Critical Accounting Policies and Estimates

Management's discussion and analysis of its financial condition and results of operations is based upon the Company's condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States for interim periods. The preparation of these financial statements requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities. On an on-going basis, the Company evaluates its estimates, including those related to receivable allowances, long-term service contracts, intangible assets, contingencies and litigation. As these are condensed consolidated financial statements, reference should be made to the Company's Form 10-K Annual Report for the year ended April 30, 2007, for expanded information about the Company's critical accounting policies and estimates.

Results of Operations

The Company's business is focused on providing software and services to enable state and local governments in North America to completely, fairly and efficiently assess real and personal property, and to bill and collect the related property taxes in their jurisdictions. The Company's software manages the entire property life cycle, which includes deed recording, land records, GIS integration, valuation, assessment administration, personal property, business licenses, cashiering, tax billing and collection, delinquents and tax sales and e-government.

The Company's revenues are generated from software license fees, software maintenance fees, professional services and sales of hardware, forms and supplies. Professional services consist of data conversions, installation, training, project management, hardware maintenance, forms processing and printing, consulting and appraisal services.

For simplicity purposes, many of the numbers described below are rounded; however, the percentage variations are based upon the actual amounts.

Total net revenues of $12.3 million and $34.4 million for the three and nine months ended January 31, 2008 increased by $2.0 million or 19.0% and $2.7 million or 8.6%, respectively, in comparison to the $10.3 million and $31.7 million of net revenues that were reported for the three and nine months ended January 31, 2007. These increases were primarily due to the acquisitions of Sigma Systems Technology, Inc. ("Sigma") on August 1, 2007 and the Records Management Solutions Business of Hart InterCivic, Inc. ("Hart") on September 1, 2007, as further described in Note 4 of the Notes to Condensed Consolidated Financial Statements. These two acquisitions have contributed approximately $1.7 million and $3.0 million, of additional license fees, maintenance fees and professional services revenue for the three and nine months ended January 31, 2008, respectively. The Company also experienced 13.5% and 7.2% of organic growth in software licenses, maintenance fees and professional services revenues during the third quarter and nine month period, respectively. However, these increases were offset by decreases in appraisal services revenues of $226,000 and $2.1 million for the same periods.

The organic growth was driven by GRMŽ implementation activity in Kansas, Minnesota, Nevada, South Carolina and Virginia as well as substantial progress on the Marion County, Indiana contract discussed below. The Company now has GRMŽ live in ten accounts in six states - Alaska, Georgia, Idaho, Kentucky, South Carolina and Virginia, and expects to have several more accounts live by the end of this fiscal year.

The GRMŽ suite of software is a feature-rich, fully-integrated enterprise-level solution that has enabled the Company's clients to not only replace their legacy systems, but to realize significant efficiencies and cost savings, provide more and modern services to their constituents and, in most cases, to collect additional tax revenues, which will more than offset the cost of the GRMŽ system. The rollout of this new, next generation national product has been a key pillar in the Company's growth strategy. It is providing a competitive edge in the market as few, if any other, companies currently have a similar product suite. Historically, the Company had unique tax products for each state that it did business in. This required separate sales, marketing, development, and support initiatives. The Company expects to realize significant cost savings and economies of scale as it continues to market and implement GRMŽ.

The Company has also continued to upgrade its current client base, particularly in its core market of Ohio, which has resulted in additional license fees and professional services revenue for both the third quarter and year-to-date periods.

The acquisitions of Sigma and Hart, which have added approximately $4.5 million of recurring software maintenance fees on an annual basis, have contributed a little over $1.1 million to the Company's $1.4 million increase in recurring support and maintenance fees for the third quarter and approximately $1.8 million of the $3.1 million increase for the first nine months of fiscal 2008. The other increases are a result of annual price increases and new software maintenance initiated on GRMŽ implementations.

Revenues associated with appraisal services have decreased for both the three and nine month periods ended January 31, 2008 because this business continues to be soft for the Company. The Company did sign a $1.8 million appraisal services contract with Marion County, Indiana during the second quarter of fiscal 2008, which will be completed in this fiscal year; however, the appraisal services market has become more saturated and price competitive. As a result, the Company has only been pursuing appraisal service projects where there are software sales opportunities and appropriate margins can be attained. As previously stated, growing the property software component of the business has been the Company's primary focus for the last three years.

Software license fees and professional services revenues can vary significantly from quarter to quarter or year to year, as they are primarily driven by the Company's backlog, new sales, the timing of the related software implementations and the cyclicality of certain markets. In addition, many of the larger and more complex jurisdictions, which the Company is now able to pursue due to its new product and business strategy, often take more than one year to fully implement and a number of these contracts are accounted for using the percentage of completion method, which results in the license revenues being recognized over the implementation period.

As of January 31, 2008, the Company's backlog was $16.6 million compared to $15.5 million at January 31, 2007.

Signed contracts for the nine months ended January 31, 2008 totaled approximately $13.0 million versus $13.3 million for the nine months ended January 31, 2007. The Company entered its eleventh state with the signing of a GRMŽ contract with Santa Fe, New Mexico during January 2008.

