(Mark One)

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 equity and cost method, 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, 2008 refers to the fiscal year ending March 31, 2008.

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 JuneSeptember 30, 2007, as well as the condensed consolidated statements of operations and condensed consolidated statements of cash flows for the three-monthsthree and six months ended JuneSeptember 30, 2007 and 2006 have been prepared by the company without audit. However, the financial statements have been prepared on the same basis as those in 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 experiences a seasonal increase in sales during its fiscal third quarter ending in December. Accordingly, the results of operations for the three-monthsthree and six months ended JuneSeptember 30, 2007 are not necessarily indicative of the operating results for the full fiscal year or any future period.

Certain amounts in the prior periods condensed consolidated financial statements have been reclassified to conform to the current period’s presentation, primarily to reflect the results of the KeyLink Systems Distribution Business as discontinued operations (see note 4).

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, 2007, 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.

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“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. The company is currently evaluating the impact that statement 159 will have on its financial position, results of operations and cash flows.

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 wasis effective for fiscal years beginning after November 15, 2007, or fiscal 2009 for the company. The company is currently evaluating the impact that statement 157 will have on April 1, 2007. The adoption of Statement 157 did not have a material impact on the Company’sits financial position, results of operations orand cash flows.

Effective April 1, 2007, the company adopted the provisions of FASB Interpretation No. 48,Accounting for Uncertainty in Income Taxes –— an Interpretationinterpretation 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. The adoptionAs a result of the implementation of FIN 48, has resulted in a cumulative effect adjustment to reduce beginning retained earnings bythe company recognized approximately $2.9 million increase in the liability for unrecognized tax benefits, which included tax, interest and penalties.was accounted for as a reduction to the April 1, 2007 balance of retained earnings. At April 1, 2007 (the adoption date of FIN 48), the company had a liability for unrecognized tax benefits of $6.6 million. Approximately $6.2 million of this, if recognized, would favorably affect the company’s effective tax rate.

Approximately $1.2$1.7 million and $2.8 million of this was recordedunrecognized tax benefits were recognized during the three and six months ended September 30, 2007, respectively, for effective settlement with tax authorities in the first quarter of fiscal year 2008. The company also had an accrual of $1.3 million for the payment of related interest and penalty.certain jurisdictions.

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,selling, general and administrative expenses.” The company recognized $33,000$79,000 of interest expense and $80,000penalty benefit and $34,000 of penaltiesinterest and penalty expense related to unrecognized tax benefits induring the first quarterthree and six months ended September 30, 2007. The company had approximately $1.0 million for the payment of fiscal 2008.interest and penalties accrued at September 30, 2007.

The company anticipates completing multiplethe completion of a state income tax auditsaudit in the next 12 months which could reduce the accrual for unrecognized tax benefits by up to $0.9$0.2 million. 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 under audit by the Internal Revenue Service (“IRS”) for fiscal years 2005 and 2006. The company is also being audited by multiple state taxing jurisdictions. In material jurisdictions, the company has tax years open back to and including 1998.

The following table summarizes the company’s unaudited consolidated results of operations as if the acquisition was madeInfoGenesis and Innovativ acquisitions occurred on April 1:

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. As of June 30, 2007,During the current quarter, the final working capital adjustment of $10.8 million was estimated to have decreased the sale price by $10.0 million.settled and paid. Through the sale of KSG, the company exited all distribution-related businesses and now sells solely 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 have been reported as a component of discontinued operations.

The income from discontinued operations for the three-monthsthree months ended JuneSeptember 30, 2006 includes KSG net sales of $281.3$287.5 million, pre-tax income of $14.7$15.9 million and net income of $9.5$10.3 million. The income from discontinued operations for the six months ended September 30, 2006 includes KSG net sales of $568.8 million, pre-tax income of $30.6 million and net income of $19.8 million.

Comprehensive income includes net income and other comprehensive income. Other comprehensive income considers the effects of additional economic events that are not required to be recorded in determining net income, but rather are reported as a separate component of shareholders’ equity. The following table illustrates the components of the company’s comprehensive income:

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.

Approximately $51,000$35,000 is expected to be paid during the remainder of 2008 for ongoing facility obligations. Such facility obligations are expected to continue through 2010.

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

exercise price must be set at least equal to the 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 JuneSeptember 30, 2007, there were no stock appreciation rights or restricted share units awarded from the plan.

Compensation expense charged to operations during the three-monthssix months ended JuneSeptember 30, 2007 and 2006 relating to stock options was $0.8$1.7 million and $0.3$1.2 million, respectively. The total income tax benefit recognized in operations during the three-monthssix months ended JuneSeptember 30, 2007 and 2006 was $0.1 million and $0.1$0.3 million, respectively. As of JuneSeptember 30, 2007, total unrecognized stock based compensation expense related to non-vested stock options was $4.8$3.5 million, which is expected to be recognized over a weighted-average period of 1714 months.

The following table summarizes the status of stock options outstanding at JuneSeptember 30, 2007.

