UNITED
      STATES


SECURITIES
      AND EXCHANGE COMMISSION


Washington,
      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 0-9993




**MICROS
      SYSTEMS, INC.**


(Exact
      name of Registrant as specified in its charter)


MARYLAND
              52-1101488(State
                  of incorporation)
              (I.R.S.
                  Employer Identification
                  Number)





7031
      Columbia Gateway Drive, Columbia, Maryland 21046-2289


(Address
      of principal executive offices)  (Zip
      code)




Registrant’s
      telephone number, including area code: 443-285-6000





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 report(s)), and (2) has been subject to such filing requirements
      for the past 90 days.





YES þ NO o




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.




Large
      accelerated filer þ Accelerated
      filer o Non-accelerated
      filer o





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





YES o NO þ





As
      of
      October 31, 2007, there were issued and outstanding 40,993,677 shares of
      Registrant’s Common Stock at $0.0125 par value.







MICROS
      SYSTEMS, INC. AND SUBSIDIARIES





**Form
      10-Q**


For
      the
      three months ended September 30, 2007




**PART
      I - FINANCIAL INFORMATION**




**ITEM
      1.**  **FINANCIAL
      STATEMENTS**


MICROS
                  SYSTEMS, INC. AND SUBSIDIARIESCONDENSED
                  CONSOLIDATED BALANCE SHEETS(Unaudited,
                  in thousands, except per share
                  data)


Sept.
                    30,
                  2007
                
                June
                    30,
                  2007ASSETSCurrent
                    Assets:Cash
                    and cash equivalents
                
                
                
                
                $
                240,528
                
                $
                242,702Short-term
                    investments
                
                
                
                
                
                124,925
                
                
                86,950Accounts
                    receivable, net of allowance for doubtful accounts of$24,670
                    at September 30, 2007 and $23,110 at June 30, 2007
                
                
                
                
                
                190,620
                
                
                180,203Inventory,
                    net
                
                
                
                
                
                51,948
                
                
                47,790Deferred
                    income taxes
                
                
                
                
                
                17,119
                
                
                16,683Prepaid
                    expenses and other current assets
                
                
                
                
                
                32,402
                
                
                27,650Total
                    current assets
                
                
                
                
                
                657,542
                
                
                601,978Property,
                    plant and equipment, net of accumulated depreciation andamortization
                    of $79,006 at September 30, 2007 and $76,352 at June 30,
                    2007
                
                
                
                
                
                29,841
                
                
                27,955Deferred
                    income taxes, non-current
                
                21,975
                
                
                23,145Goodwill
                
                151,915
                
                
                138,332Intangible
                    assets, net of accumulated amortization of $6,407 at September
                    30,
                    2007and
                    $4,726 at June 30, 2007
                
                
                
                
                
                17,090
                
                
                14,509Purchased
                    and internally developed software costs, net of
                    accumulatedamortization
                    of $56,867 at September 30, 2007 and $54,708 at June 30,
                    2007
                
                
                
                
                
                35,725
                
                
                36,296Other
                    assets
                
                6,487
                
                
                4,541Total
                    assets
                $
                920,575
                
                $
                846,756LIABILITIES
                    AND SHAREHOLDERS' EQUITYCurrent
                    Liabilities:Bank
                    lines of credit
                
                
                
                
                $
                2,434
                
                $
                2,308Accounts
                    payable
                
                
                
                
                
                40,499
                
                
                43,126Accrued
                    expenses and other current liabilities
                
                
                
                
                
                116,667
                
                
                117,142Income
                    taxes payable
                
                
                
                
                
                263
                
                
                8,094Deferred
                    service revenue
                
                
                
                
                
                104,799
                
                
                86,742Total
                    current liabilities
                
                
                
                
                
                264,662
                
                
                257,412Income
                    taxes payable, non-current
                
                11,915
                
                
                -Deferred
                    income taxes, non-current
                
                15,912
                
                
                15,934Other
                    non-current liabilities
                
                18,681
                
                
                17,554Total
                    liabilities
                
                
                
                
                
                311,170
                
                
                290,900Minority
                    interests and minority ownership put arrangement
                
                5,260
                
                
                4,723Commitments
                    and contingenciesShareholders'
                    Equity:Common
                    stock, $0.0125 par value; authorized 50,000 shares; issuedand
                    outstanding 41,093 at September 30, 2007 and 40,548 at June 30,
                    2007
                
                
                
                
                
                514
                
                
                507Capital
                    in excess of par
                
                
                
                
                
                172,102
                
                
                149,089Retained
                    earnings
                
                
                
                
                
                401,284
                
                
                382,785Accumulated
                    other comprehensive income
                
                
                
                
                
                30,245
                
                
                18,752Total
                    shareholders' equity
                
                
                
                
                
                604,145
                
                
                551,133Total
                    liabilities and shareholders' equity
                $
                920,575
                
                $
                846,756


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




2


MICROS
                  SYSTEMS, INC. AND SUBSIDIARIESCONDENSED
                  CONSOLIDATED STATEMENTS OF OPERATIONS(Unaudited,
                  in thousands, except per share
                  data)


Three
                  Months Ended
                September
                  30,2007
              
              2006Revenue:Hardware
              
              $
              64,901
              
              $
              54,142Software
              
              
              30,851
              
              
              27,757Services
              
              
              120,730
              
              
              91,802Total
                  revenue
              
              
              216,482
              
              
              173,701Cost
                  of sales:Hardware
              
              
              39,938
              
              
              33,966Software
              
              
              8,509
              
              
              7,360Services
              
              
              54,793
              
              
              43,706Total
                  cost of sales
              
              
              103,240
              
              
              85,032Gross
                  margin
              
              
              113,242
              
              
              88,669Selling,
                  general and administrative expenses
              
              
              70,895
              
              
              58,281Research
                  and development expenses
              
              
              9,416
              
              
              6,916Depreciation
                  and amortization
              
              
              3,846
              
              
              2,823Total
                  operating expenses
              
              
              84,157
              
              
              68,020Income
                  from operations
              
              
              29,085
              
              
              20,649Non-operating
                  income (expense):Interest
                  income
              
              
              3,514
              
              
              2,197Interest
                  expense
              
              
              (63
              )
              
              (95
              )Other
                  (expense) income, net
              
              
              (129
              )
              
              129Total
                  non-operating income, net
              
              
              3,322
              
              
              2,231Income
                  before taxes, minority interests and equity in net earnings of
                  affiliates
              
              
              32,407
              
              
              22,880Income
                  tax provision
              
              
              10,856
              
              
              7,665Income
                  before minority interests and equity in net earnings of
                  affiliates
              
              
              21,551
              
              
              15,215Minority
                  interests and equity in net earnings of affiliates
              
              
              (247
              )
              
              (104
              )Net
                  income (1)
              
              $
              21,304
              
              $
              15,111Net
                  income per common share (1):Basic
              
              $
              0.52
              
              $
              0.39Diluted
              
              $
              0.51
              
              $
              0.37Weighted-average
                  number of shares outstanding:Basic
              
              
              40,792
              
              
              39,015Diluted
              
              
              41,756
              
              
              40,651


(1)
                See Note 8, "Share-based Compensation" in Notes to Consolidated Financial
                Statements.The
                accompanying notes are an integral part of the condensed consolidated
                financial statements.




3


MICROS
                  SYSTEMS, INC. AND SUBSIDIARIESCONDENSED
                  CONSOLIDATED STATEMENTS OF CASH FLOWS(Unaudited,
                  in thousands)


Three
                  Months Ended
                  September
                    30,2007
              
              2006Net
                  cash flows provided by operating activities
              
              $
              24,676
              
              $
              21,934Cash
                  flows from investing activities:Net
                  cash paid for acquisitions
              
              
              (11,562
              )
              
              (4,674
              )Purchases
                  of property, plant and equipment
              
              
              (4,031
              )
              
              (2,215
              )Internally
                  developed software
              
              
              (611
              )
              
              (422
              )Disposal
                  of property, plant and equipment
              
              
              103
              
              
              40Purchases
                  of short-term investments
              
              
              (308,000
              )
              
              -Proceeds
                  from sales of short-term investments
              
              
              270,025
              
              
              -Net
                  cash flows used in investing activities
              
              
              (54,076
              )
              
              (7,271
              )Cash
                  flows from financing activities:Proceeds
                  from stock option exercises
              
              
              12,513
              
              
              8,243Realized
                  tax benefits from stock option exercises
              
              
              6,357
              
              
              4,667Repurchases
                  of stock
              
              
              -
              
              
              (2,395
              )Principal
                  payments on line of credit
              
              
              -
              
              
              (1,271
              )Proceeds
                  from lines of credit
              
              
              -
              
              
              1,002Other
              
              
              (90
              )
              
              (47
              )Net
                  cash flows provided by financing activities
              
              
              18,780
              
              
              10,199Effect
                  of exchange rate changes on cash and cash equivalents
              
              
              8,446
              
              
              85Net
                  (decrease) increase in cash and cash equivalents
              
              
              (2,174
              )
              
              24,947Cash
                  and cash equivalents at beginning of year
              
              
              242,702
              
              
              237,222Cash
                  and cash equivalents at end of period
              
              $
              240,528
              
              $
              262,169


The
                    accompanying notes are an integral part of the condensed consolidated
                    financial statements.
 
