FORWARD-LOOKING STATEMENTS

This report on Form 10-Q contains forward-looking statements relating to our future financial performance, business strategy, financing plans and other future events that involve uncertainties and risks. You can identify these statements by forward-looking words such as "anticipate," "intend," "plan," "continue," "could," "grow," "may," "potential," "predict," "strive," "will," "seek," "estimate," "believe," "expect," and similar expressions that convey uncertainty of future events or outcomes. Any forward-looking statements we make herein are pursuant to the safe harbor provision of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include statements concerning future:

• results of operations;

• liquidity, cash flow and capital expenditures;

• demand for and pricing of our products and services;

• acquisition activities and the effect of completed acquisitions;

• industry conditions and market conditions; and

• general economic conditions.

Although we believe that the goals, plans, expectations, and prospects that our forward-looking statements reflect are reasonable in view of the information currently available to us, those statements are not guarantees of performance. There are many factors that could cause our actual results to differ materially from those anticipated by forward-looking statements made herein. These factors include, but are not limited to, continuing economic uncertainty, the timing and degree of business recovery, unpredictability and the irregular pattern of future revenues, competitive pressures, delays and other risks associated with new product development, the challenges and risks associated with integration of acquired product lines and companies, the effect of competitive products and pricing, the difficulty of predicting the effectiveness and duration of third-party marketing agreements, undetected software errors, and risks associated with market acceptance of our products and services. The terms "fiscal 2009" and "fiscal 2008" refer to our fiscal years ending April 30, 2009 and 2008, respectively.

ECONOMIC OVERVIEW

Corporate capital spending trends and commitments are the primary determinants of the size of the market for business software. Corporate capital spending is, in turn, a function of general economic conditions in the U.S. and abroad and in particular may be affected by conditions in U.S. and global credit markets. In recent years, the weakness in the overall world economy and the U.S. economy in particular, has resulted in reduced expenditures in the business software market.

Overall information technology spending continues to be relatively weak as a result of the current global economic environment particularly in the United States. We believe, over the long term, information technology spending should incrementally improve as increased global competition forces companies to improve productivity by upgrading their technology systems. Although this improvement could slow or regress at any time due in part to the recent concerns in the global capital markets and general economic conditions, we believe that our organizational and financial structure will enable us to take advantage of any sustained economic rebound. Customers continue to take long periods to evaluate discretionary software purchases.

BUSINESS OVERVIEW

We provide supply chain management (SCM) solutions to streamline and optimize the market planning, management, production and distribution of products for manufacturers, suppliers, distributors and retailers. The supply chain refers to the complex network of business relationships with trading partners (customers, suppliers and carriers) used to forecast, source, manufacture, store, and deliver products and services to multiple locations and customers by various modes of transportation. Supply chain operations include forecasting, demand management, supply planning, sourcing, manufacturing, logistics, warehouse management, and transportation operations within an enterprise as well as with other business-to-business collaborative processes among customers, suppliers and carriers. Our solutions enable enterprises to increase their market visibility, build competitive advantages and increase profitability by reducing costs, increasing revenues, improving operational efficiencies and collaborating with suppliers and customers to more effectively respond to dynamic market conditions. Additionally, our solutions streamline and automate the executive Sales and Operations Planning (S&OP) process to create and assess business plans that profitably match supply with demand while synchronizing supply chain operations with strategic corporate goals.

We derive revenues primarily from three sources: software licenses, services and other, and maintenance. We generally determine software license fees based on the number of modules, servers, users and/or sites licensed. Services and other revenues consist primarily of fees from software implementation, training, and consulting services. We bill primarily under time and materials arrangements and recognize revenues as we perform services. Maintenance agreements typically are for a one- to three-year term,

usually commencing at the time of the initial product license. We generally bill maintenance fees annually in advance under agreements with terms of one to three years, and then recognize the resulting revenues ratably over the term of the maintenance agreement. Deferred revenues represent advance payments or billings for software licenses, services and maintenance billed in advance of the time we recognize the related revenues.

Our cost of revenues for licenses includes amortization of capitalized computer software development costs, salaries and benefits and value added reseller (VAR) commissions. Costs for maintenance and services revenues include the cost of personnel to conduct implementations, customer support and consulting, and other personnel related expenses as well as agent commission expenses related to maintenance revenues generated by the indirect channel.

