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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549





FORM 10-K







|x | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ------------------------------------------------------------------------------------

For the Fiscal Year Ended December 31, 2007



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

For the transition period from  to

Commission file number 0-20740





EPICOR SOFTWARE CORPORATION

(Exact name of registrant as specified in its
charter)







|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|Delaware                                                       |  | 33-0277592                          
|(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification No.)

18200 Von Karman Ave, Suite 1000

Irvine, California 92612

(Address of principal executive offices, zip code)

Registrants telephone number, including area code: (949) 585-4000







|                                                            |  |                                        
|----------------------------------------------------------- |  | ---------------------------------------
|Securities registered pursuant to Section 12(b) of the Act: |  | Common Stock, par value $.001 per share
|                                                            |  | Preferred Share Purchase Rights        
|                                                            | 
|Securities registered pursuant to Section 12(g) of the Act: |  | None.                                  





Indicate by check mark if the registrant is a
well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes  x    No   ̈

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the
Act.    Yes   ̈    No  x

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No   ̈

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained
herein, and will not be contained, to the best of the registrants knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.   ̈

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

Large accelerated filer  x    Accelerated filer   ̈    Non-accelerated filer   ̈    Smaller reporting company   ̈

| |  |                                               |  |  |  | 
| |  | --------------------------------------------- |  |  |  | 
| |  | (Do not check if a smaller reporting company) |  | 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Act).  Yes   ̈    No  x

The
aggregate market value of the registrants voting Common Stock held by non-affiliates of the registrant was approximately $821,586,653 computed using the closing sales price of $14.87 per share of Common Stock on June 30, 2007 as reported
by the Nasdaq Global Select Market. Shares of Common Stock held by each officer and director and each person who owns 10% or more of the outstanding Common Stock have been excluded in that such persons may be deemed affiliates. The determination of
affiliate status is not necessarily a conclusive determination for other purposes.

The number of shares of Common Stock outstanding as of
February 22, 2008 was 58,396,409.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrants definitive Proxy Statement for the 2008 Annual Meeting of Stockholders, which Proxy Statement will be filed no later than 120 days
after the close of the registrants fiscal year ended December 31, 2007, are incorporated by reference in Part III of this Annual Report on Form 10-K.



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|Item 1. | BUSINESS
|------- | --------

Forward Looking Statements  Safe Harbor

Certain statements in this Annual Report on Form 10-K are forward looking statements within the meaning of Section 27A of the Securities Act of 1933,
as amended, and Section 21E of the Securities and Exchange Act of 1934, as amended, that involve risks and uncertainties. Any statements contained herein (including without limitation statements to the effect that the Company or Management
estimates, expects, anticipates, plans, believes, projects, continues, should, may, or will or statements concerning
potential or opportunity or variations thereof or comparable terminology or the negative thereof) that are not statements of historical fact should be construed as forward-looking statements including statements about
(i) the Companys future financial results, (ii) the impact of new accounting pronouncements, (iii) the Company's product development plans, (iv) the Companys capital spending, (v) the Companys future cash
flow from operations, (vi) sufficient sources of financing to continue operations for next twelve months and to satisfy contractual obligations and commercial commitments, (vii) the effect of current legal proceedings, (viii) future
cash tax payments and net operating loss carry forwards, (ix) the future use of forward or other hedging contracts, (x) the future impact of recent acquisitions on the Company, (xi) future investments in product development,
(xii) schedule of amortization of intangible assets and (xiii) future impact of valuation allowance review. Actual results could differ materially and adversely from those anticipated in such forward looking statements as a result of
certain factors, including the factors listed at pages 25 to 33. Because these factors may affect the Companys operating results, past performance should not be considered an indicator of future performance and investors should not use
historical results to anticipate results or trends in future periods. The Company undertakes no obligation to revise or publicly release the results of any revision to these forward-looking statements. Investors should carefully review the
risk factors described below and in other documents the Company files from time to time with the Securities and Exchange Commission.

Introduction

Epicor Software Corporation (Epicor or the Company) designs, develops, markets and supports enterprise application software solutions and services
primarily for use by mid-sized companies and the divisions and subsidiaries of Global 1000 enterprises, which generally consist of companies with annual revenues between $10 million and $1 billion, and emerging enterprises, which generally consist
of rapidly growing businesses with annual revenues under $25 million. Epicors solutions are designed to help companies focus on their customers, suppliers, partners and employees through enterprise-wide management of resources and information.
This collaborative focus distinguishes the Company from conventional enterprise resource planning (ERP) vendors, whose primary focus is improving internal business processes and efficiencies. The Company believes that by automating and integrating
information and critical business processes across their entire value chain, enterprises can improve not just their bottom line, but also their top line, allowing them to compete more effectively in todays increasingly global economy.

The Companys products include back office applications for production management, supply chain management (SCM), retail management and financial
accounting, as well as front office customer relationship management (CRM) and service management. Epicor also provides industry-specific solutions to the manufacturing, distribution, services and retail and hospitality industry sectors, as well as
to a range of industries and vertical markets within these sectors including financial services, professional services, industrial machinery, consumer goods, automotive, hotels and specialty retail. Epicors solutions also focus on the need for
increased supply chain visibility and transparency and offer e-commerce and collaborative portal capabilities that allow companies to further extend beyond the traditional four walls of their enterprise and further integrate their
operations with those of their customers, suppliers and partners.

The Companys products are increasingly developed on and use a service-oriented
architecture (SOA), which can help manufacturers, distributors, retailers and services organizations more quickly and efficiently respond to changing business requirements and practices. SOA is a modular, standards-based approach to software
development and its deployment is designed to provide a more agile and adaptable application foundation, which can help companies more effectively align their IT resources and enterprise software with their overall business objectives.

The Company offers solutions targeted to the following industries:

ManufacturingEpicors manufacturing solutions provide integrated ERP solutions for discrete and mixed-mode manufacturers. The Companys solutions are designed to meet the challenges of todays agile manufacturing



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environment typified by short product lifecycles, continual process improvement, mass customization and lean manufacturing initiatives. The Companys
products have been designed for specific types of manufacturers  from a small local job shop to a large regional manufacturer. The key industries on which Epicor focuses its manufacturing solutions include metal fabrication, industrial
machinery, automotive, electronics, consumer goods and aerospace.

DistributionEpicors distribution solutions are designed to meet the
expanding requirement to support a demand-driven supply network (DDSN) by increasing focus on the customer and providing a more seamless order to shipment cycle, as well as inventory and warehouse management, sales and order processing (S&OP),
financials, CRM and planning and forecasting solutions. The Companys distribution solution is designed to automate a business, from customer acquisition and order management to warehouse fulfillment, accounting and customer service. The
distribution suite offers an end-to-end solution set tailored for wholesale distributors including third-party logistics providers.

Retail and
HospitalityEpicor provides solutions tailored for the retail, hospitality and entertainment industries. The Companys retail solutions can support both smaller, single PC-based point-of-sale (POS) retail outlet scenarios, as well as
larger scale, distributed POS environments in specialty, general merchandise retailing and large specialty store chains that require more comprehensive POS, loyalty management and merchandising capabilities. Epicor provides both
best-of-breed retail solutions for large Tier-One retailers, as well as complete post-to-host solutions which can integrate all elements of the retail supply chain from the store register through to the enterprise
merchandising, planning, selling and financial applications. The Companys hospitality solutions, designed for food service, hotel, sports and recreation and other entertainment companies, can manage and streamline virtually every aspect of a
hospitality organization  from point-of-sale or property management system integration, to cash and sales management, food costing, core financials and business intelligence  all within a single solution.

ServicesEpicors solutions for services companies is focused on delivering a complete, end-to-end enterprise solution designed to meet the critical
business requirements of mid-sized to larger distributed service organizations, providing service organizations with the tools to improve staff utilization, maximize billing and revenue recognition, optimize resources and increase cash flow. The
services suite includes opportunity and bid management, CRM, resource and engagement management, project accounting, portfolio and performance management and collaborative commerce applications tailored for specific industries including financial
services, audit and accountancy, architectural, engineering and construction, commercial research, not-for-profit organizations, software and computer services, professional services and management consulting.

Beyond the targeted enterprise-wide solutions described above, Epicor also offers the following point solutions:

Supply Chain Management (SCM)Epicors supply chain management solutions enable companies to extend and optimize their enterprises and more effectively
collaborate with their customers, suppliers and partners. From business-to-business e-commerce applications to advanced planning and scheduling to advanced warehouse management, forecasting and fulfillment, Epicor offers solutions that can improve
operational performance, while strengthening relationships across the supply chain to increase customer value.

Supplier Relationship Management
(SRM)Epicors supplier relationship management solutions include applications for strategic sourcing, procurement and spending analytics. These solutions are designed to enable an organization to reduce costs by driving inefficiencies
out of the procurement process. They provide a complete web-based, buy-side commerce solution that can rapidly be deployed standalone or as part of an integrated enterprise solution.

Customer Relationship Management (CRM)Epicors award-winning customer relationship management solution is designed to enable small and midsize enterprises to manage their entire customer
lifecycle. Epicors collaborative CRM solution enables businesses to gather, organize, track and share prospect, customer, competitor and product information, to boost revenues and increase customer satisfaction.

Accounting and FinanceEpicors award-winning financial and accounting solutions provide a foundation for good fiscal governance and accurate financial
performance through a combination of core ledger, cash and asset management, deferred revenue accounting and contract renewal and electronic payment facilities.

IT Service Management (ITSM)Epicor ITSM provides a robust set of service management features that support key IT processes as outlined by the Information Technology Infrastructure Library (ITIL) version 2 (ITIL v2) and version
3 (ITIL v3) and has been certified by Pink Elephant as ITIL Compatible in five key service management areas: incident management, problem management, change management, configuration management and service level management.



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The Companys software products incorporate a significant number of features localized to address international
market opportunities, including support for multiple languages, multiple currencies and accounting for global taxation methods.

The Company offers
consulting, training and support services to supplement the use of its software products by its customers. Midmarket companies require cost effective systems that have broad functionality, yet are rapidly implemented, easily adapted and highly
configurable to their unique business requirements.

The Company was incorporated in Delaware in November 1987, under the name Platinum Holdings
Corporation. In September 1992, the Company changed its name to Platinum Software Corporation. In April 1999, the Company changed its name to Epicor Software Corporation. The Company has thirteen active operating subsidiaries worldwide.

As part of its business strategy, the Company has pursued acquisitions to expand its customer base, global product offering and geographic footprint. The acquisition
of NSB Retail Systems PLC (NSB) (announced in December 2007 and completed in February 2008), CRS Retail Technology Group, Inc. (CRS) in 2005, Scala Business Solutions N.V. (Scala) in 2004 and ROI Systems, Inc. (ROI) in 2003 are typical of this
ongoing strategy.

NSB

On December 17, 2007, the
Company announced that the Epicor and NSB Boards of Directors reached agreement on the terms of the recommended acquisition of NSB by Epicor pursuant to a scheme of arrangement under section 425 of the United Kingdom Companies Act 1985. On
February 7, 2008, Epicor completed the acquisition of NSB and shareholders of NSB received £0.38 in cash per NSB ordinary share. The terms of the transaction valued the fully diluted share capital of NSB at approximately
£160 million (approximately $322 million USD, based on the US$:£ exchange rate on December 14, 2007). As of June 30, 2007, NSB had cash and equivalents balance of $34.6 million and no debt. NSB Group designs,
develops, markets and supports store and merchandising solutions to leading retailers of apparel, footwear, and specialty merchandise. The acquisition of NSB provides an expanded portfolio of products and services for large specialty retailers and
department stores, as well as a fully hosted, managed service offering designed for smaller and mid-sized retailers who are interested in rapid implementation via an on-demand versus on-premise offering. NSB products are developed on the Microsoft
..NET platform and are highly complementary to the Companys retail products.

CRS

In December 2005, pursuant to a stock purchase agreement, the Company acquired CRS, a privately held company. CRS
designs, develops, markets and supports software, hardware and services that assist general merchandise and specialty retail companies in increasing sales, improving customer service and reducing operating costs. CRS applications leverage
Microsoft® and Java technologies and have over 50,000 in-store systems installed in 32 countries and 10 languages. The CRS acquisition provides existing customers new, complementary product
offerings and creates expanded opportunities in the hospitality and retail vertical, particularly in key international markets through increased marketing, improved sales execution, enhanced viability and worldwide sales and support infrastructure.
The Company recorded the acquisition of CRS as a purchase in 2005, and the results of CRSs operations are included in the Companys Consolidated Statements of Operations from the date of acquisition.

Scala

In June
2004, Epicor acquired Scala, a publicly held software company headquartered in Amsterdam, the Netherlands, by means of an exchange offer made for all of the outstanding ordinary shares of Scala. Scala designs, develops, markets and supports
collaborative ERP software (iScala) that is used by the small- and medium-size divisions and subsidiaries of large multinational corporations, as well as by independent stand-alone companies in developed and emerging markets. Scalas
solutions are based on a Web services platform and utilize Microsoft® technologies. Scalas software and services support local currencies and accounting regulations, are available in
more than 30 languages and are used by customers in over 140 countries. In addition to complementary product offerings, the Scala acquisition provided the Company with a significantly expanded worldwide presence. The Company recorded the acquisition
of Scala as a purchase in 2004, and the results of Scalas operations are included in the Companys Consolidated Statements of Operations from the date of acquisition.



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Background

Epicor
designs its products and services primarily for midmarket companies and the divisions and subsidiaries of Global 1000 enterprises, which generally consist of companies with annual revenues between $10 million and $1 billion, and emerging
enterprises, which generally consist of rapidly growing businesses with annual revenues under $25 million. In the past, midmarket companies were underserved by smaller best-of-breed applications or traditional financial and ERP systems
that had originally been designed for larger corporations. These large enterprise systems, though highly functional, were also extremely complex and expensive to purchase, install, integrate and maintain. Further, the complexity of the
infrastructure and ongoing maintenance to support these systems often required a centralized deployment model. This limited access to critical data to the organization's information technology (IT) department, which then limited timely availability
of information to decision makers, managers and key employees. Moreover, these mostly proprietary systems provided little flexibility or adaptability to the constantly evolving requirements of midmarket companies.

Beginning in the early 1990s, as Global 1000 companies aggressively invested in information technology to help them streamline and integrate disparate business
processes, they created a tremendous demand in their operating subsidiaries and the small to mid-size enterprise (SME) market for enterprise-wide software applications that integrated business processes and information. Initially, only larger
organizations had the technological expertise, budget and ability to support the lengthy implementations typified by the early solutions.

While SMEs
understood the business value of enterprise applications, they lacked the extensive resources required to implement and support such first-generation solutions. In their quest to boost productivity and profits as well as to gain a competitive
advantage, mid-sized companies have increasingly turned to integrated application software to automate and link their business processes. The Company believes that due to the midmarket's unique business constraints of limited budgets and rapid
implementation timeframes, best-of-breed solutions and after-market application integrations are far too complex and costly to offer an effective enterprise solution.

As a group, mid-sized companies face tremendous global competitive pressures as they compete for business against larger corporations, other mid-sized competitors and smaller start-ups. They generally understand the
need to remain close to their customers and suppliers, while making the most effective use of relatively limited resources. Mid-sized companies frequently demand a quick return on technology investments and require that solutions be affordable
 not only to acquire and implement, but also to maintain and support  throughout their entire operational life span.

Epicors experience has been that mid-sized companies are practical consumers with respect to technology, typically selecting affordable, proven solutions. The dramatic decrease in information technology costs
over the past decade, coupled with a simultaneous increase in computing power, has made key new technologies accessible to this cost-conscious market. Microsoft Corporation took advantage of increased computing capabilities to develop Microsoft
BackOffice®(now the Microsoft Windows Server family), a robust network operating system and scalable relational database that provides smaller
businesses with a sophisticated technology infrastructure previously accessible only to Global 1000 corporations. Microsoft has quickly become the fastest growing technology platform and is particularly attracting midmarket companies with its
features, familiarity and ease-of-use.

The recent development of more cost-effective, adaptable and agile infrastructures, such as the emergence of SOA
and technologies like Microsoft .NET and Web services, is also driving mid-sized companies to increase their investment in enterprise applications. Unlike monolithic, tightly-coupled systems of the past, SOA and Web services provide the ability to
create highly functional applications through the assembly or collection of loosely-coupled, self-describing business services. This standards-based design approach provides a secure, scalable, unified design framework that allows both developers
and information workers to more easily access, combine and reuse software application functionality. With an SOA, businesses have the ability to more easily and efficiently align their information systems and technology resources, allowing them the
ability to respond more quickly to continually changing business requirements.

Epicors early adoption of Microsoft .NET and Web services technology
allows its product offerings, development and services to leverage the benefits of SOA and provide growing mid-sized businesses with increased flexibility, inter-operability and cross-platform capability. These capabilities are extremely important
as the market for Enterprise Applications continues to grow worldwide.



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Industry Analyst Market Growth Projections

According to the press release AMR Research Releases Enterprise Applications Market Sizing Reports, dated July 11, 2007, ERP vendor revenue across all segments is expected to grow from $28.8B in
2006 to $47.7B by 2011. In addition, The Midsize Enterprise ERP Spending Report, 2007-2008, published December 10, 2007 by AMR Research states that midsize enterprises will increase ERP budgets by 5.1% in 2008 by
2010, 43% of companies would like to employ a single, global financial and shared services ERP system.

Industry Segments and Geographic
Information

Epicors reportable operating segments include license fees, consulting, maintenance and other. For the purposes of Statement of
Financial Accounting Standards No. 131, Disclosures about Segments of an Enterprise and Related Information, a breakout of the Companys sales by segment is provided in Note 13 of the Notes to Consolidated Financial
Statements under Item 8, Financial Statements and Supplementary Data. A summary of the Companys sales by geographic region is incorporated herein by reference to Note 13 of the Notes to Consolidated Financial
Statements under Item 8, Financial Statements and Supplementary Data.

Technology Strategy

The Company's technology strategy is to develop leading enterprise software applications using industry-standard tools where possible, and to take advantage of leading
third-party, industry-standard technologies for database management systems, operating systems, user interfaces, infrastructure and connectivity (including internet, intranet and extranet access). As the Company continues to deliver enterprise
application solutions, it is increasingly focused on leveraging new technology platforms and standards, like Web services, which support the integration of computing and communication paradigms as one across multiple devices. For businesses to
compete in todays increasingly real-time world, they need to adopt an infrastructure that can integrate the internet, wireless, mobile, voice response and personal digital assistants (PDA) to support business anytime, anywhere.
Computing platforms, like Microsoft .NET, allow Epicor enterprise solutions to adopt SOA, and support commerce in a distributed computing world.

The
Company will continue to focus on leveraging emerging and industry-standard technologies to provide rapid return on investment and lower overall total cost of ownership for the Companys customers. Today, the Company's core product architecture
incorporates the following:

Architecture

The
Companys product architecture is designed to help its customers and partners economically deploy, tailor and integrate highly functional industry applications to suit their specific business processes and requirements. A key focus of the
architecture strategy is the development and enhancement of client frameworks that allows both companies and individuals to optimize labor-intensive data management tasks. The Company also continues to enhance its SOA strategy across its product
lines, which enables enterprises to incorporate new and existing software applications more seamlessly, better leverage their existing IT assets and implement new industry processes and best practices more fully. The Company also invests in software
tools, architectures and frameworks focused on consistent, high quality code and developer productivity across its world-wide development organization.

Service-Oriented Architecture (SOA)

The Company has built its SOA around three pillars: application programming interface (API),
orchestration and business process management (BPM). APIs are essentially the building blocks of the system, as they are the conventions, protocols and semantics that define how a software service, function, process or application is invoked or
accessed. APIs provide consistency and flexibility by ensuring that all programs using a common API will have similar interfaces. The Companys APIs are highly granular in nature and comply with Web services standards to promote
inter-operability and ease of integration. The Company believes providing both wide functionality coverage and open standards in its API is a significant benefit to customers. Orchestration is the process of coordinating work between systems inside
and outside the enterprise and is central to electronic commerce and other distributed computing scenarios. The Companys orchestration product is Epicor Service Connect for its Enterprise, Epicor for Service Enterprises, iScala,
Clientele, Vantage and Vista products. Business process management (BPM) capabilities, which allow enterprises to redirect application logic without customizing the application code, have a dual purpose. The first is to define relevant business
events and establish notifications to users, other applications and (importantly) workflow management systems. The second is to define business constraints that either warn or inhibit applications from processing transactions under specific
conditions. The Companys Epicor for Service Enterprises, iScala, Clientele, Vantage and Vista include BPM solutions.



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Web Services

The
Company is increasingly using Web services to enable its solutions to be integrated with other applications more easily and to support the increased need for collaboration in todays Internet-based world. Web services are self-describing
software components that allow the creation of applications that can be programmed and published over the Web. Since Web services are portable and interoperable and because they are not vendor specific, they are rapidly becoming a standard for
integrating disparate systems and applications. Epicor has standardized its Web services development on the Microsoft .NET Framework. The Companys Clientele CRM.NET, CRS RetailStore, Epicor for Service Enterprises,iScala,
Vantage and Vistaproduct suites have been architected for Web services. The Epicor Enterprise, iScala, Vantage and Vistaproduct suites further leverage Web services to more easily integrate and securely share information throughout the
enterprise and with customers and suppliers.

Open Database Technology

The Company utilizes open database technology to provide extremely flexible, integrated, enterprise business applications. This open database orientation is based on widely accepted database management systems. The
Companys Clientele, CRS, Enterprise, Epicor for Service Enterprises, iScala, Vantageand Vista product suites use the Microsoft SQL Server relational database management system (RDBMS). The Company has focused the
development of its EnterpriseandiScalaproduct lines using Microsofts industry-standard SQL language as the fundamental database access methodology for both transaction processing and analytics. The Company designs Vantageand Vistafor either the Microsoft SQL Server platform or Progress Software Corporations Progress RDBMS. The Companys Clientele suite leverages both the Microsoft Access and Microsoft SQL Server databases. The
Companys Avanté, CRS Merchandising and Manage 2000 products leverage open database technology from IBM Corporation. The Company has chosen these open databases in order to maximize the throughput of its customers
transactions, to provide realistic models of business data and to maximize price performance under the budget and resource constraints typical of its primary market sector.

Industry Standard User Interfaces

The Company has incorporated numerous features into its user interfaces to
simplify the operation of, and access to, its products. All of the Companys product lines incorporate the popular Microsoft Windows graphical user interface (GUI). The Company's GUI tools include industry-standard field controls, pull-down
menus, tool bars and tab menus that facilitate the use of the software. The Company's products incorporate many of the latest and most advanced GUI features such as process wizards, cue cards, advanced on-line help and on-line documentation. As the
model for distributed computing continues to evolve through the advent of Internet technologies, the Company offers additional client deployment models, including thin-client, smart-client, browser-based and mobile client access.

Powerful Application Development Tools

The Company provides
comprehensive application development, extension and customization capabilities for its Enterprise, Epicor for Service Enterprises, iScala, Clientele, Vantage, Vista, Avanté and Manage 2000product lines. To accomplish this, the
Company provides extensive, integrated application development environments for these product lines. These customization tools deliver a complete development environment, enabling a user to make changes ranging from a simple field name change to
building an integrated custom application. Although significant customization can be supported, the Company attempts to minimize customization of its products by delivering high functionality, industry focused templates and best practices coupled
with application tailoring capabilities and SOA which provides for significant flexibility in the look and feel, business process, reporting and workflow of the application.

Enterprise Platform Strategy

The Companys technology direction currently embraces the Microsoft.NET Framework
for XML-based Web services, networking architecture and graphical user interface components. Through .NET, the Company provides comprehensive support for Web services deployment and Enterprise Application Integration (EAI). With .NET and the XML
standard for data exchange, Epicor provides increased access to information both within and between organizations  no matter where their offices or employees are located. This technology strategy can enable the Companys development teams
to leverage Microsoft technology, while allowing each product family



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to continue to utilize the individual databases and development tools appropriate to the requirements of each products target market. As a Microsoft
Gold Certified Partner and an early adopter of the .NET platform, and most recently Windows Vista, Epicor is able to leverage its expertise with Microsoft technology to benefit their customers worldwide.

Industry Strategy

Epicor industry solutions provide focused
software, services and industry knowledge designed specifically for the unique requirements of target industry sectors and vertical markets. Historically, large enterprise application vendors have created vertical industry applications and practices
designed for the Global 1000 in industries such as automotive, retail, government and healthcare. However, for midmarket companies in these industries, these vertical offerings are often too expensive and overly complex for their requirements. More
importantly, many midmarket companies are not necessarily part of a traditional vertical market, but rather have specific processes, best practices and highly specialized functionality that are critical to their success.

Epicor industry solutions enable customers to leverage a solution tailored to the unique needs of their market, as well as focused industry expertise through the
Companys professional services organization. Epicor industry solutions are additionally complemented by strategic relationships with key partners to provide product extensions and domain expertise as part of an integrated, end-to-end solution.
Customers can benefit through solutions that are easier to implement, easier to use and require less customization than a horizontal solution. Epicor industry solutions target Manufacturing, Distribution, Retail and Hospitality, and Services sectors
and industries and verticals within each sector.

Epicor industry solutions includes Epicor for Service Enterprises, a Microsoft .NET Web
services-based ERP for Services solution for global midmarket and enterprise service firms. Epicor for Service Enterprises is designed expressly for midmarket service organizations to streamline business processes, empower them to expand their value
chain, grow revenue and drive efficiency benefits to the bottom line. Whether it is a professional services organization (PSO), embedded service organization (ESO) or internal services organizations (ISO), the Company believes that Epicor for
Service Enterprises provides a comprehensive ERP for Services solution that is designed to offer strategic value with a quick return on investment. Epicor for Service Enterprises offers packaged vertical options for the professional
services industry in areas such as audit and accountancy; architecture, engineering, and construction; software and computer services; management consulting; and marketing, advertising and communications.

Epicor industry solutions includes Epicor Senior Living Solution (Epicor SLS), which is specifically designed for providers of aged care services to
clients either in their own home, at a specialized aged care facilities or senior retirement villages. Epicor SLS manages the process from enquiry, entry into care, ongoing management and departure.

Products

The Company designs, develops, markets and supports
enterprise software applications that provide mid-sized organizations and divisions of Global 1000 companies with industry specific, highly functional, technically advanced business solutions. The Companys products are aligned according to the
markets that they serve  Distribution and Services (Enterprise), Industrial (iScala), Manufacturing and Supply Chain (Vantage, Vista, Avanté and Manage 2000), Retail (CRSandNSB) and Customer
Relationship Management and ITSM (Clientele).

Distribution and Services - Epicor Enterprise

Epicor Enterprise(incorporates products formerly named e by Epicor, Platinum ERAandClientele), an integrated, customer-centric suite of
client/server and Web-based ERP software applications, is designed to meet the unique business needs of midsized companies worldwide (including divisions and subsidiaries of larger corporations). Epicor Enterprise is typically targeted to either
distribution or service-based businesses with revenues between $25 million and $1 billion annually. These organizations require the functional depth and sophistication of traditional high-end enterprise business applications, but desire a rapid and
cost-effective product implementation.

Epicor Enterpriseis optimized for use with the Microsoft Windows operating system and the Microsoft SQL
Server relational database. Epicor Enterprise leverages XML Web services to enable more robust integration with other applications within and external to the enterprise. In addition to the availability of XML Web services,



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Epicor Enterprisesupports various industry standard technologies, including Microsoft Message Queue Services (MSMQ), Transaction Services and COM+
architecture, which along with XML documents, improves componentization and support reliable message-based integration between applications and distributed servers. Microsoft Visual Basic for Applications (VBA) is also included to enhance client
customization and to facilitate integration with third-party applications. In addition, the Financials Suite and SCM Suiteutilizes a 32-bit client that has been optimized for the Microsoft SQL Server database (running in either 32-bit or
native 64-bit mode) in order to leverage the capabilities of the client/server model of computing. This implementation results in a substantial reduction in network traffic as compared to other client/server approaches and provides scalable high
performance. Project Suitewas developed in the Companys Internet Component Environment (ICE), a SOA built with Microsoft .NET and Web service technology. ICE is also available to customers to create customizations and
extensions using ubiquitous tools like Visual Studio .NET.