 4


MICROS
                  SYSTEMS, INC. AND SUBSIDIARIESCONDENSED
                  CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY AND COMPREHENSIVE
                  INCOME(Unaudited,
                  in thousands)


AccumulatedCapital
              
              
              
              OtherCommon
                  Stock
              
              in
                  Excess
              
              Retained
              
              ComprehensiveShares
              
              Amount
              
              of
                  Par
              
              Earnings
              
              Income
              
              TotalBalance,
                  June 30, 2007 as previously reported
              
              
              40,548
              
              $
              507
              
              $
              149,089
              
              $
              382,785
              
              $
              18,752
              
              $
              551,133Cumulative
                  impact of the adoption of FIN 48
              
              
              -
              
              
              -
              
              
              -
              
              
              (2,647
              )
              
              -
              
              
              (2,647
              )Balance,
                  June 30, 2007, adjusted
              
              
              40,548
              
              
              507
              
              
              149,089
              
              
              380,138
              
              
              18,752
              
              
              548,486Comprehensive
                  income:Net
                  income
              
              
              -
              
              
              -
              
              
              -
              
              
              21,304
              
              
              -
              
              
              21,304Foreign
                  currency translation adjustments
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              11,331
              
              
              11,331Amortization
                  of prior year pensioncosts
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              162
              
              
              162Total
                  comprehensive income
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              32,797Minority
                  interest put arrangement
              
              
              -
              
              
              -
              
              
              -
              
              
              (158
              )
              
              -
              
              
              (158
              )Share-based
                  compensation
              
              
              -
              
              
              -
              
              
              3,844
              
              
              -
              
              
              -
              
              
              3,844Stock
                  issued upon exercise of options
              
              
              545
              
              
              7
              
              
              12,506
              
              
              -
              
              
              -
              
              
              12,513Income
                  tax benefit from optionsexercised
              
              
              -
              
              
              -
              
              
              6,663
              
              
              -
              
              
              -
              
              
              6,663Balance,
                  September 30, 2007
              
              
              41,093
              
              $
              514
              
              $
              172,102
              
              $
              401,284
              
              $
              30,245
              
              $
              604,145




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




5




MICROS
        SYSTEMS, INC. AND SUBSIDIARIES
 NOTES
        TO
        CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 For
        the
        three months September 30, 2007
 (unaudited)


1.  Basis
      of
      presentation





The
      accompanying condensed consolidated financial statements of MICROS Systems,
      Inc.
      and its subsidiaries (collectively, the “Company”) have been prepared by the
      Company pursuant to the rules and regulations of the Securities and Exchange
      Commission (“SEC”). This Quarterly Report on Form 10-Q should be read in
      conjunction with the Company’s Annual Report on Form 10-K for the year ended
      June 30, 2007.





The
      year-end condensed balance sheet data was derived from audited financial
      statements, but does not include all disclosures required by accounting
      principles generally accepted in the United States of America. Certain
      information and footnote disclosures that are normally included in financial
      statements prepared in accordance with generally accepted accounting principles
      have been condensed or omitted as permitted by SEC rules and regulations.





The
      condensed consolidated financial statements included in this report reflect
      all
      normal and recurring adjustments that, in the opinion of management, are
      necessary for a fair statement of the financial position of the Company, its
      results of operations and cash flows for the interim periods set forth herein.
      The results for the three months ended September 30, 2007 are not necessarily
      indicative of the results to be expected for the full year or any future
      periods.





2.  Acquisitions





During
      the three months ended September 30, 2007, the Company acquired Check-in Data
      AG
      (“Check in Data”) for an aggregate total cash purchase price of approximately
      $13.5 million, net of cash acquired, in a step acquisition by acquiring 80%
      interest in July 2007 and the remaining 20% interest in September 2007.
      Approximately $2.0 million of the total purchase price was held back to satisfy
      certain claims the Company may have against Check in Data. Any amounts remaining
      after satisfaction of any claims will be paid in two installments, at 12 and
      18
      months after the closing. Headquartered in Switzerland, Check in Data was a
      distributor of MICROS products and services and also provides complementary
      products and services. The assets acquired included approximately $3.6 million
      in cash. Goodwill of approximately $12.4 million and intangible assets and
      capitalized software of approximately $3.3 million were recorded in connection
      with the acquisition. The purchase price allocation is not finalized and is
      subject to adjustments. The acquisition of Check-in Data has been included
      in
      the results of the Company since the acquisition date. The pro forma effect
      on
      operating results due to this acquisition was not material to the consolidated
      financial position and results of operations presented herein.




In
      connection with the 80% acquisition in July 2007, the arrangement provided
      the
      minority interest holders the option to require the Company to purchase the
      minority shares from the minority interest holders (“Put Option”) based on a
      pre-defined formula which includes certain financial results of the acquired
      company. The put option was terminated when the Company purchased the remaining
      20% interest in September 2007. The effect of the put option was
      immaterial.




3.  FASB
      Interpretation No. 48





Effective
      July 1, 2007, the Company adopted the provisions of FASB Interpretation No.
      48,
“Accounting for Uncertainty in Income Taxes, an Interpretation of FASB Statement
      No. 109” (“FIN 48”). FIN 48 clarifies the accounting for income taxes by
      prescribing a minimum recognition threshold a tax position is required to meet
      before being recognized in the financial statements.  FIN 48 also provides
      guidance on derecognition, measurement, classification, interest and penalties,
      accounting in interim periods, disclosure and transition. The
      cumulative effect of adopting FIN 48 of approximately $2.6 million, including
      interest and penalties, has been recorded as a reduction to retained earnings
      and an increase in net income taxes payable. As a result of the adoption of
      FIN
      48, the Company had approximately $10.9 million of unrecognized income tax
      benefits as of July 1, 2007, of which approximately $1.9 million represented
      accrual for interest and penalties. If recognized, all of the unrecognized
      income tax benefit would be recognized as a reduction of income tax expense,
      impacting the effective income tax rate. During the three months ended September
      30, 2007, there has been no significant change in the unrecognized income tax
      benefits. The Company has reviewed its uncertain income tax positions in
      accordance with FIN 48, and currently is not able to reasonably estimate
      material changes in the unrecognized income tax benefits and the
      impact it would have on its consolidated financial position, results of
      operations and cash flows in the next twelve months.





The
      Company historically classified interest and penalties related to unrecognized
      income tax benefits as a component of income tax expense. With the adoption
      of
      FIN 48, the Company is maintaining its historical method of accruing interest
      and penalties associated with unrecognized income tax benefits as a component
      of
      its income tax expense.





6


In
      the
      ordinary course of the Company’s business, transactions occur for which the
      ultimate tax outcome may be uncertain. In addition, respective tax authorities
      periodically audit the Company’s income tax returns. These audits examine the
      Company’s significant tax filing positions, including the timing and amounts of
      deductions and the allocation of income and expenses among tax jurisdictions.
      The Company is currently under audits in certain of its major taxing
      jurisdictions, with open tax years beginning in fiscal year 1999. Currently,
      the
      Company is not able to reasonably estimate the completion date of these ongoing
      audits. The Company’s major taxing jurisdictions include Australia, Ireland,
      Germany, Singapore, the United Kingdom and the United States.





