UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWASHINGTON, D.C. 20549

FORM 10-Q

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

For the
Quarterly Period Ended September 30, 2007

Commission
file number 000-25959

Goldleaf Financial Solutions,
Inc.(Exact name of registrant as
specified in its charter)

|****Tennessee****                                                        |  | ****62-1453841****                            
|------------------------------------------------------------------------ |  | ----------------------------------------------
|**(State or other jurisdiction of incorporation
      or organization)** |  | **(I.R.S. Employer Identification
      No.)**
|                                                                         |  |                                               
|****9020
      Overlook Blvd., Brentwood,
      Tennessee****            |  | ****37027****                                 
|**(Address of principal executive
      offices)**                       |  | (Zip
      Code)                              

(615)
221-8400(Registrants telephone
number, including area code)

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   x     No

Indicate by check mark whether the registrant is a large accelerated
filer, an accelerated filer, or a non-accelerated filer. See definition of
accelerated filer and large accelerated filer in Rule 12b-2 of the Exchange
Act. (Check one.)

Large accelerated
filer  o     Accelerated filer  o      Non-accelerated
filer  x

Indicate by check mark
whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act).

Yes   o     No   x

Indicate the number of
shares outstanding of each of the issuers classes of common stock, as of the
latest practical date.

|Class                            |  | Outstanding as of October 31,
      2007
|-------------------------------- |  | ----------------------------------------
|Common Stock,
      no par value |  | 17,279,315
      Shares                 

---

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GOLDLEAF FINANCIAL SOLUTIONS, INC.
Form 10-QFor Quarter Ended
September 30, 2007 INDEX

|                                         | Page No.                                            
|---------------------------------------- | ----------------------------------------------------
|Part I
                                 | Financial Information                               
|                                         | Item 1                                              
|                                         |                                                     
|                                         |                                                     
|                                         |                                                     
|                                         |                                                     
|                                         | Notes to Unaudited Consolidated Financial Statements
|                                         | Item
    2                                          
|                                         | Item 3                                              
|                                         | Item 4T                                             
|                                        
|Part II                                 | Other Information                                   
|                                         | Item 1A                                             
|                                         | Item 6                                              
|Signatures                               |                                                     
|EX-31.1 SECTION 302 CERTIFICATION OF CEO |                                                     
|EX-31.2 SECTION 302 CERTIFICATION OF CFO |                                                     
|EX-32.1 SECTION 906 CERTIFICATION OF CEO |                                                     
|EX-32.2 SECTION 906 CERTIFICATION OF CFO |                                                     

2

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GOLDLEAF FINANCIAL SOLUTIONS, INC.
AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS-UNAUDITED

|                                                                                                           | **September
      30,**                     |         | **December
      31,**
|---------------------------------------------------------------------------------------------------------- | ------------------------------------------- | ------- | ----------------------
|                                                                                                           | **2007**                                    |         | **2006**              
|                                                                                                           | **(in thousands, except
      share data)**
|Assets                                                                                                     |                                             |         |                       
|Current
      Assets:                                                                                      |                                             |         |                       
|Cash and cash equivalents                                                                                  | $                                           | 725     |                       
|Restricted cash                                                                                            |                                             | 4,355   |                       
|Accounts receivable trade, net of allowance
      for doubtful accounts of $407 and $396, respectively    |                                             | 8,141   |                       
|Accounts receivable other                                                                                 |                                             | 4       |                       
|Inventory                                                                                                  |                                             | 390     |                       
|Deferred tax assets                                                                                        |                                             | 1,256   |                       
|Investment in direct financing leases                                                                      |                                             | 2,335   |                       
|Prepaid and other current assets                                                                           |                                             | 2,934   |                       
|Total current assets                                                                                       |                                             | 20,140  |                       
|                                                                                                          
|Property and Equipment, net                                                                                |                                             | 3,793   |                       
|Operating Lease
      Equipment, net                                                                       |                                             | 26      |                       
|Other Assets:                                                                                              |                                             |         |                       
|Software development costs, net                                                                            |                                             | 4,189   |                       
|Deferred tax assets                                                                                        |                                             | 2,821   |                       
|Investment in direct financing leases, net of current
      portion                                        |                                             | 2,888   |                       
|Intangible and other assets, net                                                                           |                                             | 14,590  |                       
|Goodwill                                                                                                   |                                             | 32,631  |                       
|Total other assets                                                                                         |                                             | 57,119  |                       
|Total assets                                                                                               | $                                           | 81,078  |                       
|                                                                                                          
|Liabilities and Stockholders Equity                                                                       |                                             |         |                       
|Current
      Liabilities:                                                                                 |                                             |         |                       
|Accounts payable                                                                                           | $                                           | 2,375   |                       
|Accrued liabilities                                                                                        |                                             | 2,504   |                       
|Deferred revenue                                                                                           |                                             | 4,902   |                       
|Customer deposits                                                                                          |                                             | 4,301   |                       
|Current portion of capital lease
      obligations                                                         |                                             | 414     |                       
|Current portion of non-recourse lease notes payable                                                        |                                             | 1,835   |                       
|Note payable                                                                                               |                                             |        |                       
|Total current liabilities                                                                                  |                                             | 16,331  |                       
|Revolving Line of Credit                                                                                   |                                             | 10,000  |                       
|Non-Recourse Lease Notes Payable, net of current portion                                                   |                                             | 2,923   |                       
|Deferred Revenue                                                                                           |                                             | 1,179   |                       
|Capital Lease
      Obligations, net of current portion                                                    |                                             | 645     |                       
|Other Non-Current Liabilities                                                                              |                                             | 796     |                       
|Total liabilities                                                                                          |                                             | 31,874  |                       
|                                                                                                          
|Commitments and Contingencies                                                                              |                                             |         |                       
|                                                                                                          
|Stockholders Equity:                                                                                      |                                             |         |                       
|Common stock, no par value; 100,000,000 shares authorized; shares
      issued and outstanding, 17,279,316 |                                             |         |                       
|and
      17,023,948, respectively.                                                                        |                                             |        |                       
|Additional paid-in capital                                                                                 |                                             | 68,214  |                       
|Accumulated deficit                                                                                        |                                             | (19,010 | )                     
|Total stockholders equity                                                                                 |                                             | 49,204  |                       
|Total liabilities and stockholders
      equity                                                           | $                                           | 81,078  |                       

The accompanying notes are an integral
part of these consolidated financial statements.

3

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GOLDLEAF FINANCIAL SOLUTIONS, INC.
AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS 
UNAUDITEDFor the Three Months Ended
September 30, 2007 and 2006

|                                                         | **2007**                        |        | **2006**
|-------------------------------------------------------- | ------------------------------- | ------ | --------
|                                                         | **(in thousands,
      except**
|                                                         | **per share
      data)**      
|Revenues:                                                |                                 |        |         
|Financial institution services                           | $                               | 11,560 |         
|Retail inventory management services                     |                                 | 2,040  |         
|Other products and services                              |                                 | 743    |         
|Total revenues                                           |                                 | 14,343 |         
|Cost of
      Revenues:                                  |                                 |        |         
|Financial institution services                           |                                 | 2,330  |         
|Retail inventory management services                     |                                 | 211    |         
|Other products and services                              |                                 | 516    |         
|Gross
      profit                                       |                                 | 11,286 |         
|Operating Expenses:                                      |                                 |        |         
|General and administrative                               |                                 | 5,272  |         
|Selling and marketing                                    |                                 | 4,290  |         
|Research and development                                 |                                 | 610    |         
|Amortization                                             |                                 | 572    |         
|Other operating expense, net                             |                                 | 13     |         
|Total operating expenses                                 |                                 | 10,757 |         
|Operating
      Income                                   |                                 | 529    |         
|Interest Expense, Net                                    |                                 | (256   | )       
|Income Before
      Income Taxes                         |                                 | 273    |         
|Income tax expense                                       |                                 | 181    |         
|Net
      Income                                         |                                 | 92     |         
|Preferred stock dividends                                |                                 |       |         
|Net Income
      (Loss) Available to Common Stockholders | $                               | 92     |         
|Income (Loss) Per Share:                                 |                                 |        |         
|Basic                                                    | $                               | 0.01   |         
|Diluted                                                  | $                               | 0.01   |         
|Weighted
      Average Common Shares Outstanding:        |                                 |        |         
|Basic                                                    |                                 | 17,279 |         
|Diluted                                                  |                                 | 17,297 |         

The accompanying notes are an integral
part of these consolidated financial statements.

4

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GOLDLEAF FINANCIAL SOLUTIONS, INC.
AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS 
UNAUDITEDFor the Nine Months Ended
September 30, 2007 and 2006

|                                                  | **2007**                        |        | **2006**
|------------------------------------------------- | ------------------------------- | ------ | --------
|                                                  | **(in thousands,
      except**
|                                                  | per share data)                
|Revenues:                                         |                                 |        |         
|Financial institution services                    | $                               | 33,240 |         
|Retail inventory management services              |                                 | 6,158  |         
|Other products and services                       |                                 | 2,737  |         
|Total revenues                                    |                                 | 42,135 |         
|Cost of
      Revenues:                           |                                 |        |         
|Financial institution services                    |                                 | 6,421  |         
|Retail inventory management services              |                                 | 626    |         
|Other products and services                       |                                 | 1,986  |         
|Gross
      profit                                |                                 | 33,102 |         
|Operating Expenses:                               |                                 |        |         
|General and administrative                        |                                 | 15,774 |         
|Selling and marketing                             |                                 | 13,676 |         
|Research and development                          |                                 | 1,576  |         
|Amortization                                      |                                 | 1,745  |         
|Other operating expense, net                      |                                 | 27     |         
|Total operating expenses                          |                                 | 32,798 |         
|Operating
      Income                            |                                 | 304    |         
|Interest Expense, Net                             |                                 | (570   | )       
|Loss Before
      Income Taxes                    |                                 | (266   | )       
|Income tax benefit                                |                                 | (82    | )       
|Net
      Loss                                    |                                 | (184   | )       
|Preferred stock dividends                         |                                 |       |         
|Net Loss
      Available to Common Stockholders   | $                               | (184   | )       
|Loss Per Share:                                   |                                 |        |         
|Basic                                             | $                               | (0.01  | )       
|Diluted                                           | $                               | (0.01  | )       
|Weighted
      Average Common Shares Outstanding: |                                 |        |         
|Basic                                             |                                 | 17,275 |         
|Diluted                                           |                                 | 17,275 |         

The accompanying notes are an integral
part of these consolidated financial statements.

5

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GOLDLEAF FINANCIAL SOLUTIONS, INC.
AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS  UNAUDITEDFor the Nine Months Ended September
30, 2007 and 2006

|                                                                                      | 2007           |         | **2006**
|------------------------------------------------------------------------------------- | -------------- | ------- | --------
|                                                                                      | (in thousands)
|Cash Flows From Operating Activities:                                                 |                |         |         
|Net loss                                                                              | $              | (184    | )       
|Adjustments to reconcile net loss to net cash provided by operating
      activities: |                |         |         
|Write-off of
      debt issuance costs                                                |                |        |         
|Depreciation and amortization                                                         |                | 3,347   |         
|Depreciation on
      fixed assets under operating leases                             |                | 25      |         
|Deferred taxes                                                                        |                | 582     |         
|Amortization of
      debt issuance costs and discount                                |                | 90      |         
|Stock compensation expense                                                            |                | 116     |         
|Deferred gain on
      land sale                                                      |                | (11     | )       
|Loss on write-down or disposal of fixed assets                                        |                | 19      |         
|Amortization of
      lease income and initial direct costs                           |                | (544    | )       
|Gain on sale of leased equipment                                                      |                | (57     | )       
|Gain on sale of
      other assets                                                    |                |        |         
|Changes in assets and liabilities, net of acquisitions:                               |                |         |         
|Accounts receivable                                                                   |                | (896    | )       
|Prepaid and other current assets                                                      |                | (418    | )       
|Other non-current assets                                                              |                | (108    | )       
|Inventory                                                                             |                | 42      |         
|Accounts payable                                                                      |                | (1,125  | )       
|Accrued liabilities                                                                   |                | (1,073  | )       
|Deferred revenue                                                                      |                | (48     | )       
|Other non-current liabilities                                                         |                | 290     |         
|Net cash
      provided by operating activities                                       |                | 47      |         
|Cash Flows From Investing Activities:                                                 |                |         |         
|Acquisition of
      businesses, net of cash acquired                                 |                | (10,389 | )       
|Investment in direct financing leases                                                 |                | (886    | )       
|Lease
      receivables collected                                                     |                | 2,811   |         
|Proceeds from lease terminations                                                      |                |        |         
|Proceeds
      received from sale of other assets                                     |                |        |         
|Additions to property and equipment                                                   |                | (1,741  | )       
|Additions to
      intangibles and other assets                                       |                | (12     | )       
|Additions to software development costs                                               |                | (1,635  | )       
|Payments
      received on notes receivable                                           |                | 20      |         
|Net cash used in investing activities                                                 |                | (11,832 | )       

 Continued - .