Epicor Enterprise includes the following application suites: CRM Suite,
Financials Suite, Supply Chain Management Suite, Portal Suite, Business Intelligence Suite, Project Suite, Payroll/Human Resourcesand industry-specific solutions delivered for a variety of markets.



| |  |  | CRM Suite (Sales Force Automation, Marketing Automation, Customer Service and Support, IT Service Management)provides integrated CRM capabilities that are
tightly integrated with theFinancials Suiteand SCM Suite. This integrated approach to CRM enables companies to have a 360-degree view of their customer relationships. The CRM Suite is the integrated version of the
Companys Clientele product suite and includes Sales and Marketing, Case Management, Customer Service and Support and Self-Service, empowering organizations to focus on the right opportunities while providing access to timely
information. Sales and Marketing provides contact, lead, opportunity and account management in one package. Support manages the support requirements of an organizations external customers and provides call management, product tracking, RMA
tracking, call queuing/follow-up and problem resolution.
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| |  |  | Financials Suite (General Ledger and Financial Reporting, Accounts Receivable, Credit and Collections, Lockbox, Accounts Payable, Electronic Funds Transfer, Cash
Management, Automated AP Matching, Sales Tax Management and Asset Management)comprises an integrated accounting solution that enables a company to automate the financial aspects of their business. Presently the following back office financial
applications are generally available in version 7.3.6: System Manager, General Ledger, Average Daily Balances, Accounts Receivable, Accounts Payable, Cash Management, Multi-Currency Manager, Asset Management, Import Manager, Credit and Collections,
Lockbox, Electronic Funds Transfer (EFT), Advanced Allocations, Automated AP Matching, Sales Tax Management and Customization Workbench.
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| |  |  | SCM Suite (Distribution, Procurement, Sourcing, Storefront, Warehouse Management, Assembly)is a comprehensive solution designed to improve the efficiency
and responsiveness of a companys operations. It enables companies to effectively manage their distribution operations, including purchasing, quality control, inventory, logistics and the order management cycle. The customer-centric focus of
Epicor Enterpriseenables companies to respond quickly to customer demands and improve customer service. The integration of Financials Suite and SCM Suite with the rest of the Epicor Enterprise products helps to ensure that a
companys entire enterprise is synchronized  from the customer to the warehouse to the supplier. Presently the following distribution applications are generally available in version 7.3.6: Sales Order Processing, Inventory Management,
Purchasing, Distribution, Assembly, Royalties, Promotions and Rebates.
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| |  |  | Supply Chain Execution (Warehouse Management System and Data Collection Suite),extends the distribution functionality for the SCM Suiteto
supply chain execution processes. These applications are tightly integrated with SCM Suite so that information is available in real-time. Data Collection Suite (DCS)provides wireless shop floor data collection, radio frequency
identification (RFID) and the use of bar code technology to track inventory from the time it enters a facility until it is shipped to a customer, as well as additional warehouse management capabilities. Warehouse Management System (WMS)enables a company to streamline order fulfillment, closely track inventory, manage third-party logistics (3PL) and prioritize resources on the shop floor.
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| |  |  | SCM Suitealso includes theSupplier Relationship Management (SRM) Suite which consists ofSourcing, Procurement and Spend Analysis.
Sourcing provides a comprehensive solution for strategic control of sourcing, purchasing and selling activities from complex auctioning and dynamic pricing to optimizing trading partners, terms, goods and services. Sourcing provides a
highly configurable framework with the
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| | flexibility to rapidly deploy collaborative RFP/RFI/RFQ (RFx) and comprehensive forward and reverse auction capabilities. Sourcing is designed to
streamline manual processes to rapidly locate, source and transact with qualified suppliers and eliminate the inefficiencies in the RFx process for direct, indirect and spot purchasing. Procurement enables the streamlined integration of the
entire procurement process. It provides employee-direct requisitioning and purchasing, catalog management, supplier management and policy enforcement. This integrated e-commerce application enables organizations to gain and improve control of
operational resources by leveraging the Internet to connect large populations of frontline employees, management and suppliers. Procurement provides a complete planning, execution and analysis system, designed to reduce costs, increase
agility, and perform predictably. Procurement facilitates a trading network, allowing buyers and suppliers to maintain control over their trading relationships and provides a virtual bridge between buyers and suppliers. Procurement
also includes an integrated budget and commitment tracking feature that gives requisitioners and approvers a comprehensive view of their commitments inside and outside of procurement relative to approved budgets.
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| |  |  | Storefrontenables Epicors customers to sell products and services over the Web, providing consumers and trading partners a convenient 24/7 order entry
mechanism for making purchases. By supporting both B2B and B2C activity, Storefront is a versatile engine that can handle many requirements of a company. Through Storefront, companies can rapidly and cost-effectively introduce new
products, enter new markets or simply provide electronic access to a catalog of standard products, which can free up salespeople to focus on more complex transactions. The business data entered over the Internet is captured and used by the other
Epicor applications.
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| |  |  | Project Suite, a component of the Epicor for Service Enterprises industry solution, offers comprehensive project and portfolio management and delivery
management capabilities to support the planning and execution of service engagements. Engagements can be structured through user-definable work breakdown structures, and an organization-wide resource service can be called upon as needed to match the
right personnel to the right task at the right timeanywhere across the enterprise. Project Suite leverages XML technologies to support bidirectional integration to Microsoft Enterprise Project Management as part of an end-to-end project
management solution. Project Suiteincludes Resource Management, Engagement Management, Project Accounting, Contract Management and Performance Management.
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| |  |  | Portal Suiteis a Web-based enterprise information portal (EIP) offering a self-service solution designed to help customers, suppliers and employees access
relevant information from both within the enterprise (such as account information and support activities) and from external sources (industry information, news feeds, weather, etc). Portal Suite consists of a Portal framework based on
Microsoft SharePoint products and technologies, which is enriched by role-based access and content-specific information packs (e.g. customer content, supplier content and employee content). Portal Suite provides a gateway to the information
users require to carry out their jobs more effectively, while assisting them with decision support. Portal Suite makes use of the popular SharePoint personalization paradigm to allow each users experience to be tailored and filtered to
their specific function or role to minimize information overload.
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| |  |  | Epicor Enterprisealso includes several tools that help customers maintain, audit and extend their Epicor system, while reducing total cost of ownership.
These tools are Service Connect, DBAudit, Customization Workbench, Import ManagerandEpicor Integration Hub. Epicor Service Connectenables collaboration between applications, suppliers and customers.DBAuditprovides
the ability to detect database changes and report on who made the addition, modification and/or deletion and when. Customization Workbench provides a toolset for creating custom forms, database objects and logic to meet specialized customer
requirements. Import Manager and Epicor Integration Hub provide the ability to exchange data between Epicor Enterprise and other systems via SQL and XML while adhering to the data validation and business rules defined in
Epicor Enterprise.
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| |  |  | Business Intelligence Suite is an integrated decision support suite offering a complete set of tools that allows a company to strategically analyze the data
available throughout Epicor Enterprise. Business Intelligence Suite comprises the following components: DecisionStore (data warehousing), Explorer AI and BI Web Parts (OLAP visualization and packaged key
performance indicators that drive strategic insights), Active Planner (active, continuous planning and forecasting, and enterprise performance management), Microsoft FRx (financial reporting),transaction reporting, ad hoc queries and
agents/alerts.
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| |  |  | UltiPro Workforce Management(a Payroll/HRMS solution offered via a reseller relationship with Ultimate Software) provides a complete workforce management
solution. This solution is designed to allow a company to streamline human resource and payroll processes, report on and analyze key business metrics and provide Web-based self-service to empower its employees. Business intelligence tools, such as
UltiPro Workforce Management, enable strategic analysis of key business trends for better planning and informed decision-making. Ultimate Softwares UltiPro Workforce Managementsolution is available as a common component with the
following Epicor product families: Epicor Enterprise and Avanté.
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Industrial - iScala

iScala is an integrated ERP, CRM and SCM solution targeting the divisions and subsidiaries of Global 1000 corporations and large local and regional companies
worldwide. iScalas collaborative functionality, country-specific localizations and multi-language capabilities are designed to support global, multi-company deployments with significant cross-border trading requirements. iScala
is targeted to meet the unique needs of companies in industry segments including: Pharmaceutical, Chemical and Allied Products, Industrial Machinery, Light Engineering, Automotive Components, Consumer Goods and Hospitality.

iScala enables Global 1000 enterprises to standardize their plants and operating divisions on a single system, while supporting country specific localizations and
languages at each site. This allows a corporate headquarters consistent visibility of plant information and operations, as well as the ability to support the implementation of consistent procedures, practices and controls worldwide.

iScala is optimized for use with the Microsoft Windows 2000/2003 operating system and the Microsoft SQL Server 2000/2005 relational database. iScala
leverages XML Web services to enable integration with other applications within and external to the enterprise. In addition to the availability of XML Web services, iScalasupports various industry standard technologies, including Microsoft
Message Queue Services, Transaction Services and COM+ architecture, which, along with XML documents, improves componentization and support reliable message-based integration between applications and distributed servers.

iScala can be configured as an Enterprise Server version targeted at multi-site operations or as a Business Server version targeted at single-site operations.
Each server version consists of the following optional suites and components: Financials (General Ledger, Sales Ledger, Purchase Ledger, Promissory Notes, Cash Flow Forecasting), Asset Management, CRM, Sales Order Management, SCM (Material
Management, Warehouse Management, Manufacturing, Purchase Management, Requisition Management, Supply Chain Tools, Warehouse Data Collection), Service Contract Management, Purchase Contract Management, Sales Contract Management, Project Management,
Service ManagementandPayroll. In addition to these application components, Epicor Service Connectenables collaboration between applications, suppliers and customers, and the iScala Business Intelligence Server offers a
suite of analytical and reporting tools designed to convert data into information that can be presented by the web, portals, Windows or Office 2003 documents.



| |  |  | iScalasglobal functionality and numerous country-specific localizations provide the ability to deliver a solution for over 140 countries with the
local requirements for tax management, currency handling, language capabilities, statutory reporting, banking interfaces and asset depreciation rules.
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| |  |  | Local and distributed multi-company capabilities enable customers to manage complex business infrastructures. Multiple companies on a single server or on a server
farm (multiple local servers) can be consolidated across differing charts of accounts and differing currencies, as well as enabling inquiring or reporting across companies or sharing Accounts Receivable and Accounts Payable. Global calendar
management enables the system to manage companies, customers, suppliers, engineers, warehouses and any other resources across multiple time-zones. Global Administration provides central IT staff with the ability to manage distributed
iScalasystem assets anywhere in the world as if they were local, including system updates, user roles and security, menu configuration and databases.
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| |  |  | iScalascustomization and personalization capabilities provide the ability to enhance the application through parameterized set-up, tailored documents,
reports and user defined database fields. Users may have their own customized menus and screens in their own language, as well as their own queries, reports and business intelligence analytics. Microsoft Visual Basic for Applications (VBA) is also
included to enhance client customization and facilitate integration with third-party applications.
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| |  |  | iScalas implementation of Epicor Service Connectprovides collaboration and integration between subsidiaries and their corporate headquarters, and to
customers and suppliers to support integrated supply chain trading. Collaboration provides visibility through a web-based portal, transaction exchange and system-to-system connectivity. Workflow management is designed to maximize the automation of
standard processes with events and alerts to handle exceptions.
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Manufacturing and Supply Chain

The Companys manufacturing applications include Vantage, Vista, Avanté,andManage 2000.

Vantage is an integrated ERP solution built on a SOA that meets the dynamic requirements of discrete mixed-mode manufacturers who have lean or to-order manufacturing requirements and increasing distribution and
fulfillment needs. Vantage handles many manufacturing philosophies simultaneously including make-to-order, configure-to-order, engineer-to-order, make-to-stock and flow manufacturing. Vantageis designed as an easy-to-use, yet
comprehensive solution that enables manufacturers to leverage their resources through its tools for customer relationship management, estimating, visual scheduling, job tracking and costing, as well as shop floor data collection. Vantage can
manage enterprises from a single site, to multiple locations, to large global multi-company enterprises whose systems span multiple servers and databases across different geographies and languages.

Vantage is comprised of more than 25 integrated business modules and offers a complete solution, from front office functionality including sales force automation
and customer support, to advanced planning and scheduling, supplier relationship management, advanced quality management, product lifecycle management and a complete e-business suite including customer, supplier and partner portals. Vantageprovides strong scheduling and online information access capabilities. With its graphical scheduling tools and what-if simulation, Vantage enables users to create and execute realistic production schedules, based on the
available resources, and react quickly and efficiently to schedule changes.

Vantage is comprised of groups of modules or suites that can be
differently configured to comprehensively support a manufacturers or distributors unique business processes. Vantage includes the following application suites: CRM, Sales Management, Customer Service Management, Product Data
Management, Planning and Scheduling, Materials Management, Financial Management, eBusiness Suite and Business Performance Management.



| |  |  | CRM (Contact Management, Marketing, Sales) is an integrated solution for controlling a companys interaction with its customers and
prospective customers, from building, executing and tracking campaigns through lead generation and opportunity development, configuring quotations and managing pipelines and forecasts. Through use of the Internet and Microsoft Office integration,
Vantage CRM affords customers increased visibility and participation in the entire value chain process.
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| |  |  | Sales Management (Estimate and Quote Management, Order Management, Rebates) streamlines the sales process and assists in coordinating activities
between sales, plant/warehouse operations, shipping and accounting. It facilitates more efficient management of inventory visibility, pricing, shipping, invoicing and commissions and provides tools to produce more accurate estimates, streamline the
quote-to-cash cycle and improve customer service.
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| |  |  | Customer Service Management (Support, Help Desk, Return Material Authorization, Field Service)provides a collaborative framework for streamlining
service operations. It helps create a 360-degree view of a companys customers to assist in the diagnosis and resolution of inquiries, cases, change requests and issues related to support or service contracts and service-level agreements.
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| |  |  | Product Data Management (Product Costing, Routings, Engineering Change and Revision Control, Product Configuration) serves as a central knowledge
repository for process and product history. Its modules help promote integration, data exchange, increased control and communication across all constituents of the value chain (internal and external) that interact with the products.
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| |  |  | Planning and Scheduling (Forecasting and Master Production Scheduling, Material Requirements Planning, Scheduling, Advanced Planning &
Scheduling, Project Management, Global Multi-Site Management) offers flexible planning and scheduling solutions to help global make-to-order, make-to-stock and mixed-mode manufacturers manage the complexity of their size and resources to improve
response times and drive growth.
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| |  |  | Production Management (Job Management, Lean Manufacturing, Manufacturing Execution, Quality Assurance, Product Lifecycle Management, Advanced Quality Management,
Data Collection and Hand-held, Advanced Bill of Materials, Document Management) includes modules and sophisticated technologies to help model best practices and empower shop floor personnel to make the decisions that can help to optimize
production processes.
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| |  |  | Materials Management (Advanced Material Management, Inventory Management, Shipping/Receiving, Supplier Relationship Management, Purchase Management, Pack
Out Management, Auto Label/RFID Print Control) helps increase supply chain visibility and remove non-value added processes. By synchronizing processes throughout its value chain, a company can improve its ability to meet customer demands,
provide faster delivery and lower costs.
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| |  |  | Financial Management (Accounts Receivable, Accounts Payable, General Ledger, Currency Management, Payroll, Fixed Asset Management, Multi-National
Management, FRx Financial Reporting, Active Planner Budgeting, Planning and Forecasting) provides manufacturers with a complete suite of modules to support the collection, monitoring and reporting of their financial information; maximizing
visibility, increasing performance and improving cash flow. The FRx Financial Reporting and the Active Planner Budgeting, Planning and Forecasting modules are common component applications that are also available with the Companys
Enterprise andiScalaproducts.
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| |  |  | eBusiness Suite (Customer Connect, Supplier Connect, Sales Connect, Mobile Connect, EDI) leverages the Internet with Web applications like Customer
Storefront, to help keep global enterprises connected with their entire network of trading partners: anytime, anywhere.
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| |  |  | Business Performance Management (Business Intelligence, Portal, Information Worker, Service Connect, Dashboard)provides reporting and analysis,
real-time business activity monitoring (BAM) and workflow based on defined events, rules and/or established tolerances that can generate actions and alerts for transactions, metrics or processes. Vantage BPMenables increased collaboration,
flow of information and better decision support between users, applications, suppliers and customers.
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The Vantage
Business Performance Suite includes the following common component applications which are also available with the Companys Enterprise and iScala products:

Information Worker (IW) increases productivity by enabling users to work more efficiently by
incorporating line-of-business information within Microsoft Office. Using service-oriented principles and Microsoft .NET-based technologies, IW utilizes the Microsoft Office system to enhance the user experience and interaction with Epicor
applications through familiar Office desktop productivity tools. With IW, users are able to synchronize Microsoft Office Outlook® contacts, appointments and tasks with Epicor applications
and data, such as customer information, sales history, inventory levels and production schedules both online and offline.

Portal Suiteis a Web-based enterprise information portal, offering a self-service solution designed to help customers, suppliers and employees access relevant information from both within the enterprise (such as account information support activities) and
from external sources (industry information, news feeds, weather, etc). Portal Suite consists of a Portal framework based on Microsoft SharePoint products and technologies, which is enriched by role-based access and content-specific
information packs (e.g. customer content, supplier content and employee content).

Service Connectis a business integration platform
which functions as a central point for secure workflow orchestrations within EpicorVantage, as well as external connectivity to Epicor and non-Epicor applications. Business components, represented as Web services outside of the application,
can be orchestrated within Service Connect to eliminate non-value added steps, increase efficiencies and speed up processes. Service Connectprovides collaboration and integration between subsidiaries and their corporate headquarters,
as well as to customers and suppliers, to support integrated supply chain trading.

Vantage is optimized for the rapid deployment, minimal support
and price/performance requirements of midmarket manufacturers.

Vista is an enterprise software solution specifically designed for the needs
of smaller job shops, emerging manufacturers and the make-to-order departments of larger businesses that have less developed infrastructures, lower IT budgets, require a shorter deployment period and seek established, user-friendly products.
Vista fully



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integrates over 20 business modules including: Customer Connect, EDI, Contact Management, Quotes, Orders, Shipping/Receiving, Jobs, Scheduling, Data
Collection, Quality Assurance, Advanced Bill of Materials, Document Management, Inventory, Purchasing, Advanced Inventory Management, Purchasing RFQ, Accounts Receivable, Accounts Payable, General Ledger, Payroll, Currency Management and Dashboard.

CRM  Clientele

Clienteleis an
integrated CRM solution designed to meet the needs of rapidly growing, small and mid-sized organizations. Clientele combines employee applications, such as opportunity management, with customer applications, such as Web-based order
entry/inquiry, to provide companies and customers a true, up-to-the-minute picture of their relationship.

Clientele CRM is comprised of
Clientele Customer Support, which provides call management, product tracking, RMA tracking, call queuing/follow-up and problem resolution and Clientele Sales and Marketing,which provides contact, lead, opportunity and account
management.

Clienteleoffers additional applications designed to extend the suites functionality, including Conductor, ConnectorandEpicor Portal. Conductor provides workflow routing and rules capabilities that allow any user to receive messages and tasks from the front office system. Connectorenables remote sites and sales and support
representatives in the field to connect to their master front office database and synchronize customer information, providing timely information whether the user is at headquarters, a remote site or on the road.



| |  |  | Clientele CRM.NET suite is the first CRM application built completely on Microsofts .NET Platform. A smart client application, Clientele CRM.NET
uses the Internet to interact with XML Web services, providing access to data according to specific business rules. Clientele CRM.NET leverages XML Web services to enable integration with other applications within and external to the
enterprise.
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| |  |  | Clientele CRM.NET uses Microsoft Visual Studio .NET as its standard customization tool and can support extensions using any of the .NET-compatible
programming languages. The enhanced customization model supports the development of new functionality by inheriting from existing forms and Web services templates. This allows custom enhancements and extensions to be isolated from source code, so
future upgrades and migrations do not overwrite customizations.
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| |  |  | Clientele CRM.NET Suite includes Clientele Customer Support, Clientele Sales and Clientele Self-Service Portal, which provide a browser-based
user interface to support self-service to customers via the Internet.
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| |  |  | Clientele Self-Service Portal enables customers to submit support calls as well as check on the status of existing calls, view their detailed product
information and returned merchandise authorizations, or drill down into the usage and adjustment details of their service agreements directly over the Web. The Clientele Self-Service Portal is a companion product for Clientele CRM.NET
Suite.
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The Clientele Suite also includes eMarketing, an e-mail marketing campaign manager and Advanced Surveys,
a Web-based survey toolset (offered via a reseller relationship with Narragansett Technologies).

IT Service Management (Epicor ITSM)

Epicor ITSM provides a set of service management features designed to help support IT processes and operations as outlined by the IT Infrastructure Library (ITIL) which
defines the detailed descriptions of key IT practices along with detailed the checklists, tasks and procedures for implementation in IT organizations. Epicor ITSM supports the key IT processes outlined by ITIL version 2 and version 3 and has been
certified by Pink Elephant as ITIL compatible in five key service management areas: incident management, problem management, change management, configuration management and service level management.



| |  |  | Epicor ITSM Incident Management helpsservice desks restore normal operation of systems as quickly as possible. All incoming incidents are registered in
Epicor ITSM and prioritized and incidents that require a specialist can be immediately escalated to the correct people. Incidents received by e-mail or the Web are registered automatically. Service desk customers can monitor their incident
progress via e-mail or online. A knowledge base system allows service desks to build up a searchable set of knowledge and re-use that knowledge.
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| |  |  | Epicor ITSM Change Managementhelps organizations make changes to their IT infrastructure in a controlled way. Epicor ITSM provides a method for requesting
the appropriate change and ensuring it receives appropriate approvals, while tracking how long it takes to implement the change. ITSM provides Change Approval Board members with goal-oriented options for implementing a change in a controlled
fashion.
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| |  |  | Epicor ITSM Configuration Management provides insight into IT infrastructure assets and tracks hardware, software and other IT infrastructure components.
Configuration management also provides the opportunity to record financial data associated with configurations and products. Purchase value, depreciation term, value after depreciation, warranty date and installation date are captured and tracked.
Costs can be allocated to budget holders, departments or sister companies to make IT costs more transparent.
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| |  |  | Epicor ITSM Problem Management ensures that incidents are not solved without their underlying cause being eliminated. ITSM allows a company to link several
incidents to a problem. Once the problem has been solved and closed, all related incidents can be automatically closed.
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| |  |  | Epicor ITSM Service Level Management measures the level of service provided by recording service agreements and costs. Service Level Agreements (SLA) are
recorded per configuration or per contact (end user or department). When an incident or problem is accepted, the applicable SLA can be consulted. The response times included in the SLA are used to monitor queuing and lead times.
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Aside from providing suites to manage IT service processes in five services area, Epicor ITSM provides a self-service portal and
business intelligence solution. The solution is built using Microsoft Visual Studio and Microsoft .NET Framework.

Retail

Epicor|CRS Retail Suite

TheEpicor CRS Retail Suite integrates
retail management software, along with hardware and services, to provide a comprehensive solution for specialty and general merchandise retailers. Designed for integration and scalability, the Epicor CRS Retail Suitecan support a wide
variety of retail enterprise requirements from the rapidly expanding regional retailer requiring point-of-sale (POS), store operations and merchandising, to the large, global retailer requiring central management, visibility and control over
hundreds or thousands of stores and outlets. The Epicor CRS Retail Suitecan assist retailers in integrating their sales channels, order management, pricing, inventory and customers to more effectively manage a real-time, multi-channel
enterprise.

The Epicor CRS Retail Suite is comprised of groups of modules that can be configured to support the retailers complete
business process, providing an integrated post-to-host experience from POS through the retail supply chain to the back office. The following applications are presently generally available in Epicor CRS Retail Suite: RetailStore POS,
RetailStore Central, MobileStore, ReturnsManagement, EnterpriseSelling, RetailCRM, LossPrevention, SalesAudit, Merchandising and Learning Solutions.



| |  |  | RetailStore is a Microsoft .NET-based POS and back office store system designed to assist store personnel to provide a better customer experience and more
effectively manage store operations. With a Web services-based SOA as its foundation, CRS RetailStoresupports a wide variety of hardware platforms, while providing increased integration and connectivity between stores, corporate systems and
other sales channels to enable key transactional information to be shared as it occurs. RetailStore offers a flexible, easy-to-configure user interface to meet the unique requirements of a store and provide more timely information to the
store associate, while ensuring transaction integrity, performance and security. A complete store system includes store management operations, time and attendance, inventory management and reporting applications, as well as POS. Store Operations
provides the store manager the flexibility to work on inventory, employee maintenance or other tasks while still monitoring the sales floor.
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| |  |  | MobileStore is designed to extend access to key store functionality and information beyond the cash register and manager workstation. Through wireless
devices running the MobileStore application, store managers and sales associates can perform line busting, inventory control, item lookup, item locate and manager authorization, along with other key store functions, all remotely.
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| |  |  | RetailStore Central provides comprehensive systems management solutions to chain store retailers requiring centralized control of store configuration
profiles. Based on the Microsoft .NET Framework, RetailStore Central uses secure publish/subscriber-based technology to allow retail chains with hundreds to thousands of locations to monitor and manage their store system configurations and
business rules more easily and with greater control. RetailStore Centralprovides control, monitoring and tracking of all unique changes, including those related to policies, procedures, payroll, security, marketing, taxes and inventory.
Changes to RetailStore POS and back office configuration profiles can be managed remotely on a store-by-store basis or through user-defined store groupings without requiring IT resources or customizations.
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| |  |  | RetailCRM is a complete CRM solution based on Microsoft .NET. By gathering and analyzing customer information from multiple channels, RetailCRMcan
deliver a more accurate and comprehensive view of the customer to provide sales associates and marketing teams with information to better serve customers and develop targeted campaigns and loyalty programs. Utilizing the data integration, analysis
and reporting capabilities of Microsoft SQL Server 2005 and SQL Server Reporting Services,RetailCRM aggregates information on customer purchase history and shopping behavior across sales channels, enabling retailers to deliver a higher level
of one-to-one marketing and personalized customer service at all points of customer interaction.
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| |  |  | ReturnsManagement is a multi-channel, returns management application enabling retailers to ensure accurate refunds and reduce refund fraud, while improving
customer service and employee compliance.
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| |  |  | EnterpriseSelling combines real-time inventory and location management with a configurable order manager to integrate inventory transaction processing of
multiple sales channels, allowing retailers to sell merchandise and satisfy customer demand from anywhere in the enterprise.
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| |  |  | LossPrevention is an intuitive, browser-based application with powerful ad-hoc reporting and point and click analysis tools. At the home office or in the
field, investigators can quickly identify suspicious patterns of activity, create and evaluate exception reports to track potentially fraudulent activity, investigate individual employee behavior and quickly build cases for prosecution or dismiss
innocent activity.
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| |  |  | Merchandising Suite is a set of applications that includes tools to manage items, inventory, purchase orders and pricing. Applications in the
Merchandising Suite include DataWarehouse, Allocation, WarehouseManagement, TransfersPlus, Orders and Fulfillment and EComm. Merchandising Suite includes the tools for a companys distribution center to ensure accurate receiving,
replenishment, merchandising reporting and efficient distribution to the stores. Through detailed transaction logging, the SalesAuditmodule provides an unbroken audit trail of everything that happened in each store across each type of
transaction for sales audit and loss prevention purposes. Detailed Customer Sales Analysis provides the information to build and broaden sales through your customer base. The Merchandising Suitealso includes key applications for
replenishment, reporting and interfaces for Accounting.
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| |  |  | Retail Integration provides an integrated offering across the Epicor Enterprise Financials Suite and Epicor|CRS Merchandising Suite. Through
Epicor Service Connect, a Web services-based business integration platform, a secure, auditable two-way integration is supported across the solutions. Service Connect functions as the central integration point for implementing secure
workflow orchestrations within Epicor applications and with third-party applications to enhance collaboration and automate business processes. The Epicor|CRS Retail Integration provides the integration for feeding store-level information from
merchandising to the financial application.
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NSB Retail Suite

TheNSB Retail Suite integrates retail management software, along with hardware and services, to provide a comprehensive solution for fashion, apparel and specialist retailers, as well as for general merchandise and department
stores. Designed for integration and scalability, the NSB Retail Suiteis an end-to-end solution that can be delivered preconfigured to small single-store retailers for rapid implementation or as a hosted, managed services offering, which can
bring all of the benefits of big retailer functionality to small and mid-sized retailers. As a best-of-breed point solution, NSB has been deployed into some of the largest multi-register chain and department store environments. The
NSB Retail Suiteis designed to help retailers choose, acquire and manage merchandise; engage and retain customers; and analyze and optimize sales to improve business operations and meet the evolving merchandise and service expectations of
todays multi-channel consumers.

The NSB Retail Suite is comprised of modules that can be delivered and deployed best-of-breed, preconfigured
or fully hosted. The following applications are presently generally available in NSB Retail Suite: Planning, Sourcing and Product Development, Merchandising, Store, Sales Analytics,andCRM

Planningautomates the creation and balancing of product and store plans to enable retailers to allocate store plans more quickly and easily.
Retailers can also plan assortments by store with combined visual and numeric planning. Plans can be synchronized across the retail organization, which can help retailers to reduce inventory and increase turnover.

Sourcing and Product Development powered by Momentis, streamlines sourcing processes which can help retailers bring products to market faster. With
centralized workflow management for product development, collaborative vendor negotiation capability, production and logistics tracking, Sourcing and Product Development provides the retailers with key tools that can increase visibility and
productivity and drive more efficient supply chain management.

Merchandising is designed to synchronize all aspects of the retail
cycle including planning, purchasing, receiving, pricing, inventory management, decision support, and warehousing. Merchandising is designed for scalability and support many users, stores and large volumes of data. Highly adaptable and easy
to customize, Merchandising is compatible with a thin-client user interface for the web and includes powerful decision-support tools. The most recent release of Merchandisinghas components built on the Microsoft .NET architecture
including a fully integrated Allocation and Replenishment module.

Sales Analytics is designed for multichannel retailers and helps
ensure the capture, tracking and relaying of accurate and timely transaction information throughout the retail enterprise. Acting as the central repository for all sales transactions, Sales Analytics is designed as an all-in-one data
validation tool that can bridge the gap between the enterprise, store and other sales channels to help improve store operations and auditing productivity.

Storeis an award winning point of sale (POS) application that is designed to connect a retailers head office to their stores and other selling channels. Store has evolved in tandem with
Microsofts standards-based component architecture. With the most recent version based on Microsoft .NET technology, Point of Sale is architected to produce and consume XML messages via Web services allowing retailers to connect components
within the enterprise to more easily and better support thin-clients, real-time communications, wireless handheld terminals, customer loyalty, gift cards and Web access.

CRMwas designed as one of the first retail industry specific CRM applications and one of the first applications to integrate POS information for the sales associate and store management. CRM is designed
to provide a central customer, sales and marketing repository, and to securely share customer information across the enterprise. CRMincludes dashboards, key performance indicators (KPIs) and reporting templates. The CRM Customer
Dashboard is created from a library of Web parts which provides a building-block approach that allows users to select the information that is meaningful to them and display it on a web page. Users can also add information from other sources to
complement or enhance their Customer Dashboard. Reporting templates provide users access to preconfigured reports, as well as an extended set of analytical tools and capabilities.

EnterpriseXpressis an integrated package of pre-configured solutions designed for retailers seeking to implement advanced systems across
their enterprise, more quickly and cost-effectively. EnterpriseXpress is a preconfigured edition of the NSB Retail Suite which includes streamlined versions of the Merchandising, Sales Analytics and Planningapplications, bundled with integrated hardware and services. StoreXpress, a preconfigured version of Retail Store that combines POS and store inventory with the strong integration capabilities of Microsoft .NET.



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To support implementation of the NSB Retail Suite a wide range of services are available including: project
management, requirements definition, system configuration, testing, and playback, pilot store installation and support, user training and standard documentation, standard data export for Sales Audit, communications setup and certification and
post-pilot transition.

Other Products

The Company
serves as an original equipment manufacturer, vendor or reseller for certain third-party software applications and pays royalties to various organizations in connection with the distribution of third-party software and the sale of products that
incorporate third-party technologies. In addition, in certain cases, as part of solutions requested by customers of Avantéand CRS, the Company resells third-party computer hardware systems and related peripherals.

Professional Services, Technical Support and Software Maintenance

The Companys professional services organization provides consulting services, managed services, outsourcing and hosting services to support the implementation and integration of the Company's software products, as well as education,
training and other consulting and programming services. These professional services are rendered on a global basis. Professional services are generally provided on a time and materials basis, although the Company also provides fixed fee arrangements
and occasional arrangements in which customer payments are tied to the achievement of specific milestones. Fixed fee or milestone-based contracts are based on developing mutually agreed upon project plans, which clearly define the
activities that will be performed and the specific deliverables that will be produced, in accordance with predefined acceptance criteria. The Company believes its professional services, in conjunction with its current and planned product
offerings, facilitates the licensing of technology to customers, stimulates demand for the Companys products and provides a key market differentiator over many of its competitors as a single source vendor.

The Company is committed to providing timely, high-quality technical support, which the Company believes is critical to maintaining customer satisfaction. The Company
provides technical support by offering telephone support, e-mail support, facsimile support and communications through its Web site. Telephone support is available five days a week during normal business hours on a nearly worldwide basis, with
extended hours and emergency support additionally available. The Company also believes customer satisfaction can be maintained by ensuring that its Value-Added Resellers (VARs), distributors and authorized consultants are able to effectively provide
front-line technical support and assistance to end users. The Company offers comprehensive training, telephone consultation and product support for its VARs, distributors and authorized consultants. Training courses are available electronically and
in major cities worldwide.