4.  Inventory





The
      components of inventory are as follows:





(in
                thousands)
            
            September
                30,
              2007
            
            June
                30,
              2007Raw
                materials
            
            $
            6,474
            
            $
            5,687Work-in-process
            
            
            130
            
            
            38Finished
                goods
            
            
            45,344
            
            
            42,065Total
                inventory
            
            $
            51,948
            
            $
            47,790





The
      Company maintains a reserve for obsolescence for inventory of approximately
      $10.5 million at September 30, 2007 compared to approximately $9.9 million
      at
      June 30, 2007. The Company reserved approximately $0.5 million and $0.6 million
      during the three months ended September 30, 2007 and September 30, 2006,
      respectively, all related to potentially obsolete and slow moving products.
      The
      foreign currency translation adjustment on inventory balance was approximately
      $0.2 million as of September 30, 2007.





5.  Goodwill
      and intangible assets





During
      the three months ended September 30, 2007, the Company completed its annual
      impairment tests on its goodwill and trademarks as of July 1, 2007. Based on
      its
      annual impairment test results, the Company determined that no impairment of
      goodwill or trademarks existed as of July 1, 2007.





6.  Other
      comprehensive income





The
      components of comprehensive income, net of tax, were as follows:





Three
                Months Ended
              September
                30,(in
                thousands)
            
            2007
            
            2006Net
                income
            
            $
            21,304
            
            $
            15,111Other
                comprehensive income (loss):Foreign
                currency translation adjustments
            
            
            11,331
            
            
            (1,059
            )Amortization
                of prior year pension costs
            
            
            162
            
            
            —Total
                comprehensive income
            
            $
            32,797
            
            $
            14,052




7.  Line
      of
      credit





The
      Company has two credit agreements (the “Credit Agreements”) that in the
      aggregate provide a $65.0 million multi-currency committed line of credit which
      expires on July 31, 2009. The lenders under the Credit Agreements are Bank
      of
      America, N.A., Wachovia Bank, N.A., and US Bank (“Lenders”). The international
      facility is secured by 65% of the capital stock of the Company’s main operating
      Ireland subsidiary and 100% of all of the remaining major foreign subsidiaries.
      The U.S. facility is secured by 100% of the capital stock of the Company’s major
      U.S. subsidiaries as well as inventory and receivables located in the
      U.S.




7




For
      borrowings in U.S. currency, the interest rate under the Credit Agreements
      is
      equal to the higher of the federal funds rate plus 50 basis points or the prime
      rate. For borrowings in foreign currencies, the interest rate is determined
      by a
      LIBOR-based formula, plus an additional margin of 125 to 200 basis points,
      depending upon the Company’s consolidated earnings before interest, taxes,
      depreciation and amortization (“EBITDA”) for the immediately preceding four
      calendar quarters. Under the terms of the Credit Agreements, the Company is
      required to pay insignificant commitment fees on the unused portion of the
      line
      of credit to the Lenders. The Credit Agreements also contain certain financial
      covenants and restrictions on the Company’s ability to assume additional debt,
      repurchase stock, sell subsidiaries or acquire companies. In case of an event
      of
      default, as defined in the Credit Agreements, that is not cured within the
      applicable cure period (with respect to those defaults for which the Credit
      Agreements provide a cure period), the Lenders’ remedies include their ability
      to declare all outstanding loans, plus interest and other related amounts owed,
      to be immediately due and payable in full, and to pursue all rights and remedies
      available to them under the Credit Agreements or under applicable
      law.





As
      of
      September 30, 2007, the Company had approximately $2.4 million outstanding
      on
      the lines of credit mentioned above and had approximately $62.6 million
      available for future borrowings. The total outstanding balance consisted of
      the
      following:





·
            JPY
                (Japanese Yen) - 165.0 million (approximately $1.4 million at the
                September 30, 2007 exchange rate);


·
            SEK
                (Swedish Krona) - 4.0 million (approximately $0.6 million at the
                September
                30, 2007 exchange rate), and


·
            NZD
                (New Zealand Dollar) - 0.5 million (approximately $0.4 million at
                the
                September 30, 2007 exchange rate.)





The
      Company also has a credit relationship with a European bank in the amount of
      EUR
      1.0 million (approximately $1.4 million at the September 30, 2007 exchange
      rate.) Under the terms of this facility, the Company may borrow in the form
      of
      either a line of credit or term debt. As of September 30, 2007, there were
      no
      balances outstanding on his credit facility, but approximately EUR 0.2 million
      (approximately $0.3 million at the September 30, 2007 exchange rate) of the
      credit facility has been utilized for guarantees.





As
      of
      September 30, 2007, the Company had approximately $63.7 million borrowing
      capacity under all of the credit facilities described above. The
      weighted-average interest rate on the outstanding balances under the lines
      of
      credit as of September 30, 2007 was 4.2%.





8.  Share-based
      compensation





The
      Company has incentive and non-qualified stock options outstanding that were
      granted to directors, officers, and other employees pursuant to authorization
      by
      the Board of Directors. With respect to directors, the Company’s policy and
      practice during the current period was that only those directors who are either
      employees of or consultants to the Company were eligible to receive options.
      The
      exercise price per share of each option equals the market value of a share
      of
      the Company’s common stock on the date of the grant. Substantially all of the
      options granted are exercisable pursuant to a three-year vesting schedule
      whereby one-third of the options vest upon the first anniversary of the grant,
      the second third of the options vest upon the second anniversary of the grant,
      and the final third of the options vest upon the third anniversary of the grant.
      All outstanding options expire ten years from the date of grant. Since the
      inception of the stock option plan in 1991, the Company has authorized 16.4
      million shares for issuance upon exercise of options, of which approximately
      1.6
      million shares are available for future grants as of September 30, 2007. As
      of
      September 30, 2007, options to purchase approximately 3.0 million shares were
      outstanding, including currently exercisable options to purchase approximately
      1.6 million shares.





The
      Company accounts for its option awards granted under the stock option program
      in
      accordance with Statement of Financial Accounting Standard (“SFAS”) No. 123(R),
“Share-Based Payment.” The estimated fair value of awards granted under the
      stock option program are measured as of the date of grant, and non-cash
      share-based compensation expenses adjusted for expected pre-vesting forfeitures
      are recognized ratably over the requisite service period of options in the
      consolidated statements of operations. In addition, non-cash share-based
      compensation expense adjusted for expected pre-vesting forfeitures is recognized
      for the non-vested portion of awards that were granted before the effective
      date
      of SFAS No. 123(R) as those options incrementally vest.


The
      non-cash share-based compensation expenses included in the condensed
      consolidated statements of operations are as follows:





Three
                Months Ended
              September
                30,(in
                thousands)
            
            2007
            
            2006Selling,
                general and administrative
            
            $
            3,542
            
            $
            2,692Research
                and development
            
            
            302
            
            
            123Total
                non-cash share-based compensation expense
            
            
            3,844
            
            
            2,815Income
                tax benefit
            
            
            (841
            )
            
            (571
            )Total
                non-cash share-based compensation expense, net of tax
                benefit
            
            $
            3,003
            
            $
            2,244Impact
                on diluted net income per share
            
            $
            0.07
            
            $
            0.06





8




No
      compensation expense was capitalized for the three months ended September 30,
      2007 and September 30, 2006 because no stock options had been granted to
      employees whose labor costs were capitalized as software development
      costs.




As
      of
      September 30, 2007, there was approximately $16.3 million in non-cash
      share-based compensation costs related to non-vested awards not yet recognized
      in the Company’s consolidated statements of operations. This cost is expected to
      be recognized over a weighted-average period of 1.7 years.





9.  Net
      income per share





Basic
      net
      income per common share is computed by dividing net income available to common
      shareholders by the weighted-average number of shares outstanding. Diluted
      net
      income per share includes the dilutive effect of stock options. A reconciliation
      of the net income available to common shareholders and the weighted-average
      number of common shares outstanding assuming dilution is as
      follows:


Three
                Months Ended
              September
                30,(in
                thousands, except per share data)
            
            2007
            
            2006Net
                income
            
            $
            21,304
            
            $
            15,111Effect
                of minority put arrangement
            
            
            (158
            )
            
            —Net
                income available to common shareholders
            
            $
            21,146
            
            $
            15,111Average
                common shares outstanding
            
            
            40,792
            
            
            39,015Dilutive
                effect of outstanding stock options
            
            
            964
            
            
            1,636Average
                common shares outstanding assuming dilution
            
            
            41,756
            
            
            40,651Basic
                net income per share
            
            $
            0.52
            
            $
            0.39Diluted
                net income per share
            
            $
            0.51
            
            $
            0.37Anti-dilutive
                weighted shares excluded from reconciliation
            
            
            657
            
            
            965


9


Net
      income for the three month ended September 30, 2007 and September 30, 2006
      include approximately $3.8 million ($3.0 million, net of tax) and $2.8 million
      ($2.2 million, net of tax), respectively, in non-cash share-based compensation
      expense. These non-cash share-based compensation expenses reduced diluted net
      income per share by $0.07 and $0.06 for the three months ended September 30,
      2007 and September 30, 2006, respectively. See Note 8, “Share-based
      Compensation.”