6

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GOLDLEAF FINANCIAL SOLUTIONS, INC.
AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS  UNAUDITEDFor the Nine Months Ended September
30, 2007 and 2006 - Continued -

|                                                                                                        | 2007               |        | **2006**
|------------------------------------------------------------------------------------------------------- | ------------------ | ------ | --------
|                                                                                                        | **(in thousands)**
|Cash Flows From Financing Activities:                                                                   |                    |        |         
|Repayments on
      long-term debt                                                                      | $                  |       |         
|Repayments on capital lease obligations                                                                 |                    | (262   | )       
|Proceeds from
      amended and restated debt facility with Bank of America,                            |                    |        |         
|net of issuance costs of $543                                                                           |                    |       |         
|Proceeds from revolving line of credit, net                                                             |                    | 7,500  |         
|Repayments of
      note payable                                                                        |                    | (150   | )       
|Repayments of non-recourse lease financing notes payable                                                |                    | (2,240 | )       
|Proceeds from
      non-recourse lease financing notes payable                                          |                    | 895    |         
|Receipt of dividends previously paid                                                                    |                    |       |         
|Repurchase of
      common stock                                                                        |                    |       |         
|Proceeds from exercise of employee stock options                                                        |                    | 54     |         
|Expenses related
      to Secondary Offering                                                            |                    | (47    | )       
|Stock issued through employee stock purchase plan                                                       |                    |       |         
|Net cash
      provided by financing activities                                                         |                    | 5,750  |         
|                                                                                                       
|Net Change in
      Cash and Cash Equivalents                                                           |                    | (6,035 | )       
|Cash and Cash Equivalents at beginning of period                                                        |                    | 6,760  |         
|Cash and Cash
      Equivalents at end of period                                                        | $                  | 725    |         
|                                                                                                       
|Supplemental
      Cash Flow Information:                                                               |                    |        |         
|Cash payments for income taxes during period                                                            | $                  | 198    |         
|Cash payments of
      interest during period                                                           | $                  | 486    |         
|                                                                                                       
|Non-cash
      Investing Activities:                                                                    |                    |        |         
|Issuance of 62,953 common shares as purchase consideration in the
      Goldleaf Technologies, Inc. and |                    |        |         
|P.T.C. Banking acquisitions                                                                             | $                  |       |         
|Issuance of note
      payable to Goldleaf executive for signing bonus                                  | $                  |       |         
|Payment-in-kind on Series A preferred stock dividend                                                    | $                  |       |         
|Payment-in-kind
      on Series C preferred stock dividend                                              | $                  |       |         

The accompanying notes are an integral
part of these consolidated financial statements.

7

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GOLDLEAF FINANCIAL SOLUTIONS,
INC.NOTES TO CONSOLIDATED FINANCIAL
STATEMENTSUNAUDITED

A. The Company

Goldleaf
Financial Solutions, Inc. (we or the Company) is a provider of a suite of
technology-based products and services that assist community financial
institutions to serve their customers, improve their operational efficiencies,
enhance their competitive position, increase their profitability and satisfy
regulatory requirements. We provide our solutions primarily on an outsourced
basis, which enables our clients to obtain advanced products without having to
incur substantial capital expense and hire the skilled personnel required to
develop, implement, update and maintain their internal systems. In addition to
the suite of solutions we offer to community financial institutions, we also
offer products and services to small and medium sized businesses engaged in the
retail sector.

B. Summary of Significant Accounting
Policies

*Basis of Presentation*

The
accompanying unaudited consolidated financial statements have been prepared in
accordance with accounting principles generally accepted in the United States of
America for interim financial reporting and in accordance with Rule 10-01 of
Regulation S-X.

In the
opinion of management, the unaudited interim financial statements contained in
this report reflect all adjustments, consisting of only normal recurring
accruals, which are necessary for a fair presentation of the financial position,
and the results of operations for the interim periods presented. The results of
operations for any interim period are not necessarily indicative of results for
the full year.

These
consolidated financial statements, footnote disclosures and other information
should be read in conjunction with the consolidated financial statements and
notes thereto included in our Annual Report on Form 10-K for the year ended
December 31, 2006.

*Principles of
Consolidation*

The
accompanying financial statements include the accounts of Goldleaf Financial
Solutions, Inc. and its wholly-owned subsidiaries. All significant intercompany
balances and transactions have been eliminated in consolidation.

Our
significant accounting policies include revenue recognition, software
development costs, income taxes, acquisition accounting, and accounting for
long-lived assets, intangible assets, and goodwill. Please refer to our critical
accounting policies as described in Part II, Item 7, Managements Discussion
and Analysis of Financial Condition and Results of Operations, in our Annual
Report on Form 10-K for the year ended December 31, 2006 for a more detailed
description of these accounting policies.

*Income Taxes*

On January
1, 2007, the Company adopted the Financial Accounting Standards Board (FASB)
Interpretation No. 48 (FIN No. 48)Accounting for Uncertainty in Income Taxes, which is an interpretation of SFAS No. 109,Accounting for Income Taxes. FIN No.
48 requires a company to evaluate all uncertain tax positions and assess whether
it is more likely than not that a tax position will be sustained upon
examination, including resolution of any related appeals or litigation
processes, based on the technical merits of the position. Adoption of FIN No. 48
resulted in an accrual of approximately $456,000 related to uncertain tax
positions, which were previously accrued as contingent liabilities, thus there
was no cumulative adjustment to retained earnings. These uncertain tax
positions, if recognized, would not have an effect on the effective tax rate.

During the
quarter ended June 30, 2007, a new uncertain tax position was identified. As a
result, the Company recorded an additional $217,000 reserve relating to the new
uncertain tax position, which has been incorporated into the Companys overall
effective annual tax rate in the accompanying consolidated statements of
operations, resulting in an effective tax rate of 68.3%. The Companys overall
statutory rate at September 30, 2007 was 38.5% which was the rate applied to the
deferred tax asset balances. In addition, during the quarter ended September 30,
2007, the Company resolved one of the uncertain tax positions and reversed the
$137,000 reserve previously accrued as a contingent liability. Therefore, the
Companys accrual for uncertain tax positions totaled $536,000 at September 30,
2007. The Company has elected to classify interest associated with uncertain tax
positions as interest expense in the accompanying consolidated statements of
operations. Additionally, penalties associated with uncertain tax positions will
be classified as income tax expense in the accompanying consolidated statements
of operations. There were no penalties and interest accrued as of January 1,
2007. For the three and nine months ended September 30, 2007, interest expense
for uncertain tax positions totaled $11,000 and $23,000, respectively.

We file
income tax returns in the U.S. federal jurisdiction and various state
jurisdictions. We are no longer subject to U.S. federal tax examinations for any
returns before 2004. State jurisdictions that remain subject to examination
range from 2001 to 2006.

*Stock-Based Compensation*

As of
September 30, 2007, there was $2.0 million of total forfeiture adjusted
unrecognized compensation cost related to unvested share-based compensation
arrangements. We expect to recognize this cost over a weighted-average period of
3.0 years.

Share-based
compensation expense lowered pre-tax income by $101,000 and $181,000 for the
three month periods ended September 30, 2007 and 2006, respectively, and
$116,000 and $521,000 for the nine month periods ended September 30, 2007 and
2006, respectively.

During the
quarter ended September 30, 2007, the Company granted 819,000 common stock
options. The weighted-average grant date fair value of options granted during
the three months ended September 30, 2007 and 2006 was $2.93 and $4.20,
respectively and $2.99 and $4.25 for the nine month periods ended September 30,
2007 and 2006, respectively. The total fair value of stock options that vested
during the three months and nine months ended September 30, 2007 was $0 and
$1,612, respectively. The total intrinsic value of stock options exercised
during the three months and nine months ended September 30, 2007 was $106 and
$24,901, respectively.

8

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C. Reclassifications

Certain
prior year amounts have been reclassified to conform with the current year
presentation. The Company has reclassified certain cost of revenues from
financial institution service fees to other products and services to better
correlate with the Companys revenue categories.

D. Acquisitions

*Assets of DataTrade,
LLC*

On May 1,
2007, the Company acquired certain operating assets and liabilities of
DataTrade, LLC (DataTrade), a Missouri limited liability company, for total
cash consideration of approximately $5.8 million, which was funded by the
Companys revolving line of credit. In addition to the consideration at closing,
the selling shareholders may be entitled to contingent consideration based on
the financial performance of the acquired business during the next twenty four
months. The operating results of DataTrade are included with those of the
Company beginning May 1, 2007. Pro forma financial results of DataTrade are not
required due to the size of the transaction. The transaction was accounted for
in accordance with SFAS No. 141, Business
Combinations. The preliminary purchase price
allocation is as follows:

|**(In
      thousands)**                                
|--------------------------------------------------------
|Purchase Price:                                         
|Cash                                                    
|Direct costs of acquisition                             
|                                                        
|Total purchase price                                    
|                                                        
|Value assigned to assets and liabilities:               
|Assets:                                                 
|Accounts receivable/Unbilled accounts receivable        
|Prepaid and
      other current assets                  
|Deferred tax assets                                     
|Property and
      equipment                            
|Customer list (estimated life of ten years)             
|Acquired
      technology (estimated life of five years)
|Goodwill/unidentified intangibles                       
|Liabilities:                                            
|Accounts payable                                        
|Accrued
      liabilities                               
|Deferred revenue                                        
|Total net
      assets                                  

The Company
continues to evaluate and value the identifiable intangible assets and
acquisition costs of DataTrade. The above preliminary purchase price allocation
was adjusted in the third quarter based on the results of this ongoing analysis.
The results of this ongoing analysis are reflected in the above purchase price
allocation and resulted in a net increase of $212,000 to goodwill for the three
months ended September 30, 2007.

9

---

*Assets of Community
Banking Systems, Ltd.*

On March 14,
2007, the Company executed an asset purchase agreement to acquire certain
operating assets and liabilities from Community Banking Systems, Ltd. (CBS),
in exchange for cash consideration of $4.8 million. In addition to the cash
consideration at closing, the selling shareholders may be entitled to contingent
consideration based on the financial performance of the business during the next
twenty four months. Simultaneous with the execution of the asset purchase
agreement, the Company entered into two-year employment agreements with two of
the principal officers of CBS. The operating results of CBS are included with
those of the Company beginning March 14, 2007. Pro forma financial results of
CBS are not required due to the size of the transaction. The transaction was
accounted for in accordance with SFAS No. 141, Business Combinations. The preliminary
purchase price allocation is as follows:

|****(In
      thousands)****                          
|------------------------------------------------------
|                                                      
|**Purchase Price:**                                   
|Cash                                                  
|Direct
      costs of acquisition                     
|                                                      
|Total
      purchase price                            
|                                                      
|Value assigned to assets and liabilities:             
|Assets:                                               
|Cash                                                  
|Accounts
      receivable/Unbilled accounts receivable
|Prepaid
      and other current assets                
|Deferred tax
      assets                             
|Property and equipment                                
|Customer list
      (estimated life of ten years)     
|Acquired technology (estimated life of five years)    
|Non-compete (estimated
      life of three years)     
|Goodwill/unidentified intangibles                     
|Liabilities:                                          
|Accounts payable                                      
|Accrued
      liabilities                             
|Deferred revenue                                      
|Total net assets                                      

The Company
continues to evaluate and value the identifiable intangible assets and
acquisition costs of CBS. The above preliminary purchase price allocation was
adjusted in the third quarter based on the results of this ongoing analysis. The
results of this ongoing analysis are reflected in the above purchase price
allocation, and resulted in a net increase of $206,000 to goodwill for the three
months ended September 30, 2007.

