss) income		(5,859	)		1,635
Adjusted EBITDA	$	(4,528	)	$	1,938
Retail
Total revenue	$	38,267		$	20,410
Elimination of intersegment revenue		(168	)		(70	)
Revenue from external customers	$	38,099		$	20,340
Gross margin	$	8,400		$	5,152
		22.0	%		25.3	%
Goodwill impairment	$	18,361		$	—
Depreciation and Amortization	$	88		$	103
Operating (loss) income		(14,372	)		1,078
Adjusted EBITDA	$	(14,284	)	$	1,181
Technology
Total revenue	$	123,450		$	96,828
Elimination of intersegment revenue		(1,764	)		(2,155	)
Revenue from external customers	$	121,686		$	94,673
Gross margin	$	23,242		$	17,301
		19.1	%		18.3	%
Goodwill impairment	$	7,797		$	—
Restructuring charges		23,063			26
Depreciation and Amortization	$	4,446		$	549
Operating (loss) income		(32,018	)		2,992
Adjusted EBITDA	$	(27,572	)	$	3,541
Corporate / Other
Revenue from external customers	$	—		$	—
Gross margin	$	1,777		$	1,598
Depreciation and Amortization	$	1,129		$	964
Operating loss		(13,191	)		(11,038	)
Adjusted EBITDA	$	(12,062	)	$	(10,074	)
Consolidated:
Total revenue	$	186,471		$	130,651
Elimination of intersegment revenue		(1,971	)		(2,288	)
Revenue from external customers	$	184,500		$	128,363
Gross margin	$	48,585		$	32,316
		26.3	%		25.2	%
Goodwill impairment	$	33,623		$	—
Restructuring charges		23,063			26
Depreciation and Amortization	$	6,994		$	1,919
Operating loss		(65,440	)		(5,333	)
Adjusted EBITDA	$	(58,446	)	$	(3,414	)

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Enterprise-Wide Disclosures

The company’s assets are primarily located in the United States. Further, revenues attributable to customers outside the United States accounted for 6% of total revenues for the three months ended June 30, 2008, and 2007. Total revenues for the company’s three specific product areas are as follows:

	Three Months Ended June 30
	2008		2007
Hardware	$	132,794	$	91,025
Software		17,553		12,377
Services		34,153		24,961
Total	$	184,500	$	128,363

15. Subsequent Events

China and Hong Kong Operations

On July 1, 2008, the company began exploring divestiture opportunities for its Hong Kong and China operations. Agilysys acquired the Hong Kong and China businesses of the Technology Solutions Group in December 2005. The assets and liabilities of these operations will be recorded as “held for sale” on the company’s balance sheet in the company’s September 30, 2008 Form 10-Q. In addition, the operations of Hong Kong and China will be reported as discontinued operations effective July 1, 2008, in accordance with Statement 144.

Liquidity and Capital Resources

The Reserve Fund’s Primary Fund. As of December 22, 2008, approximately $7.7 million of the company’s cash was invested with The Reserve Fund’s Primary Fund, a Triple A rated money market account. Effective September 19, 2008, the Reserve Fund suspended rights of redemption from the Primary Fund. As has been widely reported, the Reserve Fund is working with the Securities and Exchange Commission to liquidate the Primary Fund however, the timing of the liquidation is uncertain at this time. Although the company believes it is unlikely, the Primary Fund may impose a partial loss of principal upon the investors, as a liquidation process completes.

Credit Facility. Although the company has no amounts outstanding under its credit facility, as of October 17, 2008, the company’s ability to borrow under its credit facility was suspended. The suspension of the facility was due to the company’s previously announced failure to timely file its 10-K annual report with the SEC due to audit issues relating to Magirus and potential default due to other technical deficiencies. The company is exploring alternative financing arrangements.

Goodwill Impairment

Based on a combination of factors, including the deterioration in the current economic environment in the fall of 2008, recent operation results, and a significant decline in Agilysys’ market capitalization, applicable accounting guidance requires the company to perform an interim goodwill and other intangible asset impairment analysis. Accordingly, with the company’s current business outlook and current market capitalization below its book value, it is compelled to potentially recognize impairments of its goodwill and/or trademarks recorded on its balance sheet at June 30 and September 30, 2008. As a result, subsequent to June 30, 2008, the company expects to record a non-cash write-off of up to an additional $250 million.

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Changes to Management, Board and Headquarters

On October 20, 2008, the company’s former Chairman, President and CEO, Arthur Rhein, announced his retirement, effective immediately. The Board appointed Keith M. Kolerus, a current Agilysys director, as its non-executive Chairman. Martin F. Ellis, the company’s Executive Vice President, Treasurer and Chief Financial Officer, was appointed by the Board to serve as President and Chief Executive Officer of the company and elected to the Board. The Board further appointed Kenneth J. Kossin, Jr., the former Vice President and Controller, to Senior Vice President and Chief Financial Officer. Curtis C. Stout, was appointed to serve as Treasurer. On October 21, 2008, the company terminated the employment of Messrs. Robert J. Bailey and Peter J. Coleman, both Executive Vice Presidents of the company.

Also in October, the company relocated its headquarters from Boca Raton, Florida, to Cleveland, Ohio, where the company has a facility with a large number of employees. The company was previously headquartered in Cleveland, Ohio.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis provides information which management believes is relevant to an assessment and understanding of Agilysys, Inc.’s consolidated results of operations and financial condition. The discussion should be read in conjunction with the condensed consolidated financial statements and related notes that appear elsewhere in this document as well as the company’s Annual Report on Form 10-K for the year ended March 31, 2008. Information set forth in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” may include forward-looking statements that involve risks and uncertainties. Many factors could cause actual results to differ materially from those contained in the forward-looking statements. See “Forward-Looking Information” and “Risk Factors” included elsewhere in this filing for additional information concerning these items. Table amounts are in thousands.

Overview

Agilysys, Inc. (“Agilysys” or the “company”) is a leading provider of innovative IT solutions to corporate and public-sector customers, with special expertise in select markets, including retail and hospitality. The company uses technology—including hardware, software and services—to help customers resolve their most complicated IT needs. The company possesses expertise in enterprise architecture and high availability, infrastructure optimization, storage and resource management, and business continuity, and provides industry-specific software, services and expertise to the retail and hospitality markets. Headquartered in Cleveland, Ohio effective October, 2008, Agilysys operates extensively throughout North America, with additional sales offices in the United Kingdom and China. The China operations are held for sale effective July 2008. Agilysys has three reportable segments: Hospitality Solutions, Retail Solutions, and Technology Solutions. See note 14 to the condensed consolidated financial statements for additional discussion regarding the company’s segments.

As disclosed in previous filings, the company sold its KeyLink Systems Distribution business (“KSG”) in March 2007 and now operates solely as an IT solutions provider. The following long-term goals were established by the company with the divestiture of KSG:

• Grow sales to $1 billion in two years and to $1.5 billion in three years. Much of the growth will come from acquisitions.

• Target gross margin in excess of 20% and earnings before interest, taxes, depreciation and amortization of 6% within three years.

• While in the near term return on invested capital will be diluted due to acquisitions and legacy costs, the company continues to target long-term return on invested capital of 15%.

As a result of the decline of the macroeconomic environment, significant risk in the credit markets and changes in demand for IT products, the company is re-evaluating its long-term revenue goals and acquisition strategy.

The company experienced solid demand across its newly acquired businesses, which contributed $61.8 million of incremental sales during the three months ended June 30, 2008. Gross margin as a percentage of sales remained relatively consistent year-over-year at 26.3% and 25.2% for the three months ended June 30, 2008 and 2007, respectively, which was above our long-term goal of achieving gross margins in excess of 20%.

The following discussion of the company’s results of operations and financial condition is intended to provide information that will assist in understanding the company’s financial statements, including key changes in financial statement components and the primary factors that accounted for those changes.

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Results of Operations — Quarter to Date

Net Sales and Operating Income

	Three Months Ended						Increase
	June 30						(Decrease)
	2008			2007			$			%
Net sales
Product	$	150,347		$	103,402		$	46,945			45.4	%
Service		34,153			24,961			9,192			36.8
Total		184,500			128,363			56,137			43.7
Cost of goods sold
Product		124,842			89,791			35,051			39.0
Service		11,073			6,256			4,817			77.0
Total		135,915			96,047			39,868			41.5
Gross margin		48,585			32,316			16,269			50.3
Gross margin percentage		26.3	%		25.2	%
Operating expenses
Selling, general and administrative expenses		57,339			37,623			19,716			52.4
Impairment of goodwill		33,623			—			33,623			100.0
Restructuring charges		23,063			26			23,037		nm
Operating income	$	(65,440	)	$	(5,333	)	$	(60,107	)	nm
Operating income margin		(35.5	)%		(4.2	)%

Net Sales. The $56.1 million increase in net sales was principally due to incremental sales from the company’s recent acquisitions, which accounted for $61.8 million, or 110.2%, of the increase. Sales for the TSG segment increased $27.0 million, or 28.5%. The increase resulted from the acquisition of Innovative, a TSG reporting unit, which accounted for $50.7 million of the company’s $56.1 million sales increase. The acquisition of Innovative expanded the company’s IT solutions offerings to provide for the sale of Sun Microsystems server and storage products, which were not offered by the company prior to the Innovative acquisition. The sales decrease of $23.7 million in the company’s core TSG segment was primarily a result of lower hardware sales volume. Sales for the HSG segment increased $11.3 million, primarily due to the HSG acquisitions of InfoGenesis (which was purchased on June 18, 2007), Eatec, and Triangle, which accounted for $11.1 million of the increase. Sales for the RSG segment increased $17.8 million due to a general increase in services and hardware volume within the segment.