The Companys network of VARs and authorized consultants are required to undergo training and certification procedures
provided by the Company on the use, installation and implementation of the Companys products as a condition of being authorized by the Company to sell its products. The Company's VARs include consulting groups and resellers, the majority of
which provide software and hardware installation, systems integration and consulting services to organizations. The Companys authorized consultants generally are not resellers of the Companys products, but professional firms who offer
implementation services and product support to end users. The Company believes that its authorized consultants are product influencers and are a valuable part of the Companys marketing, sales and distribution efforts.

To support the Companys network of VARs and authorized consultants, the Company provides experienced personnel who are specifically tasked with VAR growth and
support. These individuals are responsible for educating and training the distribution channel, disseminating information, implementing marketing programs and developing regional markets.

The Companys software maintenance programs are the customers sole avenue for product updates and technical support. The annual maintenance fee is generally
based on a percentage of the list price of the software purchased. Customers who subscribe for maintenance receive telephone and technical support, timely information on product enhancements and features and product updates and upgrades. Revenue
from these software maintenance agreements is recognized ratably over the maintenance period. The Company provides a warranty for the media on which its products are licensed and also provides a performance warranty on certain products ranging from
three months to one year.



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Marketing, Sales and Distribution

The Company sells, markets and distributes its products and services worldwide, primarily through a direct sales force, as well as through an indirect channel including a network of VARs, distributors and authorized
consultants who market the Companys products on a nonexclusive basis. The Companys products are sold to and used by a broad customer base, including manufacturers, distributors, retailers, sports and leisure and service organizations, as
well as companies in technology/software, healthcare, government entities, educational institutions and other sectors. The Company sells its Enterprise, iScala and Vantage solutions through a hybrid channel that includes a direct sales
force and a network of VARs. The Company also sells its Clientele and Vistasolutions through an internal telesales organization and through a network of VARs. The CRS, Avanté and Manage 2000products are presently
sold by direct sales forces. The Avantéproduct is sold in certain international locations through VARs and distributors. The Companys field sales organizations are generally organized on a geographic basis.

In recognition of global opportunities for its software products, the Company has committed resources to a global sales and marketing effort. The Company has established
offices in the United Kingdom, Hungary, Romania, Sweden, Australia, New Zealand, Canada, Mexico, Hong Kong, Singapore, Taiwan, Malaysia and South Africa to further such sales and marketing efforts. The Company sells its products in Europe, Central
and South America, Africa, Asia and the Middle East predominately through third-party distributors and dealers.

The Company translates and localizes
certain products, either directly or through outside contractors, for sale in Europe, the Middle East, Africa, Latin America and Asia Pacific.

The Company
also provides access to its solutions through application hosting, which allows customers to access the software over the Internet from servers that are most often housed in data centers or co-location facilities versus at the customers site.
Epicor Hosting Services allows customers to purchase the infrastructure and system support on a monthly basis through leading global infrastructure providers like Savvis and IBM Corporation. Hosting provides a deployment alternative to
companies who do not want to invest in the hardware, IT personnel or the technology infrastructure necessary to support a premise-based software deployment. By hosting the software through Epicor Hosting Services, a company can free up
critical capital resources, both intellectual and monetary, and focus on its core business operations. Epicor Hosting Services takes care of data back-up and disaster recovery to increase continuity, security, and support un-interrupted
access to business applications. Alongside application hosting services, Epicor Managed Services can deliver application portfolio management, and enhance normal support and maintenance offerings with comprehensive release and application
infrastructure management and administrationbacked by full help desk access and service level protection services. A natural progression from Epicor Managed Services, Epicor Business Process Outsourcing (BPO) services offers companies
the ability to further focus on their core business, better manage cost and gain access to skilled resources by the transitioning and on-going task management of non-value added business processes, such as the management of the accounts payable
process, to Epicor.

Customer and Backlog

No single
customer accounted for more than 10% of revenue for the years ended December 31, 2007, 2006 and 2005. Products are generally shipped as orders are received or within a short period thereafter and, accordingly, the Company has historically
operated with little or no license backlog. Because of the generally short cycle between order and shipment, the Company believes that its backlog as of any particular date is not significant or meaningful.

Product Development and Quality Assurance

The Company plans to
continue addressing the needs of midmarket users of client/server and Web-based enterprise software by continuing to develop high quality software products that feature advanced technologies. See Certain Factors That May Affect Future Results
 Forward Looking Statements  Safe Harbor. The Company's technology strategy is to develop leading business application software using its own technologies, based on and combined with leading third-party, industry-standard
technologies in database management systems, application development tools, operating systems, user interfaces and networks. The Company plans to use technologies from Microsoft Corporation whenever possible and plans to build technologies based on
Microsoft Corporations recommended technical architecture. In particular, the Company believes that it remains an industry leader in designing and developing products for Microsoft platforms, including the .NET Framework. The Company also
believes that it has been a pioneer in the use of browsers and GUIs with integrated business application software. Currently, the Company continues to pursue applications based on a SOA and Web services that can simplify the development,
maintenance, deployment and customization of its products.



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The Company intends to continue to invest in product development. In particular, the Company plans to continue to
(i) develop product enhancements, including additional functions and features, for its product lines, (ii) increasingly leverage a SOA, Web services and the Microsoft .NET Framework, (iii) develop additional enterprise applications
supporting both business-to-business and business-to-consumer solutions and (iv) develop and/or acquire new applications or modules that build upon the Companys business application strategy. See Certain Factors That May Affect
Future Results  Forward Looking Statements  Safe Harbor.

The Companys technical strategy for its Enterprise, Epicor for Service
Enterprises, iScala, Clientele, CRS, VantageandVistasuites of applications is centered on the Microsoft .NET Framework to provide enhanced scalability, flexibility and interoperability. The architecture consists of a
multi-tiered, distributed application model and a comprehensive set of infrastructure and application services. This architecture provides tools, technologies and services to develop highly adaptive applications that support multiple client
deployments including smart-client, browser-based and mobile clients. More importantly, this architecture provides the infrastructure for connecting enterprises through the Internet by leveraging key Microsoft technologies such as Microsoft Commerce
Server, Microsoft COM+ (Component Object Model) and Microsoft BizTalk Server, which provide a complete framework for enterprise application integration, electronic commerce and business interoperability through industry leading support for XML Web
services. Epicor believes that it has maintained a leadership position with respect to Web services and .NET. The Company was among the first early adopters invited by Microsoft to work with Visual Studio .NET and the .NET Framework and participated
with Microsoft in the launch of the Web Services Interoperability Organization (WS-I.org) to promote standards for interoperability and accelerate the adoption and deployment of Web services. The Company was also the first vendor to release
enterprise CRM and ERP for Services applications fully re-architected for the Microsoft .NET Framework. See Certain Factors That May Affect Future Results  Forward Looking Statements  Safe Harbor.

The computer software industry is characterized by rapid technological advances and continual changes in customer business requirements and priorities. The
Companys future success will depend upon its ability to enhance its current products and develop and introduce new products that keep pace with technological developments, respond to evolving customer requirements and continue to achieve
market acceptance. In particular, the Company believes it must continue to respond quickly to users needs for broad functionality and multi-platform support and to advances in hardware and operating systems, particularly in the areas of
Business Process Management, On-Demand Business and Collaborative Commerce.

The Companys future business is dependent on the execution of the
strategy that is in place to target the enterprise software needs of mid-sized businesses and the divisions of global enterprises.Any significant delay in shipping new modules or enhancements could have a material adverse effect on the
Companys results of operations. In addition, there can be no assurance that new modules or product enhancements developed by the Company will adequately achieve market acceptance.

Expenditures for software development were $37.4 million, $34.1 million and $28.5 million for the years ended December 31, 2007, 2006 and 2005, respectively. Expenditures for software development as a percentage
of revenue were 8.7%, 8.9% and 9.8% for the years ended December 31, 2007, 2006 and 2005, respectively.

Competition

The enterprise business applications software industry is intensely competitive, rapidly changing and significantly affected by new product offerings and other market
activities. A number of companies offer enterprise application suites similar to the Company's product offerings that are targeted at the same markets. In addition, a number of companies offer best-of-breed, or point solutions, similar
to or competitive with a portion of the Companys enterprise business application suite. Some of the Companys existing competitors, as well as a number of new potential competitors, have larger technical staffs, larger more established
marketing and sales organizations and significantly greater financial resources than the Company. There can be no assurance that competitors will not develop products that are superior to the Companys products or that achieve greater market
acceptance. The Companys future success will depend significantly upon its ability to increase its share of its target markets and to license additional products and product enhancements to existing customers. There can be no assurance that
the Company will be able to compete successfully or that competition will not have a material adverse effect on the Companys results of operations. In addition, potential customers may increasingly demand that certain of the Companys
enterprise systems incorporate certain RDBMS or operating system software offered by competing products, but not currently supported by the Companys products.



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The Company believes that it competes in three enterprise business applications markets: emerging enterprises, midmarket
enterprises, and divisions of the Global 1000. The Company defines emerging enterprises as rapidly growing businesses under $25 million in annual revenues. Emerging enterprises generally lack dedicated information technology management resources and
require affordable solutions that do not require a high level of ongoing maintenance and support for their continued operation. Products in this market are principally sold through VARs and telesales persons with the purchasing decision often
influenced by professionals providing consulting services. The Company believes that purchases in this market are primarily influenced by functionality, performance, availability of a Windows-based solution, price and quality. The Company believes
it competes favorably with respect to all of these factors.

The Company competes primarily in the midmarket, which the Company defines as growing
enterprises with revenues between $10 million and $1 billion. Businesses in the midmarket require solutions that provide a more sophisticated level of functionality to effectively manage their business. These businesses require applications that are
easy to implement, extend, manage and use, as well as being affordable. Midmarket enterprises also often lack dedicated information technology management resources and need solutions that do not require a high level of ongoing maintenance and
support for their continued operation. The Company believes that purchases in this market are primarily influenced by functionality, performance, availability of a Windows-based solution, price, quality and customer service. The Company believes it
competes favorably with respect to all of these factors. Increasingly, customers in this market segment are looking for Microsoft SQL Server-based solutions, and the Enterprise, Epicor for Services Enterprises, iScala, Clientele, CRSandVantage product lines are well positioned to address this requirement.

The Company also competes for the divisions and subsidiaries of larger Global
1000 corporations, which the Company defines as enterprises with over $1 billion in annual revenue. Global 1000 companies seeking to deploy a standard business solution across their subsidiary operations have typically been challenged with the total
cost of ownership (TCO) of deploying their corporate level Tier-1 system to operating units which often operate more like midmarket entities. Additionally, localization issues and technical infrastructure problems in remote locations have made
Tier-1 global roll-outs cost prohibitive. These businesses may require a single standardized application that can be deployed worldwide using a low cost decentralized implementation, as opposed to implementing through a centralized infrastructure.
At the same time, they require the ability to roll-up management information on a daily or weekly basis, as well as support drill-down from corporate or regional offices to the underlying data in the subsidiaries as required. The Company believes
that purchases in this market are primarily influenced by availability, high functionality, integration, localization, overall cost of ownership, availability of a Windows-based solution, standardization and a global customer support infrastructure.
The Company believes it competes favorably with respect to all of these factors. Increasingly, customers in this market segment are looking for Microsoft SQL Server based solutions. The Company believes its Enterprise, Epicor for Services
Enterprises, iScala, CRSandVantage product lines are well positioned to address this requirement.

The Company believes it is one of only a
few vendors in this market space that is dedicated to providing midmarket companies and the divisions and subsidiaries of the Global 1000 with comprehensive, integrated enterprise business applications. However, there are competitors from both the
high-end and low-end who are attracted to the business opportunity represented by the midmarket and are beginning to offer complete or partial enterprise business applications to this market. In order to compete in the future, the Company must
respond effectively to customer needs in the area of business process management (BPM) and service-oriented architecture (SOA) and incorporate those technologies and application functionality that will meet the challenges posed by competitors'
innovations. To accomplish this objective, the Company will be required to continue to invest in enhancing its current products and, when necessary, introduce new products to remain competitive. There can be no assurance that the Company will be
able to continue to invest in such enhancements or new products, or introduce such enhancements or new products in a timely fashion or at all.

The Company
has a number of competitors that vary in size, target markets and overall product scope. The Companys primary competition comes from independent software vendors in three distinct groups, including (i) large, multinational ERP vendors
that are increasingly targeting mid-sized businesses as their traditional market becomes saturated, including Oracle Corporation (includes Peoplesoft and J.D. Edwards), and SAP AG, (ii) mid-range ERP vendors, including Infor (includes Geac,
Mapics, SSA, Symix and Systems Union), Lawson Software Inc. (includes Intentia), IFS and Microsoft Dynamics (includes Great Plains, Axapta, and Navision), and (iii) established best-of-breed or point solution providers that compete
with only one portion of the Companys overall ERP suite, including Sage Software, Ltd., and Systems Union, Ltd. (now part of Infor) for financial



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accounting; ChangePoint (owned by Compuware Corporation), Deltek Systems, Inc., Unit 4 Agresso, N.V, BST Global, and QuickArrow, Inc., for professional
services automation; HighJump Software (part of 3M), Prophet21 (owned by Activant), and Manhattan Associates, Inc. for distribution and warehousing; QAD, Inc., for manufacturing; JDA Software Group Inc. and DataVantage (owned by Micros Systems,
Inc.) for specialty retail; and Salesforce.com Inc., Siebel Systems Inc. (owned by Oracle Corporation), FrontRange Solutions, Inc. and SalesLogix (owned by Best Software, Inc.) for sales force automation, customer service and support. In addition,
as the Company sells its products to larger companies, it also faces increased competition from larger and well-established competitors such as Oracle and SAP AG. While these competitors offer dedicated applications, the Company believes that its
broad product offerings, global infrastructure and level of product integration provide a significant competitive advantage.

Intellectual Property

The Company regards its software as proprietary in that title to and ownership of the software generally resides exclusively with the Company, and the
Company attempts to protect it with a combination of copyright, trademark and trade secret laws, employee and third-party nondisclosure agreements and other industry standard methods for protecting ownership of its proprietary software. Despite
these precautions, there can be no assurance unauthorized third-parties will not copy certain portions of the Companys products or reverse engineer or obtain and use information the Company regards as proprietary. To date, the Company has not
relied on patent protection for its software products. While the Companys competitive position may be affected by its ability to protect its proprietary information, the Company believes that trademark and copyright protections are less
significant to the Companys success than other factors such as the knowledge, ability and experience of the Companys personnel, name recognition and ongoing product development and support. There can be no assurance that the mechanisms
used by the Company to protect its software will be adequate or that the Companys competitors will not independently develop software products that are substantially equivalent or superior to the Companys software products.

The Companys software products are generally licensed to end users on a "right to use" basis pursuant to a perpetual, non-exclusive license that generally
restricts use of the software to the organizations internal business purposes. Additionally, the end user is generally not permitted to sublicense or transfer the products. When sold through VARs and distributors, the Company licenses its
software products pursuant to "shrink wrap" licenses that are not signed by licensees and therefore may be unenforceable under the laws of certain jurisdictions. In addition, the laws of some foreign countries do not protect the Companys
proprietary rights to the same extent as do the laws of the United States. Certain components of the Companys products are licensed from third parties.

The source code for the Avantéand, in certain cases, Manage 2000, Vantageand Enterprise products historically has been licensed to customers to enable them to customize the software to meet particular
requirements. The standard customer license contains a confidentiality clause protecting the products. In the event of termination of the license agreement, the customer remains responsible for the confidentiality obligation and for any accrued and
unpaid license fees. However, there can be no assurance that such customers will take adequate precautions to protect the source code or other confidential information.

As the number of software products in the industry increases and the functionality of these products further overlap, the Company believes that software programs will increasingly become subject to infringement
claims. There can be no assurance that third-parties will not assert infringement claims against the Company in the future with respect to current or future products or that any such assertion may not require the Company to enter into royalty
arrangements or result in costly litigation.

Employees

As of February 29, 2008, the Company had 2,907 full-time employees, including NSB employees. The Company had 610 in product development, 529 in support services, 936 in professional services, 436 in sales, 63 in marketing and 333 in
administration. The Company's employees are not represented by any collective bargaining organization, and the Company has never experienced a work stoppage. The Company believes that employee relations are good.

Available Information

Our Annual Report on Form 10-K, Quarterly
Reports on Form 10-Q, Current Reports on Form 8-K and amendments to reports filed pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, are available free of charge on our website at www.epicor.com, as
soon as reasonably practicable after such reports are electronically filed with or furnished to the Securities and Exchange Commission.



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|Item 1A. | RISK FACTORS
|-------- | ------------

Certain Factors That May Affect Future Results

If the emerging and current technologies and platforms of Microsoft and others upon which the Company builds its products do not gain or retain
broad market acceptance, or if we fail to develop and introduce in a timely manner new products and services compatible with such emerging technologies, we may not be able to compete effectively and our ability to generate revenues will suffer.

The Companys software products are built and depend upon several underlying and evolving relational database management system platforms such as
Microsoft SQL Server, Progress and IBM. To date, the standards and technologies that the Company has chosen to develop its products upon have proven to be popular and have gained broad industry acceptance. However, the market for the Companys
software products is subject to ongoing rapid technological developments, quickly evolving industry standards and rapid changes in customer requirements, and there may be existing or future technologies and platforms that achieve industry standard
status, which are not compatible with our products. Additionally, because the Companys products rely significantly upon popular existing user interfaces to third party business applications, the Company must forecast which user interfaces will
be or will remain popular in the future. For example, the Company believes the Internet has and continues to transform the way businesses operate and the software requirements of customers, who are increasingly shifting towards web-based
applications and away from server-based applications. Specifically, the Company believes that customers desire business software applications that enable a customer to engage in commerce or service over the Internet. The Company is proceeding on its
previously announced determination to continue with development of several of its primary product lines upon the Microsoft .NET technology. If the Company cannot continue to develop such .NET compatible products in time to effectively bring them to
market, or if .NET does not become or continue to be a widely accepted industry standard, or if customers adopt competitors products when they shift to web-based applications, the ability of the Companys products to interface with
popular third party applications will be negatively impacted and the Companys competitive position, operating results and revenues could be adversely affected.

New software technologies could cause us to alter our business model resulting in adverse effects on our operating results.

Development of new technologies may also cause the Company to change how it licenses or prices its products, which may adversely impact the Companys revenues and operating results. Emerging licensing models include hosting as well as
subscription-based licensing, in which the licensee essentially rents software for a defined period of time, as opposed to the current perpetual license model. While the Company does currently offer a hosted model to its customers, it has to date
chosen not to offer a subscription based mode. The Companys future business, operating results and financial condition will depend on its ability to effectively train its sales force to sell an integrated comprehensive set of business software
products and recognize and implement emerging industry standards and models, including new pricing and licensing models.

If the Company fails to respond
to emerging industry standards, including licensing models and end-user requirements, the Companys competitive position and revenues could be adversely affected.

A significant portion of our future revenue is dependent upon our existing installed base of customers continuing to license additional products, as well as purchasing consulting services and renewing their annual
maintenance and support contracts. If our existing customers fail to renew their maintenance and support agreements or fail to purchase new product enhancements or additional services from the Company at historical levels, the Companys
revenues and results of operations could be materially impacted.

Historically, approximately 50% to 60% of the Companys license revenues, 90% of
the Companys maintenance revenues and a substantial portion of the Companys consulting revenues are generated from the Companys installed base of customers. Maintenance and support agreements with these customers are traditionally
renewed on an annual basis at the customers discretion, and there is normally no requirement that a customer so renew or that a customer pay new license fees or service fees to the Company following the initial purchase. As a result, if the
Companys existing customers fail to renew their maintenance and support agreements or fail to purchase new product enhancements or additional services at historical levels, our revenues and results of operations could be materially impacted.



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Our increasingly complex software products may contain errors or defects, which could result in the rejection of our
products and damage to our reputation as well as cause lost revenue, delays in collecting accounts receivable, diverted development resources and increased service costs and warranty claims.

The Companys software products are made up of increasingly complex computer programs. Software products are complex and products offered by the Company often
contain undetected errors or failures (commonly referred to as bugs) when first introduced to the market or as new updates or upgrades of such products are released to the market. Despite testing by the Company, and by current and potential
customers, prior to general release to the market, the Companys products may still contain material errors after their initial commercial shipment. Such material errors may result in loss of or delay in market acceptance of the Companys
products, damage to the Companys reputation and increased service and warranty costs. Ultimately, such errors could lead to a decline in the Companys revenues. The Company has from time to time been notified by some of its customers of
errors in its various software products. Although it has not occurred to date, the possibility of the Company being unable to correct such errors in a timely manner could have a material adverse effect on the Companys results of operations and
its cash flows. In addition, if material technical problems with the current release of the various database and technology platforms, on which the Companys products operate, including Progress, IBM, Microsoft SQL or Microsoft .NET, occur,
such difficulties could also negatively impact sales of these products, which could in turn have a material adverse effect on the Companys results of operations.

The market for new development tools, application products and consulting and education services continues to emerge, which could negatively affect our client/server and web-based products, and, if the Company
fails to respond effectively to evolving requirements of these markets, the Companys business, financial condition, results of operations and cash flows could be materially and adversely affected.

The Companys development tools, application products and consulting and education services generally help organizations build, customize or deploy solutions that
operate in both client/server-computing and web-based environments. The Company believes that the environment for application software is continuing to change from client/server to a Web-based environment to facilitate commerce on the Internet.
There can be no assurance that the market for client/server computing will continue to grow, or will not decrease, or that the Company will be able to continue to respond effectively to the evolving requirements of Web-based markets.

The market for our software products and services is highly competitive. If we are unable to compete effectively with existing or new competitors our business could
be negatively impacted.

The business information systems industry in general and the manufacturing, distribution, retail, CRM and financial computer
software industry specifically, in which the Company competes are very competitive and subject to rapid technological change, evolving standards, frequent product enhancements and introductions and changing customer requirements. Many of the
Companys current and potential competitors have (i) longer operating histories, (ii) significantly greater financial, technical and marketing resources, (iii) greater name recognition, (iv) larger technical staffs and
(v) a larger installed customer base than the Company. A number of companies offer products that are similar to the Companys products and target the same markets. In addition, any of these competitors may be able to respond more quickly
to new or emerging technologies and changes in customer requirements (such as commerce on the Internet and Web-based application software), and to devote greater resources to the development, promotion and sale of their products than the Company.
Furthermore, because there are relatively low barriers to entry in the software industry, the Company expects additional competition from other established and emerging companies. Such competitors may develop products and services that compete with
those offered by the Company or may acquire companies, businesses and product lines that compete with the Company. It also is possible that competitors may create alliances and rapidly acquire significant market share, including in new and emerging
markets. Accordingly, there can be no assurance that the Companys current or potential competitors will not develop or acquire products or services comparable or superior to those that the Company develops, combine or merge to form significant
competitors or adapt more quickly than the Company to new technologies, evolving industry trends and changing customer requirements. Competition could cause price reductions, reduced margins or loss of market share for the Companys products
and services, any of which could materially and adversely affect the Companys business, operating results and financial condition. There can be no assurance that the Company will be able to compete successfully against current and future
competitors or that the competitive pressures that the Company may face will not materially adversely affect its business, operating results, cash flows and financial condition.



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If we were to lose the services of the members of our senior management team, we may not be able to execute our
business strategy.

Our future success depends in a large part upon the continued service of key members of our senior management team. In particular,
our executive Officers such as our CEO and CFO as well as other senior members of our management team such as our chief marketing officer and senior vice presidents are critical to the overall management of Epicor as well as the development of
our technology, our operations and our strategic direction. All of our executive officers and key employees are at-will employees, and we do not maintain any key-person life insurance policies. The loss of any members of our executive
management team and the possible inability to attract qualified replacements in a timely manner could adversely affect our ability to compete effectively and seriously harm our business.

We may not be able to maintain and expand our product offerings or business if we are not able to retain, hire and integrate sufficiently qualified personnel.

The Companys success depends in large part on the continued service of key management personnel that are not subject to employment agreements,
including, but not limited to, several of the key personnel employed as a result of the Companys recent acquisitions. In addition, the Company needs to expand its workforce to continue its growth, and the competition to attract, retain and
motivate qualified technical, sales and software development personnel is intense. Additionally, the sudden unexpected loss of such technical personnel, such as developers can have a negative impact on the Companys ability to develop and
introduce new products in a timely and effective manner. There is no assurance that the Company will retain its key personnel, including those who came to the Company as part of acquisitions, or attract sufficient numbers of qualified key personnel
in the future. The failure to retain or attract such persons could have a material adverse effect on the Companys business, operating results, cash flows and financial condition.

Our software products incorporate and rely upon third party software products for certain key functionality and our revenues, as well as our ability to develop and introduce new products, could be adversely
affected by our inability to control or replace these third party products and operations.

The Companys products incorporate and rely upon
software products developed by several other third party entities such as Microsoft, IBM and Progress. Specifically, the Companys software products are built and depend upon several underlying and evolving relational database management system
platforms including Microsoft SQL Server, Progress OpenEdge and IBM U2, and also are integrated with several other third party provider products for the purpose of providing or enhancing necessary functionality. In the event that these third party
products were to become unavailable to the Company or to our customers, either directly from the third party manufacturers or through other resellers of such products, the Company could not readily replace these products with substitute products. As
a result, the Company cannot provide assurance that these third parties will:



| |  |  | Remain in business;
| | - |  | -------------------



| |  |  | Continue to support the Companys product lines;
| | - |  | ------------------------------------------------



| |  |  | Maintain viable product lines;
| | - |  | ------------------------------



| |  |  | Make their product lines available to the Company on commercially acceptable terms and
| | - |  | --------------------------------------------------------------------------------------



| |  |  | Not make their products available to the Companys competitors on more favorable terms.
| | - |  | ---------------------------------------------------------------------------------------

In the long term (i.e., a year or more), an interruption of supply from these vendors could potentially be overcome through migration to another third party supplier or
development within the Company. However, any interruption in the short term could have a significant detrimental effect on the Companys ability to continue to market and sell those of its products relying on these specific third party products
and could have a material adverse effect on the Companys business, results of operation, cash flows and financial condition.

We may pursue
strategic acquisitions, investments and relationships and may not be able to successfully manage our operations if we fail to successfully integrate such acquired businesses and technologies, which could adversely affect our operating results.

As part of its business strategy, the Company may continue to expand its product offerings to include application software products and services that are
complementary to its existing software applications, particularly in the areas of electronic commerce or commerce over the Internet, or may gain access to established customer bases into which the Company can sell its current products. The
Companys acquisitions of Scala Business Solutions in 2004, CRS in 2005 and NSB in 2008 are typical of this ongoing strategy. However, while this strategy has



25



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historically and may in the future involve acquisitions, investments in other businesses that offer complementary products, joint development agreements or
technology licensing agreements, the specific risks we commonly encounter in these types of transactions include the following:



| |  |  | Difficulty in effectively integrating any acquired technologies or software products into our current products and technologies;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------



| |  |  | Difficulty in predicting and responding to issues related to product transition such as development, distribution and customer support;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The possible adverse impact of such acquisitions on existing relationships with third party partners and suppliers of technologies and services;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The possibility that customers of the acquired company might not accept new ownership and may transition to different technologies or attempt to renegotiate
contract terms or relationships, including maintenance or support agreements;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The possibility that the due diligence process in any such acquisition may not completely identify material issues associated with product quality, product
architecture, product development, intellectual property issues, key personnel issues or legal and financial contingencies;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Difficulty in integrating acquired operations, including incorporating internal control structures, due to geographical distance, and language and cultural
differences and
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Difficulty in retaining employees of the acquired company.
| | - |  | ----------------------------------------------------------

A failure to successfully integrate acquired businesses or technology for any of these reasons could have a material adverse effect on the Companys results of operations.

Our future results could be harmed by economic, political, geographic, regulatory and other specific risks associated with our international operations.

The Company believes that any future growth of the Company will be dependent, in part, upon the Companys ability to maintain and increase revenues in its existing
and emerging international markets, including Asia and Latin America. During the fiscal years ended December 31, 2007 and 2006, 39.8% and 36.8%, respectively, of total Company revenues were generated by the Companys international
operations. There can be no assurance that the Company will maintain or expand its international sales. If the revenues that the Company generates from foreign activities are inadequate to offset the expense of maintaining foreign offices and
activities, the Companys business, financial condition and results of operations could be materially and adversely affected. The international reach of the Companys businesses could also subject the Company and its results of operations
to unexpected, uncontrollable and rapidly changing economic and political conditions. Specifically, our international sales and operations are subject to inherent risks, including:



| |  |  | Differing intellectual property and labor laws;
| | - |  | -----------------------------------------------



| |  |  | Lack of experience in a particular geographic market;
| | - |  | -----------------------------------------------------



| |  |  | Different and changing regulatory requirements in various countries and regions;
| | - |  | --------------------------------------------------------------------------------



| |  |  | Tariffs and other barriers, including import and export requirements and taxes on subsidiary operations;
| | - |  | --------------------------------------------------------------------------------------------------------



| |  |  | Fluctuating exchange rates and currency controls;
| | - |  | -------------------------------------------------



| |  |  | Difficulties in staffing and managing foreign sales and support operations;
| | - |  | ---------------------------------------------------------------------------



| |  |  | Longer accounts receivable payment cycles;
| | - |  | ------------------------------------------



| |  |  | Potentially adverse tax consequences, including repatriation of earnings;
| | - |  | -------------------------------------------------------------------------



| |  |  | Development and support of localized and translated products;
| | - |  | -------------------------------------------------------------



| |  |  | Lack of acceptance of localized products or the Company in foreign countries;
| | - |  | -----------------------------------------------------------------------------



| |  |  | Shortage of skilled personnel required for local operations and
| | - |  | ---------------------------------------------------------------



| |  |  | Perceived health risks, natural disasters or terrorist risks which impact a geographic region and business operations therein.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------

Any one of these factors or a combination of them could materially and adversely affect the Companys future international sales and, consequently, the
Companys business, operating results, cash flows and financial condition. A portion of the Companys revenues from sales to foreign entities, including foreign governments, has been in the form of foreign currencies. While the Company
does enter into hedges and other similar foreign currency contracts from time to time, there can be no assurance that such activities will effectively minimize the impact that fluctuations in the value of foreign currencies may have on the Company.
Fluctuations in the value of foreign currencies could adversely impact the profitability of the Companys foreign operations.



26



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We rely, in part, on third parties to sell our products. Disruptions to these channels would adversely affect our
ability to generate revenues from the sale of our products.