E. Net Income (Loss) Per
Share

Basic
earnings per share is computed by dividing net income (loss) available to common
shareholders by the weighted average number of common shares outstanding during
the period. Diluted earnings per share is computed by dividing net income (loss)
available to common shareholders by the weighted average number of common and
common equivalent shares outstanding during the period, which includes the
additional dilution related to outstanding stock options and warrants as
computed under the treasury stock method and the conversion of preferred stock
under the if-converted method.

The following table represents
information necessary to calculate earnings per share for the three and nine
months ended September 30, 2007 and 2006:

|                                                                  | **Three Months**         |        | **Nine
      Months**   
|----------------------------------------------------------------- | ------------------------ | ------ | ------------------------
|                                                                  | **Ended September 30**   |        | **Ended September 30**  
|                                                                  | **2007**                 |        | **2006**                
|                                                                  | **(in
      thousands)** |        | **(in
      thousands)**
|Net
      income (loss) available to common shareholders          | $                        | 92     |                         
|                                                                 
|Weighted average common shares outstanding - basic                |                          | 17,279 |                         
|Plus additional shares
      from common stock equivalent shares: |                          |        |                         
|Options                                                           |                          | 18     |                         
|Diluted weighted
      average common shares outstanding          |                          | 17,297 |                         

10

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For the nine
months ended September 30, 2007 and 2006, there were approximately 54,000
options and 5.9 million employee stock options, warrants and Series B preferred
shares, respectively, that were excluded from diluted earnings per share
calculations, as their effects were anti-dilutive.

F. Legal Proceedings

The Company
is not currently a party to, and none of our material properties is currently
subject to, any material litigation that the Company believes could have a
material effect on its financial condition.

G. Segment Information

The Company
presents segment information in accordance with SFAS No. 131, Disclosures
about Segments of an Enterprise and Related Information. Corporate overhead
costs and interest have not been allocated to income before taxes of the retail
inventory management services segment. As such, the disclosure below includes
gross profit by segment.

The
following tables summarize the financial information concerning the Companys
reportable segments as of and for the three and nine months ended September 30,
2007 and 2006.

|                                                            | **Three Months Ended September 30, 2007**      |        | **Three Months Ended September 30,
      2006**
|----------------------------------------------------------- | ---------------------------------------------- | ------ | -----------------------------------------------
|                                                            |                                                |        | **Retail**                                     
|                                                            | **Financial**                                  |        | **Inventory**                                  
|                                                            | **Institution**                                |        | **Management**                                 
|                                                            | **Services**                                   |        | **Services**                                   
|                                                            | (In thousands)                                
|Revenues                                                    | $                                              | 12,303 |                                                
|Gross
      Profit                                          | $                                              | 9,457  |                                                
|Total expenditures for
      additions to long-lived assets | $                                              | 808    |                                                
|                                                           
|                                                            | **Nine Months Ended September 30,
      2007** |        | **Nine Months Ended September 30,
      2006** 
|                                                            |                                                |        | **Retail**                                     
|                                                            | **Financial**                                  |        | **Inventory**                                  
|                                                            | **Institution**                                |        | **Management**                                 
|                                                            | **Services**                                   |        | **Services**                                   
|                                                            | (In thousands)                                
|Revenues                                                    | $                                              | 35,977 |                                                
|Gross
    Profit                                            | $                                              | 27,570 |                                                
|Assets                                                      | $                                              | 77,786 |                                                
|Total expenditures for
      additions to long-lived assets | $                                              | 3,376  |                                                
|Goodwill                                                    | $                                              | 30,561 |                                                

Total gross profit by segment reconciles
to operating income as follows:

|                               | **Three Months**         |         | **Nine
      Months**   
|------------------------------ | ------------------------ | ------- | ------------------------
|                               | **Ended September 30**   |         | **Ended September 30**  
|                               | **2007**                 |         | **2006**                
|                               | **(in
      thousands)** |         | **(in
      thousands)**
|Gross
      Profit             | $                        | 11,286  |                         
|Less: Operating
      Expenses |                          | (10,757 | )                       
|Operating Income               | $                        | 529     |                         

11

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

Note Regarding Forward Looking
Information

This report
contains forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934.
These statements relate to future economic performance, plans and objectives of
management for future operations and projections of revenues and other financial
items that are based on the beliefs of our management, as well as assumptions
made by, and information currently available to, our management. The words
expect, estimate, anticipate, believe, and similar expressions are
intended to identify forward-looking statements. We make forward-looking
statements in Items 2 and 3 of Part I and in Item 1A of Part II of this report.
Some of the forward-looking statements relate to our intent, belief or
expectations regarding our strategies and plans for operations and growth. Other
forward-looking statements relate to trends affecting our financial condition
and results of operations and our anticipated capital needs and expenditures.
These statements involve risks, uncertainties and assumptions, including
industry and economic conditions, competition and other factors discussed in
this and our other filings with the SEC. These forward-looking statements are
not guarantees of future performance and involve risks and uncertainties, and
actual results may differ materially from those that are anticipated in the
forward-looking statements. Other forward-looking statements relate to trends
affecting our financial condition and results of operations and our anticipated
capital needs and expenditures. See Part II, Item 1A, Risk Factors below, for
a description of some of the important factors that may affect actual outcomes.

For these
forward-looking statements, we claim the protection of the safe harbor for
forward-looking statements contained in the Private Securities Litigation Reform
Act of 1995. You should not place undue reliance on the forward-looking
statements, which speak only as of the date of this report. All subsequent
written and oral forward-looking statements attributable to us or any person
acting on our behalf is expressly qualified in their entirety by the cautionary
statements contained or referred to in this section. We undertake no obligation
to publicly update or revise any forward-looking statements, whether as a result
of new information, future events or otherwise.

Overview

We provide a
suite of technology-based products and services that assist community financial
institutions in their efforts to compete more effectively with larger regional
and national financial institutions. We believe that community financial
institutions, which have traditionally competed on personalized service, are
facing increasing challenges to improve their operating efficiencies and grow
their customer base. These challenges include:

- growing competition with larger national and regional
  banks;
- the emergence of non-traditional
  competitors;
- the compression of margins on traditional
  products;
- the convergence of financial products into a single
  institution; and
- legislative changes accelerating the need for financial
  institutions to offer a wider range of products and services to their
  customers.

We believe
that these competitive pressures are particularly acute for community financial
institutions, which in many instances lack the substantial capital and
specialized personnel to address their technology needs internally. Our
solutions enable our clients to focus on their core competencies while we assist
them in addressing their product and technology needs. We provide our solutions
primarily on an outsourced basis.

The
financial technology industry is currently characterized by significant
acquisition activity, the introduction of new product and service offerings for
financial institutions and an increased emphasis on security of customer data.
We believe that these trends may result in greater opportunities for providers
of financial technology.

Historically, we have generated our revenues primarily from participation
fees, software licenses fees, maintenance fees and insurance brokerage fees
derived from BusinessManager, our accounts receivable financing solution, and
from fees associated with our retail inventory management services product. For
the three and nine months ended September 30, 2007, we derived approximately 39%
and 40%, respectively, of our consolidated revenues from BusinessManager
and approximately 14% and 15%, respectively, of our consolidated revenues from
retail inventory management services. We expect to continue to generate a
substantial portion of our revenues from these sources during the remainder of
2007. In recent years, our revenues from BusinessManager and retail inventory
management services have declined from year-to-year, and this trend may
continue. Partly as a result of the performance of our BusinessManager and
retail inventory management services businesses, in December 2005 we broadened
our focus to providing a suite of solutions primarily to community financial
institutions. In connection with this shift in strategy we acquired the
following companies during 2006:

- Captiva, which added core data processing as well as image
  and item processing;
- P. T. C. , which added teller automation systems;
  and
- Goldleaf Technologies, which added ACH processing, remote
  capture processing, and website design and hosting.

In early 2007, we have continued to
broaden our product offerings with the acquisitions of:

- Community Banking Systems, which added check imaging, report
  archival, and document imaging; and
- DataTrade, LLC, which added data conversion services, remote
  deposit, report management, interactive voice response, and
  checkscan.

We now offer
products and services to approximately 2,800 community financial institution
relationships, which gives us an opportunity to cross-sell our full range of
products and services across this client base.

12

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Revenues

We generate revenue from three main
sources:

- financial institution services;
- retail inventory management services; and
- other products and services.

***Financial Institution
Services***

Financial institution services
include:

- participation fees and insurance brokerage
  fees;
- core data processing and image processing
  fees;
- software license and maintenance fees;
- ACH origination and processing fees;
- remote capture and deposit processing fees;
- leasing revenues;
- financial institution website design and hosting
  fees;
- check imaging;
- report archival;
- document imaging;
- data conversion services;
- merchant and branch capture;
- report management; and
- voice response.

Participation Fees, Insurance Brokerage Fees and Maintenance Fees from
Our Accounts Receivable Financing Solution.We derive revenue from two types of participation fees. First, we earn a fee
during the first 30 days after a client financial institution implements our
solution and purchases accounts receivable from its small business customers.
Second, we earn an ongoing participation fee from subsequent purchases of
accounts receivable by the client. Both types of fees are based on a percentage
of the accounts receivable that the client purchases during each month, with the
second type of fee being a smaller percentage of the accounts receivable
purchased. Insurance brokerage fees are derived from the sale of credit and
fraud insurance products issued by a third-party national insurance company. We
earn fees based on a percentage of the premium paid to the insurance company. We
recognize these commission revenues when our financial institution clients
purchase the accounts receivable covered by credit and fraud insurance
policies.

Core Data
Processing and Image Processing Fees.We
generate support and service fees from implementation services, from ongoing
support services to assist the client in operating the systems and to enhance
and update the software processing and from providing outsourced core data
processing services. We derive revenues from outsourced item and core data
processing services from monthly usage fees, typically under multi-year
contracts with our clients.

Software
License and Maintenance Fees.We receive
software license fees from the sale of software associated with our accounts
receivable financing solutions and our core data processing solution. Software
license fees for our accounts receivable financing solutions consist of two
components: a license fee and a client training and support fee. We receive
these one-time fees on the initial licensing of our program to a client
financial institution. Our license agreements have terms ranging from three to
five years and are renewable for subsequent terms. We generate annual software
maintenance fees from our client financial institutions. We license our core
data processing product under standard license agreements that typically provide
the client with a non-exclusive, non-transferable right to use the software. We
generate annual software maintenance fees from our client financial institutions
starting on the first anniversary of the core data processing license agreement
and annually thereafter.

ACH
Origination and Processing, Remote Capture and Deposit Processing
Fees.We license these products via up-front
fees to financial institutions at the time of execution of the agreements, which
are typically five-year contracts. We recognize these up-front fees when we
complete customer implementation, which typically occurs within the first thirty
days after contract execution. We also generate monthly fees for hosting
services from each originator of ACH transactions, and we receive fees for each
ACH transaction that occurs each month. We offer annual hosting and maintenance
support to all of our financial institution clients for a fee that is generally
equal to 16% to 20% of the up-front license fees.