10.  Segment
      reporting data





SFAS
      No.
      131, “Disclosures about Segments of an Enterprise and Related Information,”
establishes standards for reporting information about operating segments. This
      standard requires segmentation based on the Company’s internal organization and
      reporting of financial results. The Company’s financial reporting systems
      present various data for management to run the business. Operating segments
      are
      defined as components of an enterprise about which separate financial
      information is available that is evaluated regularly by the chief operating
      decision maker, or decision making group, in deciding how to allocate resources
      and in assessing performance. The Company’s chief operating decision maker is
      the Company’s Chief Executive Officer.





The
      Company is organized and operates in four operating segments: U.S., Europe,
      the
      Pacific Rim and Latin America regions. For the purposes of applying SFAS No.
      131, the Company has identified U.S. as a separate reportable segment and has
      aggregated its three international operating segments into one reportable
      segment, international, as the three international operating segments share
      many
      similar economic characteristics. The management views the U.S. and
      international segments separately in operating its business, although the
      products and services are similar for each segment.





All
      of
      the Company’s recent business acquisitions have been of companies that offer
      similar or complementary products and services to those currently offered by
      the
      Company; accordingly, the acquired businesses have been incorporated into the
      existing four operating segments based on their geographic locations, and they
      are then operated and managed as a part of the applicable operating
      segment.





10


A
      summary
      of the Company’s reportable segments is as follows:





Three
                Months Ended
              September
                30,(in
                thousands)
            
            2007
            
            2006Revenue(1):U.S.
            
            $
            99,986
            
            $
            86,058International
            
            
            163,443
            
            
            121,011Intersegment
                eliminations
            
            
            (46,947
            )
            
            (33,368
            )Total
                revenue
            
            $
            216,482
            
            $
            173,701Income
                before taxes, minority interests and equity in net earnings of
                affiliates(1):U.S.
            
            $
            9,873
            
            $
            6,818International
            
            
            60,766
            
            
            43,195Intersegment
                eliminations
            
            
            (38,232
            )
            
            (27,133
            )Total
                income before taxes, minority interests and equity in net earnings
                of
              affiliates
            
            $
            32,407
            
            $
            22,880





As
                of(in
                thousands)
            
            September
                30, 2007
            
            June
                30,
              2007Identifiable
                assets(2):U.S.
            
            $
            481,403
            
            $
            443,331International
            
            
            439,172
            
            
            403,425Total
                identifiable assets
            
            $
            920,575
            
            $
            846,756





(1)
            Amounts
                based on the location of the selling entity, and include export
                sales.


(2)
            Amounts
                based on the physical location of the
                asset.





11.  Shareholders’
      equity




In
      fiscal
      year 2002, the Board of Directors authorized the purchase of up to two million
      shares of the Company’s common stock, and during fiscal year 2005 the Company
      purchased all of the remaining shares authorized under that plan.





In
      fiscal
      year 2005, the Board of Directors authorized the purchase of an additional
      two
      million shares of the Company’s common stock. As of September 30, 2007, the
      Company had purchased approximately 1.8 million shares under that plan. No
      Company stock was purchased during the three month period ended September 30,
      2007, however.





Through
      September 30, 2007, the Company purchased and retired approximately 3.8 million
      shares of its stock, with an average purchase price per share of $29.55 or
      total
      purchase price of $111 million. The Company has incurred an aggregate of
      approximately $0.1 million in fees related to both stock purchase
      plans.





During
      October 2007, the Company purchased the remaining shares authorized under the
      fiscal year 2005 purchase plan - approximately 0.2 million shares.





12.  Pension
      benefits




The
      Company’s Supplemental Executive Retirement Plan (“SERP Plan”) provides
      designated officers and executives of the Company with benefits upon retirement
      or immediate vesting of benefits upon a participant’s pre-retirement death. The
      Company funds the benefits under the plan with corporate owned life insurance
      policies held by a segregated trust (known as a “Rabbi Trust”), whose assets are
      subject to the claims of creditors of the Company. The plan is accounted for
      in
      accordance with SFAS No. 87, “Employers Accounting for Pensions.”




11


The
      components of net period pension cost are as follows:





Three
                Months Ended
              September
                30,(in
                thousands)
            
            2007
            
            2006Service
                cost
            
            $
            162
            
            $
            139Interest
                cost
            
            
            217
            
            
            174Amortization
                of prior service cost
            
            
            162
            
            
            137Net
                periodic pension cost
            
            $
            541
            
            $
            450





13.  Contingencies





In
      its
      Annual Report on Form 10-K, the Company reported on a case pending in the U.S.
      District Court for the Northern District of Georgia, styled Ware
      v. Abercrombie & Fitch Stores, Inc. et al. ;
      although the Company is not a party to that case, the Company may have some
      obligation to indemnify certain of the defendants who are customers of the
      Company. During the three month period ended September 30, 2007, the complaint
      was served on all of the defendants, and the Company is currently providing
      indemnity coverage to five of the defendants who are customers of the Company
      in
      accordance with applicable provisions of the contracts between the Company
      and
      those customers. Through September 30, 2007, the Company’s expenditures on
      indemnity coverage for this matter have not been material. The Company has
      established a reserve against such expenses that it believes will be
      sufficient.





Subject
      to the foregoing, the Company is and has been involved in legal proceedings
      arising in the normal course of business, and the Company is of the opinion,
      based upon presently available information and the advice of counsel concerning
      pertinent legal matters, that any resulting liability should not have a material
      adverse effect on the Company’s results of operations or financial position or
      cash flows.




12


**ITEM
                2.**
            **MANAGEMENT’S
                DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
                OPERATIONS**





Forward-looking
      statements




The
      following discussion and analysis of our financial condition and results of
      operations should be read in conjunction with the condensed consolidated
      financial statements and the related notes and other financial information
      included elsewhere in this Quarterly Report on Form 10-Q. Statements contained
      in this Quarterly Report on Form 10-Q that are not historical facts are forward
      looking statements within
      the meaning of Section 27A of the Securities Act of 1933, as amended (the
“Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as
      amended (the “Exchange Act”), that
      involve risks and uncertainties. Past performance is not necessarily a strong
      or
      reliable indicator of future performance. Actual results could differ materially
      from past results, estimates, projections, or forward-looking statements made
      by, or on behalf of us. Our actual results may differ materially from those
      anticipated in these forward-looking statements as a result of specified
      factors, including those set forth below under the heading “Factors that May
      Affect Future Results.”





Examples
      of such forward-looking statements include :


·
              our
                  expectations regarding the impact of competition on product and
                  service
                  margins;
 ·
              our
                  statements regarding the effects of currency fluctuations (in particular,
                  Euro fluctuations) on our financial
                  performance;
 ·
              our
                  expectation that which customers we do the largest amount of business
                  with
                  will change from period to period;
 ·
              our
                  belief that our reserve against future indemnity expenditures will
                  be
                  sufficient;
 ·
              our
                  statements about the effects of larger customer orders on our quarterly
                  earnings, revenues, and total revenues;
 ·
              our
                  beliefs regarding the effects on our results of operations or financial
                  position of any current legal proceedings in which we may be
                  involved;
 ·
              our
                  expectations regarding effective tax rates in future periods, and
                  the
                  effects of tax audits in certain jurisdictions;
 ·
              our
                  expectations regarding the effects on our financial position and
                  results
                  of operations of the application of recent accounting
                  standards;
 ·
              our
                  expectations about the adequacy of our cash flows and our available
                  lines
                  of credit to meet our working capital needs, and our ability to
                  raise
                  additional funds if and when needed;
 ·
              our
                  expectations regarding our exposure to interest rate risk;
                  and
 ·
              our
                  expectation that we will evaluate our need to invest in instruments
                  to
                  protect against interest rate fluctuations and our exposure to
                  such
                  interest rate risk.