We account for the development costs of software intended for sale in accordance with SFAS No. 86, "Accounting for Costs of Computer Software to be Sold, Leased, or Otherwise Marketed." We monitor the net realizable value of our capitalized software quarterly based on an estimate of future product revenues. We currently expect to fully recover the value of the capitalized software asset recorded on our consolidated balance sheet; however, if future product revenues are less than management's current expectations, we may incur a write-down of capitalized software costs.

Gross product research and development costs include all non-capitalized and capitalized software development costs which principally include the salary and benefits for our development personnel. Our selling expenses generally include the salary and commissions we pay to our direct sales professionals, along with marketing, promotional, travel and associated costs. Our general and administrative expenses generally include the salary and benefits we pay to executive, corporate and support personnel, as well as office rent, utilities, communications expenses, and various professional fees.

We currently view the following factors as the primary opportunities and risks associated with our business:

Dependence on Capital Spending Patterns. There is risk associated with our dependence on, and the risks associated with, the capital spending patterns of U.S. and international businesses, which in turn are functions of economic trends and conditions over which we have no control.

Acquisition Opportunities. There are opportunities for select acquisitions or investments to expand our sales distribution channels and/or broaden our product offering by providing additional solutions for our target markets.

Acquisition Risks. There are risks associated with acquisitions of complementary companies, products and technologies, including the risks that we will not achieve the financial and strategic goals that we contemplate at the time of the transaction. More specifically, in any acquisition we will face risks and challenges associated with the uncertain value of the acquired business or assets, the difficulty of assimilating operations and personnel, integrating acquired technologies and products and maintaining the loyalty of the customers of the acquired business.

Competitive Technologies. There is a risk that our competitors may develop technologies that are substantially equivalent or superior to our technology.

Competition in General. There are risks inherent in the market for business application software and related services, which has been and continues to be intensely competitive; for example, some of our competitors may become more aggressive with their prices and/or payment terms, which may adversely affect our profit margins.

A discussion of a number of additional risk factors associated with our business is included in our Annual Report on Form 10-K for the fiscal year ended April 30, 2008.

COMPARISON OF RESULTS OF OPERATIONS

Three-Month Comparisons. The following table sets forth certain revenue and
expense items as a percentage of total revenues and the percentage changes in
those items for the three months ended October 31, 2008 and 2007:



                                                      Percentage of Total          Pct. Change in
                                                            Revenues                  Dollars
                                                      2008            2007          2008 vs 2007
Revenues:
License                                                   31 %            31 %                 (4 )%
Services and other                                        13              18                  (32 )
Maintenance                                               56              51                    2

Total revenues                                           100             100                   (6 )

Cost of revenues:
License                                                   14              14                   (2 )
Services and other                                         8               9                  (23 )
Maintenance                                               12              11                   -

Total cost of revenues                                    34              34                   (7 )

Gross margin                                              66              66                   (5 )

Operating expenses:
Research and development                                  17              18                   (7 )
Less: Capitalizable software                              (5 )            (6 )                (18 )
Sales and marketing                                       21              22                   (7 )
General and administrative                                11              12                  (13 )
Amortization of acquisition-related intangibles            1               1                   -

Total operating expenses                                  45              47                   (7 )

Operating income                                          21              19                   -
Other income, net                                          0               5                   nm

Earnings before income taxes                              21              24                  (18 )
Income tax expense                                         6               9                  (35 )

Net earnings                                              15 %            15 %                 (7 )%

nm - not meaningful

Six-Month Comparisons. The following table sets forth certain revenue and expense items as a percentage of total revenues and the percentage changes in those items for the six months ended October 31, 2008 and 2007:

                                                      Percentage of Total          Pct. Change in
                                                            Revenues                  Dollars
                                                      2008            2007          2008 vs 2007
Revenues:
License                                                   26 %            35 %                (35 )%
Services and other                                        15              18                  (27 )
Maintenance                                               59              47                    6

Total revenues                                           100             100                  (14 )

Cost of revenues:
License                                                   14              14                  (13 )
Services and other                                         9               9                  (17 )
Maintenance                                               12              10                    5

Total cost of revenues                                    35              33                   (9 )

Gross margin                                              65              67                  (16 )

Operating expenses:
Research and development                                  18              17                   (7 )
Less: Capitalizable software                              (5 )            (5 )                (11 )
Sales and marketing                                       24              21                   (3 )
General and administrative                                12              11                  (10 )
Amortization of acquisition-related intangibles            1               1                   -

Total operating expenses                                  50              45                   (5 )

Operating income                                          15              22                  (39 )
Investment impairment                                     -               -                    nm
Other income, net                                          1               4                  (80 )

Earnings before income taxes                              16              26                  (45 )
Income tax expense                                         6              11                  (57 )