13

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Leasing
Revenues.Subsequent to our acquisition of
KVI Capital in August 2005, we began to offer equipment leasing services to some
of our clients. We have no credit risk exposure for these leases. Our leases
fall into two categories: direct financing leases and operating leases. For
direct financing leases, the investment in direct financing leases caption
consists of the sum of the minimum lease payments due during the remaining term
of the lease and unguaranteed residual value of the leased asset. We record the
difference between this sum and the cost of the leased asset as unearned income.
We amortize unearned income over the lease term so as to produce a constant
periodic rate of return on the net investment in the lease. For leases
classified as operating leases, we record the leased asset at cost and
depreciate the leased asset. We record lease payments as rent income during the
period earned.

Financial
Institution Website Design and Hosting Fees.We offer website design and hosting services to financial institutions, although
we do not host any confidential bank data on our servers. The revenues we
generate for these services consist of up-front fees associated with the design
and implementation of each website and monthly hosting fees for hosting each
website in our data center.

Document
Imaging.We offer document management
products to help banks and corporations organize and archive masses of business
information. Imaging software is offered as a network-based system for scalable
document imaging, scanning, and storage solutions. We earn license fees from the
sale of software as well as installation and training fees. These fees are
recognized as revenue upon completion of the installation of the software. We
also generate annual software maintenance fees upon the installation completion.

Data
Conversion Services.We provide digital to
digital conversion and migration services for document images, check images,
computer reports (C.O.L.D) and data. We charge a fee per volume count of data to
be converted. We recognize revenue for these services upon completion of the
conversion and delivery of the converted data.

Merchant
and Branch Capture. With our acquisition of
DataTrade, we also offer Merchant Capture as a remote deposit application that
provides a banks commercial customers a means to capture check images, make
electronic deposits, and improve treasury operations. Additionally, our remote
deposit solutions provide banks with branch capture and a full function
lockbox/remittance application. We license these products via up-front license
fees as well as installation, testing, and training fees. We recognize these
fees when installation is complete or as services are provided.

Report
Management and Voice Response Services.Our
report management software provides digital report storage and management
solutions to banks and corporations to securely store and retrieve digital
report information via network or web connectivity. Our voice response services
offer customers 24/7 access to information on all types of accounts to initiate
transactions, check on other products and services and receive statement and
invoice information through simple touchtone or speech commands. Similar to our
document imaging products, we earn license fees from the sale of software as
well as installation, implementation, testing, and training fees. We generate
annual software maintenance fees upon completion of the installation or as
services are provided.

***Retail Inventory
Management Services***

We generate
retail inventory management services revenue from fees we charge primarily for
providing inventory merchandising and forecasting information for specialty
retail stores and ancillary services related to these products. We use
proprietary software to process sales and inventory transactions and provide the
merchandising forecasting information.

***Other Products and
Services***

We generate
revenues from scanner equipment and printer sales, charges for our deposit
acquisition direct mail program, hardware used with our document imaging and
report management products, sales of standard business forms used in our
BusinessManager program, and statement rendering and mailing.

Historically, we have derived a significant portion of our revenues from
fees associated with our accounts receivable financing solutions and retail
inventory management services. While we believe that our recent acquisitions and
product diversification will enable us to derive revenues from a broader mix of
products and services, we anticipate that revenues derived from our accounts
receivable solutions and inventory management services will continue to account
for a substantial portion of our revenues in 2007.

14

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Results of Operations

The following table provides, for
the periods indicated, the percentage relationship of the identified
consolidated statement of operations items to total revenues.

|                                     | **Three
      Months** |   | **Nine
      Months**
|------------------------------------ | ---------------------- | - | ---------------------
|                                     | Ended September 30,    |   | Ended September 30,  
|                                     | **2007**               |   | **2006**             
|Revenues:                            |                        |   |                      
|Financial institution services       | 80.6                   | % |                      
|Retail inventory management services | 14.2                   |   |                      
|Other products and services          | 5.2                    |   |                      
|Total Revenues                       | 100.0                  |   |                      
|Cost of
      Revenues:              |                        |   |                      
|Financial institution services       | 16.2                   |   |                      
|Retail inventory management services | 1.5                    |   |                      
|Other products and services          | 3.6                    |   |                      
|Total Cost of
      Revenues         | 21.3                   |   |                      
|Gross
      Profit                   | 78.7                   |   |                      
|Operating Expenses:                  |                        |   |                      
|General and administrative           | 36.8                   |   |                      
|Selling and marketing                | 29.9                   |   |                      
|Research and development             | 4.3                    |   |                      
|Amortization                         | 4.0                    |   |                      
|Other operating expense, net         | 0.1                    |   |                      
|Total Operating
      Expenses       | 75.1                   |   |                      
|Operating
      Income               | 3.6                    |   |                      
|Interest Expense, net                | (1.8                   | ) |                      
|Income (Loss) before
      Taxes     | 1.8                    |   |                      
|Income
      Tax Expense (Benefit)   | 1.2                    |   |                      
|Net Income
      (Loss)              | 0.6                    | % |                      

***Three and Nine Months
Ended September 30, 2007 Compared to Three and Nine Months Ended September 30,
2006***

Total
revenues for the three months ended September 30, 2007 decreased 1.2% to $14.3
million and for the nine month period ended September 30, 2007 revenues
increased 1.2% to $42.1 million as compared to $14.5 million and $41.6 million
for the comparable periods of 2006.

Financial
Institution Services.Financial institution
services increased 3.6% and 1.7% to $11.6 million and $33.2 million for the
three and nine month periods ended September 30, 2007 compared to $11.2 million
and $32.7 million for the comparable periods ended September 30, 2006.
Electronic processing revenue increased $1.4 million and $3.7 million for the
three and nine months periods ended September 30, 2007, respectively. The
increase is primarily attributable to revenues generated by the entities we
acquired during the current year, which totaled $347,000 and $662,000 for
products acquired through the acquisition of CBS and $668,000 and $956,000 for
products acquired through the acquisition of DataTrade for the three and nine
month periods ended September 30, 2007, respectively. These increases were
offset by decreases in financial lending revenues of $955,000 and $3.1 million
for the three and nine month periods ended September 30, 2007, respectively,
primarily due to declining funding volume with our Business Manager product. As
a percentage of total revenues, financial institution services revenues
accounted for 80.6% and 78.9%, respectively, for the three and nine months ended
September 30, 2007 compared to 76.9% and 78.5% for the comparable periods ended
September 30, 2006. Our BusinessManager product represented 38.7% and 40.1% of
total revenues, respectively, for the three and nine month periods ended
September 30, 2007 compared to 44.5% and 47.4%, respectively, for the prior year
periods.

Retail
Inventory Management Services.Retail
inventory management services (RMSA) revenues totaled $2.0 million and $6.2
million for the three and nine months ended September 30, 2007 as compared
to $2.0 million and $6.1 million for the three and nine months ended September
30, 2006. As a percentage of total revenues, retail inventory management
services accounted for 14.2% and 14.6% for the three and nine month periods
ended September 30, 2007 as compared to 14.0% and 14.8% for the comparable
periods of 2006.

Other
Products and Services.Revenues from other
products and services decreased 44.0% and 2.7% to $743,000 and $2.7 million for
the three and nine month periods ended September 30, 2007 compared to $1.3
million and $2.8 million for the comparable periods of 2006. Other products and
services include the sale of equipment associated with our remote capture and
ACH products and hardware for our report management, merchant and branch
capture, and imaging software products. For the three months ended September 30,
2007, the decrease in revenue is primarily due to a decline in scanner equipment
sales, which is a result of increased sales for the comparable prior year period
due to a supplier backlog during the first half of 2006 that was remedied during
the three month period ended September 30, 2006. For the nine months ended
September 30, 2007, the decrease in revenue is due to a decline in scanner
equipment sales, which was partially offset by revenues from the CBS and
DataTrade acquisitions. Revenues from other products and services accounted for
5.2% and 6.5% of total revenues for the three and nine months ended September
30, 2007 compared to 9.1% and 6.7% for the comparable periods of
2006.

15

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Cost of
Revenues  financial institution services.Cost of revenues for financial institution services increased 36.2% and
27.0% to $2.3 million and $6.4 million for the three and nine months ended
September 30, 2007 compared to $1.7 million and $5.1 million for the comparable
periods of 2006. Of this increase, $266,000 and $460,000, for the three and nine
month periods respectively, relate to the 2007 acquisitions of CBS and
DataTrade. Additionally, costs associated with our electronic processing product
and our deposit acquisition efforts increased by approximately $425,000 and $1.2
million, respectively, for the three and nine months ended September 30, 2007.
These increases were partially offset by decreases of $100,000 and $315,000,
respectively, in software development amortization for the three and nine month
periods ended September 30, 2007 due to mature software development project
costs becoming fully amortized. As a percentage of total revenues, cost of
revenues for financial institution services increased to 16.2% and 15.2% for the
three and nine months ended September 30, 2007 compared to 11.8% and 12.1% for
the comparable periods of 2006.

Cost of
Revenues  retail inventory management services.Cost of revenues related to retail inventory management services totaled
$211,000 for the three month period ended September 30, 2007 and decreased 9.7%
to $626,000 for the nine month period ended September 30, 2007, which compares
to $210,000 and $693,000 for the comparable periods of 2006. The nine month
decrease is primarily due to lower salary and benefit expenses as a result of
reduced headcount when compared to the prior period. As a percentage of total
revenues, cost of sales for retail inventory management services was 1.5% for
both the three and nine month periods ended September 30, 2007 compared to 1.4%
and 1.7% for the comparable periods of 2006.

Cost of
Revenues  other products and services.Cost
of revenues related to other products and services decreased 47.5% to $516,000
and increased by less than 1% to $2.0 million for the three and nine month
periods ended September 30, 2007, which compares to $984,000 and $2.0 million,
respectively, for the comparable periods of 2006. The decline for the three
month period is primarily related to reduced scanner sales and other hardware
associated with our deposit acquisition efforts. As a percentage of total
revenues, cost of revenues for other products and services decreased to 3.6% and
4.7% for the three and nine months ended September 30, 2007 compared to 6.8% and
4.8% for the comparable periods of 2006.

General
and Administrative.General and
administrative expenses increased 3.3% and 4.8% to $5.3 million and $15.8
million for the three and nine months ended September 30, 2007 compared to $5.1
million and $15.1 million for the comparable periods of 2006. General and
administrative expenses include the cost of our executive, finance, human
resources, information and support services, administrative functions and
general operations. The increase for the nine month period is primarily due to
the severance charges of $579,000 for the former president of GTI and other
employee terminations. Additionally, the increase is attributable to the
increased salary expense relating to new employees acquired with our 2007
acquisitions, offset by a reduction in discretionary bonus expense for the nine
month period ended September 30, 2007. The remaining increase for the nine
months ended September 30, 2007 relates to increases in accounting expenses
associated with the Companys ongoing Sarbanes-Oxley compliance efforts. As a
percentage of total revenues, general and administrative expenses increased to
36.8% and 37.4% for the three and nine months ended September 30, 2007 compared
to 35.2% and 36.2% for the comparable periods of 2006.

Selling
and Marketing.Selling and marketing expenses
decreased 2.9% and 4.2% to $4.3 million and $13.7 million for the three and nine
months ended September 30, 2007 compared to $4.4 million and $14.3 million for
the comparable periods of 2006. Selling and marketing expenses include cost of
wages and commissions paid to our sales force, travel costs of the sales force,
recruiting for new sales and marketing personnel and marketing fees associated
with direct and telemarketing programs. The decrease was primarily due to a
decline in commission expense due to lower revenues associated with our
financial lending products. As a percentage of total revenues, selling and
marketing expenses were 29.9% and 32.5% for the three and nine months ended
September 30, 2007 compared to 30.5% and 34.3% for the comparable periods of
2006.