**Factors
      that may affect future results**





Current
      market conditions, and world political and economic uncertainty, make it
      difficult to predict whether we can continue to achieve revenue and
      profitability growth over the remainder of the current fiscal year. Because
      of
      the nature of the industries in which our customers operate, we are subject
      to
      political risk, including as a result of instability in the Middle East and
      the
      worldwide threat of terrorism, and especially in developing countries with
      uncertain or unstable political structures or regimes. Rising oil and gas prices
      also directly and indirectly can have a significant impact on our customers,
      and, accordingly, on our business. In sum, our primary customers - the
      hospitality, travel, restaurant, and retail industries - are highly sensitive
      to
      economic, political, and environmental disturbances, all of which are not only
      outside of our (and, frequently, their) control, but also are extraordinarily
      difficult to predict with any accuracy, and those matters accordingly directly
      affect our financial position and the result of our operations.





The
      market for our products and services is highly competitive, which, among other
      things, results in gross margin pressure on our hardware and software products.
      Accordingly, margins on services and on existing products tend generally to
      decline over time, and we expect that trend to continue.




Currency
      fluctuations directly affect our financial results because we conduct business
      in many different currencies. In particular, a weakening or strengthening Euro
      could significantly affect our financial performance due to the volume of
      business that we conduct in the European market.


13


Our
      quarterly financial results are frequently dependent upon the timing and size
      of
      customer orders, because larger orders have at times accounted for a meaningful
      portion of quarterly earnings in particular quarters. We
      expect
      that the customers with whom we do the largest amount of business will change
      from year to year and sometimes from quarter to quarter, depending on the timing
      of the roll-outs of their systems. Moreover, any changes to a customer’s
      delivery requirements could affect the timing of our recognition of the
      associated revenue.





Changes
      to the schedule for completion and release of new products and services can
      also
      directly affect our quarterly financial results - if, for example, a product’s
      expected general release date must be delayed, revenues that we may have
      expected in one quarter may not be realized until a subsequent
      quarter.





Our
      products and services must continually be updated to comply with applicable
      laws, regulations, and industry standards, including, by way of example, the
      security and data protection rules promulgated by the credit card associations,
      and to comply with changes to those laws, regulations, and standards. Laws,
      regulations, and standards, and the interpretations and applications of those
      laws, regulations, and standards frequently change. Accordingly, we expect
      to
      continue to incur costs associated with modifying our products and services
      to
      become and remain compliant, and it is difficult to reliably predict the
      magnitude of those costs.




The
      foregoing is in addition to those other risks and uncertainties disclosed in
      this report and our other SEC filings, including in the section titled “Business
      and Investment Risks; Information Relating to Forward-Looking Statements,” in
      our Annual Report on Form 10-K for the Fiscal Year ended June 30, 2007.





Overview





We
      are a
      leading worldwide designer, manufacturer, marketer and servicer of enterprise
      information solutions for the global hospitality and specialty retail
      industries. The information solutions consist of application-specific software
      and hardware systems, supplemented by a wide range of services including
      installation, training, maintenance and support, customer development and
      software hosting. Our enterprise solutions comprise three major
      areas:





(1)
      Hotel
      information systems, which consist of software encompassing property management
      systems, sales and catering systems, central reservation systems, and customer
      information systems. We have provided hotel information systems to more than
      20,000 hotels worldwide.





(2)
      Restaurant information systems, which consist of hardware and software for
      point-of-sale and operational applications, a suite of back office applications,
      including inventory, labor, and financial management, and certain centrally
      hosted enterprise applications. We have installed over 200,000 systems in table
      and quick service restaurants, hotels, motels, casinos, leisure and
      entertainment, and retail operations in more than 140 countries and on all
      seven
      continents.





(3)
      Specialty retail information systems, which consist of software encompassing
      point-of-sale, loss prevention, business analytics, customer gift cards, and
      enterprise applications. We have provided retail information systems to more
      than 50,000 specialty retail stores worldwide.





In
      addition to our software and hardware products, we offer an extensive array
      of
      support services to our customers. These services include installation, operator
      and manager training, on-site hardware maintenance, customized software
      development, application software support, credit card software support, help
      desk, systems configuration, network support, consulting and software hosting.
      We distribute our products and services directly and through our district and
      subsidiary offices, as well as through a network of independent dealers and
      distributors.





The
      markets in which we operate are highly competitive. We compete on various bases,
      including product functionality, service capabilities, price and geography.
      There are at least 20 significant competitors worldwide that offer some form
      of
      sophisticated restaurant point-of-sale system, over 15 significant hotel systems
      competitors and over 10 significant retail systems competitors. We believe
      that
      our competitive strengths include our established global distribution and
      service network, our ability to offer a broad array of hardware, software and
      service products to the hospitality and retail industry and our Company’s focus
      on providing specialized information systems solutions.





14


We
      manage
      our business geographically and are organized and operate in two reportable
      segments for financial reporting purposes: U.S. and International. The
      International reportable segment is primarily in Europe, the Pacific Rim and
      Latin America. For purposes of applying Statement of Financial Accounting
      Standards (“SFAS”) No. 131, “Disclosures about Segments of an Enterprise and
      Related Information,” management views the U.S. and International reportable
      segments separately in operating our business, although the products and
      services are similar for each segment. In each of these two reportable segments,
      we have developed an infrastructure through which we license and sell all of
      our
      products and services. While the products and services that are sold must be
      customized for each segment to address local issues, laws, tax requirements
      and
      customer preferences, the products and services are substantially similar
      worldwide.





Results
      of Operations





***Revenue:***





An
      analysis of the sales mix by reportable segments is as follows (amounts are
      net
      of intersegment eliminations, based on location of the selling entity, and
      include export sales):





Three
                Months Ended September 30,U.S.
            
            International
            
            Total(in
                thousands)
            
            2007
            
            2006
            
            2007
            
            2006
            
            2007
            
            2006Hardware
            
            $
            33,043
            
            $
            28,475
            
            $
            31,858
            
            $
            25,667
            
            $
            64,901
            
            $
            54,142Software
            
            
            12,178
            
            
            11,070
            
            
            18,673
            
            
            16,687
            
            
            30,851
            
            
            27,757Service
            
            
            51,417
            
            
            43,029
            
            
            69,313
            
            
            48,773
            
            
            120,730
            
            
            91,802$
            96,638
            
            $
            82,574
            
            $
            119,844
            
            $
            91,127
            
            $
            216,482
            
            $
            173,701





An
      analysis of the total sales mix as a percent of total revenue is as
      follows:





Three
                Months Ended
              September
                30,2007
            
            2006Hardware
            
            
            30.0
            %
            
            31.2
            %Software
            
            
            14.3
            %
            
            16.0
            %Service
            
            
            55.7
            %
            
            52.8
            %100.0
            %
            
            100.0
            %





For
      the
      three months ended September 30, 2007, total revenue increased approximately
      $42.8 million, or 24.6% to approximately $216.5 million compared to the same
      period last year, of which approximately $8.6 million was a result of favorable
      foreign currency exchange rate fluctuation, mainly between the Euro and the
      U.S.
      dollar. The increase in total revenue is primarily due to increases in service
      and hardware revenues. The increase in our service revenues primarily resulted
      from expansion of our customer base and increases in the volume of our support
      services that resulted from increased recurring support revenue from existing
      customers. The increase in recurring support revenue contributed 57.8% and
      the
      increase in installation revenue contributed 25.3% of the service revenue
      increase. The hardware revenue reflected an overall sales volume
      increase.





The
      International segment sales for the three months ended September 30, 2007
      increased approximately $28.7 million, of which approximately $8.6 million
      was a
      result of favorable foreign currency exchange rate fluctuation, as discussed
      above. The increase was a result of the following:





·
            An
                approximately $20.5 million or 42.1% increase in services revenue
                is
                primarily due to additional revenue generated from various acquisitions
                that were completed after September 30, 2006, and the continued expansion
                of our customer base coupled with increased recurring support revenue
                from
                existing customers;


·
            An
                approximately $6.2 million or 24.1% increase in hardware sales is
                primarily due to additional revenue generated from acquisitions,
                as
                discussed above, and an overall sales volume increase;
                and


·
            An
                approximately $2.0 million or 11.9% increase in software sales is
                primarily due to additional revenue generated from acquisitions and
                foreign currency translation, both as discussed above.





15


U.S.
      segment sales increased approximately $14.1 million for the three months ended
      September 30, 2007 compared to the same period last year. The increase was
      primarily the result of an increase in service revenues from expansion of our
      customer base coupled with recurring support revenue from existing
      customers.