Sales by product category were as follows:

	Three Months Ended				Increase
	June 30				(Decrease)
	2008		2007		$		%
Hardware	$	132,794	$	91,025	$	41,769		45.9	%
Software		17,553		12,377		5,176		41.8
Services		34,153		24,961		9,192		36.8
Total	$	184,500	$	128,363	$	56,137		43.7	%

Of the $41.8 million increase in hardware sales, $50.2 million was the result of incremental sales from the company’s recent acquisitions. Hardware sales of Sun Microsystems products resulting from the company’s acquisition of Innovative, a TSG reporting unit, accounted for approximately 95.2% of the $50.2 million incremental sales.

Aside from the $50.2 million incremental hardware sales from the company’s recent acquisitions, hardware sales from the company’s existing business decreased $8.4 million, or 9.2%, compared with last year due to lower volume.

Of the $5.2 million increase in software sales, $3.0 million was the result of incremental sales from the company’s recent acquisitions in the HSG segment. The remaining $2.2 million increase in software

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sales was driven by higher sales of remarketed software offerings from the company’s existing business in the HSG segment.

Of the $9.2 million increase in service revenue, $8.6 million was the result of incremental sales from the company’s recent acquisitions in the HSG segment. The remaining $0.6 million was driven by higher sales of proprietary services to the hospitality and retail segments.

The company generally experiences a seasonal increase in sales during its fiscal third quarter ending in December. Accordingly, the results of operations for the quarter ended June 30, 2008 are not necessarily indicative of the operating results for the full year 2009.

Gross Margin. The $16.3 million increase in gross margin was due to the corresponding increase in net sales as gross margin percentage remained relatively consistent year-over-year. The slight increase in gross margin percentage to 26.3% compared with 25.2% in the prior year was due to a select few significant sales at higher margins. The TSG segment gross margins increased $5.9 million, attributable to the increase in sales caused by acquisition of Innovative. The HSG segment gross margins increased $6.9 million, attributable to the acquisitions of Infogenesis, Triangle, and Stack. The RSG segment gross margins increased $3.2 million, attributable to the increase in sales. Given the current size of the business, individual orders can materially move sales and gross margin. Gross margins can vary depending on the customer, mix of products, related supplier programs and services associated with an order. Also, the increased size of the company’s software business may drive gross margin variability depending on the timing of software sales. As a result, changes in customer and product mix may cause gross margins to vary from quarter to quarter.

Selling, General and Administrative Expenses. The $19.7 million increase in SG&A expenses was principally due to the company’s recent acquisitions, which contributed $14.4 million of incremental operating expenses. Of the $14.4 million of acquisition related SG&A, $9.4 million was attributable to the Innovative acquisition in the TSG segment, and $5.0 million was attributable to the Infogenesis, Triangle, and Stack acquisitions in the HSG segment. The remaining $5.3 million increase in SG&A was primarily attributed to a $4.1 million general increase in compensation and benefits across the segments and in corporate, as well as a $1.2 million increase in outside service expenses in the corporate segment. In total, Depreciation and Amortization increased by $5.1 million. Of the $5.1 million increase, $1.0 million was in the HSG segment and $3.9 million was in the TSG segment. These increases are attributable to the acquisitions of Innovative, Infogenesis, Triangle and Stack.

Impairment of Goodwill. The $33.6 million increase in Goodwill Impairment was due to the charge taken at June 30, 2008, in three of the company’s reporting units. The three reporting units for which an impairment was charged were the Retail Solutions Group ($18.4 million), the Hospitality Solutions Group ($7.4 million), and Stack, a reporting unit within the Technology Solutions Group ($7.8 million).

Goodwill is tested for impairment at the reporting unit level. Statement 142 describes a reporting unit as an operating segment or one level below the operating segment (depending on whether certain criteria are met), as that term is used in FASB Statement 131, Disclosures About Segments of an Enterprise and Related Information. Goodwill has been allocated to the company’s reporting units that are anticipated to benefit from the synergies of the business combinations generating the underlying goodwill. As discussed under Note 14 to the condensed consolidated financial statements, the company has three operating segments and six reporting units.

The company conducts its annual goodwill impairment test on February 1, and did so in 2008 without a need to expand the impairment test to step-two of Statement 142. However, during fiscal 2009, indictors of potential impairment caused the company to conduct an interim impairment test. Those indicators included the following: a significant decrease in market capitalization, a decline in recent operating results, and a decline in the company’s business outlook primarily due to the macroeconomic environment. In accordance with Statement 142, the company completed step one of the impairment analysis and concluded that the fair value of three of its six reporting units was below their respective carrying values, including goodwill. The three reporting units that showed potential impairment were Retail Solutions Group, Hospitality Solutions Group, and Stack (a reporting unit within the Technology

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Solutions Group). As such, step two of the impairment test was initiated for the three reporting units in accordance with Statement 142. Due to its time consuming nature, the step-two analysis has not been completed as of the date of this filing. In accordance with paragraph 22 of Statement 142, the company has recorded an estimate in the amount of $33.6 million as a non-cash goodwill impairment charge as of June 30, 2008, not including the $16.8 million of goodwill write-off relating to the restructuring actions taken in 2009 related to the company’s 2005 acquisition of the CTS Corporations (see Note 6). The company expects to complete the step-two analysis in time for the second quarter Form 10-Q filing. Due to changing factors that occurred in the second quarter of 2009, primarily a decline in the company’s business outlook, the company expects to incur an additional goodwill impairment charge of up to $250 million as of September 30, 2008, after the step-two analysis is complete.

Restructuring Expense. The $23.0 million increase was primarily due to a $20.6 million expense for the impairment of goodwill and intangible assets and a $2.5 million expense for the one-time termination benefits resulting from workforce reductions.

Other Expenses (Income)

	Three Months Ended						Favorable
	June 30						(Unfavorable)
	2008			2007			$			%
Other expenses (income)
Other expense (income), net	$	(264	)	$	(1,180	)	$	(916	)		(77.6)	%
Interest income		(247	)		(6,997	)		(6,750	)		(96.5	)
Interest expense		254			230			(24	)		(10.4	)
Total other expenses (income)	$	(257	)	$	(7,947	)	$	(7,690	)		(96.8)	%

Other expense, net. The 77.6% unfavorable change in other expense, net, was principally driven by the 2007 gain on redemption of an investment in an affiliated company of $1.3 million.

Interest income and expense. The 96.5% unfavorable change in interest income was due to lower average cash and cash equivalent balance in the current quarter compared with the same period last year. The higher cash and cash equivalent balance in the prior year was driven by the cash generated from the sale of KSG in March 2007.

Income Tax Expense. Income tax expense for the three months ended June 30, 2008 and 2007 is based on the company’s estimate of the effective tax rate expected to be applicable for the respective full year. The effective tax rates from continuing operations were 7.9% and 43.3% for the three months ended June 30, 2008 and 2007, respectively. The decrease in the effective tax rate from the same period in the prior year was primarily due to the $50.4 million of goodwill impairment recognized for the three months ended June 30, 2008, which is a discrete item the majority of which has no corresponding tax benefit. The effective tax rate for continuing operations for the first quarter of the prior year were higher than the statutory rates principally due to compensation expense associated with incentive stock option awards which was partially offset by the recognition of a discrete income tax benefit of $1.2 million related to previously unrecognized tax benefits.

Capital Stock

In August 2007, in fulfillment of the company’s previously disclosed intention to return capital to shareholders, the company announced a modified “Dutch Auction” tender offer for up to 6,000,000 of the company’s common shares. In September 2007, the company accepted for purchase 4,653,287 of the company’s common shares at a purchase price of $18.50 per share, for a total cost of approximately $86.1 million, excluding related transaction costs. The tender offer was funded through cash on hand. The company uses the par value method to account for treasury stock. Accordingly, the treasury stock

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account is charged only for the aggregate stated value of the shares reacquired, or $0.30 per share. The capital in excess of stated value is charged for the difference between cost and stated value.

In September 2007, the company entered into a written trading plan that complies with Rule 10b5-1 under the Securities Exchange Act of 1934, as amended, which provided for the purchase of up to 2,000,000 of the company’s common shares. In December 2007, the company announced it had completed the repurchase of the shares on the open market for a total cost of $30.4 million, excluding related transaction costs. Also in December 2007, the company entered into an additional Rule 10b5-1 plan that provided for the purchase of up to an additional 2,500,000 of the company’s common shares. The Board of Directors only authorized a cash outlay of $150 million, which complied with the credit facility approval limit. By February 2008, 2,321,787 of the 2,500,000 shares were redeemed for a total cost of $33.5 million. The $150 million maximum cash outlay was achieved; therefore the purchase of the company’s common shares for treasury was completed.