Research
and Development.Research and development
expenses increased 74.8% and 87.6% to $610,000 and $1.6 million for the three
and nine months ended September 30, 2007 compared to $349,000 and $840,000 for
the three and nine months ended September 30, 2006. Research and development
expenses include the non-capitalizable direct costs associated with developing
new versions of our software, as well as other software development projects
that, in accordance with GAAP, we do not capitalize. The increase was primarily
due to the level of research and development activities for our electronic
processing products. As a percentage of total revenues, research and development
expenses increased to 4.3% and 3.7% for the three and nine months ended
September 30, 2007 compared to 2.4% and 2.0% for the three and nine months ended
September 30, 2006.

Amortization.Amortization expense
decreased 11.6% and 0.1% to $572,000 and $1.7 million for the three and nine
months ended September 30, 2007 compared to $647,000 and $1.7 million for the
three and nine months ended September 30, 2006. These expenses include the
expense associated with amortizing intangible assets, including identified
intangibles recorded in connection with our 2007 acquisitions. The decrease for
the three month period is due to reduced intangibles for the GTI acquisition in
February 2006 as part of the Companys purchase price analysis. As a percentage
of total revenues, amortization expense decreased to 4.0% and 4.1% for the three
and nine months ended September 30, 2007 compared to 4.5% and 4.2% for the three
and nine months ended September 30, 2006.

Other
Operating Expense, Net.Other operating
expense, net for the three and nine months ended September 30, 2007 totaled
$13,000 and $27,000, respectively, compared to $9,000 and $133,000 for the
comparable periods ended September 30, 2006. The nine month decrease is
primarily due to an approximate $118,000 charge related to the write-off of debt
issuance costs associated with an amendment to a prior debt facility on January
23, 2006.

Operating
Income.As a result of the above factors, the
Company generated operating income of $529,000 and $304,000, respectively, for
the three and nine months ended September 30, 2007, compared to operating income
of $1.1 million and $1.9 million, respectively, for the three and nine months
ended September 30, 2006. As a percentage of total revenue operating income was
3.6% and 0.8% for the three and nine months ended September 30, 2007 as compared
to 7.3% and 4.4% for the three and nine months ended September 30, 2006,
respectively.

Interest
Expense, Net.Interest expense, net,
decreased 70.6% and 76.7% to $256,000 and $570,000 for the three and nine months
ended September 30, 2007 compared to $871,000 and $2.4 million for the three and
nine months ended September 30, 2006. The decrease for the nine months ended
September 30, 2007 is primarily due to a decline in average debt outstanding in
both the third quarter and first nine months of 2007 as compared to the same
periods of 2006. Our average debt outstanding for the first nine months of 2007
was approximately $8.5 million compared to approximately $18.4 million for the
first nine months of 2006, as a significant recapitalization was accomplished in
October of 2006. For the three and nine month periods ended September 30, 2007,
interest expense included approximately $30,000 and $90,000 of debt issuance
cost amortization, respectively, as compared to the three and nine month periods
ended September 30, 2006 in which interest expense included approximately
$187,000 and $508,000 of debt issuance cost amortization.

16

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Income
Tax Expense (Benefit).We had an income tax
provision of $181,000 for the three months ended September 30, 2007 and an
income tax benefit of $82,000 for the nine months ended September 30, 2007
compared to an income tax provision of $80,000 and an income tax benefit of
$226,000, respectively, for the three months and nine months ended September 30,
2006. The income tax amount for the three months and nine months ended September
30, 2007 includes $217,000 of the $536,000 reserve relating to uncertain tax
positions, which is currently being recognized in the tax provision as a
component of the effective tax rate. Without this additional reserve, the
Companys effective tax rate is approximately 47.7% resulting in an income tax
expense for the three months ended September 30, 2007 of $130,000 and an income
tax benefit for the nine months ended September 30, 2007 of $127,000. We
currently anticipate our effective tax rate to be approximately 68.3% in 2007 as
compared to 38.7% in 2006.

Critical Accounting Policies

Please refer to our Form 10-K for
the year-ended December 31, 2006 for a complete discussion of our critical
accounting policies, except for the required adoption of FIN 48 on January 1,
2007, as discussed in footnote B of our Notes to Consolidated Financial
Statements - Unaudited included in this quarterly report.

Liquidity and Capital Resources

The following table sets forth the
elements of our cash flow statement for the following periods:

|                                                | **Nine Months
      Ended**
|----------------------------------------------- | ---------------------------
|                                                | **September
  30,**        
|                                                | **2007**                   
|Net
      cash provided by operating activities | $                          
|Net cash used in
      investing activities     |                            
|Net
      cash provided by financing activities |                            

***Cash from
Operating Activities***

Cash
provided by operations for the nine months ended September 30, 2007 totaling
$47,000 was primarily attributable to our operating results plus non-cash
depreciation and amortization expense of $3.4 million, offset by changes in accounts payable of $1.1 million, accrued
liabilities of $1.1 million, and accounts receivable of $896,000 during the nine
month period ended September 30, 2007.

***Cash from
Investing Activities***

Cash used in
investing activities for the nine months ended September 30, 2007 totaling $11.8
million which consisted primarily of business acquisitions, purchases of fixed
assets, and expenditures for software development costs. Total capital
expenditures, including software development costs, totaled $3.4 million for the
nine months ended September 30, 2007. These expenditures primarily related to
the purchase of computer equipment, computer software, and software development
activities. During the first nine months of 2007, we used approximately $4.6
million, net of cash acquired, to acquire the operating assets of Community
Banking Systems and $5.8 million to acquire the operating assets of DataTrade.
As compared to the first nine months of 2006, total cash used in investing
activities was $18.4 million consisting primarily of business acquisitions,
lease receivable collections, purchases of fixed assets and capitalization of
software development costs.

***Cash from
Financing Activities***

Cash from
financing activities primarily relates to borrowings from our credit facility
and repayments of non-recourse lease financing notes payable. During the first
nine months of 2007, net cash provided by financing activities was $5.8 million
and was attributable primarily to borrowings of $7.5 million from our amended
and restated syndicated credit facility, offset by $2.2 million in repayments on
non-recourse lease notes payable. For the first nine months of 2006, cash
provided by financing activities totaled $16.3 million, and was attributable
primarily to new borrowings of $15.5 million from our amended and restated
syndicated credit facility, net of $543,000 in debt issuance costs, as well as
the return of $500,000 in preferred dividends on the Series A preferred shares
for the fourth quarter of 2005, which were subsequently paid-in-kind during
2006.

***Analysis of
Changes in Working Capital***

As of
September 30, 2007, we had working capital of approximately $3.8 million
compared to working capital of approximately $5.7 million as of December 31,
2006. The change in working capital resulted primarily from a decrease in cash
of $6.0 million and an increase in accounts receivable of $2.0 million,
partially offset by decreases in accounts payable of $1.0 million and accrued
liabilities of $1.5 million and a $1.2 million increase in deferred revenue. The
decrease in cash and increases in accounts receivable and deferred revenue were
primarily the result of completing the acquisitions in 2007.

We believe
that the existing, non-restricted cash, future operating cash flows, and
availability from our amended and restated syndicated credit facility will be
sufficient to meet our working capital, debt service and capital expenditure
requirements for the next twelve months. Furthermore, we expect to be in
compliance with the financial covenants of our syndicated credit facility
throughout 2007. There can be no assurance that we will have sufficient cash
flows to meet our obligations or that we will remain in compliance with the new
covenants. Non-compliance with these covenants could have a material adverse
effect on our operating and financial results.

In the
future, we may acquire businesses or products that are complementary to our
business, although we cannot be certain that we will make any acquisitions. The
need for cash to finance additional working capital or to make acquisitions may
cause us to seek additional equity or debt financing. We cannot be certain that
financing will be available on terms acceptable to us or at all, or that our
need for higher levels of working capital will not have a material adverse
effect on our business, financial condition or results of operations.

17

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***Obligations and
Commitments for Future Payments as of September 30,
2007***

The following is a schedule of our
obligations and commitments for future payments as of September 30,
2007:

|                                         |  |                |        | **Payments Due by Period**
|---------------------------------------- |  | -------------- | ------ | --------------------------
|                                         |  |                |        | **Less**                  
|                                         |  |                |        | **Than**                  
|**Contractual
      Obligations**        |  | **Total**      |        | **1
      Year**          
|                                         |  | (In thousands)
|Revolving line of credit                 |  | $              | 10,000 |                           
|Capital lease
      obligations          |  |                | 1,166  |                           
|Non-recourse lease notes payable         |  |                | 4,758  |                           
|Operating leases                         |  |                | 4,275  |                           
|Total
      contractual cash obligations |  | $              | 20,199 |                           

***Credit
Agreement***

On November
30, 2006, we entered into a second amended and restated credit agreement with
Bank of America, N.A., Wachovia Bank, N.A., and The Peoples Bank of Winder. The
Second Amended and Restated Credit Agreement amends and restates in its entirety
the amended and restated credit agreement originally dated January 19, 2004, as
amended and restated on January 23, 2006 and as further amended on February 17,
2006, April 5, 2006, May 3, 2006, June 15, 2006, and August 31, 2006. In the
Second Amended and Restated Credit Agreement and the form of the Second Amended
and Restated Note the parties thereto agreed to certain changes from the
existing credit agreement, including the following:

- the credit facility was converted to a revolving
  credit facility in the amount of $40 million, an increase of $15 million over
  the previously existing credit facility;
- the maturity of the credit facility was extended
  from January 23, 2008 to November 30, 2009 with an option, conditioned upon
  the consent of the lenders, to extend the maturity for 12 additional
  months;
- the Funded Debt to EBITDA Ratio under the credit
  facility was increased from 2.25 (times) to 3 (times);
- Wachovia Bank, N.A. joined as a participant in the
  credit facility; and
- the limit on capital expenditures in the credit
  facility was increased from $3 million to $5 million per fiscal
  year.

Our
syndicated credit facility contains financial covenants, including the
maintenance of financial ratios and limits on capital expenditures. We are
required to maintain on a quarterly basis a ratio of Funded Debt (as defined in
the credit agreement and generally including all liabilities for borrowed money)
to EBITDA as defined in the debt agreement. We are required to maintain on a
quarterly basis a ratio of Funded Debt to EBITDA not exceeding 3:1. This ratio
is calculated (a) at the end of each fiscal quarter, using the results of the
twelve-month period ending with the fiscal quarter and after giving pro forma
effect, as defined in the debt agreement, to any acquisition made during such
period and (b) on the date of any borrowing under the credit facility, using
EBITDA for the most recent period and Funded Debt after giving pro forma effect
to such borrowing. We are also required to maintain for the 12-calendar month
period ending on the last day of each calendar quarter, a Fixed Charge Coverage
Ratio (as defined) of 2:1. In addition, we may not acquire fixed assets (other
than any equipment purchased by KVI Capital with proceeds of non-recourse loans)
having a value greater than $5.0 million during any 12-month period ending with
each fiscal quarter. The credit agreement also contains customary negative
covenants, including but not limited to a prohibition on declaring and paying
any cash dividends on any class of stock.

As of September 30, 2007, we were in
compliance with all restrictive financial and non-financial covenants contained
in the syndicated credit facility.

Off-Balance Sheet
Arrangements

As of September 30, 2007 and as of
the date of this report, we did not have any off-balance sheet arrangements as
defined by Item 303(a)(4) of Regulation S-K.

Recent Accounting
Pronouncements

*Income
Taxes*

On January
1, 2007, the Company adopted the Financial Accounting Standards Board (FASB)
Interpretation No. 48 (FIN No. 48) Accounting for Uncertainty in Income
Taxes, which is an interpretation of SFAS No. 109, Accounting for Income
Taxes. FIN No. 48 requires a company to evaluate all uncertain tax positions
and assess whether it is more likely than not that a tax position will be
sustained upon examination, including resolution of any related appeals or
litigation processes, based on the technical merits of the position. Adoption of
FIN No. 48 resulted in an accrual of approximately $456,000 related to uncertain
tax positions, which were previously accrued as contingent liabilities, thus
there was no cumulative adjustment to retained earnings. This uncertain tax
position, if recognized, would not have an effect on the effective tax
rate.