These backlog amounts are exclusive of the Company's recurring revenue from software maintenance, hardware maintenance and printing and processing contracts, which is currently approximately $26.0 million on an annualized basis.

Cost of revenues increased by 32.0% to $6.6 million for the three months ended January 31, 2008 compared to $5.0 million for the third quarter in the prior fiscal year. For the nine months ended January 31, 2008, cost of revenues increased by 11.8% to $18.6 million versus $16.6 million for the nine months ended January 31, 2007. The increases in cost of revenues are primarily due to the acquisitions of Sigma and Hart during the second quarter, which has resulted in additional internal and outsourced labor associated with their software maintenance and implementation contracts. Excluding these acquisitions, outsourced labor has decreased due to a reduction in the use of outsourced consulting services. In addition, the prior year first quarter included $352,000 of outsourced labor associated with the City of Baltimore project that the Company ceased working on.

Gross margins have decreased to 46.3% for the three months ended January 31, 2008 compared to 51.6% for the prior year third quarter and from 47.5% to 46.0% for the nine month period primarily because of the acquisition of Hart, which utilizes outside contractors to assist with certain of its software maintenance contracts. In addition, the third quarter of the prior year included several Tax and CAMA implementations within the Company's core Ohio market, which have a higher gross margin.

Selling, general and administrative expenses increased $209,000 or 4.4% to $4.9 million for the three months ended January 31, 2008 and by $129,000 or 1.0% to $14.3 million for the nine months ended January 31, 2008 versus the respective periods in the prior fiscal year. Selling, general and administrative expenses have increased primarily due to additional intangible amortization expense associated with the Hart and Sigma acquisitions completed during the second quarter of fiscal 2008. Intangible amortization expense has increased by $24,000 and $116,000 for the three and nine months ended January 31, 2008, respectively, over the prior year comparable periods.

As a result of the factors noted above, the Company's operating income was $747,000 for the three months ended January 31, 2008, which was approximately $158,000 or 26.8% higher than the $589,000 of operating income reported for the third quarter in the prior fiscal year. Operating income increased by $636,000 or 70.6% to $1.5 million for the nine months ended January 31, 2008 from $901,000 for the comparable prior year period.

On January 14, 2008, the Company entered into an Agreement and Plan of Merger with an affiliate of Thoma Cressey Bravo, Inc. Pursuant to the Merger Agreement, at the effective time

of the Merger, each issued and outstanding share of common stock will automatically be converted into the right to receive $12.00 in cash. The Company incurred $506,000 of transaction related costs during the three and nine months ended January 31, 2008 associated with the merger, primarily related to legal and other professional fees. See Note 5 to the Notes to the Condensed Consolidated Financial Statements for additional details on this transaction.

Net other income (expense) decreased by $48,000 to a net expense position of $7,000 for the three months ended January 31, 2008. This decrease is due to the interest expense associated with funding the Company's acquisitions, which occurred during the second quarter of fiscal 2008. Net other income increased by $25,000 to $115,000 for the nine month period due to interest income generated during the first quarter of fiscal 2008 associated with the Company's cash balances.

The Company's provision for income taxes generally fluctuates with the level of pretax income or loss. The effective tax rate was 34.4% for the three months and 37.7% for the nine months ended January 31, 2008 compared to 37.5% and 37.6% for the three and nine months ended January 31, 2007. These rates are generally comprised of 34% for the federal taxes and 4%-5% for various state taxes. The Company anticipates that the effective rate for the balance of fiscal year 2008 will approximate 38%.

The Company reported net income of $153,000 or $0.03 per diluted share for the three months ended January 31, 2008, compared to the net income of $394,000 or $0.08 per diluted share for the third quarter of the prior fiscal year. Net income was $714,000 or $0.14 per diluted share for the nine months ended January 31, 2008 versus net income of $618,000 or $0.12 per diluted share for the comparable prior year period.

Diluted weighted average outstanding common shares increased slightly to 5,146,877 shares for the three months ended January 31, 2008 from 5,088,126 shares in the prior year quarter and to 5,100,423 shares for the nine months ended January 31, 2008 versus 4,968,896 shares for the prior year comparable period. These increases were primarily due to the issuance and vesting of additional stock options.

Financial Condition and Liquidity

At January 31, 2008, the Company had working capital of $493,000 compared to $5.3 million at April 30, 2007. These levels reflect current ratios of 1.02 and 1.35, respectively. The decrease in working capital is due to approximately $5.1 million of payments made on the acquisitions of Sigma and Hart during the nine months ended January 31, 2008 as well as payments of $1.6 million on previous acquisitions.

Shareholders' equity at January 31, 2008 increased by $1.4 million to $25.9 million from the balance reported at April 30, 2007 as a result of $714,000 of net income for the nine months ended January 31, 2008, as well as $232,000 of employee stock purchases and $556,000 of deferred stock compensation expense. These increases were slightly offset by $72,000 of Company stock that was repurchased from certain executives to cover the tax consequences of restricted stock vesting, as well as the repurchase of $64,000 of Company stock under the Company's Stock Repurchase Plan. Book value per share has increased to $5.05 as of

January 31, 2008 from $4.82 at April 30, 2007. Book value per share is calculated by dividing total shareholders' equity by total shares outstanding at the end of each respective period.