Business Combinations

2009 Acquisition

Triangle Hospitality Solutions Limited

On April 9, 2008, the company acquired all of the shares of Triangle Hospitality Solutions Limited (“Triangle”), the UK-based reseller and specialist for the company’s InfoGenesis products and services for $2.7 million. Accordingly, the results of operations for Triangle have been included in the accompanying condensed consolidated financial statements from that date forward. Triangle will be instrumental in enhancing the company’s international presence and growth strategy in the UK even further, as well as solidifying the company’s leading position in the hospitality and stadium and arena markets. Triangle will also add to the company’s hospitality solutions suite with the ability to offer customers the Triangle mPOS solution, which is a handheld point-of-sale solution which seamlessly integrates with InfoGenesis products. Based on management’s preliminary allocation of the acquisition cost to the net assets acquired, approximately $2.7 million was assigned to goodwill. The company is still in the process of valuing certain intangible assets; accordingly, allocation of the acquisition cost is subject to modification in the future. Goodwill resulting from the Triangle acquisition will not be deductible for income tax purposes.

2008 Acquisitions

Eatec

On February 19, 2008, the company acquired all of the shares of Eatec Corporation (“Eatec”), a privately held developer and marketer of inventory and procurement software. Accordingly, the results of operations for Eatec have been included in the accompanying condensed consolidated financial statements from that date forward. Eatec’s software, EatecNetX (now called Eatec Solutions by Agilysys), is a recognized leading, open architecture-based, inventory and procurement management system. The software provides customers with the data and information necessary to enable them to increase sales, reduce product costs, improve back-office productivity and increase profitability.  Eatec customers include well-known restaurants, hotels, stadiums and entertainment venues in North America and around the world as well as many public service institutions. The acquisition further enhances the company’s position as a leading inventory and procurement solution provider to the hospitality and foodservice markets. Eatec was acquired for a total cost of $25.0 million. Based on management’s preliminary allocation of the acquisition cost to the net assets acquired, approximately $24.6 million was assigned to goodwill. The company is still in the process of valuing certain intangible assets; accordingly, allocation of the acquisition cost is subject to modification in the future. Goodwill resulting from the Eatec acquisition will not be deductible for income tax purposes. In the first quarter of 2009, a non-cash goodwill impairment charge was taken in the amount of $1.3 million relating to the Eatec acquisition. This is an estimate as of June 30, 2008, pending the completion of the company’s step-two

29

analysis in accordance with Statement 142, which the company expects to have completed in time for its second quarter Form 10-Q filing. Refer to Note 11 for further discussion of the company’s goodwill and intangible assets.

Innovative Systems Design, Inc.

On July 2, 2007, the company acquired all of the shares of Innovative Systems Design, Inc. (“Innovative”), the largest U.S. commercial reseller of Sun Microsystems servers and storage products. Accordingly, the results of operations for Innovative have been included in the accompanying condensed consolidated financial statements from that date forward. Innovative is an integrator and solution provider of servers, enterprise storage management products and professional services. The acquisition of Innovative establishes a new and significant relationship between Sun Microsystems and the company. Innovative was acquired for an initial cost of $108.6 million. Additionally, the company is required to pay an earn-out of two dollars for every dollar of earnings before interest, taxes, depreciation, and amortization, or EBITDA, greater than $50.0 million in cumulative EBITDA over the first two years after consummation of the acquisition.  The earn-out will be limited to a maximum payout of $90.0 million. During the fourth quarter of 2008, the company recognized $35.0 million of the $90.0 million maximum earn-out, which was paid in the first quarter of 2009. In addition, the company amended its agreement with the Innovative shareholders whereby the maximum payout available to the Innovative shareholders was limited to $58.65 million, inclusive of the $35 million. The EBITDA target required for the shareholders to be eligible for an additional payout is now $67.5 million in cumulative EBITDA over the first two years after the close of the acquisition.

During the fourth quarter of 2008, management completed its purchase price allocation and assigned $29.7 million of the acquisition cost to identifiable intangible assets as follows: $4.8 million to non-compete agreements, $5.5 million to customer relationships, and $19.4 million to supplier relationships which will be amortized over useful lives ranging from two to five years.

Based on management’s allocation of the acquisition cost to the net assets acquired, approximately $97.8 million was assigned to goodwill. Goodwill resulting from the Innovative acquisition will be deductible for income tax purposes.

InfoGenesis

On June 18, 2007, the company acquired all of the shares of IG Management Company, Inc. and its wholly-owned subsidiaries, InfoGenesis and InfoGenesis Asia Limited (collectively, “InfoGenesis”), an independent software vendor and solution provider to the hospitality market. InfoGenesis offers enterprise-class point-of-sale solutions that provide end users a highly intuitive, secure and easy way to process customer transactions across multiple departments or locations, including comprehensive corporate and store reporting. InfoGenesis has a significant presence in casinos, hotels and resorts, cruise lines, stadiums and foodservice. The acquisition provides the company a complementary offering that extends its reach into new segments of the hospitality market, broadens its customer base and increases its software application offerings. InfoGenesis was acquired for a total acquisition cost of $90.6 million.

Based on management’s allocation of the acquisition cost to the net assets acquired, approximately $71.8 million was assigned to goodwill. InfoGenesis had intangible assets with a net book value of $18.3 million as of the acquisition date, which were included in the acquired net assets to determine goodwill. Intangible assets were assigned values as follows: $3.0 million to developed technology, which will be amortized between six months and three years; $4.5 million to customer relationships, which will be amortized between two and seven years; and $10.8 million to trade names, which have an indefinite life. Goodwill resulting from the InfoGenesis acquisition will not be deductible for income tax purposes. In the first quarter of 2009, a non-cash goodwill impairment charge was taken in the amount of $3.9 million relating to the Infogenesis acquisition. This is an estimate as of June 30, 2008, pending the completion of the company’s step-two analysis in accordance with Statement 142, which the company expects to have

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completed in time for its second quarter Form 10-Q filing. Refer to Note 11 for further discussion of the company’s goodwill and intangible assets.

Pro Forma Disclosure of Financial Information

The following table summarizes the company’s unaudited consolidated results of operations as if the InfoGenesis and Innovative acquisitions occurred on April 1, 2007:

	Actual			Proforma
	Three Months Ended			Three Months Ended
	June 30, 2008			June 30, 2007
Net Sales	$	184,500		$	209,296
Income (loss) from continuing operations	$	(60,020	)	$	4,142
Net income (loss)	$	(60,036	)	$	4,088
Earnings per share – basic and diluted
Income (loss) from continuing operations	$	(2.66	)	$	0.13
Net income (loss)	$	(2.66	)	$	0.13

Stack Computer, Inc.

On April 2, 2007, the company acquired all of the shares of Stack Computer, Inc. (“Stack”). Stack’s customers include leading corporations in the financial services, healthcare and manufacturing industries. Stack also operates a highly sophisticated solution center, which is used to emulate customer IT environments, train staff and evaluate technology. The acquisition of Stack strategically provides the company with product solutions and services offerings that significantly enhance its existing storage and professional services business. Stack was acquired for a total acquisition cost of $25.2 million.

Management made an adjustment of $0.8 million to the fair value of acquired capital equipment and assigned $11.7 million of the acquisition cost to identifiable intangible assets as follows: $1.5 million to non-compete agreements, which will be amortized over five years using the straight-line amortization method; $1.3 million to customer relationships, which will be amortized over five years using an accelerated amortization method; and $8.9 million to supplier relationships, which will be amortized over ten years using an accelerated amortization method.

Based on management’s allocation of the acquisition cost to the net assets acquired, approximately $13.3 million was assigned to goodwill. Goodwill resulting from the Stack acquisition is deductible for income tax purposes. In the first quarter of 2009, a non-cash goodwill impairment charge was taken in the amount of $7.8 million relating to the Stack acquisition. This is an estimate as of June 30, 2008, pending the completion of the company’s step-two analysis in accordance with Statement 142, which the company expects to have completed in time for its second quarter Form 10-Q filing. Refer to Note 11 for further discussion of the company’s goodwill and intangible assets.

2007 Acquisition

Visual One Systems Corporation

On January 23, 2007, the company acquired all the shares of Visual One Systems Corporation (“Visual One Systems”), a leading developer and marketer of Microsoft Windows-based software for the hospitality industry. The acquisition provides the company additional expertise around the development, marketing and sale of software applications for the hospitality industry, including property management, condominium, golf course, spa, point-of-sale, and sales and catering management applications. Visual One Systems customers include well-known North American and international full-service hotels, resorts, conference centers and condominiums of all sizes. The aggregate acquisition cost was $14.4 million.

During the second quarter of 2008, management assigned $4.9 million of the acquisition cost to

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identifiable intangible assets as follows: $3.8 million to developed technology, which will be amortized over six years using the straight-line method; $0.6 million to non-compete agreements, which will be amortized over eight years using the straight-line amortization method; and $0.5 million to customer relationships, which will be amortized over five years using an accelerated amortization method.

Based on management’s allocation of the acquisition cost to the net assets acquired, including identified intangible assets, approximately $9.4 million was assigned to goodwill. Goodwill resulting from the Visual One Systems acquisition is not deductible for income tax purposes. In the first quarter of 2009, a non-cash goodwill impairment charge was taken in the amount of $0.5 million relating to the Visual One acquisition. This is an estimate as of June 30, 2008, pending the completion of the company’s step-two analysis in accordance with Statement 142, which the company expects to have completed in time for its second quarter Form 10-Q filing. Refer to note 11 for further discussion of the company’s goodwill and intangible assets.