Net earnings                                              10 %            15 %                (36 )%

REVENUES:

OVERVIEW: For the three and six months ended October 31, 2008, the 6% and 14% decrease in revenues from the three and six months ended October 31, 2007, respectively, was primarily attributable to decreases in services and other and license fees partially offset by an increase in maintenance revenues. The primary reasons for these decreases were lower license fees sales in recent periods as a result of the poor economic environment, which resulted in lower implementation services billing and license fee sales when compared to the same periods last year. We believe that in recent quarters economic and industry conditions have become more difficult resulting in delayed software purchases. International revenues represented approximately 15% and 17% of total revenues for the three and six months ended October 31, 2008, respectively, and 16% of total revenues for the three and six months ended October 31, 2007. Our revenues, and particularly our international revenues, may fluctuate substantially from period to period primarily because we derive most of our license fee revenues from a relatively small number of customers in a given period. No single customer accounted for more than 10% of our total revenues in the three and six months ended October 31, 2008 and 2007.

LICENSES. The 4% and 35% decreases in license fees in the three and six months ended October 31, 2008, respectively, compared to the same periods last year were primarily the result of a more difficult selling environment. In particular, the financial crisis that emerged during the three month period ended October 31, 2008 has interfered with customers' normal sources of financing and has greatly increased the level of uncertainty about future economic conditions. The direct sales channel provided approximately 48% and 43% of license fee revenues for the three and six months ended October 31, 2008, respectively, compared to approximately 52% and 56% of license fee revenues for the three and six months ended October 31, 2007, respectively. These decreases were due primarily to improved sales execution from our indirect channel. For the three and six months ended October 31, 2008, our margins after commissions on direct sales were approximately 89% and 87%, respectively, compared to approximately 79% and 84%, respectively, for the three and six months ended October 31, 2007. For the three and six months ended October 31, 2008, our margins after commissions on indirect sales were approximately 49% and 50%, respectively, compared to 50% for the three and six months ended October 31,2007. These margin calculations include only commission expense for comparative purposes and do not include other costs of license fees such as amortization of capitalized software.

SERVICES AND OTHER. The 32% and 27% decreases in services and other revenues for the three and six months ended October 31, 2008, respectively, from the corresponding periods in the previous fiscal year, were primarily the result of a decrease in overall software implementation project work as a result of decreased license fee sales in recent quarters. We have observed that there is a tendency for services and other revenues to lag changes in license revenues by one to three quarters, as new licenses in one quarter often involve implementation and consulting services in subsequent quarters, for which we recognize revenues only as we perform those services.

MAINTENANCE. The 2% and 6% increases in maintenance revenues for the three and six months ended October 31, 2008, respectively, compared to the corresponding periods in the previous fiscal year, were primarily the result of license fees sales in the recent quarters and improved customer retention on maintenance support. Typically, our maintenance revenues have had a direct relationship to current and historic license fee revenues, since new licenses are the potential source of new maintenance customers.

GROSS MARGIN:

The following table provides both dollar amounts and percentage measures of
gross margin:



                                              Three months ended October 31,               Six months ended October 31,
($000's omitted)                            2008                     2007                 2008                   2007
Gross margin on license fees:            $     1,786     55 %     $     1,879   55 %   $     2,543     48 %    $  4,922   61 %
Gross margin on services and other:              597     43 %           1,016   50 %         1,264     43 %       2,006   50 %
Gross margin on maintenance:                   4,560     78 %           4,429   78 %         9,179     79 %       8,624   79 %

Total gross margin:                      $     6,943     66 %     $     7,324   66 %   $    12,986     65 %    $ 15,552   67 %

For the three and six months ended October 31, 2008, the total gross margin percentages were approximately the same as the corresponding periods last year.

LICENSES. The gross margin percentage on license fees for the three months ended October 31, 2008 were unchanged when compared to the same period in the prior year, as our license fee revenues decreased only slightly. The gross margin percentage on license fees for the six months ended October 31, 2008 decreased due to the decrease in license fee sales when compared to the same period in the prior year. License fee gross margin percentage tends to be directly related to the level of license fee revenues due to the relatively fixed cost of computer software amortization expense and amortization of acquired software, which are the primary components of cost of license fees. To a lesser degree, our license fee gross margin percentage in a given period is related to the variable expense of DMI's agent commissions, and the proportion of license fees represented by DMI in that period.