The Company distributes products through a direct sales force as well as through an
indirect distribution channel, which includes VARs and other distributors and authorized consultants, consisting primarily of professional firms. During the fiscal years ended December 31, 2007 and 2006, 13% and 14%, respectively, of the
Companys software license revenues were generated by VARs and distributors. If the Companys VARs or authorized consultants cease distributing or recommending the Companys products or emphasize competing products, the Companys
results of operations could be materially and adversely affected. Historically, the Company has sold its financial and customer relationship management (CRM) products through direct sales as well as through the indirect distribution channel.
However, the Company is currently developing a distribution channel for certain of its manufacturing product lines not previously widely sold through VARs and other distributors. It is not yet certain that these products can be successfully sold
through such a channel and the long term impact of this new distribution channel on the Companys performance is as of yet undetermined as is the Companys ability to generate additional license and services revenue from such a channel.
The success of the Companys distributors depends in part upon their ability to attract and maintain qualified sales and consulting personnel. Additionally, the Companys distributors may generally terminate their agreements with the
Company upon 30 days notice, while the Scala partners may generally terminate their agreements upon 30 days to several months notice. Almost all partners though may effectively terminate their agreements at any time by ceasing to promote or sell our
products. If our VARs or other distributors are unable to maintain such qualified personnel or if several of the Companys VARs or other distributors were to cease doing business or terminate their agreements and the Company is unable to
replace them in a timely fashion, such factors could negatively impact the Companys results of operations. Finally, there can be no assurance that having both a direct sales force and a distribution channel for the Companys products will
not lead to conflicts between those two sales forces which could adversely impact the Companys ability to close sales transactions or could have a negative impact upon average selling prices, any of which may negatively impact the
Companys operating revenues and results of operations.

If third parties infringe upon our intellectual property, we may expend significant
resources enforcing our rights or suffer competitive injury, which could adversely affect our operating results. In addition, we may be subject to claims that we infringe upon the intellectual property of others.

The Company considers its proprietary software and the related intellectual property rights in such products to be among its most valuable assets. The Company relies on
a combination of copyright, trademark and trade secret laws (domestically and internationally), employee and third-party nondisclosure agreements and other industry standard methods for protecting ownership of its proprietary software. However, the
Company cannot assure you that in spite of these precautions, an unauthorized third party will not copy or reverse-engineer certain portions of the Companys products or obtain and use information that the Company regards as proprietary. From
time to time, the Company does take legal action against third parties whom the Company believes are infringing upon the Companys intellectual property rights. However, there is no assurance that the mechanisms that the Company uses to protect
its intellectual property will be adequate or that the Companys competitors will not independently develop products that are substantially equivalent or superior to the Companys products.

Moreover, the Company from time to time receives claims from third parties that the Companys software products infringe upon the intellectual property rights of
others. The Company expects that as the number of software products in the United States and worldwide increases and the functionality of these products further overlaps, the number of these types of claims will increase. This risk is potentially
heightened in such diverse international markets as Eastern Europe, Asia and the Middle East. Although it has not yet occurred to date, any such claim, with or without merit, could result in costly litigation and require the Company to enter into
royalty or licensing arrangements. The terms of such royalty or license arrangements, if required, may not be favorable to the Company. In addition, in certain cases, the Company provides the source code for some of its application software under
licenses to its customers and distributors to enable them to customize the software to meet their particular requirements or translate or localize the products for resale in foreign countries, as the case may be. Although the source code licenses
contain confidentiality and nondisclosure provisions, the Company cannot be certain that such customers or distributors will take adequate precautions to protect the Companys source code or other confidential information. Moreover, regardless
of contractual arrangements, the laws of some countries in which the Company does business or distributes its products do not offer the same level of protection to intellectual property, as do the laws of the United States.



27



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Foreign currency fluctuations may negatively impact the financial results of the Company.

The results of operations or financial condition of the Company may be negatively impacted by foreign currency fluctuations. The Company operates throughout the world
through international sales subsidiaries, networks of exclusive third party distributors, and non-exclusive dealers. As a result, certain sales and related expenses are denominated in currencies other than the U.S. dollar. The Companys results
of operations may fluctuate due to exchange rate fluctuation between the U.S. dollar and other currencies because our financial results are reported on a consolidated basis in U.S. dollars. In an effort to minimize operation fluctuations due to
currency movements, we may attempt to limit foreign exchange exposure through operational strategies (e.g. natural hedges, netting, leading and lagging of accounts payables and account receivables) to offset the effects of exchange rate changes. In
addition, the Company may enter into forward currency contracts and purchased options contracts to mitigate unfavorable impacts to our non-operating income. The Company estimates the volume of sales transactions in various currencies. Our estimates
of transaction volumes in these various currencies could be overstated or understated. If these estimates are overstated or understated during periods of currency volatility, the Company may experience material currency gains or losses. Also, in
December 2007, the Company announced its offer to acquire the capital shares of NSB Retail Systems for consideration denominated in pounds sterling. While the Company capped its exposure to negative fluctuations between the U.S. dollar and pound
sterling through the purchase of call option contracts, depreciation of the pounds sterling against the U.S. dollar may result in a material loss in the value of the option contracts (see Note 15 in Notes to the Consolidated Financial Statements).

Our quarterly operating results are difficult to predict and subject to substantial fluctuation.

The Companys quarterly operating results have fluctuated significantly in the past. For example, from the first quarter of 2005 through the fourth quarter of 2007,
quarterly operating income has ranged from $6.6 million to $13.9 million. The Companys operating results may continue to fluctuate in the future as a result of many specific factors that include:



| |  |  | The demand for the Companys products, including reduced demand related to changes in marketing focus for certain products, software market conditions or
general economic conditions as they pertain to information technology (IT) spending;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Fluctuations in the length of the Companys sales cycles which may vary depending on the complexity of our products as well as the complexity of the
customers specific software and service needs;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The size and timing of orders for the Companys software products and services, which, because many orders are completed in the final days of each quarter, may
be delayed to future quarters;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The number, timing and significance of new software product announcements, both by the Company and its competitors;
| | - |  | -------------------------------------------------------------------------------------------------------------------



| |  |  | Customers unexpected postponement or termination of expected system upgrades or replacement due to a variety of factors including economic conditions, changes
in IT strategies or management changes;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Changes in accounting standards, including software revenue recognition standards;
| | - |  | ----------------------------------------------------------------------------------



| |  |  | Currency fluctuations and
| | - |  | -------------------------



| |  |  | Fluctuations in number of customers renewing maintenance.
| | - |  | ---------------------------------------------------------

In addition, the Company has historically realized a significant portion of its software license revenues in the final month of any quarter, with a concentration of such revenues recorded in the final ten business days of that month.
Further, the Company generally realizes a significant portion of its annual software license revenues in the final quarter of the fiscal year.

Due to the
above factors, among others, the Companys revenues are difficult to forecast. The Company, however, bases its expense levels, including operating expenses and hiring plans, in significant part, on its expectations of future revenue. As a
result, the Company expects its expense levels to be relatively fixed in the short term. The Companys failure to meet revenue expectations could adversely affect operating results. Further, an unanticipated decline in revenue for a particular
quarter may disproportionately affect the Companys operating results in that quarter because the majority of the Companys expenses will be fixed in the short term. As a result, the Company believes that period-to-period comparisons of
the Companys results of operations are not, and will not, necessarily be meaningful, and you should not rely upon them as an indication of future performance. Due to the foregoing factors, it is likely that, as in past quarters, in some future
quarters the Companys operating results will be below the expectations of public market analysts and investors. As in those past quarters, such an event would likely have an adverse effect upon the price of the Companys outstanding
securities.



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Our operating cash flows are subject to fluctuation, primarily related to our ability to timely collect accounts
receivable and to achieve anticipated revenues and expenses. Negative fluctuations in operating cash flows may require us to seek additional cash sources to fund our working capital requirements. If additional cash sources are not available to the
Company, our operations could be adversely affected.

From the first quarter of 2005 through the fourth quarter of 2007, the Companys quarterly
operating cash flows have ranged from $3.2 million provided by operating activities to $22.3 million provided by operating activities. The Companys cash and cash equivalents have increased from $49.8 million at December 31, 2005 to $75.2
million at December 31, 2007. However, the Company has at times experienced decreasing revenues and, prior to the first quarter of 2003, continued operating losses. If, in the future, the Company is not successful in achieving its anticipated
revenues and expenses or maintaining a positive cash flow, the Company may not have sufficient resources for planned growth and may be required to take actions to reduce its operating expenses, such as reductions in work force and/or seek additional
sources of funding. Since December 31, 1999, the Company has also experienced fluctuations in the proportion of accounts receivable over 90 days old. These fluctuations have been due to various issues, including product and service quality,
deteriorating financial condition of customers during the recent recession and lack of effectiveness of the Companys collection processes. If the Company cannot successfully collect a significant portion of its net accounts receivable, the
Company may be required to seek alternative financing sources. As of December 31, 2007, the Company had a $230.0 million obligation to holders of the Companys convertible bonds.

The market for our stock is volatile and fluctuations in operating results, changes in the Companys guidance on revenues and earnings estimates and other
factors could negatively impact our stocks price.

During the three year period ended December 31, 2007, the price of the Companys
common stock ranged from a low of $9.59 to a high of $15.75. For fiscal year ended December 31, 2007, the stock price ranged from a low of $10.55 to a high of $15.49. As of February 22, 2008, the Company had 58,396,409 shares of Common
Stock outstanding. The market prices for securities of technology companies, including the Companys, have historically been quite volatile. Quarter to quarter variations in operating results, changes in the Companys guidance on revenues
and earnings estimates, announcements of technological innovations or new products by the Company or its competitors, announcements of major contract awards, announcements of industry acquisitions by us or our competitors, changes in accounting
standards or regulatory requirements as promulgated by the FASB, SEC, NASDAQ or other regulatory entities, changes in management and other events or factors may have a significant impact on the market price of the Companys Common Stock. In
addition, the securities of many technology companies have experienced extreme price and volume fluctuations, which have often been related more to changes in recommendations or financial estimates by securities analysts than to the companies
actual operating performance. Any of these conditions may adversely affect the market price of the Companys Common Stock.

If we are not able to
successfully integrate CRS Retail Technology Group, Inc. and NSB Retail Systems and their operations with the Company and between themselves , our ability to achieve anticipated revenues and related profits, as well as sales for the CRS and NSB
products may be adversely impacted.

The success of our acquisitions of CRS and NSB will depend in large part upon our ability to continue to
successfully integrate the CRS and NSB businesses into the Company and between themselves. As with most acquisitions, integration issues are complex, time-consuming and expensive and, without proper planning and implementation, could significantly
disrupt the businesses of CRS and NSB and thus, the Company. The challenges involved in continuing to integrate CRS and NSB with the Company include:



| |  |  | Coordinating sales and marketing efforts to effectively communicate the combined companys capabilities;
| | - |  | --------------------------------------------------------------------------------------------------------



| |  |  | Introducing and effectively selling and cross selling the CRS and NSB products into international (non-US) markets where they have not traditionally been offered;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Combining product offerings and technology;
| | - |  | -------------------------------------------



| |  |  | Coordinating and combining domestic operations, relationships and facilities;
| | - |  | -----------------------------------------------------------------------------



| |  |  | Coordinating and rationalizing research and development activities to enhance introduction of new products and technologies with reduced cost;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Coordinating CRS and NSBs research and development efforts here in the United States with the Companys R&D facilities both in the U.S. as well
as in Moscow, Russia and Monterrey, Mexico;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Continuing to demonstrate to the existing CRS and NSB customers that the acquisitions will not result in adverse changes in client service standards or business
focus and helping customers conduct business easily with the Company;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| |  |  | Preserving distribution, marketing or other important relationships of the Company, CRS and NSB and resolving potential conflicts that may arise;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Successfully integrating the business cultures of the Company, CRS and NSB, maintaining employee morale and retaining key employees and
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Consolidating and rationalizing corporate information technology and administrative infrastructures.
| | - |  | ----------------------------------------------------------------------------------------------------

The integration of the CRS and NSB businesses into the Companys business may not realize all of the anticipated benefits of the acquisition to the extent, or in
the time frame, anticipated. The failure to fully integrate the CRS and NSB businesses successfully into the Company or to realize all of the anticipated benefits of the acquisitions could seriously hinder our plans for product development and
business and market expansion.

A variety of specific business interruptions could adversely affect our business.

A number of particular types of business interruptions could greatly interfere with our ability to conduct business. For example, a substantial portion of our
facilities, including our corporate headquarters and other critical business operations, are located near major earthquake faults. We do not carry earthquake insurance and do not fund for earthquake-related losses. In addition, our computer systems
are susceptible to damage from fire, floods, earthquakes, power loss, telecommunications failures, and similar events. The Company continues to consider and implement its options and develop contingency plans to avoid and/or minimize potential
disruptions to its telecommunication services.

If open source software expands into enterprise software applications, our software license revenues may
decline.

Open source software includes a broad range of software applications and operating environments produced by companies, development
organizations and individual software developers and typically licensed for use, distribution and modification at a nominal cost or often, free of charge. A notable example of open source software is the Linux operating system, which continues to
gain in popularity. To the extent that the open source software models expand and non-commercial companies and software developers create and contribute competitive enterprise software applications to the open source community, we may have to adjust
our pricing, maintenance and distribution strategies and models, which could adversely affect our revenue and operating margins.

We have recorded a
large amount of goodwill and other acquired intangible assets which we will be required to write down and record an expense if they become impaired.

In connection with our previous acquisitions, we currently have goodwill of $169.3 million and $46.5 million of amortizing acquired intangible assets on our balance sheet. Although the goodwill is not amortized, we are required to test the
goodwill for impairment at least yearly and any time there is an indication an impairment may have occurred. If we determine that the carrying value of the goodwill or other acquired intangible assets is in excess of its fair value, we will be
required to write down a portion or all of the goodwill or other acquired intangible assets, which would adversely impact our results of operations.

Future acquisitions of technologies or companies, which are paid for partially, or entirely through the issuance of stock or stock rights could prove dilutive to existing shareholders.

Consistent with past experience, the Company expects that the consideration it might pay for any future acquisitions of companies or technologies could include stock,
rights to purchase stock, cash or some combination of the foregoing. For example, the Companys acquisition of Scala Business Solutions in 2004 involved the issuance of approximately 4.25 million shares of the Companys Common Stock.
If the Company issues stock or rights to purchase stock in connection with future acquisitions, earnings (loss) per share and then-existing holders of the Companys Common Stock may experience dilution.

We have a significant amount of debt following our note offering in 2007 and credit agreement in February 2008.

As of December 31, 2007, we had approximately $230 million of outstanding debt. In addition, in February 2008, we borrowed $160 million under our Credit Agreement
dated December 16, 2007, as amended by the First Amendment dated February 11, 2008 and the Notice dated February 11, 2008, to finance the acquisition of NSB and to pay certain fees and expenses incurred in connection with the
acquisition. Our substantial indebtedness could adversely affect our business, financial condition and results of operations and our ability to meet our payment obligations under our outstanding liabilities.



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This level of debt could have significant consequences on our future operations, including:



| |  |  | Making it more difficult for us to meet our payment and other obligations under our outstanding debt;
| | - |  | -----------------------------------------------------------------------------------------------------



| |  |  | Resulting in an event of default if we fail to comply with the financial and other restrictive covenants contained in our debt agreements, which event of default
could result in all of our debt becoming immediately due and payable and, in the case of an event of default under our secured debt, such as our senior secured credit facility, could permit the lenders to foreclose on our assets securing that debt;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Reducing the availability of our cash flow to fund working capital, capital expenditures, acquisitions and other general corporate purposes, and limiting our
ability to obtain additional financing for these purposes;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Subjecting us to the risk of increased sensitivity to interest rate increases on any indebtedness with variable interest rates;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------



| |  |  | Limiting our flexibility in planning for, or reacting to, and increasing our vulnerability to, changes in our business, the industry in which we operate and the
general economy and
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Placing us at a competitive disadvantage compared to our competitors that have less debt or are less leveraged.
| | - |  | ---------------------------------------------------------------------------------------------------------------

Any of the above-listed factors could have an adverse effect on our business, financial condition and results of operations and our ability to meet our payment
obligations under our outstanding liabilities.

The accounting method for our convertible debt securities may be subject to change.

For the purpose of calculating diluted earnings per share, a convertible debt security providing for net share settlement and meeting specified requirements under U.S.
generally accepted accounting principles (GAAP) may be accounted for similar to non-convertible debt, with the stated coupon constituting interest expense and any shares issuable to settle the conversion spread being accounted for under the treasury
stock method. The effect of the treasury stock method is that the shares potentially issuable upon conversion of the notes are not included in the calculation of our earnings per share until the notes are in the money, and we are assumed
to issue the number of shares of our common stock to settle the conversion spread.

The Financial Accounting Standards Board (FASB) is addressing, among
other things, the accounting method for net share settled financial instruments. The FASB is considering a proposed method for accounting for net share settled financial instruments under which the debt and equity components of the convertible
security would be bifurcated and accounted for separately. The effect of this proposal is that the equity component would be accounted for as an original issue discount bond and would be included in the paid-in-capital section of stockholders
equity on an issuers balance sheet. Income available to common stockholders would be lower by recognizing amortization of the original issue discount as interest expense. The diluted earnings per share calculation would continue to be
calculated based on the treasury stock method.

We cannot predict the outcome of the FASB deliberations and whether or not the FASB will require net share
settled financial instruments to be accounted for under the existing method, the proposed method described above or some other method, and when any change would be implemented or whether it would be implemented retroactively or prospectively. We
also cannot predict any other changes in GAAP that may be made affecting accounting for convertible debt instruments. Any change in the accounting method for convertible securities could have an adverse impact on our reported or future financial
results and could cause future results to vary in unpredictable ways if we must mark to market the equity component of the recently issued notes. These impacts could adversely affect our stock price.

Because of these and other factors affecting the Companys operating results, past financial performance should not be considered an indicator of future
performance, and investors should not use historical trends to anticipate results or trends in future periods.



|Item 1B. | UNRESOLVED STAFF COMMENTS
|-------- | -------------------------

None.



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##### Table of Contents

|Item 2. | PROPERTIES
|------- | ----------

The below table outlines the Companys primary
property leases as of December 31, 2007:



|                          |  |                |  |                   
|------------------------- |  | -------------- |  | ------------------
|Location                  |  | Square Footage |  | Lease Expiration  
|Irvine, California - HQ   |  | 74,000         |  | July 2011         
|Newburgh, New York        |  | 110,000        |  | December 2009-2010
|Minneapolis, Minnesota    |  | 52,000         |  | August 2012       
|Moscow, Russia            |  | 24,000         |  | June 2008         
|Bracknell, United Kingdom |  | 23,000         |  | March 2019        
|San Diego, California     |  | 21,000         |  | August 2009       
|Nacka, Sweden             |  | 16,000         |  | September 2012    
|Monterrey, Mexico         |  | 17,000         |  | May 2008          

The principal activities in Irvine, California are corporate headquarters, sales, marketing, development and
customer support. The Company has approximately 173,000 square feet in the San Diego facility, of which approximately 152,000 square feet is currently sublet to two third parties. The principal activities in San Diego, Minneapolis and Newburgh are
sales, development, consulting and customer support. Internationally, Bracknell, United Kingdom and Nacka, Sweden are used for international sales, marketing, consulting, customer support and administration. Of the total Bracknell, United Kingdom
space, approximately 8,700 square feet is currently being sublet to a third party. The Company also leases property in Monterrey, Mexico and Moscow, Russia for product development.

In addition to the locations listed above, the Company leases other offices for sales, service, and product development in various locations worldwide. The Company is continually evaluating its facilities for cost
effectiveness and suitability for purpose and will adjust its facilities portfolio to fit the needs of the Company at any point in time. However, the Company believes its current facilities are suitable for their respective uses and adequate for the
Companys needs.



|Item 3. | LEGAL PROCEEDINGS
|------- | -----------------

The Company is subject to legal proceedings and
claims in the normal course of business. The Company is currently defending such proceedings and claims, and, although the outcome of legal proceedings is inherently uncertain presently, the Company anticipates that it will be able to resolve these
matters in a manner that will not have a material adverse effect on the Companys consolidated financial position, results of operations or cash flows.



|Item 4. | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
|------- | ---------------------------------------------------

No matters
were submitted to a vote of the security holders during the fourth quarter of the year ended December 31, 2007.



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PART II



|Item 5. | MARKET VALUE OF COMMON STOCK
|------- | ----------------------------

The Company's Common Stock is traded
on The Nasdaq Global Select Market under the symbol EPIC. The following table sets forth the range of high and low closing prices for the Company's Common Stock for the periods indicated.



|                              |  |      |       |     |   |      
|----------------------------- |  | ---- | ----- | --- | - | -----
|Year ended December 31, 2006: |  |      |       |    
|                              |  | High |       | Low
|1st Quarter                   |  | $    | 14.62 |     | $ | 11.25
|2nd Quarter                   |  | $    | 13.34 |     | $ | 9.90 
|3rd Quarter                   |  | $    | 13.11 |     | $ | 9.59 
|4th Quarter                   |  | $    | 14.40 |     | $ | 12.60
|                              |  |     
|Year ended December 31, 2007: |  |      |       |    
|                              |  | High |       | Low
|1st Quarter                   |  | $    | 14.43 |     | $ | 12.78
|2nd Quarter                   |  | $    | 15.49 |     | $ | 13.79
|3rd Quarter                   |  | $    | 15.00 |     | $ | 12.34
|4th Quarter                   |  | $    | 13.87 |     | $ | 10.55

There were approximately 1,241 registered security holders of record as of February 22, 2008. Because many of
the Companys shares of common stock are held by brokers or other institutions on behalf of stockholders, the Company is unable to estimate the total number of stockholders represented by the record holders. The Company believes there are a
substantially greater number of beneficial holders. The Company has not paid dividends to date and intends to retain any earnings for use in the business for the foreseeable future.

Performance Graph

This performance graph shall not be deemed filed for purposes of Section 18 of
the Securities Exchange Act of 1934, as amended (the Exchange Act) or otherwise subject to the liabilities under that Section and shall not be deemed to be incorporated by reference into any filing of Epicor Software Corporation under
the Securities Act of 1933, as amended or the Exchange Act.

The following graph shows a comparison of cumulative total returns for the Company, the Center
for Research in Securities Prices Index for the NASDAQ Stock Market (United States Companies) (the CRSP NASDAQ Index) and the Center for Research in Securities Prices Index for NASDAQ Computer and Data Processing Stocks (the CRSP
NASDAQ Computer Index) for the last five fiscal years ended on December 31, 2007. The graph assumes that $100 was invested on December 31, 2002 in the common stock of the Company, the Nasdaq Market Index and the CRSP NASDAQ Computer
Index and assumes that all dividends have been reinvested. The stock price performance on the following graph is not necessarily indicative of future stock price performance.



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LOGO



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Unregistered Sales of Equity Securities and Use of Proceeds

Purchases of Equity Securities by the Issuer and Affiliated Purchasers



|                                      |  |                                   |  |                            |       |     |                                                                             |     |                                                                                                                |    
|------------------------------------- |  | --------------------------------- |  | -------------------------- | ----- | --- | --------------------------------------------------------------------------- | --- | -------------------------------------------------------------------------------------------------------------- | ---
|Dates                                 |  | (a) TotalNumberof SharesPurchased |  | AveragePrice PaidPer Share |       |     | Total Number ofSharesPurchased asPart of PubliclyAnnounced Plansor Programs |     | MaximumNumber (orApproximateDollar Value) ofShares (orUnits) that mayYet
BePurchasedUnder the Plansor Programs
|October 1, 2007 to October 31, 2007   |  | 5,124                             |  | $                          | 12.59 |     |                                                                             | N/A |                                                                                                                | N/A
|                                      |  |                                   |  |                           
|November 1, 2007 to November 30, 2007 |  | 4,151                             |  | $                          | 11.53 |     |                                                                             | N/A |                                                                                                                | N/A
|                                      |  |                                   |  |                           
|December 1, 2007 to December 31, 2007 |  |                                  |  |                            |      |     |                                                                             | N/A |                                                                                                                | N/A
|                                      |  |                                   |  |                            |       |     |                                                                             |     |                                                                                                                |    
|Total                                 |  | 9,275                             |  | $                          | 12.11 | (1) |                                                                             |     |                                                                                                                |    
|                                      |  |                                   |  |                            |       |     |                                                                             |     |                                                                                                                |    



|(1) | Represents the weighted average price per share purchased during the fourth quarter.
|--- | ------------------------------------------------------------------------------------

All shares of the Companys common stock purchased listed in column (a) were purchased through a plan or program not publicly announced and are shares repurchased under the Companys restricted stock
programs as consideration for the payment of the required withholding taxes.

On November 1, 2007, the Company announced that the Board of Directors
authorized the Company to institute a stock repurchase program whereby up to $50 million of its common stock may be repurchased from time to time. The duration of the repurchase program is open-ended. Under the program, the Company is able to
purchase shares of common stock through open market transactions at prices deemed appropriate by management. The timing and amount of repurchase transactions under this program will depend on market conditions and corporate and regulatory
considerations. The program may be discontinued at any time by the Board of Directors. There were no repurchases that were made pursuant to this program during the fourth quarter of fiscal 2007.



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##### Table of Contents

|Item 6. | SELECTED CONSOLIDATED FINANCIAL DATA
|------- | ------------------------------------

The following selected
consolidated financial data should be read in conjunction with Managements Discussion and Analysis of Financial Condition and Results of Operations and our consolidated financial statements and the related notes thereto appearing
elsewhere in this Annual Report. The following selected consolidated statements of operations data for the years ended December 31, 2007, 2006 and 2005, and the consolidated balance sheet data at December 31, 2007 and 2006, have been
derived from audited consolidated financial statements included elsewhere in this Annual Report. The consolidated statements of operations data presented below for the years ended December 31, 2004 and 2003 and the consolidated balance sheet
data at December 31, 2005, 2004 and 2003, are derived from audited consolidated financial statements that are not included in this Annual Report.



|                                       |  |                                            |         |      |   |         |  |      |         |      |   |         |  |   |        
|-------------------------------------- |  | ------------------------------------------ | ------- | ---- | - | ------- |  | ---- | ------- | ---- | - | ------- |  | - | -------
|                                       |  | As of and for the years ended December 31,
|in thousands, except per share amounts |  | 2007                                       |         | 2006 |   | 2005    |  | 2004 |         | 2003
|                                       |  | (5)                                        |         | (4)  |   | (3)     |  | (2)  |         | (1) 
|Total revenues                         |  | $                                          | 429,832 |      | $ | 384,096 |  | $    | 289,413 |      | $ | 224,866 |  | $ | 154,332
|                                       |  |                                            |         |      |  
|Net income                             |  | $                                          | 41,277  |      | $ | 23,818  |  | $    | 52,035  |      | $ | 23,969  |  | $ | 7,963  
|                                       |  |                                            |         |      |  
|Basic net income per share             |  | $                                          | 0.72    |      | $ | 0.43    |  | $    | 0.95    |      | $ | 0.47    |  | $ | 0.17   
|                                       |  |                                            |         |      |  
|Diluted net income per share           |  | $                                          | 0.71    |      | $ | 0.42    |  | $    | 0.92    |      | $ | 0.45    |  | $ | 0.16   
|                                       |  |                                            |         |      |  
|Total assets                           |  | $                                          | 645,381 |      | $ | 441,890 |  | $    | 428,951 |      | $ | 255,749 |  | $ | 102,223
|                                       |  |                                            |         |      |  
|Long-term debt (less current portion)  |  | $                                          | 230,491 |      | $ | 98,273  |  | $    | 124,639 |      | $ | 30,264  |  | $ |       
|                                       |  |                                            |         |      |  
|Total stockholders equity             |  | $                                          | 262,925 |      | $ | 208,620 |  | $    | 170,450 |      | $ | 97,657  |  | $ | 27,461 



|(1) | For the year ended December 31, 2003, net income included restructuring charges of $937,000, a $1,100,000 reduction in general and administrative expenses related to a decrease
in the allowance for doubtful accounts and a $241,000 fee paid to the holders of the preferred stock accounted for as a beneficial conversion option on the preferred stock.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | For the year ended December 31, 2004, net income included restructuring charges of $2,382,000 and includes the results of operations related to the Scala acquisition from
June 18, 2004 (date of acquisition) through December 31, 2004.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | For the year ended December 31, 2005, net income included restructuring charges of $359,000, a non cash income tax benefit of $18,189,000 and included the results of operations
related to the CRS acquisition from December 6, 2005 (date of acquisition) through December 31, 2005.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(4) | The amounts included in 2006 and the following years reflect the adoption of Statement of Financial Accounting Standards (SFAS) No. 123 (revised 2004), Share-Based
Payment (SFAS 123-R), effective January 1, 2006.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(5) | For the year ended December 31, 2007, net income included restructuring charges of $909,000 and a non cash income tax benefit of $13,970,000.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

|Item 7. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|------- | -------------------------------------------------------------------------------------

The following discussion should be read in conjunction with the consolidated financial statements and notes thereto.

Overview

The Company designs, develops, markets and supports computer software applications, which assist mid-sized companies as well as
the divisions and subsidiaries of larger corporations in the planning, management and operation of their businesses. The Company is focused on the mid-market, which generally includes companies or divisions with annual revenues between $10 million
and $1 billion. The Companys software products and related consulting and support services are designed to help these companies automate key aspects of their business operations, processes and procedures  from customer relations,
ordering, purchasing and planning, to production, distribution, accounting and financial reporting. By automating these processes, companies may gain faster access to more accurate information, which can improve operating efficiency, reduce cost and
allow companies to be more responsive to their customers, ultimately leading to increased revenues. The Company also offers support, consulting and education services in support of its customers use of its software products. The Companys
products and services are sold worldwide by its direct sales force and an authorized network of value added resellers (VARs), distributors and authorized consultants.

Total revenues for the year ended December 31, 2007, increased 11.9% to $429.8 million, compared to $384.1 million for the year ended December 31, 2006. Net license revenue increased by 10.0% to $109.4
million for the year ended December 31, 2007, compared to $99.5 million for the year ended December 31, 2006. Consulting revenue was $134.7 million for the year ended December 31, 2007, an increase of 25.3%, when compared to
consulting revenues of $107.5 million for the year ended December 31, 2006. Maintenance revenue for the year ended December 31, 2007 was $160.3 million, an increase of 6.8% compared to maintenance revenues of $150.1 million for the year
ended December 31, 2006. Hardware and other revenue for the year ended December 31, 2007 was $25.4 million, down from $27.0 million for the year ended December 31, 2006.

Overall gross margin was 51.3% for the year ended December 31, 2007, compared to 52.5% during the same period in 2006, primarily due to a higher mix during 2007 of consulting revenues, which have relatively lower
gross margins than software and maintenance revenues.

Cash flows from operations were $65.3 million during the year ended December 31, 2007, a 39.6%
increase over 2006 cash flows from operations of $46.8 million.

Critical Accounting Policies

The consolidated financial statements are prepared in conformity with United States of America generally accepted accounting principles (GAAP). As such, management is
required to make judgments, estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. The
significant accounting policies which are most critical to aid in fully understanding and evaluating reported financial results include the following:

Revenue Recognition

The Company enters into contractual arrangements with end-users that may include licensing of the Companys
software products, product support and maintenance services, consulting services, resale of third-party hardware or various combinations thereof, including the sale of such products or services separately. The Companys accounting policies
regarding the recognition of revenue for these contractual arrangements is fully described in Note 1 of Notes to Consolidated Financial Statements.