Discontinued Operations

During 2007, the company sold the assets and operations of KSG for $485.0 million in cash, subject to a working capital adjustment. At March 31, 2007, the final working capital adjustment was $10.8 million. Through the sale of KSG, the company exited all distribution-related businesses and exclusively sells directly to end-user customers. By monetizing the value of KSG, the company significantly increased its financial flexibility and intends to redeploy the proceeds to accelerate the growth, both organically and through acquisition, of its IT solutions business. The sale of KSG represented a disposal of a component of an entity. As such, the operating results of KSG, along with the gain on sale, have been reported as a component of discontinued operations.

Investment in Magirus — Held For Sale

During the first quarter of fiscal 2009, the company maintained an equity interest in Magirus AG (“Magirus”), a privately-owned European enterprise computer systems distributor headquartered in Stuttgart, Germany. The company held a 20% interest in Magirus as of June 30, 2008.

Prior to March 31, 2008, the company decided to sell its 20% investment in Magirus and met the qualifications to consider the asset as held for sale. As a result, the company reclassified its Magirus investment to investment held for sale in accordance with FASB issued Statement No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets (“Statement 144”). At June 30, 2008, the investment remained held for sale.

Because of the company’s inability to obtain and include audited financial statements of Magirus for fiscal years ended March 31, 2008 and 2007 as required by Rule 3-09 of Regulation S-X, the SEC has stated that it will not permit effectiveness of any, if any, of the company’s securities registration statements or post-effective amendments until such time as the company files audited financial statements that reflect the disposition of Magirus and the company requests and the SEC grants relief to the company from the requirements of Rule 3-09. As part of this restriction, the company is not permitted to file any new securities registration statements that are intended to automatically go into effect when they are filed, nor can the company make offerings under effective registration statements or under Rules 505 and 506 of Regulation D where any purchasers of securities are not accredited investors under Rule 501(a) of Regulation D. These restrictions do not apply to: offerings or sales of securities upon the conversion of outstanding convertible securities or upon the exercise of outstanding warrants or rights; dividend or interest reinvestment plans; employee benefit plans, including stock option plans; transactions involving secondary offerings; or sales of securities under Rule 144.

As of April 1, 2008, the company has invoked FASB Interpretation No. 35, Criteria for Applying the Equity Method of Accounting for Investments in Common Stock (“Financial Interpretation Number 35”), for its investment in Magirus. The invocation of Financial Interpretation Number 35 (“FIN 35”) requires the company to account for its investment in Magirus via cost, rather than equity accounting. FIN 35

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clarifies the criteria for applying the equity method of accounting for investments of 50% or less of the voting stock of an investee enterprise. The cost method is being used by the company because management does not have the ability to exercise significant influence over Magirus, which is one of the presumptions in APB Opinion No. 18, The Equity Method of Accounting for Investments in Common Stock necessary to account for an investment in common stock under the equity method.

In July, 2008, the company received a dividend from Magirus (as a result of Magirus selling its distribution business in fiscal 2008) of approximately $7.3 million. In November 2008, the company sold its 20% ownership interest in Magirus for approximately $2.3 million, resulting in approximately $9.6 million of total proceeds received in fiscal 2009. The company adjusted the fair market value of the investment as of March 31, 2008, to the net present value of the subsequent cash proceeds, resulting in a $5.5 million reversal of the cumulative currency translation adjustment in accordance with EITF 01-5, Application of FASB Statement No. 52 to an Investment Being Evaluated for Impairment That Will Be Disposed of, and an impairment charge of $4.9 million to write the held-for-sale investment to its fair value less cost to sell.

During the quarter ended June 30, 2008, the company recognized interest of $34,083 on its investment in Magirus.

Recently Issued Accounting Pronouncements

In May 2008, the FASB issued Statement No. 162, The Hierarchy of Generally Accepted Accounting Principles (“Statement 162”). Statement 162 identifies the sources of accounting principles and the framework for selecting the principles to be used in the preparation of financial statements of nongovernmental entities that are presented in conformity with GAAP. Statement 162 is effective 60 days following the SEC’s approval of the Public Company Accounting Oversight Board amendments to AU Section 411, The Meaning of Present Fairly in Conformity with Generally Accepted Accounting Principles. The company is currently evaluating the impact, if any, that Statement 162 will have on its financial position, results of operations and cash flows.

In March 2008, the FASB issued Statement No. 161, Disclosures about Derivative Instruments and Hedging Activities – an Amendment of FASB Statement No. 133 (“Statement 161”). Statement 161 enhances the disclosures about an entity’s derivative and hedging activities. Statement 161 is effective for fiscal periods beginning after November 15, 2008, or January 1, 2009 for the company. The company is currently evaluating the impact, if any, that Statement 161 will have on its financial position, results of operations and cash flows.

In December 2007, the FASB issued Statement No. 141(R), Business Combinations (“Statement 141(R)”). Statement 141(R) significantly changes the accounting for and reporting of business combination transactions. Statement 141(R) is effective for fiscal years beginning after December 15, 2008, or fiscal 2010 for the company. The company is currently evaluating the impact that Statement 141(R) will have on its financial position, results of operations and cash flows.

In December 2007, the FASB issued Statement No. 160, Accounting and Reporting for Noncontrolling Interests in Consolidated Financial Statements, an Amendment of ARB No. 51 (“Statement 160”). Statement 160 clarifies the classification of noncontrolling interests in consolidated statements of financial position and the accounting for and reporting of transactions between the reporting entity and holders of such noncontrolling interests. Statement 160 is effective for the first annual reporting period beginning after December 15, 2008, or fiscal 2010 for the company. The company is currently evaluating the impact that Statement 160 will have on its financial position, results of operations and cash flows.

In February 2007, the FASB issued Statement No. 159, The Fair Value Option for Financial Assets and Financial Liabilities—including an Amendment of FASB Statement No. 115 (“Statement 159”). Statement 159 allows measurement at fair value of eligible financial assets and liabilities that are not otherwise measured at fair value. If the fair value option for an eligible item is elected, unrealized gains

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and losses for that item will be reported in current earnings at each subsequent reporting date. Statement 159 also establishes presentation and disclosure requirements designed to draw comparison between the different measurement attributes the company elects for similar types of assets and liabilities. Statement 159 is effective for fiscal years beginning after November 15, 2007, or fiscal 2009 for the company. During the first quarter of fiscal year 2009, the company has not elected to measure any financial instruments at fair value under SFAS No. 159.

In September 2006, the FASB issued Statement No. 157, Fair Value Measurements (“Statement 157”). Statement 157 provides a single definition of fair value, a framework for measuring fair value, and expanded disclosures concerning fair value. Previously, different definitions of fair value were contained in various accounting pronouncements creating inconsistencies in measurement and disclosures. Statement 157 applies under those previously issued pronouncements that prescribe fair value as the relevant measure of value, except SFAS No. 123R and related interpretations and pronouncements that require or permit measurement similar to fair value but are not intended to measure fair value. Statement 157 is effective for fiscal years beginning after November 15, 2007, or fiscal 2009 for the company. The adoption of Statement 157 during the first quarter of fiscal year 2009 did not result in any adjustments to the financial assets and liabilities reported or disclosed in the financial statements.

Effective April 1, 2007, the company adopted the provisions of FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes – an Interpretation of FASB Statement No. 109 (“FIN 48”). FIN 48 prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more-likely-than-not to be sustained upon examination by taxing authorities. As a result of the implementation of FIN 48, the company recognized approximately $2.9 million increase in the liability for unrecognized tax benefits, which was accounted for as a reduction to the April 1, 2007 balance of retained earnings. As of June 30, 2008, the company had a liability for uncertain tax positions, excluding interest, penalty, and federal benefit of $5.5 million. A reconciliation of the beginning and ending balance of unrecognized tax benefits is as follows:

Balance at April 1, 2008	$	5,997
Additions:
Relating to positions taken during current year		216
Reductions:
Relating to tax settlements		(228	)
Due to business acquisitions		(455	)
Balance at June 30, 2008	$	5,530

The company recognizes interest accrued on any unrecognized tax benefits as a component of income tax expense. Penalties are recognized as a component of selling, general and administrative expenses. As of June 30, 2008, the company had approximately $1.2 million of interest and penalties accrued.

The company anticipates the completion of a state income tax audit in the next 12 months which could reduce the accrual for unrecognized tax benefits by $53,000. The company believes that, other than the changes noted above, it is impractical to determine the positions for which it is reasonably possible that the total of uncertain tax benefits will significantly increase or decrease in the next twelve months.

The company is currently being audited by multiple state and federal taxing jurisdictions. In material jurisdictions, the company has potential tax examination years open back to and including 1998 which may be subject to tax authority examination.

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Liquidity and Capital Resources

Overview

The company’s operating cash requirements consist primarily of working capital needs, operating expenses, capital expenditures and payments of principal and interest on indebtedness outstanding, which mainly consists of lease and rental obligations at June 30, 2008. The company believes that cash flow from operating activities, cash on hand, and access to capital markets will provide adequate funds to meet its short and long-term liquidity requirements.

As of June 30, 2008 and March 31, 2008, the company’s total debt balance was $1.0 million, and consisted of capital lease obligations.