Compensation expense related to non-vested share awards is recognized over the restriction period. Compensation expense charged to operations for non-vested share awards was $0.9$1.1 million and $32,000$57,000 for the three-monthssix months ended JuneSeptember 30, 2007 and 2006, respectively. As of JuneSeptember 30, 2007, there was $1.6$1.4 million of total unrecognized compensation cost related to non-vested share awards, which is expected to be recognized over a weighted-average period of 2724 months.

The company granted selectshares to certain executives shares of the company, whosethe 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 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.

Income tax expense for the three-monthsthree and six months ended JuneSeptember 30, 2007 and 2006 is based on the company’s estimate of the effective tax rate expected to be applicable for the respective full fiscal year. The tax effect of discrete items is recognized in the period in which they occur as an adjustment to the income tax provision rather than included in the estimated annual effective income tax ratesrate.

The company’s effective income tax rate for continuing operations are as follows:

The effective income tax rates (expense and benefit) for continuing operations differ from the three-months ended June 30, 2007statutory rate principally because of the effects of equity in undistributed earnings and 2006 were 43.3%losses of an equity investee, limitations on deductibility for meals and 41.2%, respectively. The increase in the effective tax rate for the three-months ended June 30, 2007 resulted principally fromentertainment costs, and compensation expense associated with incentive stock option awards. Additionally, the company recognized a discrete

The income tax benefitprovision for the three and six months ended September 30, 2007 include tax benefits of $1.2$1.7 million in the current quarterand $2.8 million, respectively, for the recognition of previously unrecognized income tax benefits.benefits associated with the effective settlement with tax authorities in certain jurisdictions.

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.

Changes in the carrying amount of goodwill during the three-monthssix-months ended JuneSeptember 30, 2007 are as follows:

The estimated amortization expense relating to intangible assets for the remainder of fiscal year 2008 and each of the five succeeding fiscal years is as follows: 2008 — $4.0 million, 2009 — $3.7 million, 2010 — $1.9 million, 2011 — $1.6 million, 2012 — $1.1 million, and 2013 — $1.0 million.

The following table summarizes the company’s investments in affiliated companies at JuneSeptember 30, 2007 and March 31, 2006:

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 Boca Raton, Florida, Agilysys operates extensively throughout North America, with additional sales offices in the United Kingdom and China.

WithAs disclosed in previous filings, the completion of the sale of the company’scompany sold its KeyLink Systems Distribution business (“KSG”) in March 2007 the current quarter represented the first quarter that the company operatedand now operates solely as an IT solutions provider. The following long-term goals were established by the company with the divestiture of KSG:

For financial reporting purposes, the prior period operating results of KSG have been classified as discontinued operations. Accordingly, the discussion and analysis presented below, including the comparison to prior periods, reflects the continuing business of Agilysys.

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.

Of the $8.3 million in software sales, $4.6 million was the result of incremental sales from the company’s recent acquisitions. The remaining $3.7 million increase in software sales was mainly due to higher sales of remarketed software offerings from the company’s proprietary software serving the hospitality market. existing business.

The $8.1 million increase in servicesservice revenue was mainly due to higherthe result of incremental sales of remarketed services.from the company’s recent acquisitions.

The company generally experiences a seasonal increase in sales during its fiscal third quarter ending in December. Accordingly, the results of operations for the three-monthsquarter ended JuneSeptember 30, 2007 are not necessarily indicative of the operating results for the full year 2008.

Gross Margin.The $3.6$18.3 million increase in gross margin was due to the corresponding increase in net sales. The decline of 170 basis3.2 percentage points in gross margin percentage was principally due to a higher supplier discounts and credits recognizedmix of hardware sales in the prior-year period.company’s total sales for the current quarter compared with the same period last year. Hardware sales traditionally carry a lower gross margin percentage compared to sales of software and services.

Operating Expenses. The company’s operating expenses principally consist of selling, general, and administrative (“SG&A”) expenses. The $6.3$14.8 million increase in SG&A expenses was mainly due to incremental operating expenses from the company’s recent acquisitions, which contributed $4.3$14.3 million of the increase.

Interest income and expense.The remaining $2.0 million increase202.2% favorable change in interest income was primarily due to a higher average cash and cash equivalent balance in the current quarter compared with the same period last year, as the yield earned on the company’s short-term investments remained relatively consistent year-over-year. The higher cash and cash equivalent balance was driven by the sale of KSG.

The income tax provision for doubtfulthe three months ended September 30, 2007 includes a tax benefit of $1.7 million for the recognition of previously unrecognized income tax benefits associated with the effective settlement with tax authorities in certain jurisdictions.

Gross Margin.The $21.9 million increase in gross margin was due to the corresponding increase in net sales. Consistent with the company’s quarter-to-date operating results, the decline of 2.9 percentage points in gross margin percentage was principally due to a higher mix of hardware sales in the company’s total sales compared with the same quarterprior year. Hardware sales traditionally carry a year ago, whichlower gross margin percentage compared to sales of software and services.

Operating Expenses. The company’s operating expenses principally consist of SG&A expenses. The $21.1 million increase in SG&A expenses was necessitated by year-over-year changes withinmainly due to incremental operating expenses from the company’s trade accounts receivable.recent acquisitions, which contributed $18.2 million, or 86.3%, of the increase.