***Cost
      of Sales:***





An
      analysis of the cost of sales is as follows:





Three
                Months Ended September 30,2007
            
            2006(in
                thousands)
            
            Cost
                of
              Sales
            
            %
                of
              Related
              Revenue
            
            Costs
                of
              Sales
            
            %
                of
              Related
              RevenueHardware
            
            $
            39,938
            
            
            61.5
            %
            $
            33,966
            
            
            62.7
            %Software
            
            
            8,509
            
            
            27.6
            %
            
            7,360
            
            
            26.5
            %Service
            
            
            54,793
            
            
            45.4
            %
            
            43,706
            
            
            47.6
            %$
            103,240
            
            
            47.7
            %
            $
            85,032
            
            
            49.0
            %





For
      the
      three months ended September 30, 2007, cost of sales as a percent of revenue
      decreased 1.3% to 47.7% compared to the same period last year. Hardware cost
      of
      sales as a percent of related revenue decreased 1.2% compared to the same period
      last year. The decrease is primarily as a result of increase in Workstation
      4
      revenue, which generate higher margin than other hardware products, coupled
      with
      decrease in Workstation 4 cost of sales as a percent of revenue.





Software
      cost of sales as a percent of related revenue increased approximately 1.1%
      compared to the same period last year primarily as a result of higher third
      party software sales for the three months ended September 30, 2007, which
      generate much lower margin than internally developed software sales.
      Additionally, the Opera suite software sales for the three months ended
      September 30, 2006 were approximately 8% higher than the sales during the same
      period this year. Opera suite product sales generate much higher margin than
      third party software sales. Service costs as a percent of related revenue
      decreased approximately 2.2% compared to the same period last year primarily
      due
      to decreases in maintenance service part costs and overall service labor costs.





***Selling,
      General and Administrative (“SG&A”) Expenses:***





SG&A
      expenses, as a percent of revenue, decreased 0.9% to 32.7% compared to the
      same
      period last year. This decrease is primarily due to our ability to leverage
      our
      costs with the increase in total revenue.





***Research
      and Development (“R&D”):***





R&D
      expenses consist primarily of labor costs less capitalized software development
      costs. Non-cash share-based compensation expenses allocated to R&D were not
      capitalized as software development costs during the three months ended
      September 30, 2007 and September 30, 2006 because no stock options were granted
      to employees whose labor costs were capitalized as software development costs.
      An analysis of R&D activities is as follows:





Three
                Months Ended
              September
                30,(in
                thousands)
            
            2007
            
            2006Total
                R&D incurred
            
            $
            10,027
            
            $
            7,338Capitalized
                software development costs
            
            
            (611
            )
            
            (422
            )Total
                R&D expenses
            
            $
            9,416
            
            $
            6,916%
                of Revenue
            
            
            4.3
            %
            
            4.0
            %




16




The
      increase in total R&D capitalized software development costs is primarily
      due to additional R&D incurred by newly acquired companies and additional
      R&D incurred for the Company’s retail software products. Total R&D
      incurred includes approximately $0.3 million and approximately $0.1 million
      for
      the non-cash share-based compensation expense allocated to R&D for the three
      months ended September 30, 2007 and September 30, 2006,
      respectively.





***Depreciation
      and Amortization Expenses:***





Depreciation
      and amortization expenses for the three months ended September 30, 2007
      increased approximately $1.0 million to approximately $3.8 million compared
      to
      the same period last year. The increase is primarily due to additional expense
      incurred as a result of various acquisitions that were completed after September
      30, 2006.





***Share-Based
      Compensation Expenses:***





We
      account for our option awards in accordance with SFAS No. 123(R), “Share-Based
      Payment.” The fair value of awards granted under the stock option program are
      measured as of the date of grant, and non-cash share-based compensation
      expenses, adjusted for expected forfeitures, are recognized ratably over the
      vesting period of options in the consolidated statements of operations. In
      addition, non-cash share-based compensation expense is recognized for the
      non-vested portion of awards that were granted before the effective date of
      SFAS
      No. 123(R) as those options become vested. The SG&A expenses and R&D
      expenses discussed above include the following allocations of non-cash
      share-based compensation expense:





Three
                Months Ended September 30,(in
                thousands)
            
            2007
            
            2006Selling,
                general and administrative
            
            $
            3,542
            
            $
            2,692Research
                and development
            
            
            302
            
            
            123Total
                non-cash share-based compensation expense
            
            
            3,844
            
            
            2,815Income
                tax benefit
            
            
            (841
            )
            
            (571
            )Total
                non-cash share-based compensation expense, net of tax
                benefit
            
            $
            3,003
            
            $
            2,244Impact
                on diluted net income per share
            
            $
            0.07
            
            $
            0.06





***Income
      from Operations:***





Income
      from operations for the three months ended September 30, 2007 increased
      approximately $8.4 million or 40.9%, to approximately $29.1 million, compared
      to
      the same period last year. The increase is mainly due to an overall increase
      in
      sales volume coupled with a decrease in cost of sales as a percent of
      revenue .





Net
      non-operating income for the three months ended September 30, 2007 increased
      approximately $1.1 million to approximately $3.3 million compared to the same
      period last year. The increase is due to an increase in interest income of
      approximately $1.3 million resulting from overall higher cash and cash
      equivalents balances and short term investments and overall higher interest
      rates received on short term investments.





The
      effective tax rate was 33.5% for each of the three month periods ended September
      30, 2007 and September 30, 2006.  The effective tax rate for the three
      months ended September 30, 2007 was less than the 35.0% U.S. statutory federal
      income tax rate, mainly due to the increased proportion of earnings from
      jurisdictions that have a lower statutory tax rate than the U.S. and from the
      phase-in of the deduction for domestic production activities.  These
      benefits were partially offset by the non-deductible nature of certain
      non-cash share-based compensation items and other non-deductible compensation
      items, foreign withholding taxes and enacted tax rate changes in foreign
      jurisdictions.





Based
      on
      currently available information, we estimate that the fiscal year 2008 effective
      tax rate will be approximately 33.2%.  We believe that due to changes in
      the mix of earnings among jurisdictions, the fluctuation of earnings, and the
      impact of certain discrete items recognized in accordance with the interim
      reporting requirements of FIN 18 “Accounting for Income Taxes in Interim
      Periods,” there may be some degree of adjustment to the effective tax rate on a
      quarterly basis.





17




Effective
      July 1, 2007, we adopted the provisions of FASB Interpretation No. 48,
“Accounting for Uncertainty in Income Taxes, an Interpretation of FASB Statement
      No. 109” (“FIN 48”). FIN 48 clarifies the accounting for income taxes by
      prescribing a minimum recognition threshold a tax position is required to meet
      before being recognized in the financial statements.  FIN 48 also provides
      guidance on derecognition, measurement, classification, interest and penalties,
      accounting in interim periods, disclosure and transition. The
      cumulative effect of adopting FIN 48 of approximately $2.6 million, including
      interest and penalties, has been recorded as a reduction to retained earnings
      and an increase in net income taxes payable. As a result, we had approximately
      $10.9 million of unrecognized income tax
      benefits as of July 1, 2007, of which approximately $1.9 million represented
      accrual for interest and penalties. If recognized, all of the unrecognized
      income tax benefit would be recognized as a reduction of income tax expense,
      impacting the effective income tax rate. During the three months ended September
      30, 2007, there has been no significant change in the unrecognized income tax
      benefits. We have reviewed our uncertain income tax positions in accordance
      with
      FIN 48, and currently we are not able to reasonably estimate material changes
      in
      the unrecognized income tax benefits and the impact it would have on our
      consolidated financial position, results of operations and cash flows in the
      next twelve months.





We
      historically classified interest and penalties related to unrecognized income
      tax benefits as a component of income tax expense. With the adoption of FIN
      48,
      we are maintaining our historical method of accruing interest (net of related
      tax benefits where appropriate) and penalties associated with unrecognized
      income tax benefits as a component of our income tax expense.





In
      the
      ordinary course of business, transactions occur for which the ultimate tax
      outcome may be uncertain. In addition, respective tax authorities periodically
      audit our income tax returns. These audits examine our significant tax filing
      positions, including the timing and amounts of deductions and the allocation
      of
      income and expenses among tax jurisdictions. We are currently under audits
      in
      certain of our major taxing jurisdictions, with open tax years beginning in
      fiscal year 1999. Currently, we are not able to reasonably estimate the
      completion date of these ongoing audits. Our major taxing jurisdictions include
      Australia, Ireland, Germany, Singapore, the United Kingdom and the United
      States.