Revolving Credit Facility

The company had a $200 million unsecured credit facility (“Facility”) that was scheduled to expire in 2010. The Facility included a $20 million sub-facility for letters of credit and a $20 million sub-facility for swingline loans. The Facility was available to refinance existing debt, provide for working capital requirements, capital expenditures and general corporate purposes of the company including acquisitions. Borrowings under the Facility bore interest at various levels over LIBOR. Although the company had no amounts outstanding under its credit facility, as of October 17, 2008, the company’s ability to borrow under its credit facility was suspended. The suspension of the facility was due to the company’s previously announced failure to timely file its 10-K annual report with the SEC due to audit issues relating to Magirus and potential default of covenants due to other technical deficiencies. The company is exploring alternative financing arrangements.

Cash Flow

The following table presents cash flow results from operating activities, investing activities, and financing activities for the three months ended June 30, 2008, and 2007:

	Three Months Ended						Increase
	June 30						(Decrease)
	2008			2007			$
Net cash flows from continuing operations:
Operating activities	$	(65,797	)	$	(130,638	)	$	64,841
Investing activities		(3,181	)		(109,018	)		105,837
Financing activities		26,783			(205	)		26,988
Effect of foreign currency fluctuations on cash		80			1,019			(939	)
Cash flows from continuing operations		(42,115	)		(238,842	)		196,727
Net cash flows from discontinued operations		1,028			98			930
Net decrease in cash and cash equivalents	$	(41,087	)	$	(238,744	)	$	197,657

Cash Flows from Operating Activities. The company’s use of cash for operating activities during the three months ended June 30, 2008, decreased $64.8 million compared with the same period last year. The decrease was principally due to the income tax payments of $129.3 million made during the three months ended June 30, 2007 as a result of the gain on sale of KSG in March 2007. The cash outflow for the 2007 income tax payments was partially offset by a decrease in Accrued Liabilities of $37.0 million, $35.0 million of which can be attributed to the Innovative earn-out payment. The remainder of the decrease during the three months ended June 30, 2008, was principally driven by changes in working capital.

Cash Flows from Investing Activities. The company’s use of cash for investing activities during the three months ended June 30, 2008, decreased $105.8 million compared with the same period last year. The decrease was principally due to the business acquisitions made in the prior year, which were funded by cash on hand. Cash paid for the Triangle acquisition made in the current year was $2.4 million compared to the cash paid for Stack and InfoGenesis in the first quarter of the prior year of $112.1 million. The

35

prior year’s use of cash was offset by $4.8 million received from the redemption of the company’s cost investment in an affiliated company during the prior year.

Cash Flows from Financing Activities. The company’s cash provided by financing activities during the three months ended June 30, 2008, increased $27.0 million compared with the same period last year. The increase was principally due the company’s floor plan financing agreement which contributed $27.2 million in the current quarter.

Contractual Obligations

There were no significant changes to the Contractual Obligation table presented in the Form 10-K for the year ended March 31, 2008.

Off-Balance Sheet Arrangements

The company has not entered into any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on the company’s financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

Critical Accounting Policies

A detailed description of the company’s critical accounting policies can be found in the company’s Annual Report. There have been no significant changes to those critical accounting policies since March 31, 2008.

Forward-Looking Information

Portions of this report contain current management expectations, which may constitute forward-looking information. When used in this Management’s Discussion and Analysis of Financial Condition and Results of Operations and elsewhere throughout this Quarterly Report on Form 10-Q, the words “believes,” “anticipates,” “plans,” “expects” and similar expressions are intended to identify forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, Section 21E of the Securities Exchange Act of 1934 and the Private Securities Litigation Reform Act of 1995. These forward-looking statements reflect management’s current opinions and are subject to certain risks and uncertainties that could cause actual results to differ materially from those stated or implied.

Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. The company undertakes no obligation to publicly revise these forward-looking statements to reflect events or circumstances that arise after the date hereof. Risks and uncertainties include, but are not limited to, those described below in Item 1A, “Risk Factors.”

Item 3. Quantitative and Qualitative Disclosures About Market Risk

For quantitative and qualitative disclosures about market risk affecting the company, see Item 7A, “Quantitative and Qualitative Disclosures About Market Risk,” of the company’s Annual Report. There have been no material changes in the company’s market risk exposures since March 31, 2008.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures. Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report.  Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures as of the end of the period covered by this report are not effective solely because of the material weakness relating to the company’s internal control over financial reporting as described below in “Management’s

36

Report on Internal Controls Over Financial Reporting.” In light of the material weakness, the company performed additional analysis and post-closing procedures to provide reasonable assurance that the information required to be disclosed by us in reports filed under the Securities Exchange Act of 1934 is (i) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and (ii) accumulated and communicated to our management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding disclosure.  A controls system cannot provide absolute assurance, however, that the objectives of the controls system are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected. 

Management’s Report on Internal Control Over Financial Reporting. The management of the company is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f). Under the supervision of our Chief Executive Officer and Chief Financial Officer, management conducted an evaluation of the effectiveness of our internal control over financial reporting as of March 31, 2008 based on the framework in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on that evaluation, management has concluded that it did not maintain effective internal control over financial reporting as a result of the material weakness discussed below as of March 31, 2008.

Revenue Recognition Controls – The aggregation of several errors in the company’s Hospitality Solutions Group’s and Retail Solutions Group’s order processing operations resulted in a material weakness in the operating effectiveness of revenue recognition controls.

Management has performed a review of the company’s internal control processes and procedures surrounding the hospitality and retail order processing operations. As a result of this review, the company has taken and continues to implement the following steps to prevent future errors from occurring:

1.	Mandatory training for all sales operations personnel including procedure and process review, and awareness and significance of key controls;
2.	Additional review and approval on documents supporting all transactions greater than $100,000 by the Sales Operations Management; and
3.	Enhanced monthly sales cutoff testing by the company’s Internal Audit Department to ensure proper and timely revenue recognition.

Ernst & Young LLP, our independent registered public accounting firm, has issued their report regarding the company’s internal control over financial reporting as of March 31, 2008, which can be found in the company’s 2008 Form 10-K.

Change in Internal Control over Financial Reporting. The company continues to integrate each acquired entity’s internal controls over financial reporting into the company’s own internal controls over financial reporting, and will continue to review and, if necessary, make changes to each acquired entity’s internal controls over financial reporting until such time as integration is complete. No change in our internal control over financial reporting occurred during the company’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. However, during the first quarter of fiscal 2009, the company continued with the remedial measures described above.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

None.

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Item 1A. Risk Factors

A detailed description of the company’s risk factors can be found in the company’s Annual Report. There have been no material changes from the risk factors summarized in our Annual Report. Before deciding to purchase, hold or sell our common shares, you should carefully consider the risks described in our Annual Report in addition to the other cautionary statements and risks described elsewhere, and the other information contained, in this Report and in our other filings with the SEC. The special risk considerations described in our Annual Report are not the only ones facing Agilysys. Additional considerations not presently known to us or that we currently believe are immaterial may also impair our business operations. If any of the following special risk considerations actually occur, our business, financial condition or results of operations could be materially adversely affected, the value of our common shares could decline, and you may lose all or part of your investment.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Submission of Matters to a Vote of Security Holders

None.

Item 5. Other Information

None.

Item 6. Exhibits

10.1	Amended and Restated Innovative Earnout Agreement
31.1	Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer.
31.2	Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer.
32.1	Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of Sarbanes-Oxley Act of 2002.
32.2	Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of Sarbanes-Oxley Act of 2002.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	AGILYSYS, INC.
Date: December 29, 2008	/s/ Martin F. Ellis
	Martin F. Ellis
	President and Chief Executive Officer (Principal Executive Officer)
Date: December 29, 2008	/s/ Kenneth J. Kossin, Jr.
	Kenneth J. Kossin, Jr.
	Senior Vice President and Chief Financial Officer (Principal Financial and Accounting Officer)

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EX-10.1

Exhibit 10.1
December 30, 2008

AMENDED AND RESTATED EARNOUT AGREEMENT

     This Amended and Restated Earnout Agreement (“Agreement”) is made and entered into as of April 10, 2008, among Agilysys, Inc., an Ohio corporation (“Parent”), Agilysys NJ, Inc., a New Jersey corporation and wholly-owned subsidiary of Parent (f/k/a Innovative Systems Design, Inc. d/b/a Innovativ Systems Design, Inc.) (the “Company” or the “Surviving Corporation”), each of Anthony Mellina, David Vogelzang and Frank G. Batula (the “Remaining Sellers”) and, solely for purposes of acting as the representative for the Remaining Sellers, Anthony Mellina (the “Seller Representative”).

RECITALS

     A. Pursuant to an Agreement and Plan of Merger, dated as of May 25, 2007 (the “Merger Agreement”), among Parent, Merger Sub, the Company, and Vincent James Spinella, as the Stockholder Representative for the Company Stockholders (as defined in the Merger Agreement), on July 2, 2007, Parent acquired the Company through the merger of the Merger Sub with and into the Company with the Company as the Surviving Corporation (the “Merger”).