The
Company considers many factors when applying accounting principles generally accepted in the United States of America related to revenue recognition. These factors include, but are not limited to:



| |  |  | The actual contractual terms, such as payment terms, delivery dates and pricing of the various product and service elements of a contract;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Availability of products to be delivered;
| | - |  | -----------------------------------------



| |  |  | Time period over which services are to be performed;
| | - |  | ----------------------------------------------------



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| |  |  | Creditworthiness of the customer;
| | - |  | ---------------------------------



| |  |  | The complexity of customizations and integrations to the Companys software required by service contracts;
| | - |  | ----------------------------------------------------------------------------------------------------------



| |  |  | The sales channel through which the sale is made (direct, VAR, distributor, etc.);
| | - |  | ----------------------------------------------------------------------------------



| |  |  | Discounts given for each element of a contract;
| | - |  | -----------------------------------------------



| |  |  | Any commitments made as to installation or implementation go live dates and
| | - |  | -----------------------------------------------------------------------------



| |  |  | Whether vendor specific objective evidence of the fair value of undelivered elements exists.
| | - |  | --------------------------------------------------------------------------------------------

Each of the relevant factors is analyzed to determine its impact, individually and collectively with other factors, on the revenue to be recognized for any particular
contract with a customer. Management is required to make judgments regarding the significance of each factor in applying the revenue recognition standards, as well as whether or not each factor complies with such standards. Any misjudgment or error
by management in its evaluation of the factors and the application of the standards, especially with respect to complex or new types of transactions, could have a material adverse affect on the Companys future revenues and operating results.

Allowance for Doubtful Accounts

The Companys
accounts receivable go through a collection process that is based on the age of the invoice and requires attempted contacts with customers at specified intervals and assistance from other personnel within the Company who have a relationship with the
customer. The Company writes-off accounts to its allowance when the Company has determined that collection is not likely. The Company believes no significant concentrations of credit risk existed at December 31, 2007. Receivables from customers
are generally unsecured.

The Company maintains an allowance for doubtful accounts based on historical collections performance and specific collection
issues. If actual bad debts differ from the reserves calculated, the Company records an adjustment to bad debt expense in the period in which the difference occurs. Such adjustment could result in additional charges to the Companys results of
operations.

Intangible Assets

The Companys
intangible assets were recorded as a result of the Companys acquisitions and represent acquired technology, customer base and trademarks. These intangible assets are amortized on a straight-line basis over the estimated economic life of the
asset. The Company periodically evaluates the recoverability of the intangible assets and considers any events or changes in circumstances that would indicate that the carrying amount of an asset may not be recoverable. Any material changes in
circumstances, such as large decreases in revenue or the discontinuation of a particular product line, could require future write-downs in the Companys intangibles assets and could have a material adverse impact on the Companys operating
results for the periods in which such write-downs occur.

Goodwill

The Companys goodwill was recorded as a result of the Companys acquisitions. In accordance with SFAS No. 141, Business Combinations, the Company has recorded these acquisitions using the
purchase method of accounting. In accordance with SFAS No. 142, Goodwill and Other Intangible Assets, the Company performed an impairment review of its recorded goodwill in 2007 and determined that no impairment of goodwill existed
because the estimated fair value of each reporting unit exceeded its carrying amount. The Company tests its recorded goodwill for impairment on an annual basis, or more often if indicators of potential impairment exist, by determining if the
carrying value of each reporting unit exceeds its estimated fair value. Factors that could trigger an impairment include, but are not limited to, underperformance relative to historical or projected future operating results, significant changes in
the manner of use of the acquired assets or the Companys overall business and significant negative industry or economic trends. Future impairment reviews may require write-downs in the Companys goodwill and could have a material adverse
impact on the Companys operating results for the periods in which such write-downs occur.

Stock-Based Compensation

The Company accounts for stock-based compensation in accordance with SFAS No. 123 (revised 2004), Share-Based Payment (SFAS 123-R). The Company adopted
the provisions of SFAS 123-R in the first quarter of 2006. Under the fair value recognition provisions of this statement, stock-based compensation expense is measured at the grant date based on the value of the award and is expensed ratably over the
vesting period. Determining the fair value of stock options at the grant date requires judgment, including estimating expected



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dividends, volatility, terms and estimating the amount of share-based awards that are expected to be forfeited. If actual forfeiture rates differ
significantly from the estimate, stock-based compensation expense and the Companys results of operations could be materially impacted. Beginning in 2006, the Company changed its previous practice by no longer granting stock options to
employees, and granting restricted stock as an alternative. Compensation expense for restricted stock is based on the fair market value of the restricted stock on its grant date, and is expensed ratably over the vesting period.

Income Taxes

Income taxes are determined under guidelines prescribed
by SFAS No. 109, "Accounting for Income Taxes" ("SFAS 109"). Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

The Company regularly reviews the deferred tax assets for recoverability and has established a valuation allowance when it is more likely than not that some portion, or
all, of the deferred tax assets will not be realized. The Company assesses the recoverability of the deferred tax assets and the need for a valuation allowance on an ongoing basis. In making this assessment, the Company is required to consider all
available positive and negative evidence to determine whether, based on such evidence, it is more likely than not that some portion, or all, of the net deferred assets will be realized in future periods.

During the year ended December 31, 2007, the Company determined, primarily based on operating income during recent years and anticipated operating income and cash
flows for future periods that it is more likely than not that certain foreign deferred tax assets will be realized in the future and accordingly, it was appropriate to release the valuation allowance recorded against those deferred tax assets. As a
result, the Company released a portion of the valuation allowance related to certain foreign jurisdictions, resulting in a non-cash income tax benefit to net income, as well as a credit to goodwill as some of the deferred tax assets existed at the
date of Scalas acquisition. The Company intends to maintain a valuation allowance for the remaining foreign deferred tax assets until sufficient positive evidence exists to support its reversal. The remaining valuation allowance will continue
to be evaluated over future quarters. If it is determined that it is more likely than not that all or a portion of these remaining foreign deferred tax assets will be utilized to offset future taxable income, the valuation allowance could be
decreased or eliminated altogether which will result primarily in a decrease to goodwill.

Future releases of the valuation allowance related to these
assets will be accounted for as a reduction of goodwill rather than a reduction of income tax expense if the valuation allowance decrease occurs prior to the effective date of SFAS No. 141 (revised 2007), Business Combinations, or
SFAS No. 141(R). Effective January 1, 2009, SFAS 141(R) provides that any reduction to the valuation allowance established in purchase accounting is to be accounted for as a reduction in income tax expense.

The Company is subject to income taxes in the U.S. and numerous foreign jurisdictions. Significant judgment is required in evaluating our uncertain tax positions and
determining our provision for income taxes. Effective January 1, 2007, the Company adopted Financial Interpretation No. 48, Accounting for Uncertainty in Income Taxes-an interpretation of FASB Statement No. 109 (FIN
48). FIN 48 contains a two-step approach to recognizing and measuring uncertain tax positions accounted for in accordance with SFAS No. 109, Accounting for Income Taxes. The first step is to evaluate the tax position for
recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. The second step is to
measure the tax benefit as the largest amount that is more than 50% likely of being realized upon settlement.

Although the Company believes it has
adequately reserved for our uncertain tax positions, no assurance can be given that the final tax outcome of these matters will not be different. The Company adjusts these reserves in light of changing facts and circumstances, such as the closing of
a tax audit or the refinement of an estimate. To the extent that the final tax outcome of these matters is different than the amounts recorded, such differences will impact the provision for income taxes in the period in which such determination is
made. The provision for income taxes includes the impact of reserve provisions and changes to reserves that are considered appropriate, as well as the related net interest.



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During the ordinary course of business, there are many transactions and calculations for which the ultimate tax
determination is uncertain. As a result, the Company recognizes tax liabilities based on estimates of whether additional taxes and interest will be due. These tax liabilities are recognized when, despite the Companys belief that its tax return
positions are supportable, the Company believes that certain positions may not be fully sustained upon review by tax authorities. The Company believes that its accruals for tax liabilities are adequate for all open audit years based on its
assessment of many factors including past experience and interpretations of tax law. This assessment relies on estimates and assumptions and may involve a series of complex judgments about future events. To the extent that the final tax outcome of
these matters is different than the amounts recorded, such differences will impact income tax expense in the period in which such determination is made.

U.S. income taxes were not provided for on undistributed earnings from certain non-U.S. subsidiaries. Those earnings are considered to be permanently reinvested in accordance with Accounting Principles Board (APB) Opinion 23.

New Accounting Pronouncements

For new accounting pronouncements see
Note 1 in Notes to the Consolidated Financial Statements.

Acquisitions

NSB Retail Systems

On February 7, 2008, the Company completed its acquisition of NSB Retail Systems PLC (NSB).
Pursuant to the terms of the acquisition agreement, shareholders of NSB received £0.38 in cash for each NSB ordinary share. NSB designs, develops, markets and supports store, merchandising and solutions to retailers of apparel, footwear, and
specialty merchandise. The acquisition of NSB provides an expanded portfolio of products and services for large specialty retailers and department stores, as well as a fully hosted, managed service offering designed for smaller and mid-sized
retailers who are interested in rapid implementation via an on-demand versus on-premise offering.

The value of the fully diluted share capital of NSB was
approximately $311.8 million, not including transaction costs, based on the exchange rates in effect at the time the U.S. dollars were converted to pounds sterling for purposes of the transaction. The consideration payable under the agreement was
funded by the Company with approximately $161.3 million in existing cash balances, which includes the $161.0 million included in cash designated for acquisition in the accompanying Consolidated Balance Sheets, as well as interest earned,
with the balance of the consideration funded by drawing from the Companys credit facility pursuant to the Credit Agreement, as amended (see Note 6 in Notes to the Consolidated Financial Statements).

Professional Advantage

On May 16, 2007, the Company acquired
the assets of a division of Professional Advantage Pty Limited (PA), a privately held reseller located in Australia. The primary purpose of this acquisition was to increase the Companys presence and direct customer base in the territories
covered by PA.

The purchase price was allocated to PAs tangible and intangible assets acquired and liabilities assumed based on their estimated fair
values as of May 16, 2007. The following table summarizes the allocation of the purchase price (in thousands):



|                    |  |   |        |  
|------------------- |  | - | ------ | -
|Cash                |  | $ | 16,000 |  
|Transaction costs   |  |   | 631    |  
|                    |  |   |        |  
|Total               |  | $ | 16,631 |  
|                    |  |   |        |  
|Fixed assets        |  | $ | 49     |  
|Customer base       |  |   | 5,728  |  
|Acquired technology |  |   | 1,199  |  
|Goodwill            |  |   | 10,626 |  
|Accrued liabilities |  |   | (632   | )
|Deferred revenue    |  |   | (339   | )
|                    |  |   |        |  
|Net assets acquired |  | $ | 16,631 |  
|                    |  |   |        |  



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##### Table of Contents

Debt Offering

On
May 8, 2007, the Company closed an offering of $230 million aggregate principal amount of 2.375% convertible senior notes due in 2027. The notes are unsecured and pay interest semiannually at a rate of 2.375% per annum until May 15,
2027. The notes are convertible into cash or, at the Companys option, cash and shares of the Companys common stock, at an initial conversion rate of 55.2608 shares of common stock per $1,000 principal amount of notes, which is
equivalent to an initial conversion price of approximately $18.10 per share. Pursuant to the terms of the notes, the principal amount of the notes is settleable in cash and only the amount of conversion value, as defined, in excess of the principal
amount of the notes is settleable in cash or shares. The initial conversion price represents a 30% premium over the last reported sale price of the Companys common stock prior to the offering on May 2, 2007, which was $13.92 per share.
The conversion rate will be adjusted upon the occurrence of certain events defined in the indenture. The notes do not contain any restrictive financial covenants.

The net proceeds of the offering were $222.0 million after deducting the underwriters discounts and commissions and offering expenses. On May 8, 2007, the Company used approximately $94 million of the proceeds to pay in full its
term loan outstanding under the 2006 credit facility.

In July 2007, the FASB issued a proposed Staff Position (FSP APB 14-a) that applies to
convertible debt instruments, including the Company's 2.375% convertible senior notes, that may be settled in whole or in part with cash upon conversion. The proposed FSP APB 14-a would require the Company to allocate a portion
of the proceeds of the notes to the embedded conversion feature, based on the estimated fair value of the conversion feature. The conversion feature would be accounted for as a discount on the notes and amortized as non-cash interest
expense over the expected term of the notes, resulting in an increase to the Companys reported interest expense. If the proposed FSP APB 14-a is issued in its current form, the Company would be required to adopt it as
of January 1, 2008, retroactively applied to the May 2007 issuance date of the notes, with the cumulative effect charged to retained earnings. The proposed FSP could materially impact the Companys results of operations
and earnings per share, but would have no impact on the Companys cash flows.



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Results of Operations

Comparison of the Year Ended December 31, 2007 to the Year Ended December 31, 2006

The following table summarizes certain aspects
of the Companys results of operations for the year ended December 31, 2007 compared to the year ended December 31, 2006 (in millions, except percentages):



|                                    |  |                         |       |   |        |   |       |          |  |   |          |   |  |       |   
|----------------------------------- |  | ----------------------- | ----- | - | ------ | - | ----- | -------- |  | - | -------- | - |  | ----- | --
|                                    |  | Year Ended December 31, |       |   | Change |  
|                                    |  | 2007                    |       |   | 2006   |   |       | Change $ |  |   | Change % |  
|Revenues:                           |  |                         |       |   |        |   |       |          |  |   |          |   |  |       |   
|License fees                        |  | $                       | 109.4 |   |        | $ | 99.5  |          |  | $ | 9.9      |   |  | 10.0  | % 
|Consulting                          |  |                         | 134.7 |   |        |   | 107.5 |          |  |   | 27.2     |   |  | 25.3  | % 
|Maintenance                         |  |                         | 160.3 |   |        |   | 150.1 |          |  |   | 10.2     |   |  | 6.8   | % 
|Hardware and other                  |  |                         | 25.4  |   |        |   | 27.0  |          |  |   | (1.6     | ) |  | (6.1  | )%
|                                    |  |                         |       |   |        |   |       |          |  |   |          |   |  |       |   
|Total revenues                      |  | $                       | 429.8 |   |        | $ | 384.1 |          |  | $ | 45.7     |   |  | 11.9  | % 
|                                    |  |                         |       |  
|Gross profit %:                     |  |                         |       |   |        |   |       |          |  |   |          |   |  |       |   
|License fees                        |  |                         | 78.3  | % |        |   | 80.6  | %        |  |   |          |   |  |       |   
|Consulting                          |  |                         | 17.9  | % |        |   | 18.1  | %        |  |   |          |   |  |       |   
|Maintenance                         |  |                         | 78.2  | % |        |   | 77.2  | %        |  |   |          |   |  |       |   
|Hardware and other                  |  |                         | 11.4  | % |        |   | 11.5  | %        |  |   |          |   |  |       |   
|                                    |  |                         |       |  
|Amortization of intangible assets   |  | $                       | 17.4  |   |        | $ | 17.0  |          |  | $ | 0.4      |   |  | 2.4   | % 
|% of total revenues                 |  |                         | 4.1   | % |        |   | 4.4   | %        |  |   |          |   |  |       |   
|                                    |  |                         |       |  
|Gross profit                        |  | $                       | 220.5 |   |        | $ | 201.6 |          |  | $ | 18.9     |   |  | 9.4   | % 
|% of total revenues                 |  |                         | 51.3  | % |        |   | 52.5  | %        |  |   |          |   |  |       |   
|                                    |  |                         |       |  
|Sales and marketing expenses        |  | $                       | 80.5  |   |        | $ | 70.4  |          |  | $ | 10.1     |   |  | 14.3  | % 
|% of total revenues                 |  |                         | 18.7  | % |        |   | 18.3  | %        |  |   |          |   |  |       |   
|                                    |  |                         |       |  
|Software development expenses       |  | $                       | 37.4  |   |        | $ | 34.1  |          |  | $ | 3.3      |   |  | 9.7   | % 
|% of total revenues                 |  |                         | 8.7   | % |        |   | 8.9   | %        |  |   |          |   |  |       |   
|                                    |  |                         |       |  
|General and administrative expenses |  | $                       | 58.3  |   |        | $ | 52.1  |          |  | $ | 6.2      |   |  | 11.9  | % 
|% of total revenues                 |  |                         | 13.6  | % |        |   | 13.6  | %        |  |   |          |   |  |       |   
|                                    |  |                         |       |  
|Restructuring and other             |  | $                       | 1.6   |   |        | $ |      |          |  | $ | 1.6      |   |  | 100.0 | % 
|% of total revenues                 |  |                         | 0.4   | % |        |   | 0.0   | %        |  |   |          |   |  |       |   
|                                    |  |                         |       |  
|Interest expense                    |  | $                       | 8.5   |   |        | $ | 9.3   |          |  | $ | (0.8     | ) |  | (8.7  | )%
|% of total revenues                 |  |                         | 2.0   | % |        |   | 2.4   | %        |  |   |          |   |  |       |   
|                                    |  |                         |       |  
|Gain on sale of non-strategic asset |  | $                       | 1.6   |   |        | $ |      |          |  | $ | 1.6      |   |  | 100.0 | % 
|% of total revenues                 |  |                         | 0.4   | % |        |   | 0.0   | %        |  |   |          |   |  |       |   
|                                    |  |                         |       |  
|Interest and other income, net      |  | $                       | 6.6   |   |        | $ | 2.8   |          |  | $ | 3.8      |   |  | 133.1 | % 
|% of total revenues                 |  |                         | 1.5   | % |        |   | 0.7   | %        |  |   |          |   |  |       |   
|                                    |  |                         |       |  
|Provision for income taxes          |  | $                       | 1.3   |   |        | $ | 14.8  |          |  | $ | (13.5    | ) |  | (91.5 | )%
|Effective tax rate                  |  |                         | 3.0   | % |        |   | 38.3  | %        |  |   |          |   |  |       |   
|                                    |  |                         |       |  
|Net income                          |  | $                       | 41.3  |   |        | $ | 23.8  |          |  | $ | 17.5     |   |  | 73.3  | % 
|% of total revenues                 |  |                         | 9.6   | % |        |   | 6.2   | %        |  |   |          |   |  |       |   



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Revenue

The increase
in license fee revenues during the year ended December 31, 2007, compared to the same period in 2006, is due primarily to higher average selling prices for the Companys products, both domestically and internationally as well as an
increase in sales of the Companys Vantage and Scala products. License fee revenues for the year ended December 31, 2007 included ten sales greater than $0.5 million, of which three were greater than $1.0 million. One of the
sales greater than $1.0 million was related to the sale of a non-strategic asset (see Sale of Non-Strategic Asset). License fee revenues for the year ended December 31, 2006 included eleven sales greater than $0.5 million, of
which none were greater than $1.0 million.

The increase in consulting revenues during the year ended December 31, 2007, compared to the same period
in 2006, is primarily due to contracts for larger consulting engagements and the Companys strategic objective of providing an expanded offering of professional services, such as managed services and hosting. As the Companys average
selling price for software increases, the Company has experienced a corresponding increase in the average size of its consulting engagements for implementing new systems for customers. In order to meet the demand for this additional consulting work,
the Company hired additional consulting personnel. Consulting headcount also increased due to the acquisition of PA in May of 2007. Total consulting headcount increased by 9% from December 31, 2006 to December 31, 2007.

The increase in maintenance revenues during the year ended December 31, 2007, compared to the same period in 2006, is due to continued high renewal rates in the
Companys customer base, continued higher license sales and related maintenance contracts sold with new licenses and an increase in existing customers whose maintenance agreements had previously lapsed, but who have now renewed their
maintenance agreements.

Hardware and other revenues consist primarily of the resale of third-party hardware. The decrease in hardware and other revenue
for the year ended December 31, 2007, as compared to the same period in 2006, is due to the timing of customer hardware orders, which vary based on the customers hardware roll-out schedules, resulting in a high degree of variability in
the Companys hardware revenues.

International revenues were $170.9 million and $141.2 million for the years ended December 31, 2007 and 2006,
representing 39.8% and 36.8%, respectively, of total revenues. The 2007 increase of international revenue in both absolute dollars and as a percentage of revenue is primarily due to successful sales of larger international consulting
engagements and the Companys strategic objective of providing an expanded offering of professional services. Foreign currency exchange rate fluctuations resulted in foreign currency-based revenues during the year ended December 31, 2007
being reported $11.9 million, or 3.1%, higher than these revenues would have been if they had been translated at 2006 foreign currency exchange rates. The Company expects international revenues to decrease as a percentage of total revenues as a
result of the NSB acquisition as NSB has historically had very little international revenue.

Cost of Revenues and Gross Margins

Cost of license fee revenues consists primarily of software royalties paid for third-party software incorporated into the Companys products, referral fees paid to
VARs, costs associated with product packaging and documentation and software duplication. For the year ended December 31, 2007, compared to the same period in 2006, gross profit decreased as a percentage of revenue, as costs increased primarily
due to the mix of products.

Cost of consulting revenues consists primarily of salaries, benefits, commissions, bonus, other headcount-related expenses and
travel for the Companys consulting organization, which provides consulting services to customers in the implementation and integration of the Companys software products, as well as education, training and other consulting and programming
services. These costs increased in absolute dollars and as a percentage of revenue during the year ended December 31, 2007, compared to the same period in 2006, due primarily to a 9% increase in consulting headcount. In order to support
the market demand for services, the Company has continued to hire consulting resources, and whenever practicable, does so in lower cost geographies. Consulting services margins were slightly negatively impacted as new hires were being trained
for their scheduled deployment on revenue generating activities.

Cost of maintenance revenues consists primarily of maintenance royalties on third-party
software incorporated into the Companys products, as well as salaries, benefits and other headcount-related expenses for the Companys support organization. For the year ended December 31, 2007, compared to the same period of 2006,
cost of maintenance revenues increased in absolute dollars due primarily to an increase in headcount. Maintenance gross profit increased during the year ended December 31, 2007, compared to the same period in



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2006, due to higher maintenance revenue, as well as the lower headcount costs associated Companys continued resource investment in lower cost
geographies to help support additional demand for the Companys maintenance services.

Cost of hardware and other revenues decreased in absolute
dollars due to the timing of customer hardware orders, which vary based on the customers hardware roll-out schedules and can result in a high degree of variability in our hardware gross profit margins. Gross profit for hardware and other
revenues was relatively consistent for the year ended December 31, 2007, compared to the same period in 2006.

Amortization of Intangible Assets

Amortization of intangible assets consists of amortization of capitalized acquired technology, customer base and trademarks that were recorded as a
result of acquisitions. The Companys intangible assets are amortized over the estimated economic lives of the assets. For the years ended December 31, 2007 and 2006, the Company recorded amortization expense, included in cost of revenues,
related to intangible assets of $17.4 million and $17.0 million, respectively. Amortization of acquired technology and trademarks will be complete in 2013 and amortization of the customer base will be complete in 2014.

Sales and Marketing

Sales and marketing expenses consist primarily
of salaries, commissions, travel, advertising and promotional expenses. The increase in these costs in absolute dollars and as a percentage of revenue for the year ended December 31, 2007, compared to the same period in 2006, is primarily
due to increased headcount of approximately 15%. In addition, stock-based compensation expense increased $1.1 million for the year ended December 31, 2007, compared to the same period in 2006, due primarily to additional grants of shares in the
performance-based restricted stock plan for existing employees and new hires.

Software Development

Software development costs consist primarily of compensation of development personnel, related overhead incurred to develop new products and upgrade and enhance the
Companys current products and fees paid to outside consultants. The majority of these expenses have been incurred by the Company in the United States, Mexico, Eastern Europe and Russia, where the Company operates development centers.

Software development expenses increased in absolute dollars for the year ended December 31, 2007, compared to the same period in 2006. The increase
in these costs is due primarily to an increase in headcount of approximately 12%, primarily to focus on translation and localization of its products for various international markets. Software development expenses for the year ended
December 31, 2007 decreased as a percentage of total revenue, compared to the same period in 2006 due to the Companys investment in new resources in lower cost geographies.

General and Administrative Expense

General and administrative expenses consist primarily of costs associated with
the Companys executive, financial, legal, human resources and information services functions. General and administrative expenses increased in total dollars but remained consistent as a percentage of total revenues during the year ended
December 31, 2007, compared to the same period in 2006. This increase is primarily attributable to increases in personnel-related costs and provision for doubtful accounts. The increase in personnel-related costs included $0.8 million related
to stock-based compensation due primarily to additional grants of shares in the performance-based restricted stock plan for both existing employees and new hires during the year.

Stock-Based Compensation Expense

Stock-based compensation expense includes compensation expense from stock options
granted prior to 2006 and restricted stock issued by the Company. For the year ended December 31, 2007 and 2006, stock-based compensation expense was $11.7 million and $9.5 million, respectively.

At December 31, 2007, there was approximately $8.6 million and $2.7 million of unrecognized compensation cost related to performance-based restricted stock and
other restricted stock grants, respectively. These costs are expected to be recognized over weighted average periods of approximately one year and two years, respectively. The compensation cost related to the performance-based restricted stock
depends on the estimated number of



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shares that will vest based on the probable outcome of the performance conditions. Therefore, the recognized compensation could vary significantly, depending
on the outcome of those conditions. The Company is required at each reporting date to assess whether achievement of any performance condition is probable. Quarterly compensation expense may include a cumulative adjustment resulting from changes
in the estimated number of shares expected to be earned during that plan year. Based on the Companys final achievement for the 2007 plan year, the Company recorded stock compensation expense related to performance-based grants of $8.0 million
for the year ended December 31, 2007.

At December 31, 2007, there was approximately $0.3 million of total unrecognized compensation cost related
to unvested stock options. This cost is expected to be recognized over a weighted-average period of approximately one year.

The following table sets forth
the total stock-based compensation expense resulting from stock options, restricted stock awards and the employee stock purchase plan included in the Companys Consolidated Statements of Operations (in thousands):



|                                       |  |                         |        |      |   |      
|-------------------------------------- |  | ----------------------- | ------ | ---- | - | -----
|                                       |  | Year Ended December 31,
|                                       |  | 2007                    |        | 2006
|Cost of consulting revenues            |  | $                       | 1,234  |      | $ | 985  
|Cost of maintenance revenues           |  |                         | 514    |      |   | 445  
|Sales and marketing                    |  |                         | 3,909  |      |   | 2,852
|Software development                   |  |                         | 856    |      |   | 830  
|General and administrative             |  |                         | 5,181  |      |   | 4,339
|                                       |  |                         |        |      |   |      
|Total stock-based compensation expense |  | $                       | 11,694 |      | $ | 9,451
|                                       |  |                         |        |      |   |      

Restructuring and Other

During 2007, the Company recorded restructuring charges of $0.9 million. This includes severance costs of $0.9 million and facility charges of $0.1 million related to the third quarter 2007
restructuring. The facility charges are due to terminating a lease to an office in Europe and the related leasehold improvements on the facility. Additionally, during 2007, the Company released $0.1 million as a result of a change in
estimate associated with the existing restructuring reserves.

During the year ended December 31, 2007, the Company incurred $0.7 million in due
diligence costs associated with a potential acquisition. These costs were charged to results of operations in connection with the decision not to proceed with the acquisition.

Interest Expense

Interest expense decreased for the year ended December 31, 2007, as compared to the same
period in 2006. The decrease is primarily due to the Companys convertible senior notes issued in May of 2007, which had a lower interest rate than the credit facility in place in 2006. This credit facility was paid in full in May 2007 (see
Note 6 in Notes to the Consolidated Financial Statements).

Sale of Non-Strategic Asset

During March of 2007, the Company entered into an arrangement to sell the assets of its payroll bureau operations in Russia. In connection with this asset sale
arrangement, the Company also entered into an arrangement with the same party to license the iScala payroll product for resale on an exclusive basis in certain Eastern European territories. This transaction was accounted for as a multiple-element
arrangement under EITF Issue No. 00-21. Based on an estimated fair value of the payroll bureau, the Company allocated $2.5 million of the total consideration to the sale of these assets as well. This consideration, less the carrying amounts of
$0.8 million of goodwill and $0.1 million of net customer base intangible assets originally recorded in connection with the 2004 acquisition of Scala and $22,000 of net tangible assets, resulted in a net gain of $1.6 million which is included in
gain on sale of non-strategic asset in the accompanying Consolidated Statements of Operations for the year



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ended December 31, 2007. The remaining consideration related to the iScala payroll product license is included in license fees in the
accompanying Consolidated Statements of Operations for the year ended December 31, 2007.

Interest Income and Other, Net

Interest income and other, net, increased for the year ended December 31, 2007, as compared to the same period in 2006, due primarily to an increase in interest
earned on the Companys cash balances. The Companys average cash balance in 2007, which included cash designated for acquisition at December 31, 2007, increased significantly over 2006. The increase in interest income was offset by
foreign currency loss. The foreign currency loss results primarily from marking to market the Companys outstanding option contracts related to the 2008 NSB Retail Systems acquisition (see Note 15 in Notes to the Consolidated Financial
Statements).

Provision for Income Taxes

The provision
for income taxes consists of provisions for federal, state and foreign income taxes. The Company operates in an international environment with significant operations in various locations outside the U.S. Accordingly, the consolidated income tax rate
is a composite rate reflecting the earnings in the various locations and the applicable rates.

The preparation of consolidated financial statements in
conformity with generally accepted accounting principles requires us to make estimates and assumptions that affect the reported amount of tax-related assets and liabilities and income tax provisions. The Company assesses the recoverability of the
deferred tax assets on an ongoing basis. In making this assessment the Company is required to consider all available positive and negative evidence to determine whether, based on such evidence, it is more likely than not that some portion or all of
our net deferred assets will be realized in future periods. This assessment requires significant judgment. In addition, the Company has made estimates involving current and deferred income taxes, tax attributes relating to the interpretation of
various tax laws, historical bases of tax attributes associated with certain tangible and intangible assets.

The Company recorded a provision for income
taxes of $1.3 million and $14.8 million for the twelve months ended December 31, 2007 and 2006, respectively. The effective income tax rates were 3.0% and 38.3% for the twelve months ended December 31, 2007 and 2006, respectively. The
effective tax rate differs from the statutory U.S. federal income tax rate of 35% primarily due to a non cash income tax benefit resulting from the release of certain foreign valuation allowances during 2007, and due to state and foreign income tax
and permanent differences between GAAP pre-tax income and taxable income during 2006.

Future releases of the valuation allowance related to these assets
will be accounted for as a reduction of goodwill rather than a reduction of income tax expense if the valuation allowance decrease occurs prior to the effective date of SFAS No. 141 (revised 2007), Business Combinations, or SFAS
No. 141(R). Effective January 1, 2009, SFAS 141(R) provides that any reduction to the valuation allowance established in purchase accounting is to be accounted for as a reduction in income tax expense.

During the year ended December 31, 2007, the Company determined, primarily based on operating income during recent years and anticipated operating income and cash
flows for future periods that it is more likely than not that certain foreign deferred tax assets will be realized in the future, and, accordingly, it was appropriate to release the valuation allowance recorded against those deferred tax assets. As
a result, the Company released a portion of the valuation allowance related to certain foreign jurisdictions, resulting in a non-cash income tax benefit to net income as well as a credit to goodwill as some of the deferred tax assets existed at the
date of Scalas acquisition. The Company intends to maintain a valuation allowance for the remaining foreign deferred tax assets until sufficient positive evidence exists to support its reversal. The remaining valuation allowance will continue
to be evaluated over future quarters. If it is determined that it is more likely than not that all or a portion of these remaining foreign deferred tax assets will be utilized to offset future taxable income, the valuation allowance could be
decreased or eliminated altogether which will result primarily in a decrease to goodwill.