**Critical
      accounting policies**





Our
      discussion and analysis of our financial condition and results of operations
      are
      based upon our condensed consolidated financial statements, which have been
      prepared in accordance with accounting principles generally accepted in the
      U.S.
      The preparation of these financial statements requires us to make estimates
      and
      judgments that affect the reported amounts of assets, liabilities, revenue
      and
      expenses and related disclosure of contingent assets and liabilities. We base
      our estimates and judgments on historical experience and on various assumptions
      that we believe to be reasonable under the circumstances. Actual results may
      differ from these estimates under different assumptions or
      conditions.





We
      believe the following are our critical accounting policies that involve our
      more
      significant judgments and estimates used in the preparation of the condensed
      financial statements:


·
              Revenue
                  recognition and deferred revenue;
 ·
              Allowance
                  for doubtful accounts;
 ·
              Inventory
 ·
              Non-cash
                  share-based compensation;
 ·
              Capitalized
                  software development costs;
 ·
              Valuation
                  of long-lived assets, including intangible assets and impairment
                  review of
                  goodwill;
 ·
              Contingencies
                  and litigation;
 ·
              Income
                  taxes; and
 ·
              Foreign
                  currency translation.





We
      have
      reviewed our critical accounting policies and estimates and the related
      disclosures with our Audit Committee. These policies and procedures are
      described further in our Annual Report on Form 10-K for the year ended June
      30,
      2007 in Item 7, “Management’s Discussion and Analysis of Financial Condition and
      Results of Operations,” under the heading “Critical Accounting Policies and
      Estimates.”




18


**Liquidity
      and capital resources**





**Sources
      and Uses of Cash**





The
      Company’s consolidated statements of cash flows summary is as
      follows:





Three
                Months Ended
              September
                30,2007
            
            2006Net
                cash provided by (used in):Operating
                activities
            
            $
            24,676
            
            $
            21,934Investing
                activities
            
            
            (54,076
            )
            
            (7,271
            )Financing
                activities
            
            
            18,780
            
            
            10,199




***Operating
      activities:***




Net
      cash
      provided by operating activities for the three months ended September 30, 2007
      increased approximately $2.7 million compared to the three months ended
      September 30, 2006 due to approximately $6.2 million increase in net
      income.





***Investing
      activities:***




Net
      cash
      used in investing activities for the three months ended September 30, 2007
      was
      approximately $54.1 million, primarily as a result of our net investment in
      auction rate securities of approximately $38.0 million. We also used
      approximately $11.6 million substantially related to our acquisition of Check
      in
      Data. Additionally, approximately $4.6 million was also used to purchase
      property, plant and equipment and to internally develop software to be licensed
      to others.





Net
      cash
      used in investing activities for the three months ended September 30, 2006
      was
      approximately $7.3 million, primarily as a result of approximately $4.7 million
      related to our acquisitions of various distributors and another company with
      complementary products and services. Additionally, approximately $2.6 million
      was also utilized to purchase property, plant and equipment and to internally
      develop software to be licensed to others. We did not invest in auction rate
      securities during the three months ended September 30, 2006.





***Financing
      activities:***




Net
      cash
      provided by financing activities for the three months ended September 30, 2007
      was approximately $18.8 million, primarily due to proceeds from stock option
      exercises of approximately $12.5 million and realized tax benefits from stock
      option exercises of approximately $6.4 million. We did not repurchase any of
      our
      stock during the period.





Net
      cash
      provided by financing activities for the three months ended September 30, 2006
      was approximately $10.2 million, primarily due to proceeds from stock option
      exercises of approximately $8.2 million and realized tax benefits from stock
      option exercises of approximately $4.7 million, which was partially offset
      by
      approximately $2.4 million utilized to repurchase our stock.





At
      September 30, 2007, all cash was being retained for the operation and expansion
      of the business and the repurchase of our common stock. During October 2007,
      the
      Company purchased all of the remaining shares authorized under the fiscal year
      2005 purchase plan - approximately 0.2 million shares.





**Capital
      Resources**





At
      September 30, 2007, we had approximately $240.5 million in cash and cash
      equivalents, in addition to approximately $124.9 million invested in auction
      rate securities which are classified as short-term investments in the
      accompanying condensed consolidated balance sheets.




We
      have
      two credit agreements (the “Credit Agreements”) that in the aggregate provide a
      $65.0 million multi-currency committed line of credit which expires on July
      31,
      2009. The lenders under the Credit Agreements are Bank of America, N.A.,
      Wachovia Bank, N.A., and US Bank (“Lenders”). The international facility is
      secured by 65% of the capital stock of our main operating Ireland subsidiary
      and
      100% of all of the remaining major foreign subsidiaries. The U.S. facility
      is
      secured by 100% of the capital stock of our major U.S. subsidiaries as well
      as
      inventory and receivables located in the U.S.




19




For
      borrowings in U.S. currency, the interest rate under the Credit Agreements
      is
      equal to the higher of the federal funds rate plus 50 basis points or the prime
      rate. For borrowings in foreign currencies, the interest rate is determined
      by a
      LIBOR-based formula, plus an additional margin of 125 to 200 basis points,
      depending upon our consolidated earnings before interest, taxes, depreciation
      and amortization (“EBITDA”) for the immediately preceding four calendar
      quarters. Under the terms of the Credit Agreements, we are required to pay
      insignificant commitment fees on the unused portion of the line of credit to
      the
      Lenders. The Credit Agreements also contain certain financial covenants and
      restrictions on our ability to assume additional debt, repurchase stock, sell
      subsidiaries, or acquire companies. In case of an event of default, as defined
      in the Credit Agreements, that is not cured within the applicable cure period
      (with respect to those defaults for which the Credit Agreements provide a cure
      period), the Lenders’ remedies include their ability to declare all outstanding
      loans, plus interest and other related amounts owed, to be immediately due
      and
      payable in full, and to pursue all rights and remedies available to them under
      the Credit Agreements or under applicable law.





As
      of
      September 30, 2007, we had approximately $2.4 million outstanding on the above
      lines of credit and had approximately $62.6 million available for future
      borrowings. The total outstanding balance consisted of the
      following:




·
            JPY
                (Japanese Yen) - 165.0 million (approximately $1.4 million at the
                September 30, 2007 exchange rate);


·
            SEK
                (Swedish Krona) - 4.0 million (approximately $0.6 million at the
                September
                30, 2007 exchange rate), and


·
            NZD
                (New Zealand Dollar) - 0.5 million (approximately $0.4 million at
                the
                September 30, 2007 exchange rate.)





We
      also
      have a credit relationship with a European bank in the amount of EUR 1.0 million
      (approximately $1.4 million at the September 30, 2007 exchange rate.) Under
      the
      terms of this facility, we may borrow in the form of either a line of credit
      or
      term debt. As of September 30, 2007, there were no balances outstanding on
      his
      credit facility, but approximately EUR 0.2 million (approximately $0.3 million
      at the September 30, 2007 exchange rate) of the credit facility has been
      utilized for guarantees.





As
      of
      September 30, 2007, we had approximately $63.7 million borrowing capacity under
      all of the credit facilities described above. The weighted-average interest
      rate
      on the outstanding balances under the lines of credit as of September 30, 2007
      was 4.2%.





We
      believe that our cash and cash equivalents, short-term investments, cash
      generated from operations and our available lines of credit will be sufficient
      to provide our working capital needs for the foreseeable future. Nevertheless,
      if we need to raise additional funds, we believe we will be able to raise the
      necessary amounts either by entering into additional financing agreements or
      through the issuance of our common stock. We currently anticipate that our
      property, plant, and equipment expenditures for fiscal year 2008 will be
      approximately $15 million.




20





**ITEM
      3.**  **QUANTITATIVE
      AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK**





The
      Company recorded foreign sales, including exports from the United States, of
      approximately $119.8 million and approximately $91.1 million **** during
      the three months ended September 30, 2007 and September 30, 2006, respectively.





The
      Company’s significant international business and presence expose the Company to
      certain market risks, such as currency fluctuation, interest rate changes,
      and
      political risks. With respect to currency risk, the Company transacts business
      in different currencies through its foreign subsidiaries. The fluctuation of
      currencies affects sales and profitability. Frequently, sales and the costs
      associated with those sales are not denominated in the same
      currency.





In
      the
      three months ended September 30, 2007 and September 30, 2006, the Company
      transacted business in 37 currencies and 31 currencies,
      respectively.