     B. Pursuant to the terms of the Merger Agreement, Parent, Merger Sub, the Company and Vincent James Spinella, as Stockholder Representative for the Company Stockholders, entered into an Earnout Agreement, dated July 2, 2007 (the “Original Agreement”), which Original Agreement provided that a portion of the purchase price was to be calculated and paid as Additional Consideration based upon the Surviving Corporation’s EBITDA (as defined in the Original Agreement) over the Period (as defined in the Original Agreement).

     C. Pursuant to the terms of a Settlement, Withdrawal ands Release Agreement, dated of even date herewith (the “Settlement Agreement”), among Parent, the Company and the Company Stockholders, including the Sellers, (i) Parent will, conditioned upon the execution and delivery of this Agreement and the other conditions set forth in the Settlement Agreement, pay Thirty Five Million Dollars ($35,000,000) to the Payment Agent for distribution to each Company Stockholder; (ii) immediately upon such payment, the Company Stockholders other than the Remaining Sellers agree to withdraw as parties to and terminate all rights, interests and claims under the Original Agreement and not become parties to this Agreement; and (iii) the parties hereto have agreed to enter into this Amended and Restated Earnout Agreement to amend and restate the Original Agreement.

     D. The Remaining Sellers have agreed to enter into and deliver this Agreement in order to induce Parent and the Company to enter into the Settlement Agreement and pay the Thirty Five Million Dollars ($35,000,000) to the Payment Agent for distribution to each Company Stockholder.

     NOW, THEREFORE, in consideration of the premises and of the respective covenants and provisions herein contained, Parent, the Company, the Remaining Sellers and the Seller Representative agree as follows:

ARTICLE I. DEFINITIONS

     1.1 Certain Defined Terms. Capitalized terms used but not otherwise defined herein shall have the respective meanings given such terms in the Merger Agreement. In addition to the terms defined in the Merger Agreement, for purposes of this Agreement, the terms listed below have the following meanings.

     1.2 Additional Consideration means the amount determined in accordance with Section 2.2 hereof.

     1.3 Business Plan is defined in Section 4.2.

     1.4 EBITDA is defined in Article III.

     1.5 Final Payment is defined in Section 2.2(d).

     1.6 Final Target means an amount equal to Fifty Million Dollars ($50,000,000).

     1.7 First Anniversary Payment means an amount equal to Thirty Five Million Dollars ($35,000,000).

     1.8 Income Statement is defined in Section 2.2(b).

     1.9 Operationally Autonomous is defined in Section 4.3.

     1.10 Parent’s Accountants is defined in Section 3.1.

     1.11 Period means the first full eight (8) fiscal quarters commencing as of the Closing Date.

     1.12 Quarterly Earn-Out Meetings is defined in Section 4.4.

     1.13 Seller Representative is defined in the Preamble and in Section 5.9(a).

ARTICLE II. ADDITIONAL CONSIDERATION PAYMENT

     2.1 Nature of Additional Consideration Payment. The parties hereto acknowledge that, contemporaneously with and subject to the execution and delivery of this Agreement, the First Anniversary Payment was paid to the Payment Agent for distribution to each Company Stockholder in the same allocation and same manner as the Merger Consideration. The balance of the Additional Consideration, if any, will be payable solely to the Remaining Sellers as provided for in Section 2.2 below; provided, however, that such Additional Consideration, which the Remaining Sellers acknowledge and agree is inclusive of the First Anniversary Payment, in no event will exceed Fifty Eight Million Six Hundred Fifty Thousand Dollars ($58,650,000) (the “Maximum Total Payment”). The parties hereto acknowledge that the Maximum Total Payment in this Agreement was calculated and determined as (i) the First Anniversary Payment plus (ii) forty-three percent (43%) of the excess of the $90 million maximum payment from the Original Agreement less the $35 million First Anniversary Payment under this Agreement; with the forty-

2

three percent (43%) representing the percentage of the Additional Consideration allocable solely to the Remaining Sellers.

     2.2 Final Payment of Additional Consideration.

          (a) As soon as practical and in no event later than forty-five (45) days after the end of the Period, Parent will determine for distribution to each Remaining Seller to be allocated among the Remaining Sellers based on the percentages next to their names on the signature page hereto (which percentages, the Remaining Sellers acknowledge and agree, are based on their percentage allocation of Merger Consideration in the Merger Agreement), the Additional Consideration and any resulting Final Payment as determined in this Section 2.2. Additional Consideration will be available only if the Surviving Corporation generates EBITDA for the entire Period, greater than the Final Target. The Additional Consideration will be paid as follows: (i) if EBITDA during the Period is less than or equal to the Final Target, no Final Payment will be payable or (ii) if EBITDA during the Period is greater than the Final Target, then for each one dollar ($1.00) of EBITDA in excess of the Final Target, two dollars ($2.00) of Additional Consideration will be payable in accordance with Section 2.2(d) below up to the Maximum Total Payment of Additional Consideration — comprised of both the First Anniversary Payment and the Final Payment — of Fifty Eight Million Six Hundred Fifty Thousand Dollars ($58,650,000).

          (b) As soon as practical (and in no event later than sixty (60) days after the end of the Period), Parent shall cause to be prepared and delivered to the Seller Representative (i) an income statement of the Surviving Corporation for the entire Period (the “Income Statement”) and (ii) a calculation of the Additional Consideration, if any, based on the calculation of EBITDA for the Period determined from the financial information contained in the Income Statement, including such schedules and data as may be appropriate to support such calculation. The Income Statement shall be prepared in accordance with GAAP subject to the guidelines described in Section 3 below. The Seller Representative or his designees and agents shall be entitled to review the Income Statement, Parent’s calculations of the Additional Consideration, and any working papers and similar materials relating to such Income Statement prepared by Parent or Parent’s Accountants. Parent also shall provide the Seller Representative with timely access, during normal business hours, to the personnel, properties, books and records of the Surviving Corporation and all other information reasonably requested, to the extent related to the determination of the Income Statement and the applicable Additional Consideration, if any. The Seller Representative agree to keep any and all such information received by him confidential and not to disclose such information or otherwise use it for any purposes other than reviewing the Income Statement, the related calculation of EBITDA and the Additional Consideration (if any) and to resolve any disputes with respect to the foregoing.

          (c) The Seller Representative shall review the Income Statement and, on or before the sixtieth (60th) day after the Seller Representative’s receipt of the Income Statement, the Seller Representative shall deliver to Parent, in writing, any objection or dispute thereto which the Seller Representative may have with respect to the Income Statement, including Parent’s calculation of EBITDA or the Additional Consideration, which shall be quantified and items so contested shall be described in sufficient detail in order to permit Parent to evaluate the basis for such dispute. If the Seller Representative fail to make an objection to the Income

3

Statement or to Parent’s calculation of the Additional Consideration during this sixty (60) day period, the Seller Representative, on behalf of the Remaining Sellers, will be deemed to have accepted the calculation of EBITDA and the amount of Additional Consideration. If the Seller Representative make a timely objection to the Income Statement or to Parent’s calculation of the Additional Consideration, and Parent and the Seller Representative are unable to resolve their disputes within fifteen (15) days after the objection of the Seller Representative, the dispute shall be resolved by the Independent Accountants. The determinations of the Independent Accountants shall be final, binding and conclusive to Parent, the Seller Representative and the Remaining Sellers and their respective Affiliates, successors, assigns or heirs. The fees, expenses and disbursements of the Independent Accountants (i) shall be borne by the Seller Representative (and payable first from any Additional Consideration due the Remaining Sellers) in the proportion that the aggregate dollar amount of such disputed items so submitted that are unsuccessfully disputed by the Seller Representative bears to the aggregate dollar amount of such items so submitted and (ii) shall be borne by Parent in the proportion that the aggregate dollar amount of such disputed items so submitted that are successfully disputed by the Seller Representative bears to the aggregate dollar amount of such items so submitted.

          (d) The Additional Consideration less the amount of the First Anniversary Payment (the “Final Payment”) shall, within ten (10) days after the Additional Consideration has been finally determined, be paid by Parent to the Remaining Sellers based on the percentage allocation of such Remaining Seller as set forth next to such Remaining Seller’s name on the signature page hereto. Notwithstanding anything in this Agreement, the Merger Agreement, the Original Agreement, the Settlement Agreement or any other agreement to the contrary, in no event shall the aggregate of the First Anniversary Payment plus the Final Payment exceed the Maximum Total Payment. In the event that the First Anniversary Payment exceeds the Additional Consideration, no Final Payment will be due or owing by Parent under this Agreement and the Remaining Sellers will not be liable for or otherwise obligated to pay or reimburse any such excess to Parent.

ARTICLE III. COMPUTATION OF EBITDA

     3.1 Manner of Computation. For purposes of this Agreement, “EBITDA” of the Surviving Corporation for any period shall mean its cumulative earnings before interest, taxes, depreciation, amortization and reasonable allocations for such period. EBITDA shall be determined in accordance with the principals and methods of accounting set forth on Addendum A attached hereto and incorporated herein and, to the extent not covered in Addendum A, otherwise in accordance with generally accepted accounting principles (GAAP) applied by Parent in a manner substantially consistent with the past practices of the Company and as determined by the firm of independent certified public accountants engaged by Parent for purposes of its own audit (the “Parent’s Accountants”).