The Company adopted FIN 48 on January 1, 2007. As a result
of adoption, the Company recognized a charge of $1.1 million to the January 1, 2007 retained earnings balance. During 2007, the company increased unrecognized tax benefits related to uncertain tax positions in the amount of $0.2 million.



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Comparison of the Year Ended December 31, 2006 to the Year Ended December 31, 2005

The following table summarizes certain aspects of the Companys results of operations for the year ended December 31, 2006 compared to the year ended
December 31, 2005 (in millions, except percentages):



|                                                 |  |                         |       |   |        |   |       |          |  |   |          |   |  |        |   
|------------------------------------------------ |  | ----------------------- | ----- | - | ------ | - | ----- | -------- |  | - | -------- | - |  | ------ | --
|                                                 |  | Year Ended December 31, |       |   | Change |  
|                                                 |  | 2006                    |       |   | 2005   |   |       | Change $ |  |   | Change % |  
|Revenues:                                        |  |                         |       |   |        |   |       |          |  |   |          |   |  |        |   
|License fees                                     |  | $                       | 99.5  |   |        | $ | 77.1  |          |  | $ | 22.4     |   |  | 29.2   | % 
|Consulting                                       |  |                         | 107.5 |   |        |   | 73.7  |          |  |   | 33.8     |   |  | 46.0   | % 
|Maintenance                                      |  |                         | 150.1 |   |        |   | 134.5 |          |  |   | 15.6     |   |  | 11.5   | % 
|Hardware and other                               |  |                         | 27.0  |   |        |   | 4.1   |          |  |   | 22.9     |   |  | 551.3  | % 
|                                                 |  |                         |       |   |        |   |       |          |  |   |          |   |  |        |   
|Total revenues                                   |  | $                       | 384.1 |   |        | $ | 289.4 |          |  | $ | 94.7     |   |  | 32.7   | % 
|                                                 |  |                         |       |  
|Gross profit %:                                  |  |                         |       |   |        |   |       |          |  |   |          |   |  |        |   
|License fees                                     |  |                         | 80.6  | % |        |   | 79.8  | %        |  |   |          |   |  |        |   
|Consulting                                       |  |                         | 18.1  | % |        |   | 20.4  | %        |  |   |          |   |  |        |   
|Maintenance                                      |  |                         | 77.2  | % |        |   | 79.0  | %        |  |   |          |   |  |        |   
|Hardware and other                               |  |                         | 11.5  | % |        |   | 50.7  | %        |  |   |          |   |  |        |   
|                                                 |  |                         |       |  
|Amortization of intangible assets                |  | $                       | 17.0  |   |        | $ | 11.8  |          |  | $ | 5.2      |   |  | 44.6   | % 
|% of total revenues                              |  |                         | 4.4   | % |        |   | 4.1   | %        |  |   |          |   |  |        |   
|                                                 |  |                         |       |  
|Gross profit                                     |  | $                       | 201.6 |   |        | $ | 173.2 |          |  | $ | 28.4     |   |  | 16.4   | % 
|% of total revenues                              |  |                         | 52.5  | % |        |   | 59.8  | %        |  |   |          |   |  |        |   
|                                                 |  |                         |       |  
|Sales and marketing expenses                     |  | $                       | 70.4  |   |        | $ | 61.0  |          |  | $ | 9.4      |   |  | 15.4   | % 
|% of total revenues                              |  |                         | 18.3  | % |        |   | 21.1  | %        |  |   |          |   |  |        |   
|                                                 |  |                         |       |  
|Software development expenses                    |  | $                       | 34.1  |   |        | $ | 28.5  |          |  | $ | 5.6      |   |  | 19.7   | % 
|% of total revenues                              |  |                         | 8.9   | % |        |   | 9.8   | %        |  |   |          |   |  |        |   
|                                                 |  |                         |       |  
|General and administrative expenses              |  | $                       | 52.1  |   |        | $ | 46.3  |          |  | $ | 5.8      |   |  | 12.7   | % 
|% of total revenues                              |  |                         | 13.6  | % |        |   | 16.0  | %        |  |   |          |   |  |        |   
|                                                 |  |                         |       |  
|Restructuring and other                          |  | $                       |      |   |        | $ | 0.4   |          |  | $ | (0.4     | ) |  | (100.0 | )%
|% of total revenues                              |  |                         | 0.0   | % |        |   | 0.1   | %        |  |   |          |   |  |        |   
|                                                 |  |                         |       |  
|Write-off of in-process research and development |  | $                       |      |   |        | $ | 2.0   |          |  | $ | (2.0     | ) |  | (100.0 | )%
|% of total revenues                              |  |                         | 0.0   | % |        |   | 0.7   | %        |  |   |          |   |  |        |   
|                                                 |  |                         |       |  
|Interest expense                                 |  | $                       | 9.3   |   |        | $ | 1.5   |          |  | $ | 7.8      |   |  | 530.5  | % 
|% of total revenues                              |  |                         | 2.4   | % |        |   | 0.5   | %        |  |   |          |   |  |        |   
|                                                 |  |                         |       |  
|Interest and other income, net                   |  | $                       | 2.8   |   |        | $ | 0.3   |          |  | $ | 2.5      |   |  | 849.3  | % 
|% of total revenues                              |  |                         | 0.7   | % |        |   | 0.1   | %        |  |   |          |   |  |        |   
|                                                 |  |                         |       |  
|Provision (benefit) for income taxes             |  | $                       | 14.8  |   |        | $ | (18.2 | )        |  | $ | 33.0     |   |  | 181.3  | % 
|Effective tax rate                               |  |                         | 38.3  | % |        |   | (53.6 | )%       |  |   |          |   |  |        |   
|                                                 |  |                         |       |  
|Net income                                       |  | $                       | 23.8  |   |        | $ | 52.0  |          |  | $ | (28.2    | ) |  | (54.2  | )%
|% of total revenues                              |  |                         | 6.2   | % |        |   | 18.0  | %        |  |   |          |   |  |        |   



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##### Table of Contents

Revenue

License fee
revenues increased in absolute dollars for the year ended December 31, 2006, as compared to the same period in 2005. The increase is due in part to the contribution of license revenue from the CRS acquisition in December 2005, which added
approximately $12.4 million in license revenues for the year ended December 31, 2006. Excluding CRS, license revenues for the year ended December 31, 2006, as compared to the same period in 2005, increased primarily due to an increase in
average selling price in North America of approximately 5% and an increase in the Companys sales headcount of approximately 20%.

Consulting revenues
increased in absolute dollars for the year ended December 31, 2006, as compared to the same period in 2005. This increase is due to the December 2005 acquisition of CRS, which added $19.4 million of incremental consulting revenue in 2006,
as well as an increase in sales of software licenses, which resulted in additional implementation and other related consulting engagements. In order to meet the demand for this additional consulting work, the Company hired additional consulting
personnel during 2006, resulting in an increase in consulting headcount of 28% during the year.

Maintenance revenues increased in absolute dollars for year
ended December 31, 2006, as compared to the same period in 2005. This increase is due primarily to (i) the acquisition of CRS, which resulted in additional maintenance revenues of $10.7 million, (ii) continued high renewal rates in
the Companys customer base, (iii) continued higher license sales and related maintenance contracts sold with new licenses and (iv) an increase in existing customers whose maintenance agreements had lapsed and have now renewed their
maintenance agreements.

Hardware and other revenues consist primarily of resale of third-party hardware and sales of business forms. The increase in
hardware and other revenue in absolute dollars for year ended December 31, 2006, as compared to the same period in 2005, is primarily due to the acquisition of CRS.

International revenues were $141.2 million and $132.5 million for the years ended December 31, 2006 and 2005, representing 36.8% and 45.8%, respectively, of total revenues. Foreign currency exchange rate
fluctuations resulted in 2006 foreign currency-based revenues being reported $2.4 million lower than they would have been if they had been translated at 2005 foreign currency exchange rates. The decrease in international revenues as a percentage of
total revenues for the year ended December 31, 2006, as compared to the same period in 2005, is due to the acquisition of CRS in December 2005, which primarily generates revenue domestically.

Cost of Revenues and Gross Margins

Cost of license fees consists
primarily of software royalties paid for third-party software incorporated into the Companys products, costs associated with product packaging and documentation and software duplication. For the year ended December 31, 2006, as compared
to the same period in 2005, cost of license fees decreased primarily due to product mix.

Cost of consulting revenues consists primarily of salaries,
benefits and other headcount-related expenses for the Companys consulting organization, which provides consulting services to customers in the implementation and integration of the Companys software products, as well as education,
training and other consulting and programming services. The Company had an increase in these costs for the year ended December 31, 2006, as compared to the same period in 2005, primarily due to the acquisition of CRS which added
approximately $16.7 million in additional cost and $1.0 million related to stock-based compensation expenses resulting from the adoption of SFAS 123-R during 2006. The remaining increase in these costs for the year ended December 31,
2006 is due to an increase in headcount of approximately 28%. Due to these factors, the overall gross profit decreased for the year ended December 31, 2006, as compared to the same period in 2005.

Cost of maintenance revenues consists primarily of maintenance royalties on third-party software incorporated into the Companys products and salaries, benefits and
other headcount-related expenses for the Companys support organization. For the year ended December 31, 2006, as compared to the same period of 2005, cost of maintenance revenues increased due primarily to the acquisition of CRS which
added approximately $5.4 million, and an increase of $0.4 million related to stock-based compensation expenses resulting from the adoption of SFAS 123-R during 2006. Due to these factors, the overall gross profit decreased for the year ended
December 31, 2006, as compared to the same period in 2005.



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Cost of hardware and other revenue increased due to the acquisition of CRS, which added $21.5 million for the year ended
December 31, 2006. The decrease in gross profit is due to the acquisition of CRS which is comprised mostly of hardware costs from CRS and its lower gross margin.

Amortization of Intangible Assets

Amortization of intangible assets consists of amortization of capitalized acquired
technology, customer base, a third party funded development agreement, and trademarks that were recorded as a result of acquisitions. The Companys intangible assets are amortized over the estimated economic life of the assets. For the years
ended December 31, 2006 and 2005, the Company recorded amortization expense, included in cost of revenues, related to intangible assets of $17.0 million and $11.8 million, respectively. The increase in amortization expense for the year ended
December 31, 2006, as compared to the same period in 2005, is due to the additional amortization expense related to the acquisitions of Scala Italy in April 2005, CRS in December 2005 and Scala Africa in October 2006. Amortization of acquired
technology and trademarks will be complete in 2010 and amortization of the customer base will be complete in 2013.

Sales and Marketing

Sales and marketing expenses consist primarily of salaries, commissions, travel, advertising and promotional expenses. The increase in absolute dollars for the
year ended December 31, 2006, as compared to the same period in 2005, is primarily due to the acquisition of CRS, which added approximately $3.3 million in additional cost and $2.9 million related to stock-based compensation expenses resulting
from the adoption of SFAS 123-R during 2006. The remaining increase in sales and marketing expense is due to increased headcount in sales of approximately 20%. Sales and marketing expenses decreased as a percentage of revenue due to the
increase in revenues for the year ended December 31, 2006, as compared to the same period in 2005.

Software Development

Software development costs consist primarily of compensation of development personnel, related overhead incurred to develop new products and upgrade and enhance the
Companys current products and fees paid to outside consultants. The majority of these expenses have been incurred by the Company in the United States, Mexico, and Russia, where the Company operates development centers. Software development
costs are accounted for in accordance with SFAS No. 86, Accounting for the Costs of Computer Software to be Sold, Leased or Otherwise Marketed, under which the Company is required to capitalize software development costs between the
time technological feasibility is established and the product is ready for general release. Costs that do not qualify for capitalization are charged to research and development expense when incurred. During the years ended December 31, 2006 and
2005, no software development costs were capitalized because the time period and cost incurred between technological feasibility and general release for all software product releases was insignificant.

Software development expenses increased in absolute dollars for the year ended December 31, 2006, as compared to the same period in 2005, primarily due to the
acquisition of CRS which added approximately $3.2 million and due to the adoption of SFAS 123-R during 2006 which resulted in $0.8 million related to stock-based compensation expenses. The remaining increase in these costs for the year ended
December 31, 2006 is due to an increase in headcount of approximately 8%, compared to the same period in 2005. Software development expenses decreased as a percentage of revenue due to the increase in revenues for the year ended
December 31, 2006, as compared to the same period in 2005.

General and Administrative Expense

General and administrative expenses consist primarily of costs associated with the Companys executive, financial, human resources and information services
functions. General and administrative expenses increased in absolute dollars for the year ended December 31, 2006, as compared to the same period in 2005, due to the acquisition of CRS, which added approximately $4.2 million, and an increase of
$1.7 million related to stock-based compensation expense. General and administrative expenses decreased as a percentage of revenue due to the increase in revenues for the year ended December 31, 2006, as compared to the same period in 2005.

Stock-Based Compensation Expense

Stock-based
compensation expense is related to SFAS 123-R stock-based compensation expense from stock options and restricted stock issued by the Company. Stock-based compensation expense for year ended



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December 31, 2006 was related to the various restricted stock awards granted in 2005 and 2006, the performance-based restricted stock and stock options.
Stock-based compensation expense for the year ended December 31, 2005 was related to restricted stock issued as part of the 2001 stock option exchange program, 3,000,000 shares of restricted stock issued to the Companys Chief Executive
Officer (CEO) in March 2003 and May 2003, and restricted stock issued to various members of management. For the years ended December 31, 2006 and 2005, stock-based compensation expense was $9.5 million and $2.6 million, respectively.

At December 31, 2006, there was approximately $3.2 million of total unrecognized compensation cost related to restricted stock, excluding
performance-based restricted stock. This cost is expected to be recognized over a weighted-average period of approximately two years. The compensation cost related to the performance-based restricted stock depends on the estimated number
of shares that will vest, based on the probable outcome of the performance conditions. The Company is required at each reporting date to assess whether achievement of any performance condition is probable. Based on the Companys final
achievement, the Company recorded stock compensation expense related to these grants of $5.9 million for the year ended December 31, 2006. The Company anticipates it will recognize compensation expense related to the 2007 and 2008
performance-based restricted stock in an amount higher than 2006 due to more participants, assuming the Company achieves its revenue and adjusted EBITDA targets. This cost is expected to be recognized over a weighted-average period of
approximately two years.

As a result of adopting SFAS 123-R, the Companys net income for the year ended December 31, 2006 is $1.7 million lower
than if the Company had continued to account for stock-based compensation under the recognition and measurement provisions of APB 25 and related Interpretations, as permitted by SFAS 123. Basic and diluted earnings per share for the year ended
December 31, 2006 is $0.03 lower than if the Company had continued to account for stock-based compensation under APB 25. At December 31, 2006, there was approximately $2.4 million of total unrecognized compensation cost related to unvested
stock options. This cost is expected to be recognized over a weighted-average period of approximately one year.

The following table sets forth the total
stock-based compensation expense resulting from stock options, restricted stock awards, and the employee stock purchase plan included in the Companys Consolidated Statements of Operations (in thousands):



|                                       |  |                         |       |      |   |      
|-------------------------------------- |  | ----------------------- | ----- | ---- | - | -----
|                                       |  | Year Ended December 31,
|                                       |  | 2006                    |       | 2005
|Cost of revenues                       |  | $                       | 1,430 |      | $ | 4    
|Sales and marketing                    |  |                         | 2,852 |      |   | 4    
|Software development                   |  |                         | 830   |      |   | 1    
|General and administrative             |  |                         | 4,339 |      |   | 2,616
|                                       |  |                         |       |      |   |      
|Total stock-based compensation expense |  | $                       | 9,451 |      | $ | 2,625
|                                       |  |                         |       |      |   |      

On December 18, 2005, the Compensation Committee of the Board of Directors of the Company authorized the
Company to accelerate the vesting of certain unvested and out-of-the-money stock options outstanding under the Companys stock plans that had exercise prices per share of $14.31 or higher. The decision to accelerate the vesting was
made primarily to reduce the impact of recording non-cash compensation expense upon the implementation of SFAS 123-R. Options to purchase approximately 475,000 shares of the Companys common stock became exercisable immediately.
Options held by non-employee directors were not included in the vesting acceleration. In addition, in order to prevent unintended personal benefits to executive officers, restrictions will be imposed on any shares received through the exercise of
accelerated options held by those individuals. Those restrictions will prevent the sale of any shares received from the exercise of an accelerated option until the date on which such shares would have vested under the options original vesting terms.
There was no accounting impact associated with the acceleration of vesting of these options.

Interest Expense

Interest expense increased for the year ended December 31, 2006, as compared to the same period in 2005. The increase is due to the acquisition of CRS and the
additional debt the Company incurred related to the purchase of CRS (see Note 6 in Notes to the Consolidated Financial Statements).



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Interest and Other Income, Net

Interest and other income, net increased for the year ended December 31, 2006, as compared to the same period in 2005. The increase is due primarily to interest income on cash in the Companys international
cash balances as these balances earned a higher interest return. In addition, the increase is due to foreign currency gain due to the strengthening of the U.S. dollar as well as the Companys implementation of a foreign currency risk policy
that allows the Company to enter into forward contracts and purchase option agreements to hedge foreign currency risks.

Provision for Income Taxes

The provision for income taxes consists of provisions for federal, state and foreign income taxes. The Company operates in an international environment
with significant operations in various locations outside the U.S. Accordingly, the consolidated income tax rate is a composite rate reflecting the earnings in the various locations and the applicable rates.

The preparation of consolidated financial statements in conformity with generally accepted accounting principles requires the Company to make estimates and assumptions
that affect the reported amount of tax-related assets and liabilities and income tax provisions. The Company assesses the recoverability of the deferred tax assets on an ongoing basis. In making this assessment the Company is required to consider
all available positive and negative evidence to determine whether, based on such evidence, it is more likely than not that some portion or all of our net deferred assets will be realized in future periods. This assessment requires significant
judgment. In addition, the Company has made estimates involving current and deferred income taxes, tax attributes relating to the interpretation of various tax laws, historical bases of tax attributes associated with certain tangible and intangible
assets.

The Company recorded a provision (benefit) for income taxes of $14.8 million and $(18.2) million for years ended December 31, 2006 and 2005,
respectively. The effective income tax rates were 38.3% and (53.6)% for the years ended December 31, 2006 and 2005, respectively. The effective tax rate differs from the statutory U.S. federal income tax rate of 35%, primarily due to state and
foreign income tax and permanent differences between GAAP pre-tax income and taxable income for the year ended December 31, 2006 and benefits from the release of valuation allowance against U.S. deferred tax assets for the year ended
December 31, 2005.

The Company had provided a valuation allowance of $93.8 million as of December 31, 2004 on 100% of its net deferred tax
assets as it had been determined that it was more likely than not that the deferred tax assets would not be realized. As previously disclosed, the Company continually assesses its valuation allowance related to the deferred tax assets. During 2005,
the Company released the valuation allowance related to substantially all U.S. federal and state deferred tax assets and certain foreign deferred tax assets. For the remaining deferred tax assets the Company intends to maintain a valuation allowance
until sufficient positive evidence exists to support its reversal.

Although the Company has determined that a valuation allowance is no longer required
with respect to the U.S. federal deferred tax asset, recovery is dependent on achieving our forecast of future operating income over a protracted period of time. The Company will review the forecast in relation to actual results and expected trends
on an ongoing basis. Failure to achieve our operating income targets may change the Companys assessment regarding the recoverability of its net deferred tax assets and such change could result in a valuation allowance being recorded against
some or all of the deferred tax assets. Any increase in a valuation allowance would result in additional tax expense and could have a significant impact on the Companys earnings in future periods.

Additionally, under the provisions of SFAS No. 109, Accounting for Income Taxes, and related interpretations, future period reductions to the valuation
allowance related to Scalas deferred tax assets that existed as of the date of acquisition of Scala are first credited against goodwill, then to the unamortized balance of other identifiable intangible assets recorded at the date of
acquisition, and then, once these assets have been reduced to zero, credited to the income tax provision.

The Company is currently under examination in
various locations including the Netherlands, the United Kingdom, Hungary and Canada. The Company does not believe that the outcome of these matters will have a material adverse effect on our consolidated financial position or results of operations.



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Liquidity and Capital Resources

The following table summarizes the Companys cash and cash equivalents, working capital, long-term debt and cash flows as of and for the year ended December 31, 2007 (in millions):



|                                          |  |      |        |  
|----------------------------------------- |  | ---- | ------ | -
|                                          |  | 2007 |       
|Cash and cash equivalents                 |  | $    | 75.2   |  
|Working capital                           |  |      | 55.1   |  
|Net cash provided by operating activities |  |      | 65.3   |  
|Net cash (used in) investing activities   |  |      | (184.6 | )
|Net cash provided by financing activities |  |      | 124.1  |  
|Long-term debt, less current portion      |  |      | 230.5  |  

As of December 31, 2007, the Companys principal sources of liquidity included cash and cash equivalents
of $75.2 million. The Companys operations provided $65.3 million in cash during the year ended December 31, 2007. As of December 31, 2007, the Company had $1.0 million in cash obligations for severance costs, lease terminations and
other costs related to the Companys restructurings. These obligations are expected to be paid through October 2009, and the Company believes these obligations will be funded from existing cash reserves and cash generated from continuing
operations. The Companys working capital excluding deferred revenue is $125.5 million. The Company believes this is a relevant measurement of working capital, as deferred revenue represents an obligation to provide future services instead of a
future cash outflow. The cost of providing these services is generally fixed in nature and ranges from 21% to 24% of the related revenues.

On
November 1, 2007, the Company announced that the Board of Directors authorized the Company to institute a stock repurchase program whereby up to $50 million of its common stock may be repurchased from time to time. The duration of the
repurchase program is open-ended. Under the program, the Company is able to purchase shares of common stock through open market transactions at prices deemed appropriate by management. The timing and amount of repurchase transactions under this
program will depend on market conditions and corporate and regulatory considerations. The program may be discontinued at any time by the Board of Directors. As of December 31, 2007, no repurchases have been made.

On May 8, 2007, the Company closed an offering of $230 million aggregate principal amount of 2.375% convertible senior notes due in 2027. The notes are unsecured
and pay interest semiannually at a rate of 2.375% per annum until May 15, 2027. The notes are convertible into cash or, at the Companys option, cash and shares of the Companys common stock, at an initial conversion rate of
55.2608 shares of common stock per $1,000 principal amount of notes, which is equivalent to an initial conversion price of approximately $18.10 per share. The initial conversion price represents a 30% premium over the last reported sale price of the
Companys common stock prior to the offering which began on May 2, 2007, which was $13.92 per share. The share settlement feature upon conversion of the senior convertible notes is generally limited to the conversion value in excess of the
par value of the notes. The conversion rate will be adjusted upon the occurrence of certain events defined in the indenture. The notes do not contain any restrictive financial covenants.

The Companys days sales outstanding (DSO) for the last eight quarters are set forth in the following tables:



|               |  |     
|-------------- |  | ----
|Quarter Ended: |  | 2006
|March 31       |  | 70  
|June 30        |  | 62  
|September 30   |  | 69  
|December 31    |  | 74  



|               |  |     
|-------------- |  | ----
|Quarter Ended: |  | 2007
|March 31       |  | 68  
|June 30        |  | 71  
|September 30   |  | 75  
|December 31    |  | 76  

Quarterly DSOs ranged from 62 to 74 days during 2006, and 68 to 76 days during 2007. The increase in
DSOs during 2007 was due primarily to the Companys relatively higher mix of consulting revenues and relatively longer payment cycles associated with this line of business, particularly in international locations.



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The Companys principal investing activities for the year ended December 31, 2007 included cash designated for
acquisition of $161.0 million, an acquisition for $16.8 million, the sale of a non-strategic asset of $2.5 million and capital expenditures of $7.9 million.

Financing activities for the year ended December 31, 2007 included $99.4 million in payments on long-term debt, $8.2 million in debt issuance fees and $3.0 million in the purchase of treasury stock. The Company expects such treasury
stock activity to recur due to the various vesting schedules of restricted stock. The Company repurchases a portion of the vested shares to satisfy employee income tax withholding requirements. Cash provided by financing activities included $230.0
million in proceeds from long term debt, proceeds from the issuance of stock under the employee stock purchase plan of $0.7 million and proceeds from the exercise of employee stock options in the amount of $2.3 million.

On March 30, 2006, the Company entered into a credit agreement with several financial institutions (the 2006 credit facility), which provided for revolving loans of
up to $100 million and a term loan facility of up to $100 million. On April 25, 2007, the Company made a voluntary prepayment of $5 million against the term loan from discretionary funds and on May 8, 2007, the Company paid in full the
outstanding term loan from the proceeds of the convertible senior note offering (See Note 6 in Notes to Consolidated Financial Statements). Following the May 8, 2007 payment, the Company was no longer able to borrow under the term loan
portion of the 2006 credit facility. As a result, during the second quarter of 2007, the Company wrote off $0.8 million of capitalized debt issuance costs related to the term loan. This charge is included in Interest expense in the
Companys Consolidated Statements of Operations. Effective December 17, 2007, the Company voluntarily terminated the 2006 credit facility in connection with the 2007 credit facility described below. There were no premiums or penalties
incurred by the Company in connection with the termination of the 2006 credit facility, and all amounts outstanding under 2006 credit facility were deemed paid in full on the termination date.

On December 16, 2007, the Company entered into a credit agreement with several financial institutions (the 2007 credit facility), which provides for term loans in
an amount up to $100 million and revolving loans in an amount up to $100 million with an option for the Company to increase the revolving loan commitments and/or the term loan commitments by an aggregate amount up to $50 million pursuant to an
accordion feature for a total secured loan facility up to $250 million. In connection with the 2007 credit facility, the Company agreed to certain financial and other covenants. Funds under the 2007 credit facility are available to the Company upon
completion of the NSB acquisition (See Note 15 in Notes to the Consolidated Financial Statements), to pay the fees and expenses incurred in connection with the NSB acquisition, as well as to provide ongoing working capital and for other general
corporate purposes of the Company and its subsidiaries following the NSB acquisition. As the acquisition had not occurred by December 31, 2007, the Company had no borrowing capacity under the 2007 credit facility at that time.

On February 11, 2008, the Company amended the 2007 credit facility to exercise the accordion feature contained in the facility to increase the total credit facility
to $250 million, consisting of $100 million of term loans and $150 million of revolving loans. On February 19, 2008, the Company borrowed $100 million in term loans and $60 million of revolving loans under the 2007 credit facility and used the
proceeds to finance the NSB acquisition and to pay certain fees and expenses incurred in connection with the NSB acquisition.

The Companys
significant contractual obligations or commercial commitments consist of the Companys operating and capital leases for office facilities and equipment, long-term debt and purchase obligations. As of December 31, 2007, future payments
related to contractual obligations and commercial commitments are as follows:



|                                         |  |                                       |        |           |   |           |  |            |        |       |   |         |  |   |        
|---------------------------------------- |  | ------------------------------------- | ------ | --------- | - | --------- |  | ---------- | ------ | ----- | - | ------- |  | - | -------
|                                         |  | Payments Due by Period (in thousands)
|                                         |  | 1 Yearand Less                        |        | 2-3 Years |   | 4-5 Years |  | Thereafter |        | Total
|Operating and Capital Lease Obligations, |  |                                       |        |           |   |           |  |            |        |       |   |         |  |   |        
|Net of Sublease Income                   |  | $                                     | 11,107 |           | $ | 15,688    |  | $          | 7,624  |       | $ | 6,016   |  | $ | 40,435 
|Long-term Debt                           |  |                                       |       |           |   |          |  |            |       |       |   | 230,000 |  |   | 230,000
|Estimated Interest Payments              |  |                                       | 5,463  |           |   | 10,925    |  |            | 10,925 |       |   | 78,516  |  |   | 105,829
|Purchase Obligations                     |  |                                       | 8,807  |           |   | 3,372     |  |            |       |       |   |        |  |   | 12,179 
|                                         |  |                                       |        |           |   |           |  |            |        |       |   |         |  |   |        
|Total Contractual Obligations            |  | $                                     | 25,377 |           | $ | 29,985    |  | $          | 18,549 |       | $ | 314,532 |  | $ | 388,443
|                                         |  |                                       |        |           |   |           |  |            |        |       |   |         |  |   |        



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The Company believes that its existing cash balances and funds expected to be generated from future operations will be
sufficient to satisfy these contractual obligations and commercial commitments, and that the ultimate payments associated with these commitments will not have a material adverse impact on the Companys liquidity position. The Companys
borrowing against the 2007 credit facility is not included in the table above.

The Company is dependent upon its ability to generate cash flows from
license fees and other operating revenues, providing services to its customers and through collection of its accounts receivable to maintain current liquidity levels. If the Company is not successful in achieving targeted revenues and expenses or
positive cash flows from operations, the Company may be required to take further cost-cutting measures and restructuring actions or seek alternative sources of funding. Alternative sources of funding may not be available on terms favorable to the
Company, or at all, in which case, the Companys business, financial condition or results of operations may be adversely affected.

The Company
reported net income for the year ended December 31, 2007 of $41.3 million. Considering current cash reserves, and other existing sources of liquidity, including its revolving credit facility, management believes that the Company will have
sufficient sources of financing to continue its operations through at least the next twelve months. There can be no assurance that the Company will not seek to raise additional capital through the incurrence of debt or issuance of equity securities
in the future. However, the Company may require additional sources of liquidity to fund any future acquisitions and its growth.

Foreign Currency Risk

The Company has several operations in foreign locations around the world. These operations incur revenue and expenses in various foreign currencies.
Revenues and expenses denominated in currencies other than the U.S. dollar expose the Company to foreign currency market risk. Unfavorable movements in foreign currency exchange rates between the U.S. dollar and other foreign currencies may have an
adverse impact on the Companys operations. These foreign currency market movements could create a foreign currency gain or loss that could be realized or unrealized for the Company. The Companys Board of Directors has approved a foreign
currency risk policy that allows the Company to enter into forward contracts and purchase option agreements to hedge foreign currency risks. The Company has an ongoing program to evaluate its foreign currency risk and to minimize these risks
whenever possible through leading and lagging accounts payables and accounts receivables, centralized cash management and other forms of natural hedging. The Company also uses forward contracts or purchased options to hedge some of its foreign
currency transaction exposure. Gains and losses resulting from these transactions are included in interest and other income, net in the accompanying Consolidated Statements of Operations.

On December 14, 2007 the Company purchased three call options with an aggregate notional value of £160 million maturing March 31, 2008 for $4.1
million to hedge its exposure to negative fluctuations in the pound sterling-denominated purchase consideration in connection with the NSB acquisition. The options were marked to market on December 31, 2007 to a value of $1.8 million,
which resulted in an unrealized loss of $2.3 million. The unrealized loss was recorded as foreign currency loss and is included in interest income and other, net, in the Consolidated Statements of Operations. Other than these call
options, the Company had no other open options or forward contracts as of December 31, 2007.