SERVICES AND OTHER. For the three months and six months ended October 31, 2008, services gross margin percentage decreased due primarily to lower implementation billings resulting in lower staff utilization rates when compared to the same period in the prior fiscal year. Services and other gross margin normally are directly related to the level of services and other revenues. The primary component of cost of services and other revenues is services staffing, which is relatively fixed in the short term.

MAINTENANCE. For the three and six months ended October 31, 2008, maintenance gross margin percentage was relatively consistent when compared to the same period in the periods last year.

OPERATING EXPENSES:

RESEARCH AND DEVELOPMENT. Gross product research and development costs include
all non-capitalized and capitalized software development costs. A breakdown of
the research and development costs is as follows:



                                                         Three months ended ($000's omitted)
                                                October 31,           Percent            October 31,
                                                    2008              Change                2007
Gross product research and development
costs                                           $      1,803                 (7 )%      $       1,948
Percentage of total revenues                              17 %                                     17 %
Less: Capitalized computer software
research and development costs                  $       (516 )              (18 )%      $        (630 )
Percentage of gross product research and
development costs                                         29 %                                     32 %

Product research and development expenses       $      1,287                 (2 )%      $       1,318

Percentage of total revenues                              12 %                                     12 %
Total amortization of capitalized computer
software development costs *                    $        585                 (8 )%      $         638

                                                         Six Months Ended ($000's omitted)
                                                  October 31,         Percent         October 31,
                                                      2008            Change             2007
Gross product research and development costs      $      3,574              (7 )%    $       3,825
Percentage of total revenues                                18 %                                17 %
Less: Capitalized computer software research
and development costs                             $     (1,022 )           (11 )%    $      (1,155 )
Percentage of gross product research and
development costs                                           29 %                                30 %

Product research and development expenses         $      2,552              (4 )%    $       2,670

Percentage of total revenues                                13 %                                12 %
Total amortization of capitalized computer
software development costs *                      $      1,161              (9 )%    $       1,275

* These expenses are included in cost of license fees

For the three and six months ended October 31, 2008, gross product research and development costs and capitalized software development costs decreased when compared to the prior year period due to timing of project work and lower variable compensation costs. We expect capitalized product development costs to be lower in coming quarters as a result of fewer capitalizable R&D projects in the pipeline. However, we expect capitalized software amortization expense to remain relatively consistent when compared to the current quarter for the remainder of fiscal 2009.

SALES AND MARKETING. For the three and six months ended October 31, 2008, as a result of lower variable compensation and marketing costs, sales and marketing expenses were $2.2 million and $4.7 million, respectively, which were 7% and 3% lower, respectively, when compared to the three and six months ended October 31, 2007. We generally include commissions on indirect sales in cost of sales.

GENERAL AND ADMINISTRATIVE. For the three and six months ended October 31, 2008, general and administrative expenses were $1.1 million and $2.4 million, respectively. For the three and six months ended October 31, 2008, general and administrative expenses were lower primarily due to decreases in employee variable compensation expense when compared to the same periods in the prior years. As of October 31, 2008 and 2007, the numbers of employees were approximately 132 and 144, respectively.

AMORTIZATION OF ACQUISITION-RELATED INTANGIBLE ASSETS. Acquisition-related intangible assets of DMI are stated at historical cost and include certain intangible assets with definite lives. We are amortizing these intangible assets on a straight-line basis over their expected useful lives of three to six years.

OTHER INCOME:

Other income is principally comprised of investment earnings. For the three and six months ended October 31, 2008, our other income decreased by approximately $475,000 and $728,000, respectively, when compared to the same periods last year due primarily to lower investment yields resulting from a decrease in money market yields by the US Federal Reserve. This was partially offset by an increase in the average cash balance. For the three and six months ended October 31, 2008, these investments generated an annualized yield of approximately 1.73% and 1.62%, respectively, compared to approximately 4.98% and 5.09%, respectively, for the three and six months ended October 31, 2007.

INCOME TAXES:

We are included in the consolidated federal income tax return filed by American Software; however, we provide for income taxes as if we were filing a separate income tax return. We recognize deferred tax assets and liabilities for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their tax bases. We measure deferred tax assets and liabilities using statutory tax rates in effect in the year in which we expect the differences to reverse. We establish a deferred tax asset for the expected future benefit of net operating loss and credit carry-forwards. Under Statement of Financial Accounting Standards No. 109 ("SFAS No. 109"), Accounting for Income Taxes, we cannot recognize a deferred tax asset for the future benefit of our net operating losses, tax credits and temporary differences unless we can establish that it is "more likely than not" that we would realize the deferred tax asset. We recorded . . .