     3.2 Specific Items. In determining such EBITDA:

          (a) EBITDA shall be computed without regard to “extraordinary items” of gain or loss as that term is defined in GAAP;

4

          (b) EBITDA shall not include any gains, losses or profits realized from the sale of any assets other than in the ordinary course of business;

          (c) no deduction shall be made for any management fees, general overhead expenses or other intercompany charges, of whatever kind or nature, charged by Parent to the Surviving Corporation except to the extent provided for in Addendum A;

          (d) no deduction shall be made for legal or accounting fees and expenses arising out of this Agreement, the Merger Agreement, the Original Agreement or the Settlement Agreement except for fees in support of receivables’ collection or contract enforcement with a customer of the Business;

          (e) the purchase and sales prices of goods and services sold by the Surviving Corporation to Parent or its Affiliates or purchased by the Surviving Corporation from Parent or its Affiliates shall be adjusted to reflect the amounts that the Surviving Corporation would have realized or paid if dealing with an independent party in an arm’s-length commercial transaction; and

          (f) EBITDA will be determined on a cumulative basis during the Period (with respect to the Surviving Corporation only) from the financial statements prepared by Parent. For purposes of determining EBITDA, except as specifically provided for on Addendum A, no corporate overhead or intercompany charges, including, without limitation, any additional costs or expenses associated with the Surviving Corporation being a subsidiary of a publicly traded company (e.g. management expenses or regulatory compliance) will be allocated to the business of the Surviving Corporation during the Period.

ARTICLE IV. COVENANTS REGARDING OPERATIONS

     4.1 Covenants of Parent, Surviving Corporation, the Remaining Sellers and the Seller Representative During the Period. Parent, Surviving Corporation, the Remaining Sellers and the Seller Representative agree that each party will act in good faith with respect to the covenants set forth in this Article IV.

     4.2 Operations of the Business. Except to the extent specifically provided in Section 4.3 below, the Business of the Surviving Corporation will be operated during the Period in accordance with the Parent’s policies and procedures applicable to its subsidiaries in general as such policies and procedures may be modified or amended from time to time by Parent at its sole and absolute discretion (including, by way of example only, that the Surviving Corporation will refrain from booking unprofitable business that may enhance revenue at the risk of impairing the long-term success of the Surviving Corporation; and that the Board of Directors of the Surviving Corporation, as appointed by Parent, will have the ultimate control and responsibility for the material operations and decision making of the Surviving Corporation such as geographic expansion and entering into new lines of business).

     4.3 Operational Autonomy. During the Period, Parent agrees that, so long as the Company is operating at an aggregate gross margin for the Company’s business as a whole of not less than 15% on a trailing 12-month basis and is generating, on a trailing 12-month basis beginning for the period ended December 31, 2007, EBITDA in excess of $25,000,000, (i) the

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Surviving Corporation shall remain Operationally Autonomous (as defined below) and (ii) Anthony Mellina and David Vogelzang shall have the authority to manage the Surviving Corporation as provided by the terms of their employment agreements entered into with Parent in connection with the Settlement Agreement (the “Management Employment Agreements”); provided, however, that payment of Additional Consideration to a Remaining Seller is not conditioned upon the continuing employment of such Remaining Seller with Parent, the Company or any Affiliate thereof. As used in this Section 4.3, “Operationally Autonomous” means that, from and after the Effective Time, Parent shall (i) cause the Surviving Corporation to maintain, in all material respects, its existence as a distinct operating entity apart from the other Affiliates of Parent, including maintaining for the Surviving Corporation a separate income statement, (ii) allow the Surviving Corporation to make employment decisions that are reasonable and in the best interests of the Business, (iii) allow capital investments that are approved in accordance with the Parent’s capital approval process, (iv) subject to (v) below, allow the Surviving Corporation to enter into customer agreements so long as such contracts meet risk tolerances as established by the Parent and (v) allow the Surviving Corporation to enter into customer agreements so long as such contracts, on a pro forma basis, generate at least 10% gross margins, whereby gross margin is defined as gross profit divided by revenue, as calculated in accordance with GAAP; provided, however, part (v) of this Section 4.3 shall not apply to a transaction or a series of related transactions that have a pro forma revenue amount of less than of $1 million or that otherwise have been pre-approved, in writing, by Parent.

     4.4 Quarterly Meetings. During the Period, Parent shall, at the Seller Representative’s reasonable request, but not more frequently than quarterly, meet (telephonically or in person) (the “Quarterly Earn-Out Meetings”) with Seller Representative to discuss the operation of the Business, including, but not limited to, financial results or other issues relating to the Additional Consideration.

     4.5 Acknowledgment of the Company, the Remaining Sellers and the Seller Representative. Each of the Company, the Remaining Sellers and the Seller Representative acknowledges and agrees that (i) Parent makes no representations nor provides any assurances whatsoever as to the feasibility of achieving the Additional Consideration or any portion thereof (over and above the First Anniversary Payment) and (ii) neither Parent nor the Surviving Corporation owe any fiduciary duty to the Remaining Sellers or the Seller Representative.

     4.6 Remedy for Breach of Covenants. In the event that Parent or Surviving Corporation materially breach the covenants set forth in this Section 4, and (i) such material breach continues for a period of thirty (30) days after the Seller Representative has provided written notice to Parent and Surviving Corporation setting forth, in reasonable detail, the terms of such material breach, and (ii) thereafter, the Seller Representative receives a final, non-appealable order of a court of competent jurisdiction wherein Parent or the Surviving Corporation is found to be in material breach of this Section 4, this Agreement shall be subject to immediate termination at the option, to be exercise in writing, of the Seller Representative. Upon any such termination, Parent shall be obligated to pay to the Remaining Sellers for distribution in accordance with the terms hereof, in immediately available funds, as Additional Consideration, an amount equal to $1,000,000. Any such payment under this Section 4.6 shall be the Remaining Sellers’ sole and exclusive remedy for a breach by Parent or the Surviving

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Corporation for a breach of this Section 4.6 and, without limiting the foregoing, shall be in lieu of any further payment of Additional Consideration.

ARTICLE V. MISCELLANEOUS

     5.1 Severability. If any provision of this Agreement is held to be illegal, invalid or unenforceable under any present or future Law, the remainder of the terms, provisions, covenants and restrictions of this Agreement shall remain in full force and effect and shall in no way be affected, impaired or invalidated so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner materially adverse to any party. Upon the determination that any provision of this Agreement is illegal, invalid or unenforceable, the parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible to the fullest extent permitted by applicable Law to the end that the transactions contemplated hereby are fulfilled to the maximum extent possible.

     5.2 Entire Agreement; Assignment. This Amended and Restated Earnout Agreement, including the Addendum hereto, and, to the extent referenced herein, the Merger Agreement, the Management Employment Agreements and the Settlement Agreement, constitute the entire agreement among the parties with respect to the subject matter hereof and supersede all prior agreements and understandings, both written and oral, among the parties with respect to the subject matter hereof, including, specifically, the Original Agreement. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns; provided, that no party may assign, delegate or otherwise transfer any of its rights or obligations under this Agreement without the consent of the other parties hereto, except that Parent or the Surviving Corporation may, without such prior written consent, at any time, transfer or assign, in whole or from time to time in part, its rights or obligations under this Agreement (i) to one or more of its Affiliates or (ii) to any Person acquiring all or a significant portion of Parent’s or the Surviving Corporation’s assets or equity interests.

     5.3 Counterparts. This Agreement may be executed in counterparts, all of which shall be considered one and the same agreement and shall become effective when one or more counterparts have been signed by each of the parties and delivered to the other parties, it being understood that all parties need not sign the same counterpart.

     5.4 Notices. All notices, requests and other communications hereunder shall be in writing and shall be deemed given if delivered personally or sent by a reputable overnight courier service (providing proof of delivery) or sent via facsimile (with confirmation of receipt) to the parties at the following address (or at such other address or facsimile number as such party may hereafter specify by like notice):

          (a) if to Parent or Merger Sub, to:

Agilysys, Inc.
2255 Glades Road, Suite 301E
Boca Raton, Florida 33431
Attn: Chief Executive Officer
and Chief Financial Officer

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Facsimile No.: 561-999-8765

               with a copy to:

Calfee, Halter & Griswold LLP
800 Superior Avenue #1400
Cleveland, Ohio 44114-2688
Attention: Robert A. Ross
Facsimile No.: 216-241-0816

          (b) if to the Seller Representative, to:

Anthony Mellina
3 Colts Gait Lane
Colts Neck, NJ 07722
Facsimile: (     )      -     

               with copies (which shall not constitute notice) to:

Lowenstein Sandler PC
65 Livingston Avenue
Roseland, New Jersey
Facsimile: (973) 597-2569
Attention: Raymond P. Thek, Esq.

               All such notices, requests and other communications shall be deemed received on the date of receipt by the recipient thereof if received prior to 11:59 p.m. in the place of receipt and such day is a Business Day in the place of receipt. Otherwise, any such notice, request or communication shall be deemed not to have been received until the next succeeding Business Day in the place of receipt

     5.5 Waiver of Compliance. The party for whose benefit a warranty, representation, covenant or condition is intended may, in writing, waive any inaccuracies in the warranties, representations, covenants or conditions contained in this Agreement or waive compliance with any of the foregoing and so waive performance of any of the obligations of the other party hereto and any defaults hereunder, provided, however, that such waiver shall not affect or impair the waiving party’s rights in respect to any other warranty, representation, covenant, condition or default hereunder.