During the
quarter ended June 30, 2007, a new uncertain tax position was identified. As a
result, the Company recorded an additional $217,000 reserve relating to the new
uncertain tax position, which has been incorporated into the Companys overall
effective annual tax rate in the accompanying consolidated statements of
operations, resulting in an effective tax rate of 68.3%. The Companys overall
statutory rate at September 30, 2007 was 38.5% which was the rate applied to the
deferred tax asset balances. In addition, during the quarter ended September 30,
2007, the Company resolved one of the uncertain tax positions and reversed the
$137,000 reserve previously accrued as a contingent liability. Therefore, the
Companys accrual for uncertain tax positions totaled $536,000 at September 30,
2007. The Company has elected to classify interest associated with uncertain tax
positions as interest expense in the accompanying consolidated statements of
operations. Additionally, penalties associated with uncertain tax positions will
be classified as income tax expense in the accompanying consolidated statements
of operations. There were no penalties and interest accrued as of January 1,
2007. For the three and nine months ended September 30, 2007, interest expense
for uncertain tax positions totaled $11,000 and $23,000,
respectively.

18

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We file
income tax returns in the U.S. federal jurisdiction and various state
jurisdictions. We are no longer subject to U.S. federal tax examinations for any
returns before 2004. State jurisdictions that remain subject to examination
range from 2001 to 2006.

Seasonality

Historically, we have generally realized lower revenues and income in the
first quarter and, to a lesser extent, in the second quarter of each year. We
believe that this seasonal decline in revenues is primarily due to a general
slowdown in economic activity following the fourth quarters holiday season and,
more specifically, a decrease in the amount of accounts receivable that our
client financial institutions purchase. Therefore, we believe that
period-to-period comparisons of our operating results are not necessarily
meaningful and that you should not rely on that comparison as an indicator of
our future performance. Due to the relatively fixed nature of costs such as
personnel, facilities and equipment costs, a revenue decline in a quarter will
typically result in lower profitability for that quarter.

Inflation

We do not
believe that inflation has had a material effect on our results of operations.
There can be no assurance, however, that inflation will not affect our business
in the future.

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Item 3. Quantitative and Qualitative
Disclosures About Market Risk

We are
subject to market risk from exposure to changes in interest rates based on our
financing and cash management activities. Currently, our exposure relates
primarily to our borrowings under our amended and restated syndicated credit
facility, which accrue interest at LIBOR plus 1.375 basis points or the lenders
base rate (as defined), as we select. We are currently paying interest at an
average rate of 7.3% per annum. As of September 30, 2007, $10.0 million was
outstanding under this facility. Changes in interest rates that increase the
interest rate on the credit facility would make it more costly to borrow under
that facility and may impede our acquisition and growth strategies if we
determine that the costs associated with borrowing funds are too high to
implement those strategies. An increase or decrease of 1.0% in the interest rate
on the syndicated credit facility would increase or decrease, respectively, our
interest expense by approximately $100,000 per year.

Item 4T. Controls and Procedures

Based on our
managements evaluation, with the participation of our chief executive officer
and chief financial officer, as of September 30, 2007, the end of the period
covered by this report, our chief executive officer and chief financial officer
have concluded that our disclosure controls and procedures (as defined in Rule
13a-15(e) under the Securities Exchange Act of 1934, as amended, (the Exchange
Act)) were effective to ensure that information required to be disclosed by us
in reports that we file or submit under the Exchange Act is recorded, processed,
summarized and reported within the time periods specified in the rules and forms
of the SEC and is accumulated and communicated to our management, including our
chief executive officer and chief financial officer, as appropriate to allow
timely decisions regarding required disclosure.

There were
no changes in our internal control over financial reporting identified in the
evaluation that occurred during the third quarter of fiscal year 2007 that have
materially affected, or are reasonably likely to materially affect, our internal
control over financial reporting.

20

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Part II Other Information

Item 1A. Risk Factors

RISK FACTORS

This section
summarizes certain risks, among others, that shareholders and prospective
investors should consider. Many of these risks are discussed in other sections
of this report. If any of the following risks actually occurs, our business,
financial condition or results of operations could be materially adversely
affected. In such case, the trading price of our common stock could decline and
you may lose all or part of your investment. These risks are not the only ones
we face. Additional risks of which we are presently unaware or that we currently
consider immaterial may also impair our business operations and hinder our
financial performance.

Risks Related to Our Business

We generate a significant amount of our
revenues from our accounts receivable financing solution and our retail
inventory management services, and those revenues have declined in recent years.
If these trends continue, our financial performance may be materially and
adversely affected.

For the
three and nine months ended September 30, 2007, we derived approximately 39% and
40%, respectively of our consolidated revenues from participation fees, license
fees, insurance brokerage fees, and maintenance fees from BusinessManager, our
accounts receivable financing solution, and approximately 14% and 15%,
respectively, of our consolidated revenues from fees generated by RMSA, our
retail inventory management services product. We expect to continue to generate
a substantial portion of our revenues from BusinessManager and RMSA during 2007.
In recent years, our revenues from BusinessManager and RMSA have declined from
year-to-year. If our annual revenues from BusinessManager or RMSA continue to
decline or begin to decline more rapidly, we may not be able to generate
sufficient revenues from our other products or services to offset that decline.
In addition, we cannot be certain that we will be able to continue to
successfully market and sell BusinessManager to both financial institutions and
their small business customers or successfully market and sell our RMSA services
to small businesses. Our failure to do so, or any events that adversely affect
BusinessManager or RMSA, would materially and adversely affect our overall
business.

The loss of our chief executive officer
or other key employees could have a material adverse effect on our business.

Mr. Boggs,
our chief executive officer, has substantial experience in our industry.
Although we maintain key man life insurance on Mr. Boggs and we have an
employment agreement with him, our client and marketing relationships would
likely be impaired and our business would likely suffer if, for any reason, we
lost the services of Mr. Boggs. In addition, we believe that our success as a
combined company depends on the continued contribution of a number of our other
executive officers or key employees. The loss of services of any of these
individuals would similarly adversely affect our business.

Acquisitions could result in
integration difficulties, unexpected expenses, diversion of managements
attention and other negative consequences.

Our growth
strategy is partly based on making acquisitions. We plan to continue to acquire
complementary businesses, products and services. We must integrate the
technology, products and services, operations, systems and personnel of acquired
businesses, including our recent acquisitions, with our own and attempt to grow
the acquired businesses as part of our company. The integration of other
businesses is a complex process and places significant demands on our
management, financial, technical and other resources. The successful integration
of businesses we acquire is critical to our future success, and if we are
unsuccessful in integrating these businesses, our financial and operating
performance could suffer. The risks and challenges associated with acquisitions
include:

- the
  inability to centralize and consolidate our financial, operational and
  administrative functions with those of the businesses we acquire;
- our managements attention may be
  diverted from other business concerns;
- the inability to retain and motivate key employees
  of an acquired company;
- our entrance into markets in which we have little
  or no prior direct experience;
- the inability to prepare and file with the SEC in
  a timely manner the required financial statements of any businesses we
  acquire;
- litigation, indemnification claims and other
  unforeseen claims and liabilities that may arise from the acquisition or
  operation of acquired businesses;
- the costs necessary to complete integration
  exceeding our expectations or outweighing some of the intended benefits of the
  acquisitions we close;
- the inability to maintain the client relationships
  of an acquired business; and
- the costs necessary to improve or replace the
  operating systems, products and services of acquired businesses exceeding our
  expectations.

We may be
unable to integrate our acquisitions with our operations on schedule or at all.
We cannot assure you that we will not incur large accounting charges or other
expenses in connection with any of our acquisitions or that our acquisitions
will result in cost savings or sufficient revenues or earnings to justify our
investment in, or our expenses related to, these acquisitions. We may acquire
companies that have significant deficiencies or material weaknesses in their
internal control over financial reporting, which may cause us to fail to meet
our reporting obligations, cause our financial statements to contain material
misstatements and harm our business and operating results.

If we are unable to successfully
integrate the business operations of companies we acquire in the future into our
business operations, we will not realize the anticipated potential benefits from
these acquisitions and our business could be adversely affected.

Any future
acquisitions we complete will involve the integration of companies that have
previously operated independently and may be in markets that are new to us.
Successful integration of future acquired businesses with ours entails numerous
challenges and will depend on our ability to consolidate operations, systems and
procedures, eliminate redundancies and reduce costs. If we are unable to do so,
we will not realize any anticipated potential benefits of the acquisitions, and
our business and results of operations would be adversely affected.

If our goodwill or amortizable
intangible assets become impaired we may be required to record a significant
charge to earnings.Under generally accepted accounting principles, we
review our amortizable intangible assets for impairment annually and more
frequently when events or changes in circumstances indicate the carrying value
may not be recoverable. Factors that may be considered a change in circumstances
indicating that the carrying value of our goodwill or amortizable intangible
assets may not be recoverable include a decline in stock price and market
capitalization, reduced future cash flow estimates, and slower growth rates in
our industry. We may be required to record a significant charge to earnings in
our financial statements during the period in which any impairment of our
goodwill or amortizable intangible assets is determined, negatively impacting
our results of operations.

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Because our business involves the
electronic storage and transmission of data, security breaches and computer
viruses could expose us to litigation and adversely affect our reputation and
revenue.

Our online
transaction processing systems electronically store and transmit sensitive
business information of our clients. The difficulty of securely storing
confidential information electronically has been a significant issue in
conducting electronic transactions. We may be required to spend significant
capital and other resources to protect against the threat of security breaches
and computer viruses, or to alleviate problems caused by security breaches or
viruses. To the extent that our activities or the activities of our clients
involve the storage and transmission of confidential information, security
breaches and viruses could expose us to claims, litigation and other possible
liabilities. Any inability to prevent security breaches or computer viruses
could also cause existing clients to lose confidence in our systems and could
inhibit our ability to attract new clients.

As an
example of the risks of this nature that we faced in May 2006, our Goldleaf
Technologies division suffered an attempt to redirect its clients customers to
a phishing website to entice them to enter their personal financial information.
To ensure the security of the network, Goldleaf Technologies temporarily
suspended all Internet access to its website services. Although Goldleaf
Technologies does not host any personal data for its community financial
institution clients and consequently lost no data in the incident, the
interruption of service, the inconvenience to its clients and their customers,
the management time required to deal with the issue, and the potential loss of
personal data by consumers who may have been enticed to enter their information
on the false website have had and may continue to have an adverse effect on our
financial performance and business reputation.

If we experience losses, we could
experience difficulty meeting our business plan and our stock price could
decline.

We may not
be able to maintain our financial performance as we implement our business plan.
Any failure to achieve and maintain profitability could negatively affect the
market price of our common stock. If our revenues decline or grow slower than we
anticipate, or if our operating expenses exceed our expectations and cannot be
adjusted accordingly, our business operations and financial results will suffer.
We anticipate that we will incur significant product development,
administrative, and sales and marketing expenses. In light of these expenses,
any failure to increase revenues significantly may also harm our ability to
achieve and maintain profitability.

If we are unable to maintain or grow
our business, our operating results and financial condition would be adversely
affected.

In recent
years, revenues generated by our accounts receivable financing solution and
retail inventory management products and services have declined. We cannot
guarantee that our revenues will not continue to decline. If we are unable to
grow our business and revenues, our operating results and financial condition
would be adversely affected.

If we are unable to manage our growth,
our business and results of operations could be adversely affected.

Any new
sustained growth will place a significant strain on our management systems and
operational resources. We anticipate that new sustained growth, if any, will
require us to recruit, hire and retain new managerial, finance, sales, marketing
and support personnel. We cannot be certain that we will be successful in
recruiting, hiring or retaining those personnel. Our ability to compete
effectively and to manage our future growth, if any, will depend on our ability
to maintain and improve operational, financial and management information
systems on a timely basis and to expand, train, motivate and manage our work
force. If we begin to grow, we cannot be certain that our personnel, systems,
procedures and controls will be adequate to support our operations.