The
      relative currency mix for the three months ended September 30, 2007 and
      September 30, 2006 were as follows:





%
                of Reported Revenue
            
            Exchange
                RatesThree
                Months Ended
              September
                30,
            
            (in
                U.S. Dollars)
              As
                of September 30,2007
            
            2006
            
            2007
            
            2006Revenues
                by currency (1):United
                States Dollar
            
            
            50
            %
            
            53
            %
            
            1.0000
            
            
            1.0000European
                Euro
            
            
            21
            %
            
            22
            %
            
            1.4259
            
            
            1.2681British
                Pound Sterling
            
            
            9
            %
            
            8
            %
            
            2.0461
            
            
            1.8724Canadian
                Dollar
            
            
            4
            %
            
            1
            %
            
            1.0055
            
            
            0.8946Mexican
                Peso
            
            
            2
            %
            
            2
            %
            
            0.0914
            
            
            0.0910Australian
                Dollar
            
            
            2
            %
            
            2
            %
            
            0.8874
            
            
            0.7453All
                Other Currencies (2), (3)
            
            
            12
            %
            
            12
            %
            
            0.2490
            
            
            0.1428Total
            
            
            100
            %
            
            100
            %(1)
                Calculated using weighted average exchange rates for the
                period.(2)
                The “% of Reported Revenue” for “All Other Currencies” is calculated based
                on the weighted average three month exchange rates for all other
                currencies.(3)
                The “Exchange Rates as of September 30” for “All Other Currencies”
                represents the weighted average September 30 exchange rates for all
                other
                currencies based on the three month
                revenue.





A
      10%
      increase or decrease in the value of the Euro in relation to the U.S. dollar
      in
      the three months ended September 30, 2007, would have affected total revenues
      by
      approximately $4.6 million, or 2.1%. The sensitivity analysis assumes a weighted
      average 10% change in the exchange rate during the respective period with all
      other variables being held constant. This sensitivity analysis does not consider
      the effect of exchange rate changes on either cost of sales, operating expenses,
      or income taxes, and accordingly, is not necessarily an indicator of the effect
      of potential exchange rate changes on the Company’s net income.





The
      Company is also subject to interest rate fluctuations in foreign countries
      to
      the extent that the Company elects to borrow in the local foreign currency.
      In
      the past, this has not been an issue of concern as the Company has the capacity
      to elect to borrow in other currencies with more favorable interest rates.
      The
      Company will continue to evaluate the need to invest in financial instruments
      designed to protect against interest rate fluctuations.





The
      Company’s committed lines of credit bear interest at a floating rate, which exposes the
      Company to interest rate risks. The Company manages its exposure to this risk
      by
      minimizing, to the extent feasible, overall borrowing and monitoring available
      financing alternatives. The Company’s interest rate risk has not changed
      materially from June 30, 2007, and the Company does not currently foresee any
      significant changes in exposure or in how it manages this exposure in the near
      future. For borrowings in U.S. currency, the Company’s lines of credit bear
      interest at higher
      of the federal funds rate plus 50 basis points or the prime
      rate. For borrowings in foreign currencies, the interest rate is determined
      by a
      LIBOR-based formula plus an additional margin of 125 to 200 basis points,
      depending upon the Company’s consolidated earnings before interest, taxes,
      depreciation and amortization for the immediately preceding four calendar
      quarters. At September 30, 2007, the Company had total borrowings of
      approximately $2.4 million, and had not entered into any instruments to hedge
      the resulting exposure to interest-rate risk. Management believes that the
      fair
      value of the debt equals its carrying value at September 30, 2007. The Company’s
      exposure to fluctuations in interest rates will be affected by the outstanding
      amount under the line of credit, the applicable interest rate, and any
      outstanding instruments to hedge exposure to interest rate risk. As the
      Company’s total borrowing as of September 30, 2007 was approximately $2.4
      million, a 1% change in interest rate would have resulted in an immaterial
      impact on the Company’s consolidated financial position, results of operations
      and cash flows.





To
      minimize the Company’s exposure to credit risk associated with financial
      instruments, the Company places its temporary cash investments with
      high-credit-quality institutions, generally with bond rating of “A” and above.




21




**ITEM
      4.**  **CONTROLS
      AND PROCEDURES**





Evaluation
      of Disclosure Controls and Procedures





Our
      management, with the participation of our Chief Executive Officer and Chief
      Financial Officer, evaluated the effectiveness of our disclosure controls and
      procedures as of the end of the period covered by this report. Based on that
      evaluation, the Chief Executive Officer and Chief Financial Officer concluded
      that our disclosure controls and procedures as of the end of the period covered
      by this report are functioning effectively to provide reasonable assurance
      that
      the information required to be disclosed by us in reports filed under the
      Securities Exchange Act of 1934 is (i) recorded, processed, summarized and
      reported within the time periods specified in the SEC’s rules and forms and (ii)
      accumulated and communicated to our management, including the Chief Executive
      Officer and Chief Financial Officer, as appropriate to allow timely decisions
      regarding disclosure. A controls system cannot provide absolute assurance,
      however, that the objectives of the controls system are met, and no evaluation
      of controls can provide absolute assurance that all control issues and instances
      of fraud, if any, within a company have been detected.





Change
      in
      Internal Control over Financial Reporting





No
      change
      in our internal control over financial reporting occurred during the Company’s
      most recent fiscal quarter that has materially affected, or is reasonably likely
      to materially affect, our internal control over financial
      reporting.




22




**PART
      II - OTHER INFORMATION**





**ITEM
      5.**  **OTHER
      INFORMATION**





During
      the three months ended September 30, 2007, the Company acquired Check-in Data
      AG
      (“Check in Data”) for a total cash purchase price of approximately $13.5
      million, net of cash acquired. Approximately $2.0 million of the total purchase
      price was held back to satisfy certain claims the Company may have against
      Check
      in Data. Any amounts remaining after satisfaction of any claims will be paid
      in
      two installments, at 12 and 18 months after the closing. Headquartered in
      Switzerland, Check in Data is a distributor of MICROS products and services
      and
      also provides complementary products and services. The assets acquired included
      approximately $3.6 million in cash. Goodwill of approximately $12.4 million
      and
      intangible assets and capitalized software of approximately $3.3 million were
      recorded in connection with the acquisition. The purchase price allocation
      is
      not finalized and is subject to adjustments.





**ITEM
      6.**  **EXHIBITS**





3(i)
            
            Articles
                of Incorporation of the Company are incorporated herein by reference
                to
                Exhibit 3 to the Annual Report on Form 10-K of the Company for the
                Fiscal
                Year ended June 30, 1990.


3(i)(a)
            
            Articles
                of Amendment to Articles of Incorporation are incorporated herein
                by
                reference to Exhibit 3(i) to the Quarterly Report on Form 10-Q of
                the
                Company for the period ended December 31,
                1997.


3(i)(b)
            
            Articles
                of Amendment to Articles of Incorporation are incorporated herein
                by
                reference to Exhibit 3(i) to the Quarterly Report on Form 10-Q of
                the
                Company for the period ended December 31,
                1998.


3(ii)
            
            By-laws
                of the Company, as amended, are incorporated herein by reference
                to
                Exhibit 3(ii) to the Form 8-K filed on October 17,
                2007.


31(a)
            Certification
                of Principal Executive Officer pursuant to Rule 13a-14(a)under the
                Securities Exchange Act of 1934(filed
                herewith).


31(b)
            Certification
                of Principal Financial Officer pursuant to Rule 13a-14(a) under the
                Securities Exchange Act of 1934 (filed
                herewith).


32(a)
            Certification
                of Principal Executive Officer pursuant to Rule 13a-14(b) under the
                Securities Exchange Act of 1934 and 18 U.S.C. 1350(filed
                herewith).


32(b)
            Certification
                of Principal Financial Officer pursuant to Rule 13a-14(b) under the
                Securities Exchange Act of 1934 and 18 U.S.C. 1350(filed
                herewith).






23


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




MICROS SYSTEMS, INC.
              (Registrant)Date:
              November 9,
              2007
            
            
            /s/
              Gary C.
              KaufmanGary
              C. KaufmanExecutive
                Vice President,
              Finance
                and Administration/
              Chief
                Financial Officer


Date:
                November 9, 2007
            
            
            /s/ Cynthia
              A. RussoCynthia
                A. Russo
              Vice
                President and Corporate Controller




24