     5.6 Headings. The headings contained in this Agreement are for the sole purpose of convenience of reference, and shall not in any way limit or affect the meaning or interpretation of any of the terms or provisions of this Agreement.

     5.7 Amendment or Supplement. This Agreement may be amended, modified, or supplemented solely by written agreement of all of the parties hereto making specific reference to this Agreement.

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     5.8 Governing Law. This Agreement and all matters arising directly or indirectly herefrom shall be governed by, and construed in accordance with, the internal laws of the State of Delaware, without giving effect to any choice of law or conflict of law provision or rule (whether of the State of Delaware or any other jurisdiction) that would cause the application of the laws of any jurisdiction other than the State of Delaware. All Legal Proceedings arising out of or relating to this Agreement shall be heard and determined in any state or federal court sitting in the State of Ohio, and the parties hereto hereby irrevocably submit to the exclusive jurisdiction of such courts in any such Legal Proceeding and irrevocably waive the defense of an inconvenient forum to the maintenance of any such Legal Proceeding. The consents to jurisdiction set forth in this paragraph shall not constitute general consents to service of process in the state described in the preceding sentence and shall have no effect for any purpose except as provided in this paragraph and shall not be deemed to confer rights on any Person other than the parties hereto. The parties hereto agree that a final judgment in any such Legal Proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by applicable law.

     5.9 Appointment of Seller Representative.

          (a) The Seller Representative is hereby appointed as agent and attorney-in-fact for and on behalf of the Remaining Sellers (the “Seller Representative”), to give and receive notices and communications, to agree to, negotiate and enter into settlements and compromises of claims, to demand, prosecute and defend claims arising out of this Agreement and to comply with orders of courts and determinations and awards with respect to claims, and to take all actions necessary or appropriate in the judgment of the Seller Representative for the accomplishment of the foregoing. Such agency may be changed by the Remaining Sellers from time to time upon not less than ten (10) calendar days’ prior written notice to Parent. Any vacancy in the position of Seller Representative shall be filled by a majority-in-interest of the Remaining Sellers. The Seller Representative may resign upon ten (10) calendar days’ prior written notice to Parent and the Company provided that no such resignation shall become effective until the appointment of a successor Seller Representative. No bond shall be required of the Seller Representative, and the Seller Representative shall not receive compensation for his services. Notices or communications to or from the Seller Representative shall constitute notice to or from each Remaining Seller.

          (b) The Seller Representative shall not have any liability to the Remaining Sellers for any action taken or suffered by him or omitted by him hereunder as Seller Representative, except as caused by the Seller Representative’s gross negligence or willful misconduct. The Seller Representative may, in all questions arising hereunder, rely on the advice of counsel and the Seller Representative shall not be liable to the Remaining Sellers for anything done, omitted or suffered by the Seller Representative based on such advice. The Seller Representative undertakes to perform such duties and only such duties as are specifically set forth in this Agreement and no implied covenants or obligations shall be read into this Agreement against the Seller Representative.

          (c) A decision, act, consent or instruction of the Seller Representative in a matter entrusted to the Seller Representative by this Agreement shall be deemed to have been taken or given on behalf of all Remaining Sellers and shall be final, binding and conclusive upon

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all Remaining Sellers, and Parent and the Company may rely upon any such decision, act, consent or instruction of the Seller Representative as being the decision, act, consent or instruction of, and binding on, each of the Remaining Sellers. Parent, the Company and their respective Affiliates are hereby relieved from any liability to any person for any acts done by them in accordance with such decision, act, consent or instruction of the Seller Representative.

[signature page to follow]

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          IN WITNESS WHEREOF, the parties hereto have caused this Amended and Restated Earnout Agreement to be executed and delivered all as of the date first written above.

PARENT

Agilysys, Inc., an Ohio corporation

     /s/ Martin F. Ellis

By: Martin F. Ellis

Its: EVP, Treasurer & CFO

COMPANY/MERGER SUB

Agilysys NJ, Inc., a New Jersey corporation

     /s/ Martin F. Ellis

By: Martin F. Ellis

Its: Vice President

REMAINING SELLERS

Anthony Mellina (44.2%)

     /s/ Anthony Mellina

     Anthony Mellina

David Vogelzang (44.2%)

     /s/ David Vogelzang

     David Vogelzang

Frank G. Batula (11.6%)

     /s/ Frank Batula

     Frank Batula

SELLER REPRESENTATIVE

     /s/ Anthony Mellina

     Anthony Mellina

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ADDENDUM A

EBITDA Principals

EBITDA shall be defined as the Surviving Corporation’s operating income, as defined by GAAP, plus any depreciation and amortization charged to the Surviving Corporation’s income statement. Revenues and expenses shall be calculated in accordance with GAAP consistently applied in accordance with the Parent’s accounting policies. Solely for purposes of determining EBITDA during the Period:

1. The Surviving Corporation shall earn a 3% finders fee for all revenue recognized by the Parent during the Period on sales of non-Sun related products and services to existing customer accounts of the Surviving Corporation at the Effective Time, which is not directly recorded on the Surviving Corporation’s income statement. The finders fee shall be the product of the revenue recognized by the Parent and .03.

2. The Surviving Corporation may be charged allocations for marketing and inside sales functions to the extent such functions are recorded on the Parent’s or an Affiliate’s income statement. Calculation of these allocations will be on a basis consistent with such charges to Parent’s other operating business units and will be commensurate with the actual costs related to providing such support.

3. Expenses related to corporate functions, including financial accounting, accounts payable, accounts receivable collection, payroll, customer credit evaluation, tax, treasury, information technology, legal, and human resource provided to the Surviving Corporation will be determined by taking two times the expense incurred by the Company for such functions in the twelve months prior to the Effective Time.

4. Provisions for bad debt and inventory obsolescence shall be calculated on a basis that is consistent with the Parent’s estimate for these items, which estimates will be applied consistent with GAAP and the Parent’s accounting policies.

5. The Surviving Corporation’s expenses for payroll taxes and employee benefits shall be 14.00% of salaries, wages, incentives and overtime for the period ending June 30, 2008, and 15.75% of salaries, wages, incentives and overtime for all periods thereafter.

6. Severance expense related to terminating any Surviving Corporation employee shall be charged to the Surviving Corporation’s income statement and included in the calculation of EBITDA only if the termination decision is agreed to by the management of the Surviving Corporation. Such severance expense will be calculated in accordance with the Parent’s severance policy.

7. Parent and its Subsidiaries shall account for all revenue generated by the Parent and its Subsidiaries from sales of Sun products by Parent and its Subsidiaries, except for those in the Southern California region covered by Agilysys CA, Inc. (fka Stack Computer), as sales of the Company, subject to appropriate and good faith adjustments in the event of subsequent acquisitions by Agilysys CA, Inc.

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EX-31.1

Exhibit 31.1

CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER

I, Martin F. Ellis, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Agilysys, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Dated: December 29, 2008

By:	/s/ Martin F. Ellis Martin F. Ellis
	President and Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION OF THE CHIEF FINANCIAL OFFICER

I, Kenneth J. Kossin, Jr., certify that:

1. I have reviewed this quarterly report on Form 10-Q of Agilysys, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

     a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

     b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Dated: December 29, 2008

By:	/s/ Kenneth J. Kossin Kenneth J. Kossin
	Senior Vice President and Chief Financial Officer

EX-32.1

Exhibit 32.1

CERTIFICATION

I, Martin F. Ellis, President and Chief Executive Officer of Agilysys, Inc. (the “company”), certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, that:

1.	The Quarterly Report on Form 10-Q of the company for the quarter ended June 30, 2008 (the “Report”) fully complies (1) with the requirements of Section 13(a) of the Securities Exchange Act of 1934 (15 U.S.C. 78m); and
2.	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the company.

Dated: December 29, 2008

By:	/s/ Martin F. Ellis Martin F. Ellis
	President and Chief Executive Officer

A signed original of this written statement required by Section 906 has been provided to the company and will be retained by the company and furnished to the Securities and Exchange Commission or its staff upon request.

(1) As explained more fully in this Report, the Report does not include, as required by the Rule 3-09 of Regulation S-X, the separate financial statements of Magirus AG, a privately owned German company in which the company formerly held a 20% equity interest until the company disposed of such interest on November 18, 2008.

EX-32.2

Exhibit 32.2

CERTIFICATION

I, Kenneth J. Kossin, Senior Vice President and Chief Financial Officer of Agilysys, Inc. (the “company”), certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, that:

1.	The Quarterly Report on Form 10-Q of the company for the quarter ended June 30, 2008 (the “Report”) fully complies (1) with the requirements of Section 13(a) of the Securities Exchange Act of 1934 (15 U.S.C. 78m); and
2.	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the company.

Dated: December 29, 2008

By:	/s/ Kenneth J. Kossin, Jr. Kenneth J. Kossin, Jr.
	Senior Vice President and Chief Financial Officer

A signed original of this written statement required by Section 906 has been provided to the company and will be retained by the company and furnished to the Securities and Exchange Commission or its staff upon request.

(1) As explained more fully in this Report, the Report does not include, as required by the Rule 3-09 of Regulation S-X, the separate financial statements of Magirus AG, a privately owned German company in which the company formerly held a 20% equity interest until the company disposed of such interest on November 18, 2008.