Net capital expenditures increased to $929,000 for the nine months ended January 31, 2008 from $367,000 for the first nine months of the prior fiscal year. This increase is primarily due to the roll out of a Company wide unified communication system. The Company expended $370,000 during the third quarter of fiscal 2008 on this system. In addition, the prior year amounts were lower than normal as the Company was able to redeploy computers and software within the Company that had become available due to the restructuring events that took place during the fourth quarter of fiscal 2006. The remaining capital expenditures are primarily related to purchases or upgrades of computer hardware and software used by the Company's development and support personnel.

The Company has continued to invest significantly in its new GRMŽ software suite, as well as software products in its core markets of Florida, Indiana and Ohio. Total research and development costs included in expense were $2.4 million for the three months ended January 31, 2008 compared to $2.1 million for the three months ended January 31, 2007. These investments were $6.2 million for the nine months ended January 31, 2008 compared to $6.0 million for the nine months ended January 31, 2007. These amounts include $319,000 and $89,000 of software amortization expense for the three months ended January 31, 2008 and 2007, respectively, and $987,000 and $906,000 for the nine months ended January 31, 2008 and 2007, respectively. Software amortization expense is included in cost of revenues. In addition, the Company capitalized approximately $770,000 of software costs in accordance with FASB Statement No. 86 for the three months ended January 31, 2008 compared to $523,000 for the three months ended January 31, 2007 and $2.3 million for the nine months ended January 31, 2008 compared to $1.6 million for the nine months ended January 31, 2007. The increase in capitalized software is due to more of the Company's development personnel being dedicated to the GRMŽ suite of software.

The Company has applied for patents on its iFramework tool, which provides a shared technical platform for all Manatron software in the suite and is being built on Microsoft's .NET framework. A major goal is to produce a feature-rich suite of software that can be deployed across the Company's entire client-base and into new geography. The Company has proven that this can be done with its CAMA software as it is running in approximately 300 jurisdictions in over 20 states. Manatron's GRMŽ system is currently live in Gwinnett County, Georgia; Bonneville County, Idaho; Canyon County, Idaho; Kootenai County, Idaho; Payette County, Idaho; Washington County, Idaho; Kenai Borough, Alaska; Boone County, Kentucky; Horry County, South Carolina; and the City of Virginia Beach, Virginia. Manatron GRMŽ implementations are underway in Sedgwick County, Kansas; the State of Minnesota; Washoe County, Nevada; Santa Fe, New Mexico; Beaufort County, South Carolina; Oconee County, South Carolina; Orangeburg County, South Carolina; Williamson County, Tennessee; and the City of Roanoke, Virginia. The iFramework toolset will allow the software to be more easily modified to include additional states as the Company enters new markets.

Since the Company's revenues are generated from contracts with local governmental entities, it is not uncommon for certain of its accounts receivable to remain outstanding for approximately three to four months, thereby having a negative impact upon cash flow.

Effective June 29, 2006, the Company amended its Credit Agreement with Comerica Bank. The amendment allowed the Company to borrow up to $10.0 million through April 1, 2007, after which point the amount available was reduced to $8.0 million. In addition, the Company's debt covenants were revised to account for its financial structure subsequent to the ASIX acquisition, which occurred on February 1, 2006. This agreement was renewed in August of 2007 for another year. As of January 31, 2008, the Company had approximately $2.9 million of borrowings outstanding under this credit agreement and was in compliance with the applicable covenants.

The Company anticipates that its line of credit, together with its existing cash balances and cash generated from future operations will be sufficient for the Company to meet its working capital requirements for at least the next 12 months.

The Company has executed several seller financed notes payable in connection with its recent acquisitions with the following maturities outstanding at January 31, 2008:

                          Fiscal 2008     Fiscal 2009     Fiscal 2010
                          ------------   -------------   -------------

  VisiCraft Systems, Inc.  $        --    $    267,875    $         --

  ASIX Inc.                         --         200,000         200,000

  Hart InterCivic, Inc.      1,285,257              --              --
                          -- ---------   -- ----------   -- ----------

   Total                   $ 1,285,257    $    467,875    $    200,000
                          -- ---------   -- ----------   -- ----------

On October 9, 2006, the Board of Directors authorized the Company to repurchase up to $1.0 million of the Company's common stock over the subsequent 12 months. The Company repurchased 7,130 shares under this program during the nine months ended January 31, 2008 at a price of $8.98 per share totaling $64,000.

The Company cannot precisely determine the effect of inflation on its business. The Company continues, however, to experience relatively stable costs for its inventory as the computer hardware market is very competitive. Inflationary price increases related to labor and overhead will have a negative effect on the Company's cash flow and net income to the extent that they cannot be offset through improved productivity and price increases.

Off-Balance Sheet Arrangements

The Company does not have any significant off-balance sheet arrangements that are reasonably likely to have a current or future effect on its financial condition, results of operations, liquidity, capital expenditures or capital resources.