Off-Balance Sheet Arrangements

On May 8, 2007, the Company closed an offering of convertible senior notes due in 2027. These notes are due in full in 2027 and are convertible into shares of
common stock at a conversion price of $18.10 per share. Pursuant to the terms of the notes, the principal amount of the notes is settleable in cash and only the amount of conversion value, as defined, in excess of the principal amount of the notes
is settleable in cash or shares. In accordance with relevant authoritative pronouncements issued by the FASB and its Emerging Issues Task Force (EITF), the conversion feature of the notes does not qualify for separate accounting from the
notes. Accordingly, no separate amounts related to the conversion feature are presented in the consolidated financial statements (see Note 6 in Notes to the Consolidated Financial Statements).



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|Item 7A. | QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
|-------- | ---------------------------------------------------------

Interest Rate Risk.

The Companys exposure to market risk for changes in interest rates relates primarily to the Companys cash
and cash equivalents, cash designated for acquisition and outstanding debt. At December 31, 2007, the Company had $75.2 million in cash and cash equivalents and $161.0 million in cash designated for acquisition. Based on the investment interest
rate and the balance as of December 31, 2007, a hypothetical 1% decrease in interest rates would decrease interest income by approximately $2.4 million on an annual basis, as well as decrease the Companys net income and cash flows from
operations. The Company places its investments with high credit quality issuers and, by policy, limits the amount of credit exposure to any one issuer. Deposits with its U.S. issuers may exceed the amounts of federal deposit insurance provided on
such deposits, and deposits held outside the U.S. are not afforded such protection. The Company is averse to principal loss and ensures the safety and preservation of its invested funds by limiting default, market and reinvestment risk. The Company
mitigates default risk by investing in only the safest and highest credit quality securities and by constantly positioning its portfolio to respond appropriately to a significant reduction in a credit rating of any investment issuer or guarantor.
The Company has not experienced any losses on deposits of cash or cash equivalents.

The Company cannot predict market fluctuations in interest rates and
their impact on its variable rate debt, nor can there be any assurance that fixed rate long-term debt will be available to the Company at favorable rates, if at all. Consequently, future results may differ materially from the estimated adverse
changes discussed above. Changes in interest rates do not affect the amount of interest we pay on our fixed rate senior convertible notes, but do affect the fair value of the debt.

Foreign Currency Risk.

The Company had three open option contracts related to the acquisition of NSB Retail Systems
(see Note 1 in Notes to Consolidated Financial Statements), and no foreign currency forward contracts open as of December 31, 2007. International revenues represented 39.8% of the Companys total revenues for the year ended
December 31, 2007, and 30.1% of revenues were denominated in foreign currencies. Included in interest and other income, net in the accompanying Consolidated Statements of Operation are net realized and unrealized foreign currency
transaction gains (losses) for the years ended December 31, 2007, 2006 and 2005 of ($0.7) million, $1.0 million and ($1.2) million, respectively, primarily due to inter-company revenues and cost of sales, marking the Companys option
contracts to market and translating inter-company balances and non-functional currency cash balances. Given a hypothetical increase or decrease of 10% in the foreign exchange rate between the U.S. dollar and other major currencies during the year
ended December 31, 2007, net unrealized and realized transaction gain would increase or decrease by approximately $2.1 million, as well as increase or decrease the Companys net income and cash flows from operations for the respective
periods.



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|Item 8. | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
|------- | -------------------------------------------

Index to Consolidated Financial Statements



|                                                                                                                                                                                     |  |     
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ----
|                                                                                                                                                                                     |  | Page
|Financial Statements:                                                                                                                                                                |  |     
|                                                                                                                                                                                     | 
|Reports of Independent Registered Public Accounting Firms                                                                                                                            |  | 57  
|                                                                                                                                                                                     | 
|Consolidated Balance Sheets as of December 31, 2007 and 2006                                                                                                                         |  | 59  
|                                                                                                                                                                                     | 
|Consolidated Statements of Operations for the years ended December 31, 2007, 2006 and 2005                                                                                           |  | 60  
|                                                                                                                                                                                     | 
|Consolidated Statements of Stockholders Equity and Comprehensive Income for the years ended December 31, 2007, 2006 and 2005.                                                       |  | 61  
|                                                                                                                                                                                     | 
|Consolidated Statements of Cash Flows for the years ended December 31, 2007, 2006 and 2005                                                                                           |  | 62  
|                                                                                                                                                                                     | 
|Notes to Consolidated Financial Statements                                                                                                                                           |  | 63  
|                                                                                                                                                                                    
|All financial statement schedules have been omitted because they are not required or the required information is included in the consolidated financial
statements or notes thereto.



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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders

Epicor Software Corporation

We have audited the consolidated balance sheets
of Epicor Software Corporation and subsidiaries as of December 31, 2007 and 2006, and the related consolidated statements of operations, stockholders equity and comprehensive income, and cash flows for each of the two years in the period
ended December 31, 2007. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Epicor
Software Corporation and subsidiaries as of December 31, 2007 and 2006, and the results of their operations and their cash flows for each of the two years in the period ended December 31, 2007, in conformity with U.S. generally accepted
accounting principles.

As described in Note 8 to the consolidated financial statements, the Company changed its method of accounting for uncertainty in
income taxes in 2007. As described in Note 1 to the consolidated financial statements, the Company changed its method of accounting for stock-based compensation in 2006.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Epicor Software Corporation's and subsidiaries internal control over financial reporting
as of December 31, 2007, based on criteria established inInternal ControlIntegrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) and our report dated March 10, 2008 expressed an
unqualified opinion on the effectiveness of Epicor Software Corporations and subsidiaries internal control over financial reporting.

/s/
McGladrey & Pullen, LLP

Irvine, California

March 10, 2008



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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of Epicor Software Corporation:

We have audited the consolidated statements of operations, stockholders equity, comprehensive income and cash flows of Epicor Software Corporation and subsidiaries (the Company) for the year ended December 31, 2005.
These consolidated financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated
financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable
basis for our opinion.

In our opinion, such consolidated financial statements referred to above present fairly, in all material respects, the results of
operations and cash flows of Epicor Software Corporation and subsidiaries for year ended December 31, 2005, in conformity with accounting principles generally accepted in the United States of America.

/s/ Deloitte & Touche LLP

Costa Mesa, California

March 31, 2006



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EPICOR SOFTWARE CORPORATION

CONSOLIDATED BALANCE SHEETS

(in thousands, except per share amounts)



|                                                                                                          |  |              |         |   |      |   |          |  
|--------------------------------------------------------------------------------------------------------- |  | ------------ | ------- | - | ---- | - | -------- | -
|                                                                                                          |  | December 31, |        
|                                                                                                          |  | 2007         |         |   | 2006 |  
|ASSETS                                                                                                    |  |              |         |   |      |   |          |  
|Current assets:                                                                                           |  |              |         |   |      |   |          |  
|Cash and cash equivalents                                                                                 |  | $            | 75,158  |   |      | $ | 70,178   |  
|Short term investments                                                                                    |  |              | 1,371   |   |      |   |         |  
|Accounts receivable, net                                                                                  |  |              | 98,533  |   |      |   | 83,965   |  
|Deferred income taxes                                                                                     |  |              | 7,060   |   |      |   | 17,909   |  
|Inventory, net                                                                                            |  |              | 4,539   |   |      |   | 4,885    |  
|Prepaid expenses and other current assets                                                                 |  |              | 9,184   |   |      |   | 7,587    |  
|                                                                                                          |  |              |         |   |      |   |          |  
|Total current assets                                                                                      |  |              | 195,845 |   |      |   | 184,524  |  
|                                                                                                          |  |             
|Property and equipment, net                                                                               |  |              | 14,762  |   |      |   | 12,251   |  
|Deferred income taxes                                                                                     |  |              | 45,025  |   |      |   | 19,836   |  
|Intangible assets, net                                                                                    |  |              | 46,524  |   |      |   | 56,209   |  
|Goodwill                                                                                                  |  |              | 169,267 |   |      |   | 163,360  |  
|Cash designated for acquisition                                                                           |  |              | 161,000 |   |      |   |         |  
|Other assets                                                                                              |  |              | 12,958  |   |      |   | 5,710    |  
|                                                                                                          |  |              |         |   |      |   |          |  
|Total assets                                                                                              |  | $            | 645,381 |   |      | $ | 441,890  |  
|                                                                                                          |  |              |         |   |      |   |          |  
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                      |  |              |         |   |      |   |          |  
|Current liabilities:                                                                                      |  |              |         |   |      |   |          |  
|Accounts payable                                                                                          |  | $            | 14,640  |   |      | $ | 14,298   |  
|Accrued compensation and benefits                                                                         |  |              | 27,555  |   |      |   | 24,236   |  
|Other accrued expenses                                                                                    |  |              | 27,372  |   |      |   | 26,683   |  
|Current portion of long-term debt                                                                         |  |              | 145     |   |      |   | 1,102    |  
|Current portion of accrued restructuring costs                                                            |  |              | 614     |   |      |   | 795      |  
|Current portion of deferred revenue                                                                       |  |              | 70,378  |   |      |   | 63,726   |  
|                                                                                                          |  |              |         |   |      |   |          |  
|Total current liabilities                                                                                 |  |              | 140,704 |   |      |   | 130,840  |  
|                                                                                                          |  |              |         |   |      |   |          |  
|Long-term debt, less current portion                                                                      |  |              | 230,491 |   |      |   | 98,273   |  
|Long-term portion of accrued restructuring costs                                                          |  |              | 356     |   |      |   | 876      |  
|Long-term portion of deferred revenue                                                                     |  |              | 823     |   |      |   | 1,271    |  
|Long-term deferred income taxes and other income taxes                                                    |  |              | 10,082  |   |      |   | 2,010    |  
|                                                                                                          |  |              |         |   |      |   |          |  
|Total long-term liabilities                                                                               |  |              | 241,752 |   |      |   | 102,430  |  
|                                                                                                          |  |              |         |   |      |   |          |  
|Commitments and contingencies (Note 7)                                                                    |  |              |         |   |      |   |          |  
|                                                                                                          |  |             
|Stockholders equity:                                                                                     |  |              |         |   |      |   |          |  
|Common stock, $0.001 par value, 180,000 shares authorized:59,707 and 58,810 shares issued and outstanding |  |              | 60      |   |      |   | 59       |  
|Additional paid-in capital                                                                                |  |              | 366,737 |   |      |   | 350,605  |  
|Less: treasury stock at cost, 1,119 and 903 shares                                                        |  |              | (13,883 | ) |      |   | (10,895  | )
|Accumulated other comprehensive income (loss)                                                             |  |              | 61      |   |      |   | (954     | )
|Accumulated deficit                                                                                       |  |              | (90,050 | ) |      |   | (130,195 | )
|                                                                                                          |  |              |         |   |      |   |          |  
|Total stockholders equity                                                                                |  |              | 262,925 |   |      |   | 208,620  |  
|                                                                                                          |  |              |         |   |      |   |          |  
|Total liabilities and stockholders equity                                                                |  | $            | 645,381 |   |      | $ | 441,890  |  
|                                                                                                          |  |              |         |   |      |   |          |  

See accompanying notes to the consolidated financial statements.



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EPICOR SOFTWARE CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share amounts)



|                                                       |  |                         |         |   |      |   |         |      |  |   |         |  
|------------------------------------------------------ |  | ----------------------- | ------- | - | ---- | - | ------- | ---- |  | - | ------- | -
|                                                       |  | Year ended December 31, |        
|                                                       |  | 2007                    |         |   | 2006 |   |         | 2005 | 
|Revenues:                                              |  |                         |         |   |      |   |         |      |  |   |         |  
|License fees                                           |  | $                       | 109,443 |   |      | $ | 99,530  |      |  | $ | 77,052  |  
|Consulting                                             |  |                         | 134,722 |   |      |   | 107,520 |      |  |   | 73,666  |  
|Maintenance                                            |  |                         | 160,278 |   |      |   | 150,010 |      |  |   | 134,544 |  
|Hardware and other                                     |  |                         | 25,389  |   |      |   | 27,036  |      |  |   | 4,151   |  
|                                                       |  |                         |         |   |      |   |         |      |  |   |         |  
|Total revenues                                         |  |                         | 429,832 |   |      |   | 384,096 |      |  |   | 289,413 |  
|                                                       |  |                         |         |   |      |   |         |      |  |   |         |  
|Cost of revenues:                                      |  |                         |         |   |      |   |         |      |  |   |         |  
|License fees                                           |  |                         | 23,748  |   |      |   | 19,295  |      |  |   | 15,548  |  
|Consulting                                             |  |                         | 110,668 |   |      |   | 88,043  |      |  |   | 58,640  |  
|Maintenance                                            |  |                         | 34,956  |   |      |   | 34,186  |      |  |   | 28,212  |  
|Hardware and other                                     |  |                         | 22,506  |   |      |   | 23,937  |      |  |   | 2,046   |  
|Amortization of intangible assets                      |  |                         | 17,419  |   |      |   | 17,007  |      |  |   | 11,759  |  
|                                                       |  |                         |         |   |      |   |         |      |  |   |         |  
|Total cost of revenues                                 |  |                         | 209,297 |   |      |   | 182,468 |      |  |   | 116,205 |  
|                                                       |  |                         |         |   |      |   |         |      |  |   |         |  
|Gross profit                                           |  |                         | 220,535 |   |      |   | 201,628 |      |  |   | 173,208 |  
|                                                       |  |                         |         |   |      |   |         |      |  |   |         |  
|Operating expenses:                                    |  |                         |         |   |      |   |         |      |  |   |         |  
|Sales and marketing                                    |  |                         | 80,508  |   |      |   | 70,417  |      |  |   | 61,034  |  
|Software development                                   |  |                         | 37,369  |   |      |   | 34,060  |      |  |   | 28,454  |  
|General and administrative                             |  |                         | 58,302  |   |      |   | 52,118  |      |  |   | 46,256  |  
|Restructuring and other                                |  |                         | 1,571   |   |      |   |        |      |  |   | 359     |  
|Write-off of in-process research and development       |  |                         |        |   |      |   |        |      |  |   | 2,000   |  
|                                                       |  |                         |         |   |      |   |         |      |  |   |         |  
|Total operating expenses                               |  |                         | 177,750 |   |      |   | 156,595 |      |  |   | 138,103 |  
|                                                       |  |                         |         |   |      |   |         |      |  |   |         |  
|Income from operations                                 |  |                         | 42,785  |   |      |   | 45,033  |      |  |   | 35,105  |  
|                                                       |  |                         |        
|Other income (expense):                                |  |                         |         |   |      |   |         |      |  |   |         |  
|Interest expense                                       |  |                         | (8,469  | ) |      |   | (9,274  | )    |  |   | (1,471  | )
|Gain on sale of non-strategic asset                    |  |                         | 1,579   |   |      |   |        |      |  |   |        |  
|Interest and other income, net                         |  |                         | 6,639   |   |      |   | 2,848   |      |  |   | 300     |  
|                                                       |  |                         |         |   |      |   |         |      |  |   |         |  
|Other income (expense), net                            |  |                         | (251    | ) |      |   | (6,426  | )    |  |   | (1,171  | )
|                                                       |  |                         |         |   |      |   |         |      |  |   |         |  
|Income before income taxes                             |  |                         | 42,534  |   |      |   | 38,607  |      |  |   | 33,934  |  
|Provision (benefit) for income taxes                   |  |                         | 1,257   |   |      |   | 14,789  |      |  |   | (18,189 | )
|Minority interest in income of consolidated subsidiary |  |                         |        |   |      |   |        |      |  |   | 88      |  
|                                                       |  |                         |         |   |      |   |         |      |  |   |         |  
|Net income                                             |  | $                       | 41,277  |   |      | $ | 23,818  |      |  | $ | 52,035  |  
|                                                       |  |                         |         |   |      |   |         |      |  |   |         |  
|Net income per share:                                  |  |                         |         |   |      |   |         |      |  |   |         |  
|Basic                                                  |  | $                       | 0.72    |   |      | $ | 0.43    |      |  | $ | 0.95    |  
|Diluted                                                |  | $                       | 0.71    |   |      | $ | 0.42    |      |  | $ | 0.92    |  
|Weighted average common shares outstanding:            |  |                         |         |   |      |   |         |      |  |   |         |  
|Basic                                                  |  |                         | 57,112  |   |      |   | 55,919  |      |  |   | 54,665  |  
|Diluted                                                |  |                         | 58,003  |   |      |   | 57,005  |      |  |   | 56,574  |  

See accompanying notes to consolidated financial statements.



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Epicor Software Corporation

Consolidated Statements of Stockholders Equity and Comprehensive Income

(in thousands)



|                                                                       |  |                                          |   |  |              |        |                          |        |                |        |   |                                            |        |   |                    |  |       |                        |   |         |                     |  |   |        |   |  |   |          |   |  |   |         |   |  |   |        |  
|---------------------------------------------------------------------- |  | ---------------------------------------- | - |  | ------------ | ------ | ------------------------ | ------ | -------------- | ------ | - | ------------------------------------------ | ------ | - | ------------------ |  | ----- | ---------------------- | - | ------- | ------------------- |  | - | ------ | - |  | - | -------- | - |  | - | ------- | - |  | - | ------ | -
|                                                                       |  | Series C and DConvertiblePreferred Stock |   |  | Common Stock |        | AdditionalPaid inCapital |        | Treasury Stock |        |   | AccumulatedOtherComprehensiveIncome
(loss) |        |   | AccumulatedDeficit |  |       | NetStockholdersEquity |   |         | ComprehensiveIncome | 
|                                                                       |  | Shares                                   |   |  | Amount       |        |                          | Shares |                | Amount |   |                                            | Shares |   | Amount             |  |       |                        |   |        
|Balance December 31, 2004                                              |  | 168,158                                  |   |  | $            | 3,046  |                          |        | 53,155         |        | $ | 53                                         |        | $ | 305,885            |  | 417   |                        | $ | (4,431  | )                   |  | $ | (848   | ) |  | $ | (206,048 | ) |  | $ | 97,657  |   |  |   |        |  
|                                                                       |  |                                          |   |  |              |        |                          |        |                |        |  
|Conversion of preferred stock                                          |  | (168,158                                 | ) |  |              | (3,046 | )                        |        | 1,682          |        |   | 2                                          |        |   | 3,044              |  |       |                        |   |         |                     |  |   |        |   |  |   |          |   |  |   |        |   |  |   |        |  
|Acquisition of treasury stock related to stock option exchange program |  |                                          |   |  |              |        |                          |        |                |        |   |                                            |        |   |                    |  | 467   |                        |   | (6,248  | )                   |  |   |        |   |  |   |          |   |  |   | (6,248  | ) |  |   |        |  
|Stock-based compensation expense                                       |  |                                          |   |  |              |        |                          |        |                |        |   |                                            |        |   | 2,625              |  |       |                        |   |         |                     |  |   |        |   |  |   |          |   |  |   | 2,625   |   |  |   |        |  
|Issuance of restricted stock                                           |  |                                          |   |  |              |        |                          |        | 200            |        |   |                                           |        |   | 2                  |  |       |                        |   |         |                     |  |   |        |   |  |   |          |   |  |   | 2       |   |  |   |        |  
|Employee stock purchases                                               |  |                                          |   |  |              |        |                          |        | 123            |        |   |                                           |        |   | 1,326              |  |       |                        |   |         |                     |  |   |        |   |  |   |          |   |  |   | 1,326   |   |  |   |        |  
|Exercise of stock options                                              |  |                                          |   |  |              |        |                          |        | 571            |        |   | 1                                          |        |   | 2,298              |  |       |                        |   |         |                     |  |   |        |   |  |   |          |   |  |   | 2,299   |   |  |   |        |  
|Tax benefits of excess stock option deductions                         |  |                                          |   |  |              |        |                          |        |                |        |   |                                            |        |   | 20,959             |  |       |                        |   |         |                     |  |   |        |   |  |   |          |   |  |   | 20,959  |   |  |   |        |  
|Net income                                                             |  |                                          |   |  |              |        |                          |        |                |        |   |                                            |        |   |                    |  |       |                        |   |         |                     |  |   |        |   |  |   | 52,035   |   |  |   | 52,035  |   |  |   | 52,035 |  
|Foreign currency translation                                           |  |                                          |   |  |              |        |                          |        |                |        |   |                                            |        |   |                    |  |       |                        |   |         |                     |  |   | (205   | ) |  |   |          |   |  |   | (205    | ) |  |   | (205   | )
|                                                                       |  |                                          |   |  |              |        |                          |        |                |        |   |                                            |        |   |                    |  |       |                        |   |         |                     |  |   |        |   |  |   |          |   |  |   |         |   |  |   |        |  
|Balance December 31, 2005                                              |  |                                         |   |  |              |       |                          |        | 55,731         |        |   | 56                                         |        |   | 336,139            |  | 884   |                        |   | (10,679 | )                   |  |   | (1,053 | ) |  |   | (154,013 | ) |  |   | 170,450 |   |  | $ | 51,830 |  
|                                                                       |  |                                          |   |  |              |        |                          |        |                |        |   |                                            |        |   |                    |  |       |                        |   |         |                     |  |   |        |   |  |   |          |   |  |   |         |   |  |   |        |  
|Acquisition of treasury stock                                          |  |                                          |   |  |              |        |                          |        |                |        |   |                                            |        |   |                    |  | 19    |                        |   | (216    | )                   |  |   |        |   |  |   |          |   |  |   | (216    | ) |  |   |        |  
|Stock-based compensation expense                                       |  |                                          |   |  |              |        |                          |        |                |        |   |                                            |        |   | 9,451              |  |       |                        |   |         |                     |  |   |        |   |  |   |          |   |  |   | 9,451   |   |  |   |        |  
|Issuance of restricted stock                                           |  |                                          |   |  |              |        |                          |        | 2,351          |        |   | 2                                          |        |   |                   |  |       |                        |   |         |                     |  |   |        |   |  |   |          |   |  |   | 2       |   |  |   |        |  
|Employee stock purchases                                               |  |                                          |   |  |              |        |                          |        | 96             |        |   |                                           |        |   | 1,086              |  |       |                        |   |         |                     |  |   |        |   |  |   |          |   |  |   | 1,086   |   |  |   |        |  
|Exercise of stock options                                              |  |                                          |   |  |              |        |                          |        | 632            |        |   | 1                                          |        |   | 2,244              |  |       |                        |   |         |                     |  |   |        |   |  |   |          |   |  |   | 2,245   |   |  |   |        |  
|Tax benefits of stock option exercisesand restricted stock vesting     |  |                                          |   |  |              |        |                          |        |                |        |   |                                            |        |   | 1,685              |  |       |                        |   |         |                     |  |   |        |   |  |   |          |   |  |   | 1,685   |   |  |   |        |  
|Net income                                                             |  |                                          |   |  |              |        |                          |        |                |        |   |                                            |        |   |                    |  |       |                        |   |         |                     |  |   |        |   |  |   | 23,818   |   |  |   | 23,818  |   |  |   | 23,818 |  
|Foreign currency translation                                           |  |                                          |   |  |              |        |                          |        |                |        |   |                                            |        |   |                    |  |       |                        |   |         |                     |  |   | 99     |   |  |   |          |   |  |   | 99      |   |  |   | 99     |  
|                                                                       |  |                                          |   |  |              |        |                          |        |                |        |   |                                            |        |   |                    |  |       |                        |   |         |                     |  |   |        |   |  |   |          |   |  |   |         |   |  |   |        |  
|Balance December 31, 2006                                              |  |                                         |   |  |              |       |                          |        | 58,810         |        |   | 59                                         |        |   | 350,605            |  | 903   |                        |   | (10,895 | )                   |  |   | (954   | ) |  |   | (130,195 | ) |  |   | 208,620 |   |  | $ | 23,917 |  
|                                                                       |  |                                          |   |  |              |        |                          |        |                |        |   |                                            |        |   |                    |  |       |                        |   |         |                     |  |   |        |   |  |   |          |   |  |   |         |   |  |   |        |  
|                                                                       |  |                                          |   |  |              |        |                          |        |                |        |  
|Acquisition of treasury stock                                          |  |                                          |   |  |              |        |                          |        |                |        |   |                                            |        |   |                    |  | 216   |                        |   | (2,988  | )                   |  |   |        |   |  |   |          |   |  |   | (2,988  | ) |  |   |        |  
|Stock-based compensation expense                                       |  |                                          |   |  |              |        |                          |        |                |        |   |                                            |        |   | 11,694             |  |       |                        |   |         |                     |  |   |        |   |  |   |          |   |  |   | 11,694  |   |  |   |        |  
|Issuance of restricted stock, net of forfeitures                       |  |                                          |   |  |              |        |                          |        | 427            |        |   | 1                                          |        |   | 104                |  |       |                        |   |         |                     |  |   |        |   |  |   |          |   |  |   | 105     |   |  |   |        |  
|Employee stock purchases                                               |  |                                          |   |  |              |        |                          |        | 53             |        |   |                                           |        |   | 678                |  |       |                        |   |         |                     |  |   |        |   |  |   |          |   |  |   | 678     |   |  |   |        |  
|Exercise of stock options                                              |  |                                          |   |  |              |        |                          |        | 417            |        |   |                                           |        |   | 2,268              |  |       |                        |   |         |                     |  |   |        |   |  |   |          |   |  |   | 2,268   |   |  |   |        |  
|Tax benefits of stock option exercisesand restricted stock vesting     |  |                                          |   |  |              |        |                          |        |                |        |   |                                            |        |   | 1,388              |  |       |                        |   |         |                     |  |   |        |   |  |   |          |   |  |   | 1,388   |   |  |   |        |  
|Adoption of FIN 48 (Note 8)                                            |  |                                          |   |  |              |        |                          |        |                |        |   |                                            |        |   |                    |  |       |                        |   |         |                     |  |   |        |   |  |   | (1,132   | ) |  |   | (1,132  | ) |  |   |        |  
|Net income                                                             |  |                                          |   |  |              |        |                          |        |                |        |   |                                            |        |   |                    |  |       |                        |   |         |                     |  |   |        |   |  |   | 41,277   |   |  |   | 41,277  |   |  |   | 41,277 |  
|Foreign currency translation                                           |  |                                          |   |  |              |        |                          |        |                |        |   |                                            |        |   |                    |  |       |                        |   |         |                     |  |   | 1,015  |   |  |   |          |   |  |   | 1,015   |   |  |   | 1,015  |  
|                                                                       |  |                                          |   |  |              |        |                          |        |                |        |   |                                            |        |   |                    |  |       |                        |   |         |                     |  |   |        |   |  |   |          |   |  |   |         |   |  |   |        |  
|Balance December 31, 2007                                              |  |                                         |   |  | $            |       |                          |        | 59,707         |        | $ | 60                                         |        | $ | 366,737            |  | 1,119 |                        | $ | (13,883 | )                   |  | $ | 61     |   |  | $ | (90,050  | ) |  | $ | 262,925 |   |  | $ | 42,292 |  
|                                                                       |  |                                          |   |  |              |        |                          |        |                |        |   |                                            |        |   |                    |  |       |                        |   |         |                     |  |   |        |   |  |   |          |   |  |   |         |   |  |   |        |  

See accompanying notes to consolidated financial statements.



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EPICOR SOFTWARE CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)



|                                                                                              |  |                         |          |   |      |   |          |      |  |   |          |  
|--------------------------------------------------------------------------------------------- |  | ----------------------- | -------- | - | ---- | - | -------- | ---- |  | - | -------- | -
|                                                                                              |  | Year Ended December 31, |         
|                                                                                              |  | 2007                    |          |   | 2006 |   |          | 2005 | 
|Operating activities                                                                          |  |                         |          |   |      |   |          |      |  |   |          |  
|Net income                                                                                    |  | $                       | 41,277   |   |      | $ | 23,818   |      |  | $ | 52,035   |  
|Adjustments to reconcile net income to net cash provided by operating activities:             |  |                         |          |   |      |   |          |      |  |   |          |  
|Depreciation and amortization                                                                 |  |                         | 23,908   |   |      |   | 23,558   |      |  |   | 16,265   |  
|Stock-based compensation expense                                                              |  |                         | 11,694   |   |      |   | 9,451    |      |  |   | 2,625    |  
|Provision for doubtful accounts                                                               |  |                         | 3,882    |   |      |   | 2,274    |      |  |   | 1,544    |  
|Provision for excess and obsolete inventory                                                   |  |                         | 78       |   |      |   | 200      |      |  |   |         |  
|Gain on sale of non-strategic asset                                                           |  |                         | (1,579   | ) |      |   |         |      |  |   |         |  
|Restructuring charges                                                                         |  |                         | 909      |   |      |   |         |      |  |   | 359      |  
|Write-off of in-process R&D                                                                   |  |                         |         |   |      |   |         |      |  |   | 2,000    |  
|Excess tax benefits from share-based payment arrangements                                     |  |                         | (1,690   | ) |      |   | (1,784   | )    |  |   | 20,959   |  
|Changes in operating assets and liabilities, net of effects of acquisitions and dispositions: |  |                         |          |   |      |   |          |      |  |   |          |  
|Accounts receivable                                                                           |  |                         | (16,881  | ) |      |   | (16,691  | )    |  |   | (5,707   | )
|Inventory                                                                                     |  |                         | 269      |   |      |   | (1,656   | )    |  |   | (4,319   | )
|Prepaid expenses and other current assets                                                     |  |                         | (589     | ) |      |   | (327     | )    |  |   | 6,329    |  
|Other assets                                                                                  |  |                         | 987      |   |      |   | 321      |      |  |   | 573      |  
|Income taxes                                                                                  |  |                         | (3,658   | ) |      |   | 9,518    |      |  |   | (41,179  | )
|Accounts payable                                                                              |  |                         | (149     | ) |      |   | 1,732    |      |  |   | (4,339   | )
|Accrued expenses                                                                              |  |                         | 3,867    |   |      |   | (5,729   | )    |  |   | (3,423   | )
|Accrued restructuring costs                                                                   |  |                         | (1,245   | ) |      |   | (1,478   | )    |  |   | (1,687   | )
|Deferred revenue                                                                              |  |                         | 4,208    |   |      |   | 3,554    |      |  |   | (4,333   | )
|                                                                                              |  |                         |          |   |      |   |          |      |  |   |          |  
|Net cash provided by operating activities                                                     |  |                         | 65,288   |   |      |   | 46,761   |      |  |   | 37,702   |  
|                                                                                              |  |                         |          |   |      |   |          |      |  |   |          |  
|                                                                                              |  |                         |         
|Investing activities                                                                          |  |                         |          |   |      |   |          |      |  |   |          |  
|Cash designated for acquisition                                                               |  |                         | (161,000 | ) |      |   |         |      |  |   |         |  
|Cash paid for acquisitions, net of cash acquired                                              |  |                         | (16,814  | ) |      |   | (2,277   | )    |  |   | (125,077 | )
|Purchases of property and equipment                                                           |  |                         | (7,926   | ) |      |   | (5,590   | )    |  |   | (3,393   | )
|Proceeds from sale of non-strategic asset                                                     |  |                         | 2,500    |   |      |   |         |      |  |   |         |  
|Sale (purchase) of short-term investments                                                     |  |                         | (1,371   | ) |      |   | 3,271    |      |  |   | (3,271   | )
|                                                                                              |  |                         |          |   |      |   |          |      |  |   |          |  
|Net cash used in investing activities                                                         |  |                         | (184,611 | ) |      |   | (4,596   | )    |  |   | (131,741 | )
|                                                                                              |  |                         |          |   |      |   |          |      |  |   |          |  
|                                                                                              |  |                         |         
|Financing activities                                                                          |  |                         |          |   |      |   |          |      |  |   |          |  
|Proceeds from long-term debt                                                                  |  |                         | 230,000  |   |      |   | 122,000  |      |  |   | 140,101  |  
|Principal payments on long-term debt                                                          |  |                         | (99,417  | ) |      |   | (147,525 | )    |  |   | (45,255  | )
|Debt issuance fees                                                                            |  |                         | (8,175   | ) |      |   | (1,476   | )    |  |   |         |  
|Purchase of treasury stock                                                                    |  |                         | (2,988   | ) |      |   | (216     | )    |  |   | (6,248   | )
|Proceeds from exercise of stock options                                                       |  |                         | 2,268    |   |      |   | 2,245    |      |  |   | 2,299    |  
|Proceeds from employee stock purchase plan                                                    |  |                         | 678      |   |      |   | 1,086    |      |  |   | 1,326    |  
|Excess tax benefits from share-based payment arrangements                                     |  |                         | 1,690    |   |      |   | 1,784    |      |  |   |         |  
|Issuance of restricted stock                                                                  |  |                         | 1        |   |      |   | 2        |      |  |   |         |  
|                                                                                              |  |                         |          |   |      |   |          |      |  |   |          |  
|Net cash (used in) provided by financing activities                                           |  |                         | 124,057  |   |      |   | (22,100  | )    |  |   | 92,223   |  
|                                                                                              |  |                         |          |   |      |   |          |      |  |   |          |  
|Effect of exchange rate changes on cash                                                       |  |                         | 246      |   |      |   | 345      |      |  |   | (2,127   | )
|                                                                                              |  |                         |          |   |      |   |          |      |  |   |          |  
|Net increase (decrease) in cash and cash equivalents                                          |  |                         | 4,980    |   |      |   | 20,410   |      |  |   | (3,943   | )
|Cash and cash equivalents at beginning of period                                              |  |                         | 70,178   |   |      |   | 49,768   |      |  |   | 53,711   |  
|                                                                                              |  |                         |          |   |      |   |          |      |  |   |          |  
|Cash and cash equivalents at end of period                                                    |  | $                       | 75,158   |   |      | $ | 70,178   |      |  | $ | 49,768   |  
|                                                                                              |  |                         |          |   |      |   |          |      |  |   |          |  

See accompanying notes to consolidated financial statements.