Our business significantly depends on a
productive sales force, and our sales force has experienced management and
employee turnover in recent years. If these problems recur, we may not be able
to achieve our sales plans or maintain our current level of sales.

An important
part of our sales strategy is to attract, hire and retain qualified sales and
marketing personnel to maintain and expand our marketing capabilities. Because
competition for experienced sales and marketing personnel is intense, we cannot
be certain that we will be able to attract and retain enough qualified sales and
marketing personnel or that those we do hire will be able to generate new
business at the rate we currently expect. In recent years, we have experienced a
significant amount of turnover in the management and personnel of our sales
force, which we believe has been a factor in our declining revenues from our
accounts receivable financing and retail inventory management products. If we
are unable to hire and retain enough qualified sales and marketing personnel, or
those we hire are not as productive as we expect, we may not be able to achieve
our sales plans or maintain our current level of sales.

Because we have a long sales and
implementation cycle for some of our solutions, we face the risk of not closing
sales after expending significant resources, which could materially and
adversely affect our business, financial condition and results of operations.

We must
expend substantial time, effort and money educating potential clients about the
value of some of our solutions, particularly our core data processing solution.
We may expend significant funds and management resources during the sales cycle
and ultimately fail to generate any revenues. For our core data processing
solution, our sales cycle generally ranges between six to nine months, and our
implementation cycle generally ranges between six to nine additional months.
Many of our other products require similarly long sales and implementation
cycles. Our sales cycle for all of our products and services is subject to
significant risks and delays over which we have little or no control, including:

our
clients budgetary constraints;

the
timing of our clients budget cycles and approval processes;

our
clients willingness to replace their current vendors;

the
success and continued support of our strategic marketing partners sales
efforts; and

the
timing and expiration of our clients current license agreements or outsourcing
agreements for similar services.

If we are
unsuccessful in closing sales after expending significant funds and management
resources or if we experience delays as discussed above, our business, financial
condition and results of operations will be materially and adversely affected.

Competition, restrictions under our
credit facility, market conditions and other factors may impede our ability to
acquire other businesses and may inhibit our growth.

We anticipate that we may derive a portion
of our future growth through acquisitions. The success of this strategy depends
on our ability to:

identify
suitable acquisition candidates;

reach
agreements to acquire these companies;

obtain
necessary financing on acceptable terms; and

successfully
integrate the operations of these businesses.

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In pursuing
acquisitions, we may compete with other companies that have similar growth
strategies. Many of these competitors are larger and have greater financial,
operational and technical resources than we have. This competition may inhibit
our ability to acquire businesses that could improve our growth or expand our
operations.

We may not be able to enter into and
successfully implement strategic alliances, which could limit our ability to
grow our business as we intend.

One element
of our growth strategy is to evaluate and pursue strategic alliances that are
complementary to our business. However, we may not be able to identify or
negotiate strategic alliances on acceptable terms. If we are not able to
establish and maintain strategic alliances, we may not be able to fully
implement our growth strategy. In addition, pursuing and implementing strategic
alliances may cause a significant strain on our management, operational and
financial resources that could have a material adverse effect on our results of
operations.

We may be unable to market our products
and services successfully to new client financial institutions or to retain
current client financial institutions. If we are unable to do so, our business
may be materially and adversely affected.

Our success
depends to a large degree on our ability to persuade prospective client
financial institutions to use our products. Failure to maintain market
acceptance, retain clients or successfully expand the products and services we
offer could adversely affect our business, operating results and financial
condition. We have spent, and will continue to spend, considerable resources
educating potential clients about our products and services. Even with these
educational efforts, however, we may be unable to grow or maintain market
acceptance of our products and services or retain our clients. In addition, as
we continue to offer new products and expand our services, existing and
potential client financial institutions or their small business customers may be
unwilling to accept the new products or services.

The failure to execute our growth plans
may affect our ability to remain a publicly traded company.

We intend to
grow organically and through acquisitions and strategic alliances. These growth
plans will require a substantial expenditure of time, money and other valuable
resources. Not only does this take resources away from our current business, but
we face the risk that our strategy will not ultimately be successful. In that
event, the continued costs associated with being a public company may outweigh
the anticipated organic growth of our current business, which could result in
our being delisted from the Nasdaq Global Market or engaging in a going private
transaction.

Our plans to expand the number of
products and services we offer may not be successful and may lower our overall
profit margin.

Part of our
business strategy is to expand our offering of products and services. We believe
that we can provide these new services profitably, but they may generate a lower
profit margin than our current products and services. As a result, by offering
additional products and services, we may lower our overall profit margin.
Although gross revenues would likely increase, the lowering of our profit margin
may be viewed negatively by the stock market, possibly resulting in a reduction
in our stock price.

We may be unable to compete in our
markets, which could cause us not to achieve our growth plans and materially and
adversely affect our financial performance.

The market
for community financial institutions and small business financial services is
highly competitive. We face primary competition from a number of companies that
offer to financial institutions products and services that are similar to ours,
and many of these competitors are much larger and have more resources than we
do. Community financial institution clients that offer BusinessManager, our
accounts receivable financing solution, compete with other financial
institutions and financing providers that offer lines of credit, amortizing
loans, factoring and other traditional types of financing to small businesses.
Many of these other financial institutions and financing providers are much
larger and more established than we are, have significantly greater resources,
generate more revenues and have greater name recognition. In addition, as we
expand our service offerings, we may begin competing against companies with whom
we have not previously competed. Increased competition may result in price
reductions, lower profit margins and loss of our market share, any of which
could have a material adverse effect on our business, operating results and
financial condition. Both our traditional and new competitors may develop
products and services comparable or superior to those that we have developed or
adapt more quickly to new technologies, evolving industry trends or changing
small business requirements.

We may be unable to protect our
proprietary technology adequately, which may have a material adverse effect on
our revenue, our prospects for future growth and our overall business.

Our success
depends largely upon our ability to protect our current and future proprietary
technology through a combination of copyright, trademark, trade secret and
unfair competition laws. Although we assess the advisability of patenting any
technological development, we have historically relied on copyright and trade
secret law, as well as employee and third-party non-disclosure agreements, to
protect our intellectual property rights. The protection afforded by these means
may not be as complete as patent protection. We cannot be certain that we have
taken adequate steps to deter misappropriation or independent development of our
technology by others. Although we are not currently subject to any dispute
regarding our proprietary technology, any claims of that nature brought or
resolved against us could have a material adverse effect on our business,
operating results and financial condition.

The Company depends on proprietary
technology licensed from third parties; if the Company loses these licenses, it
could delay shipments of products incorporating this technology and could be
costly.

The Company's products use some of the
technology that it licenses from third parties, generally on a nonexclusive
basis. The Company believes that there are alternative sources for each of the
material components of technology it licenses from third parties. However, the
termination of any of these licenses, or the failure of the third-party
licensors to adequately maintain or update their products, could delay the
Company's ability to ship these products while it seeks to implement technology
offered by alternative sources. Any required replacement licenses could prove
costly. Also, any delay, to the extent it becomes extended or occurs at or near
the end of a fiscal quarter, could harm the Company's quarterly results of
operations. While it may be necessary or desirable in the future to obtain other
licenses relating to one or more of the Company's products or relating to
current or future technologies, the Company cannot assure that it will be able
to do so on commercially reasonable terms or at all.

If our products or services are found
to infringe the proprietary rights of others, we may be required to change our
business practices and may also become subject to significant costs and monetary
penalties.

Others may claim that our
proprietary technology infringes their intellectual property. Any claims of that
nature, whether with or without merit, could:

be
expensive and time-consuming to defend;

cause
us to cease making, licensing or using products that incorporate the challenged
intellectual property;

require
us to redesign our products, if feasible;

divert
our managements attention and resources; and

require
us to enter into royalty or licensing agreements to obtain the right to use
necessary technologies.

23

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Others may
assert infringement claims against us in the future with respect to our current
or future products and services. In that event, we cannot be certain that those
claims will be resolved in our favor. Although we are not currently engaged in
any dispute of that nature, any infringement claims resolved against us could
have a material adverse effect on our business, operating results and financial
condition.

The failure of our network
infrastructure and equipment could have a material adverse effect on our
business.

Failure of
our network infrastructure and equipment, as well as the occurrence of
significant human error, a natural disaster or other unanticipated problems,
could halt our services, damage network equipment and result in substantial
expense to repair or replace damaged equipment. In addition, the failure of our
telecommunication providers to supply necessary services to us could also
interrupt our business, particularly the application hosting and transaction
processing services we offer to our client financial institutions via secure
Internet connections. The inability to supply these services to our clients
could negatively affect our business, reputation, operating results and
financial condition. Currently, we have only one core data and two item
processing centers. Interruption in our processing or communications services
could delay transfers of our clients data, or damage or destroy the data. Any
of these occurrences could result in lawsuits or loss of clients and may also
harm our reputation.

We rely on the technological
infrastructure of our client financial institutions and their individual
customers, and any failure of that infrastructure could have a material adverse
effect on our revenue and our business.

The success
of the products and services we offer depends, to a degree, on the technological
infrastructure and equipment of our client financial institutions and their
small business customers. We provide application hosting and transaction
processing services to our clients that require some level of integration with
the clients technological infrastructure. Proper technical integration between
our clients and us is critical to our being able to provide the services we have
agreed to provide. A failure of a clients infrastructure for any reason could
negatively affect our business, financial condition and results.

Increased fraud committed by small
businesses and increased uncollectible accounts of small businesses may
adversely affect our accounts receivable financing business.

Small
business customers of our financial institution clients sometimes fraudulently
submit artificial receivables to our clients. In addition, small business
customers may keep cash payments that their consumers mistakenly send to them
instead of our financial institution clients. Our clients are also susceptible
to uncollectible accounts from their small business customers. Many of our
clients purchase insurance through us to insure against some of these risks. If
the number and amount of fraudulent or bad debt claims increase, our clients may
decide to reduce or terminate their use of our accounts receivable financing
products and services, reducing our ability to attract and retain
revenue-producing clients and to cross-sell our other products and services to
them. Further, our insurance carrier providing coverage for the insurance
products may increase rates or cancel coverage, reducing our ability to produce
revenue and reducing our margins on that business.

We could be sued for contract or
product liability claims that exceed our available insurance coverage, which
could have a material adverse effect on our business, financial condition and
results of operations.

Failures in
the products and services we provide could result in an increase in service and
warranty costs or a claim for substantial damages against us. We can give no
assurance that the limitations of liability in our contracts would be
enforceable or would otherwise protect us from liability for damages. We
maintain general liability insurance coverage, including coverage for errors and
omissions in excess of the applicable deductible amount. We can give no
assurance that this coverage will continue to be available on acceptable terms
or will be available in sufficient amounts to cover one or more large claims, or
that the insurer will not deny coverage as to any future claim. The successful
assertion of one or more large claims against us that exceeds available
insurance coverage, or the occurrence of changes in our insurance policies,
including premium increases or the imposition of large deductible or coinsurance
requirements, could have a material adverse effect on our business, financial
condition and results of operations. Further, any litigation, regardless of its
outcome, could result in substantial cost to us and divert managements
attention from our operations. Any contract liability claim or litigation
against us could have a material adverse effect on our business, financial
condition and results of operations. In addition, because some of our products
and services affect the core business processes of our community financial
institution clients, a failure or inability to meet a clients expectations
could seriously damage our reputation and negatively affect our ability to
attract new business.

We may not have adequate capital to
support our planned growth, which could significantly impair our ability to add
new products or services.

A
significant part of our growth plans rests on the development of new products,
strategic acquisitions and the formation of strategic alliances for our primary
products. To execute our growth plans as we intend, we may need additional
capital. Market conditions when we need this capital may preclude access to new
capital of any kind or to capital on terms acceptable to us. Any of these
developments could significantly hinder our ability to add new products or
services, pursue strategic acquisitions or enter into strategic alliances.

If our products and services contain
errors, we may lose clients and revenues and be subject to claims for damages.

Our new
products and services, and enhancements to our existing products and services,
may have undetected errors or failures, despite testing by our current and
potential clients and by us. If we discover errors after we have introduced a
new or updated product to the marketplace, we could experience, among other
things:

delayed
or lost revenues while we correct the errors;

a loss
of clients or the delay or failure to achieve market acceptance; and

additional
and unexpected expenses to fund further product development.

Our
agreements with our clients generally contain provisions designed to limit our
exposure to potential product liability claims, such as disclaimers of
warranties and limitations on liability for special, consequential and
incidental damages. These provisions may not be effective because of existing or
future federal, state or local laws or ordinances, or unfavorable judicial
decisions. If our products and services fail to function properly, we could be
subject to product liability claims, which could result in increased litigation
expense, damage awards and harm to our business reputation.

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Technological changes may reduce the
demand for our products and services or render them obsolete, which would reduce
our revenue and income.

The introduction of new technologies and financial products and services
can render existing technology products and services obsolete. We expect other
vendors to introduce new products and services, as well as enhancements to their
existing products and services, which will compete with our current products and
services. To be successful, we must anticipate evolving industry trends,
continue to apply advances in technology, enhance our existing products and
services and develop or acquire new products and services to meet the demands of
our clients. We may not be successful in developing, acquiring or marketing new
or enhanced products or services that respond to technological change or
evolving client needs. We may also incur substantial costs in developing and
employing new technologies. If we fail to adapt to changes in technologies, we
could lose clients and revenues, and fail to attract new clients or otherwise
realize the benefits of costs we incur.

Examination of our business by
regulatory agencies could cause us to incur significant expenses, and failure to
remedy any identified deficiency would adversely affect our
business.

We are subject to federal and state examination under the authority of
the Bank Service Company Act and must comply with the Gramm-Leach-Bliley Act and
other laws and regulations that apply to depository and financial institutions.
Bank regulators have broad supervisory authority to require the correction of
any deficiencies or other negative findings identified in any such examination.
Efforts to correct any deficiency or to otherwise comply with existing
regulations could result in substantial costs and divert our managements
attention and resources. The failure to adequately correct any deficiency or to
comply with existing regulations could result in the imposition of monetary
penalties or prevent us from offering one of our products or services to some
our clients and could have a substantial negative effect on our business and
operations.

Governmental laws and regulations may
adversely affect us by making it more costly and burdensome to conduct our
business or operations.

Federal, state or foreign authorities could adopt new laws, rules or
regulations relating to the financial services industry and the protection of
consumer personal information belonging to financial institutions that affect
our business. Those laws and regulations may address issues such as end-user
privacy, pricing, content, characteristics, taxation and quality of services and
products. Adoption of these laws, rules or regulations could render our business
or operations more costly and burdensome and could require us to modify our
current or future products or services.

Risks Related to Our
Industry

We depend heavily on a single industry
and any downturn in that industry would materially and adversely affect our
business and operations.

We sell our financial institution products and services almost
exclusively to financial institutions, primarily community financial
institutions. As a result, any events that adversely affect the industry in
general and community financial institutions in particular, such as changed or
expanded financial institution regulations, could adversely affect us and our
operations. A downturn in this industry would have a substantial negative effect
on our business and operations.

Financial institutions are subject to
industry consolidation, and we may lose clients with little notice, which could
adversely affect our revenues.

The financial institution industry is prone to consolidations that result
from mergers and acquisitions. Other financial institutions that do not use our
products and services may acquire our existing clients and then convert them to
competing products and services. Most of our contracts provide for a charge to
the client for early termination of the contract without cause, but these
charges are insufficient to replace the recurring revenues that we would have
received if the financial institution had continued as a client.

The banking industry is highly
regulated, and changes in banking regulations could negatively affect our
business.

Our financial institution clients are subject to the supervision of
several federal, state and local government regulatory agencies, and we must
continually ensure that our products and services work within the extensive and
evolving regulatory requirements applicable to our financial institution
clients. Regulation of financial institutions, especially with respect to
accounts receivable services such as BusinessManager, can indirectly affect our
business. While the use of our products by financial institutions is either not
subject to, or is currently in compliance with, banking regulations, a change in
regulations or the creation of new regulations on financial institutions,
including modifying a financial institutions ability to offer products and
services similar to ours, could prevent or lessen the use of our products and
services by financial institutions, which would have a substantial negative
effect on our business and operations.

Risks of Owning Our Common
Stock

Our stock price is volatile and any
investment in our common stock could suffer a decline in value.

The market price of our common stock
has been subject to significant fluctuations and may continue to be volatile in
response to:

actual or
anticipated variations in quarterly revenues, operating results and
profitability;

changes in
financial estimates by us or by a securities analyst who covers our
stock;

publication of
research reports about our company or industry;

conditions or
trends in our industry;

stock market
price and volume fluctuations of other publicly-traded companies and, in
particular, those whose businesses involve technology products and services for
financial institutions;

announcements
by us or our competitors of technological innovations, new services, service
enhancements, significant contracts, acquisitions, commercial relationships,
strategic partnerships, divestitures, technological innovations, new services or
service enhancements;

announcements
of investigations or regulatory scrutiny of our operations or lawsuits filed
against us;

the passage of
legislation or other regulatory developments that adversely affect us, our
clients or our industry;

additions or
departures of key personnel; and

general
economic conditions.

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We believe
that period-to-period comparisons of our results of operations are not
necessarily meaningful. We can provide no assurance that future revenues and
results of operations will not vary substantially. In the past, securities class
action litigation has often been instituted against companies following periods
of volatility in their stock price. This type of litigation could result in
substantial costs and divert our managements attention and resources.

If we are required to restate or
reissue our financial statements, the price of our stock may decline
significantly.

We believe
that we have prepared our financial statements in accordance with generally
accepted accounting principles and the SECs regulations. We base these
financial statements on our interpretation of those regulations, our use of
estimates and assumptions and our internal controls. We may make faulty
judgments, errors and mistakes regarding these matters, however, particularly in
the context of accounting for acquisitions. As a result of the complexity of
these matters and our rate of growth, our financial statements may contain or
may in the future contain mistakes or errors. If we are required to restate our
financial statements, it is highly likely that the price of our stock will
decline significantly. Further, any exchange on which our stock may then be
traded may suspend trading on our stock, in which case it is highly likely that
the market price of our stock will fall significantly when trading resumes.

If we fail to maintain adequate
internal controls over financial reporting, then our business and operating
results could be harmed.

Internal
controls over financial reporting are processes designed to provide reasonable
assurances regarding the reliability of financial reporting and the preparation
of financial statements in accordance with GAAP. We have previously disclosed a
material weakness in our internal controls over financial reporting in our
annual report on Form 10-K. A failure of our remedial measures to correct this
material weakness may cause us to fail to meet our reporting obligations, cause
our financial statements to contain material misstatements and harm our business
and operating results. Even after effecting remedial measures our internal
controls may not prevent all potential errors, because any control system,
regardless of its design, can provide only reasonable, and not absolute,
assurance that the objectives of the control system will be achieved.

Complying with Section 404 of the
Sarbanes-Oxley Act of 2002 may strain our resources and distract management.

We expect to
incur material costs and to spend significant management time to comply with
Section 404. As a result, managements attention may be diverted from other
business concerns, which could have a material adverse effect on our business,
financial condition, results of operations and cash flows. In addition, we may
need to hire additional accounting and financial staff with appropriate
experience and technical accounting knowledge, and we cannot assure you that we
will be able to do so in a timely fashion.

The Company has not yet been required
to perform an assessment of its internal control over financial reporting under
Section 404 of the Sarbanes-Oxley Act of 2002 and the Company may, during its
process, encounter delays in such process or deficiencies with respect to
certain internal control practices.

Pursuant to Section 404 of the
Sarbanes-Oxley Act of 2002, the Company is expected, beginning with its fiscal
year ending December 31, 2007 to include in its annual report managements
assessment of the effectiveness of the Companys internal control over financial
reporting and the Companys audited financial statements as of December 31,
2007. Furthermore, the Companys independent registered public accounting firm
will be expressing an opinion on the effectiveness of the Companys internal
control over financial reporting based on its audit. The Company is in the final
stages of completing the documentation of its internal controls. Due to the
number of controls to be documented and examined, the complexity of the project,
as well as the subjectivity involved in determining effectiveness of controls,
the Company cannot be certain that it will complete its Section 404 compliance
work on a timely basis or, if it does, that all of the Company's internal
controls will be considered effective. Therefore, the Company can give no
assurances that its systems will satisfy regulatory requirements. If the Company
fails to timely complete its Section 404 compliance work, including this
assessment, or if the Companys independent public accounting firm cannot timely
attest to the Company's controls, the Company could be subject to regulatory
sanctions and a loss of public confidence in its internal controls. Also, any
failure to implement required new or improved controls, or difficulties
encountered in their implementation, could harm the Companys operating results
or commercial relationships or cause the Company to fail to timely meet its
regulatory reporting obligations. Any of these failures could have a negative
effect on the trading price of the Companys stock.

We do not anticipate paying any
dividends on our common stock in the foreseeable future.

In the
foreseeable future, we do not expect to declare or pay any cash or other
dividends on our common stock. Our credit facility prohibits our paying cash
dividends on our common stock, and we may enter into other borrowing
arrangements in the future that restrict our ability to declare or pay cash
dividends on our common stock.

We may not be able to use the tax
benefit from our operating losses.

As of
December 31, 2006, we had total net operating losses, or NOLs, of approximately
$47.8 million that will expire beginning in 2011 if not used. We acquired
approximately $37.6 million of these NOLs in connection with our 2001 merger
with Towne Services. Section 382 of the Internal Revenue Code limits the amount
of NOLs available to us in any given year. This limitation permits us to realize
only a small portion of the potential tax benefit of the NOLs each year. We
estimate that we will be able to realize approximately $5.3 million of the Towne
Services NOLs, which we recorded as a $1.9 million deferred tax asset at
December 31, 2006. We may be unable to use all of these NOLs before they expire.
We may be required to record a valuation allowance in our financial statements
during any period in which it is determined that we will not be able to realize
all of our NOLs.

Provisions in our organizational
documents and under Tennessee law could delay or prevent a change in control of
our company, which could adversely affect the price of our common stock.

Our charter,
bylaws and Tennessee law contain provisions that could make it more difficult
for a third party to obtain control of us. For example, our charter provides for
a staggered board of directors, restricts the ability of shareholders to call a
special meeting and prohibits shareholder action by written consent. Our bylaws
allow the board to expand its size and fill any vacancies without shareholder
approval. In addition, the Tennessee Business Corporation Act contains the
Tennessee Business Combination Act and the Tennessee Greenmail Act, which impose
restrictions on shareholder actions.

26

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**Part II  Other
Information****Item 6. Exhibits**

The exhibits described in the following Index to Exhibits are filed as
part of this quarterly report on Form 10-Q.

|**Exhibit** |  |                       
|----------- |  | ----------------------
|**Number**  |  | Description of Exhibit
|3.1         |  |                       
|3.1.1       |  |                       
|3.1.2       |  |                       
|3.1.3       |  |                       
|3.1.4       |  |                       
|3.1.5       |  |                       
|3.1.6       |  |                       
|3.1.7       |  |                       
|3.2         |  |                       
|3.2.1       |  |                       
|10.1        |  |                       
|10.2        |  |                       
|31.1        |  |                       
|31.2        |  |                       
|32.1        |  |                       
|32.2        |  |                       

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Signatures

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

|                              | Goldleaf Financial Solutions,
      Inc.
|----------------------------- | ----------------------------------------
|                              | (Registrant)                            
|                              |                                         
|Date: November
      14, 2007 | By:                                     
|                              |                                         
|                              |                                         
|                             
|Date: November
      14, 2007 | By:                                     
|                              |                                         
|                              |                                         

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