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EPICOR SOFTWARE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1. Nature of Operations and Summary of Significant Accounting Policies

Nature of Operations and Basis of Presentation

Epicor Software Corporation, a Delaware corporation, and its subsidiaries (Epicor or
the Company) design, develop, market and support integrated enterprise business software solutions for use by mid-size businesses as well as divisions and subsidiaries of larger corporations worldwide. The Company also offers support, consulting and
education services in support of its customers use of its software products. The consolidated financial statements include the accounts of the Company and its subsidiaries. Intercompany balances and transactions have been eliminated in
consolidation. The financial statements are prepared in conformity with accounting principles generally accepted in the United States of America.

Use of Estimates

The preparation of financial statements in conformity with United States of America generally accepted accounting
principles (GAAP) requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual amounts could differ from these estimates. Significant estimates made in preparing
the consolidated financial statements include the allowance for doubtful accounts, cash flows used to evaluate the recoverability of the Companys long-lived assets, valuation allowances for deferred tax assets, estimation of uncertain tax
positions, lives of intangible assets, property, plant and equipment and certain accrued liabilities related to restructuring activities.

Cash and
Cash Equivalents

The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash
equivalents.

Short-term Investments

The
Company considers all liquid interest-earning investments with maturities of more than three months and less than twelve months at the date of purchase to be short-term investments. Short-term investments generally mature between three months and
twelve months from the purchase date based on the Company's cash management policy. All short-term investments are classified as available for sale and are recorded at market using the specific identification method; unrealized gains and losses are
reflected in other comprehensive income. Cost approximates market for all classifications of cash and short-term investments; realized and unrealized gains and losses are not material.

Fair Value of Financial Instruments

The Companys financial instruments consist of cash and cash
equivalents, marketable securities, trade receivables and payables, its credit facilities (Note 6), convertible senior notes (Note 6) and option contracts related to the acquisition of NSB Retail Systems PLC (NSB) (Note 15). The carrying amounts of
these instruments, excluding the convertible notes and option contracts, approximate fair value because of their short-term maturities. The option contracts are marked to market at each reporting period, therefore representing fair value as of
December 31, 2007. The fair value of the convertible senior notes at December 31, 2007 was $208,553,000, as determined based upon quoted market prices.

Inventory

Inventories, which are comprised solely of finished goods, are stated at the lower of cost (first-in, first-out or
FIFO) or market. Probable losses from obsolete and slow moving inventories are recorded when identified. As of and for the years ended December 31, 2007 and 2006, the Company recorded $78,000 and $200,000, respectively, in
provisions for obsolete and slow-moving inventories and maintained related reserves of $165,000 and $200,000, respectively.



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Cash Designated for Acquisition

As of December 31, 2007, the Company designated a cash account with a balance of $161,000,000 for the Companys purchase of NSB (Note 15).

Revenue Recognition

The Company recognizes revenue in accordance with accounting principles generally
accepted in the United States of America, principally:



| |  |  | Statement of Position (SOP) No. 97-2, Software Revenue Recognition, issued by the American Institute of Certified Public Accountants (AICPA) and
interpretations;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | AICPA SOP No. 98-9, Modification of SOP 97-2, Software Revenue Recognition, With Respect to Certain Transactions;
| | - |  | -------------------------------------------------------------------------------------------------------------------



| |  |  | Staff Accounting Bulletin (SAB) No. 101, Revenue Recognition in Financial Statements, issued by the United States Securities and Exchange
Commission as amended by SAB No. 104;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Financial Accounting Standards Board (FASB) Emerging Issues Task Force (EITF) Issue No. 00-21 Revenue Arrangements with Multiple Deliverables; and
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | AICPA SOP No. 81-1, Accounting for Performance of Construction-Type and Certain Production-Type Contracts.
| | - |  | ------------------------------------------------------------------------------------------------------------

The Company enters into contractual arrangements with end-users of its products to sell software licenses, maintenance services and consulting services, either
separately or various combinations thereof. For each arrangement, revenues are recognized when persuasive evidence of an arrangement exists, the fees to be paid by the customer are fixed or determinable, collection of the fees is probable, delivery
of the product has occurred, vendor-specific objective evidence (VSOE) of the fair value of any undelivered elements exists and no other significant obligations on the part of the Company remain.

For multiple-element software arrangements, the Company accounts for the software license component using the residual method. The residual method generally requires
recognition of software license revenue in a multiple-element arrangement once all software products have been delivered and accepted by the customer and the only undelivered elements are maintenance services and/or consulting services. The fair
value of the maintenance services is determined based on VSOE of fair value and is deferred and recorded ratably over the maintenance terms. Fair value for any related consulting services is determined by VSOE of fair value and generally recognized
as the services are performed. After any required fair value allocations to the undelivered maintenance and/or consulting services elements, the residual contractual consideration is allocated to the license fee associated with the software products
in the transaction. The Companys maintenance services VSOE of fair value is determined by reference to the price the Companys customers are required to pay for the services when sold-separately (i.e. the maintenance service fees paid by
the Companys customers upon renewal). VSOE of fair value for consulting services is determined by reference to the price the Companys customers are required to pay for such services when sold separately, or when sold independent of any
of the Companys other product or service offerings.

In certain instances, the Company enters into arrangements that include two or more non-software
products or services such as hardware and related services. Such arrangements are divided into separate units of accounting provided that the delivered item has stand-alone value and there is objective and reliable evidence of the fair value of the
undelivered items. The total arrangement fee is allocated to the undelivered elements based on their fair values and to the initial delivered elements using the residual method. Revenue is recognized separately, and in accordance with the
Companys revenue recognition policy, for each element.

License Revenues: Amounts allocated to software license revenues sold directly by the
Company are recognized at the time of shipment of the software when fair value for any undelivered elements is determinable and all the other revenue recognition criteria discussed above have been met.

Revenues on sales made to the Companys resellers are recognized upon shipment of the Companys software to the reseller when the reseller has an identified
end-user and all other revenue recognition criteria noted above are met. Under limited arrangements with certain distributors, all the revenue recognition criteria have been met upon delivery of the product to the distributor and, accordingly,
revenues are recognized at that time. The Company does not offer a right of return on its products.



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Consulting Service Revenues: Consulting service revenues are comprised of consulting and implementation services
and, to a limited extent, training. Consulting services are generally sold on a time-and-materials basis and can include services ranging from software installation to data conversion and building non-complex interfaces to allow the software to
operate in integrated environments. Consulting engagements can last anywhere from one day to several months and are based strictly on the customers requirements and complexities and are independent of the functionality of the Companys
software. The Companys software, as delivered, can generally be used by the customer for the customers purpose upon installation. Further, implementation and integration services provided are generally not essential to the functionality
of the software, as delivered, and do not result in any material changes to the underlying software code. Services are generally separable from the other elements under the same arrangement since the performance of the services are not essential to
the functionality of the other elements of the transaction, the services are described in the contract such that the total price of the arrangement would be expected to vary as the result of the inclusion or exclusion of the services, and VSOE of
fair value exists for the services based on sold separately data. If, in the services element of the arrangement the Company performs significant production, modification or customization of its software, the Company applies the provisions of SOP
No. 81-1, otherwise SOP No. 97-2 applies. For services performed on a time-and-material basis, revenue is recognized when the services are performed and billed. On occasion, the Company enters into fixed fee arrangements or arrangements in
which customer payments are tied to achievement of specific milestones. In fixed fee arrangements, revenue is recognized as services are performed as measured by hours incurred to date, as compared to total estimated hours to be incurred to complete
the work. In milestone achievement arrangements, the Company recognizes revenue as the respective milestones are achieved.

The Company has recorded unbilled consulting revenues totaling $2,810,000 and $2,955,000 at December 31, 2007 and 2006, respectively. These unbilled revenues represent consulting services performed during the
last two weeks of the quarter but not billed until the 15thof the following month. The Company cuts-off consulting billing on the 15thof each month. Unbilled consulting revenue is recorded in accounts receivable in the accompanying Consolidated Balance Sheets.

Maintenance Service Revenues: Maintenance service revenues consist primarily of fees for providing unspecified software upgrades on a when-and-if-available basis
and technical support over a specified term, which is typically twelve months. Maintenance revenues are typically paid in advance and are recognized on a straight-line basis over the term of the contract.

Hardware Revenues: In some cases, the Company resells third party hardware systems and related peripherals as part of an end-to-end solution requested by its
customers. Hardware revenue is recognized when persuasive evidence of an arrangement exists, delivery has occurred, the fee is fixed or determinable and collection is considered probable. The Company considers delivery to occur when the product is
shipped and title and risk of loss have passed to the customer.

Software License Indemnification: The Companys standard software license
agreements contain an infringement indemnity clause under which the Company agrees to defend, indemnify and hold harmless our customers and business partners against liability and damages arising from third party claims that the Companys
products violate or infringe the intellectual property rights of others. These clauses constitute a form of guarantee that is subject to the disclosure requirements, but not the initial recognition or measurement provisions, of FASB Interpretation
No. 45, Guarantors Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others. The Company has never lost a third party infringement claim, and, to date, the Companys
costs to defend such claims and/or lawsuits have been insignificant. Although it is possible that in the future third parties may claim that the Companys current or future software solutions infringe upon their intellectual property, a maximum
obligation arising out of these types of agreements is not explicitly stated and, therefore, the overall maximum amount of these obligations cannot be reasonably estimated.

Sales taxes collected from customers are recorded on a net basis.



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Allowance for Doubtful Accounts

The Companys accounts receivable go through a collection process that is based on the age of the invoice and requires attempted contacts with the customer at specified intervals and the assistance from other
personnel within the Company who have a relationship with the customer. The Company writes-off accounts to its allowance when the Company has determined that collection is not likely. The Company believes no significant concentrations of credit risk
existed at December 31, 2007. Receivables from customers are generally unsecured.

The Company maintains an allowance for doubtful accounts based on
historical collections performance and specific collection issues. If actual bad debts differ from the reserves calculated, the Company records an adjustment to bad debt expense in the period in which the difference occurs.

Activity for the allowance for doubtful accounts is as follows (in thousands):



|                                     |  |                              |       |                               |   |                    |  |   |                        |   |  |   |      
|------------------------------------ |  | ---------------------------- | ----- | ----------------------------- | - | ------------------ |  | - | ---------------------- | - |  | - | -----
|                                     |  | Balance atBeginning ofPeriod |       | Provision forDoubtfulAccounts |   | AmountsWritten Off |  |   | Balance atEnd ofPeriod
|For the Year Ended December 31, 2005 |  | $                            | 6,603 |                               | $ | 1,544              |  | $ | (2,136                 | ) |  | $ | 6,011
|For the Year Ended December 31, 2006 |  | $                            | 6,011 |                               | $ | 2,274              |  | $ | (1,907                 | ) |  | $ | 6,378
|For the Year Ended December 31, 2007 |  | $                            | 6,378 |                               | $ | 3,882              |  | $ | (2,252                 | ) |  | $ | 8,008

Property and Equipment

Equipment, furniture, fixtures and leasehold improvements are recorded at cost. The Company depreciates equipment, furniture and fixtures using the straight-line method over the estimated useful lives of the assets,
which are generally two to seven years. Leasehold improvements are amortized over the lesser of their estimated useful life or the remaining term of the lease.

Long-Lived Assets

Long-lived assets, such as property, plant and equipment and purchased intangible assets with finite lives, are
evaluated for impairment when events or changes in circumstances occur that indicate that their carrying value may not be recoverable from future cash flows. Based on the Companys most recent analysis, the Company has concluded there is no
impairment at December 31, 2007.

Software Development Costs

Software development costs are accounted for in accordance with Statement of Financial Accounting Standards (SFAS) No. 86, Accounting for the Costs of Computer Software to be Sold, Leased or Otherwise
Marketed. Accordingly, software development costs incurred subsequent to the determination of technological feasibility and marketability of a software product are capitalized. Capitalization of costs ceases and amortization of capitalized
software development costs commences when the products are available for general release. For the years ended December 31, 2007, 2006 and 2005, no software development costs were capitalized because the time period and cost incurred between
technological feasibility and general release for all software product releases was insignificant.

Intangible Assets

The Companys intangible assets are comprised of acquired technology, customer base and trademarks. These intangible assets are amortized over the estimated economic
life of the asset. The Company periodically evaluates the recoverability of the intangible assets and considers any events or changes in circumstances that would indicate that the carrying amount of an asset may not be recoverable. Any material
changes in circumstances, such as large decreases in revenue or the discontinuation of a particular product line could require future write-downs in the Companys intangible assets and could have a material adverse impact on the Companys
operating results for the periods in which such write-downs occur.



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Goodwill

The
Companys goodwill was recorded as a result of the Companys acquisitions. In accordance with SFAS No. 141, Business Combinations, the Company has recorded these acquisitions using the purchase method of accounting. In
accordance with SFAS No. 142, Goodwill and Other Intangible Assets, the Company performed an impairment review of its recorded goodwill in 2007, and determined that no impairment of goodwill existed because the estimated fair value
of each reporting unit exceeded its carrying amount. The Company tests its recorded goodwill for impairment on an annual basis, or more often if indicators of potential impairment exist, to determine if the carrying value of each reporting unit
exceeds its estimated fair value. Factors that could trigger an impairment include, but are not limited to, underperformance relative to historical or projected future operating results, significant changes in the manner of use of the acquired
assets or the Companys overall business and significant negative industry or economic trends. Future impairment reviews may require write-downs in the Companys goodwill and could have a material adverse impact on the Companys
operating results for the periods in which such write-downs occur.

Advertising Costs

The Company expenses advertising costs as incurred. Advertising expense totaled $1,399,000, $1,226,000 and $1,069,000 for the years ended December 31, 2007, 2006 and
2005, respectively.

Foreign Currency

The
functional currency of the Companys foreign operations is generally the respective local countrys currency. Monetary assets and liabilities of the foreign operations are translated into U.S. dollars at the exchange rate in effect at the
balance sheet date, non-monetary assets and liabilities are translated at historical rates, whereas revenues and expenses are translated into U.S. dollars at average exchange rates for the reporting period. Translation adjustments are included in
accumulated other comprehensive income (loss) and realized transaction gains and (losses) are recorded in results of operations. For the years ended December 31, 2007, 2006 and 2005, the Company recorded translation gains (losses) of
$1,015,000, $99,000 and $(205,000), respectively, in accumulated other comprehensive income (loss). For the years ended December 31, 2007, 2006 and 2005, the Company had realized and unrealized transaction gains (losses) of $(695,000),
$1,037,000 and $(1,207,000), respectively, included in interest and other income, net, in the accompanying Consolidated Statements of Operations.

On December 14, 2007 the Company purchased three call options with aggregate notional value of £160 million maturing March 31, 2008 for $4,114,000 to hedge its exposure to negative fluctuations in the pound sterling
denominated purchase consideration related to the anticipated NSB acquisition (Note 15). The options were marked to market on December 31, 2007 to a value of $1,802,000, which resulted in an unrealized loss of $2,312,000 (Note
15). The unrealized loss was recorded as foreign currency transaction loss and is included in interest income and other, net, in the Consolidated Statements of Operations. The call options are not considered cash flow hedges for
purposes of SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, therefore they were adjusted to fair value through earnings.

Other than the aforementioned call options, the Company had no other open forward contracts or purchase options as of December 31, 2007. As of December 31, 2006, the Company had no open forward contracts or
purchase options.

The Companys board of directors has approved a foreign currency risk policy that allows the Company to enter into forward
contracts and purchase option agreements to hedge foreign currency risks. The Company has an on-going program to evaluate its foreign currency risk and to minimize these risks whenever possible through leading and lagging accounts payables and
accounts receivables, centralized cash management and other forms of natural hedging. The Company also uses forward contracts or purchased options to hedge some of its foreign currency transaction exposure. Gains and losses resulting from these
transactions are included in other income and expense.

Concentration of Credit Risks

The Company sells its products directly to end users generally requiring a significant up-front payment and remaining terms appropriate for the creditworthiness of the
customer. The Company also sells its products to value added resellers (VARs) and other software distributors generally under terms appropriate for the creditworthiness of the VAR or distributor. The Company believes no significant concentrations of
credit risk existed as of December 31, 2007 or 2006, respectively. Receivables from VARs, software distributors and end users are unsecured.



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The Company does not use derivative financial instruments in its investment portfolio. The Company places its investments
with high credit quality issuers and, by policy, limits the amount of credit exposure to any one issuer. Deposits with its U.S. issuers may exceed the amounts of federal deposit insurance provided on such deposits and deposits held outside the U.S.
are not afforded such protection. The Company is averse to principal loss and ensures the safety and preservation of its invested funds by limiting default risk, market risk and reinvestment risk. The Company mitigates default risk by investing in
only the safest and highest credit quality securities and by constantly positioning its portfolio to respond appropriately to a significant reduction in a credit rating of any investment issuer or guarantor. The Company has not experienced any
losses on deposits of cash or cash equivalents.

Basic and Diluted Net Income per Share

Net income per share is calculated in accordance with SFAS No. 128, Earnings per Share. Under the provisions of SFAS No. 128, basic net income per
share is computed by dividing the net income for the period by the weighted average number of common shares outstanding during the period, excluding shares of unvested restricted stock. Diluted net income per share is computed by dividing the net
income for the period by the weighted average number of common and potential common shares outstanding during the period if their effect is dilutive.

For
the years ended December 31, 2007, 2006 and 2005, options to purchase 484,000, 571,000 and 509,000 shares of common stock, respectively, with weighted average prices of $14.45, $14.37 and $15.07, respectively, were outstanding but not included
in the computation because the effect would be anti-dilutive.

On May 8, 2007, the Company closed an offering of $230 million aggregate principal
amount of 2.375% convertible senior notes due in 2027 (Note 6). The notes are unsecured and convertible into cash or, at the Companys option, cash and shares of the Companys common stock, at an initial conversion rate of 55.2608 shares
of common stock per $1,000 principal amount of notes, which is equivalent to an initial conversion price of approximately $18.10 per share. Pursuant to the terms of the notes, the principal amount of the notes is settleable in cash and only the
amount of conversion value, as defined, in excess of the principal amount of the notes is settleable in cash or shares. Therefore, the notes are only dilutive when the common stock price exceeds the conversion price, and no shares have been
included in the calculation of diluted net income per share as the conversion value did not exceed the principal amount of the notes.



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The following table computes basic and diluted net income per share (in thousands, except per share amounts):



|                                                                  |  |                         |        |   |      |   |        |      |  |   |        |  
|----------------------------------------------------------------- |  | ----------------------- | ------ | - | ---- | - | ------ | ---- |  | - | ------ | -
|                                                                  |  | Year Ended December 31, |       
|                                                                  |  | 2007                    |        |   | 2006 |   |        | 2005 | 
|Net income applicable to common stockholders                      |  | $                       | 41,277 |   |      | $ | 23,818 |      |  | $ | 52,035 |  
|                                                                  |  |                         |       
|Basic:                                                            |  |                         |        |   |      |   |        |      |  |   |        |  
|Weighted average common shares outstanding                        |  |                         | 59,460 |   |      |   | 57,500 |      |  |   | 54,371 |  
|Weighted average common equivalent of convertible preferred stock |  |                         |       |   |      |   |       |      |  |   | 991    |  
|Weighted average common shares of unvested restricted stock       |  |                         | (2,348 | ) |      |   | (1,581 | )    |  |   | (697   | )
|                                                                  |  |                         |        |   |      |   |        |      |  |   |        |  
|Shares used in the computation of basic net income per share      |  |                         | 57,112 |   |      |   | 55,919 |      |  |   | 54,665 |  
|                                                                  |  |                         |        |   |      |   |        |      |  |   |        |  
|Net income per share applicable to common stockholders  basic    |  | $                       | 0.72   |   |      | $ | 0.43   |      |  | $ | 0.95   |  
|                                                                  |  |                         |        |   |      |   |        |      |  |   |        |  
|Diluted:                                                          |  |                         |        |   |      |   |        |      |  |   |        |  
|Shares used in the computation of basic net income per share      |  |                         | 57,112 |   |      |   | 55,919 |      |  |   | 54,665 |  
|Stock options and employee stock purchase plan (ESPP) shares      |  |                         | 694    |   |      |   | 936    |      |  |   | 1,594  |  
|Unvested restricted stock                                         |  |                         | 197    |   |      |   | 150    |      |  |   | 315    |  
|                                                                  |  |                         |        |   |      |   |        |      |  |   |        |  
|Shares used in the computation of diluted net income per share    |  |                         | 58,003 |   |      |   | 57,005 |      |  |   | 56,574 |  
|                                                                  |  |                         |        |   |      |   |        |      |  |   |        |  
|Net income per share applicable to common stockholders  diluted  |  | $                       | 0.71   |   |      | $ | 0.42   |      |  | $ | 0.92   |  
|                                                                  |  |                         |        |   |      |   |        |      |  |   |        |  

Income Taxes

Income taxes are determined under guidelines prescribed by SFAS No. 109, Accounting for Income Taxes (SFAS 109). Under this method, deferred tax assets and liabilities are recognized for the future tax consequences
attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized
in income in the period that includes the enactment date.

The Company regularly reviews the deferred tax assets for recoverability and has established a
valuation allowance when it is more likely than not that some portion, or all, of the deferred tax assets will not be realized. The Company assesses the recoverability of the deferred tax assets and the need for a valuation allowance on an ongoing
basis. In making this assessment, the Company is required to consider all available positive and negative evidence to determine whether, based on such evidence, it is more likely than not that some portion, or all, of the net deferred assets will be
realized in future periods.

During the year ended December 31, 2007, the Company determined, primarily based on operating income during recent years
and anticipated operating income and cash flows for future periods that it is more likely than not that certain foreign deferred tax assets will be realized in the future and accordingly, it was appropriate to release the valuation allowance
recorded against those deferred tax assets. As a result, the Company released a portion of the valuation allowance related to certain foreign jurisdictions, resulting in a non-cash income tax benefit to net income, as well as a credit to goodwill as
some of the deferred tax assets existed at the date of Scalas acquisition. The Company intends to maintain a valuation allowance for the remaining foreign deferred tax assets until sufficient positive evidence exists to support its reversal.
The remaining valuation allowance will continue to be evaluated over future quarters. If it is determined that it is more likely than not that all or a portion of these remaining foreign deferred tax assets will be utilized to offset future taxable
income, the valuation allowance could be decreased or eliminated altogether which will result primarily in a decrease to goodwill.

The Company is
subject to income taxes in the U.S. and numerous foreign jurisdictions. Significant judgment is required in evaluating our uncertain tax positions and determining our provision for income taxes. Effective January 1, 2007, the Company adopted
Financial Interpretation No. 48, Accounting for Uncertainty in Income



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Taxes-an interpretation of FASB Statement No. 109 (FIN 48). FIN 48 contains a two-step approach to recognizing and measuring uncertain tax
positions accounted for in accordance with SFAS No. 109, Accounting for Income Taxes. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely
than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount that is more than 50% likely of being realized upon
settlement.

Although the Company believes it has adequately reserved for our uncertain tax positions, no assurance can be given that the final tax outcome
of these matters will not be different. The Company adjusts these reserves in light of changing facts and circumstances, such as the closing of a tax audit or the refinement of an estimate. To the extent that the final tax outcome of these matters
is different than the amounts recorded, such differences will impact the provision for income taxes in the period in which such determination is made. The provision for income taxes includes the impact of reserve provisions and changes to reserves
that are considered appropriate, as well as the related net interest.

During the ordinary course of business, there are many transactions and calculations
for which the ultimate tax determination is uncertain. As a result, the Company recognizes tax liabilities based on estimates of whether additional taxes and interest will be due. These tax liabilities are recognized when, despite the Companys
belief that its tax return positions are supportable, the Company believes that certain positions may not be fully sustained upon review by tax authorities. The Company believes that its accruals for tax liabilities are adequate for all open audit
years based on its assessment of many factors including past experience and interpretations of tax law. This assessment relies on estimates and assumptions and may involve a series of complex judgments about future events. To the extent that the
final tax outcome of these matters is different than the amounts recorded, such differences will impact income tax expense in the period in which such determination is made.

U.S. income taxes were not provided for on undistributed earnings from certain non-U.S. subsidiaries. Those earnings are considered to be permanently reinvested in accordance with Accounting Principles Board (APB)
Opinion 23.

Stock-Based Compensation

The
Company accounts for stock-based compensation in accordance with SFAS No. 123 (revised 2004), Share-Based Payment (SFAS 123-R). The Company adopted the provisions of SFAS 123-R in the first quarter of 2006 and selected the modified
prospective method for adoption. Prior to adoption, the Company accounted for the issuance of stock options to employees using the intrinsic value method according to APB Opinion No. 25, Accounting for Stock Issued to Employees (APB
25). The Company granted stock options with an exercise price equal to the fair market value on the date of grant and, accordingly, no compensation expense was recorded for stock options in prior periods. Under the fair value recognition provisions
of this statement, stock-based compensation expense is measured at the grant date based on the value of the award and is expensed ratably over the vesting period. Determining the fair value of stock options at the grant date requires judgment,
including estimating expected dividends, volatility, terms and estimating the amount of share-based awards that are expected to be forfeited. If actual forfeiture rates differ significantly from the estimate, stock-based compensation expense and the
Companys results of operations could be materially impacted. Beginning in 2006, the Company changed its previous practice by no longer granting stock options to employees and granting restricted stock as an alternative. Compensation expense
for restricted stock is based on the fair market value of the restricted stock on its grant date, and is expensed ratably over the vesting period.

Comprehensive Income

Total comprehensive income represents the net change in stockholders equity during a period from sources
other than transactions with stockholders and, as such, includes net income and other specified components. For the Company, the only component of comprehensive income, other than net income, is the change in the cumulative foreign currency
translation adjustments recorded in stockholders equity.

New Accounting Pronouncements

In December 2007, the FASB issued SFAS No. 141-R, Business Combinations (revised 2007) (SFAS 141-R). This Statement provides greater consistency in the
accounting and financial reporting of business combinations. It requires the acquiring entity in a business combination to recognize all assets acquired and liabilities assumed in the transaction, establishes the acquisition-date fair value as the
measurement objective for all assets acquired and liabilities assumed, and requires the acquirer to disclose the nature and financial effect of the business



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combination. SFAS 141-R is effective for fiscal years beginning after December 15, 2008, or January 1, 2009 for the Company. The Company is
currently assessing the impact the adoption will have on its financial position and results of operations.

In December 2007, the FASB issued SFAS
No. 160, Noncontrolling Interests in Consolidated Financial Statements (SFAS 160). This Statement amends Accounting Research Bulletin No. 51, Consolidated Financial Statements, to establish accounting and reporting
standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. SFAS 160 is effective for fiscal years beginning after December 15, 2008, or January 1, 2009 for the Company. The Company is currently
assessing the impact the adoption will have on its financial position and results of operations.

On February 15, 2007, the FASB issued SFAS
No. 159, The Fair Value Option for Financial Assets and Financial Liabilities, including an amendment of FASB Statement No. 115 (SFAS 159). Under this standard, the Company may elect to report financial instruments
and certain other items at fair value on an investment-by-investment basis with changes in value reported in earnings. This election is irrevocable. SFAS 159 provides an opportunity to mitigate volatility in reported earnings that is caused by
measuring hedged assets and liabilities that were previously required to use a different accounting method than the related hedging contracts when the complex provisions of SFAS No. 133, Accounting for Derivative Instruments and
Hedging Activities, hedge accounting are not met. SFAS 159 is effective for years beginning after November 15, 2007. This statement is effective for the Company beginning January 1, 2008. The Company does not anticipate that adoption
of this standard will have a material effect on its consolidated financial statements.

In September 2006, the FASB issued SFAS No. 157, Fair
Value Measurements (SFAS 157). SFAS 157 provides enhanced guidance for using fair value to measure assets and liabilities. It does not require any new fair value measurements, but does require expanded disclosures to provide information about
the extent to which fair value is used to measure assets and liabilities, the methods and assumptions used to measure fair value, and the effect of fair value measures on earnings. In February 2008, the FASB issued FASB Staff Position FAS 157-2,
Effective Date of FASB Statement No. 157 (the FSP). The FSP delayed, for one year, the effective date of SFAS 157 for all nonfinancial assets and liabilities, except those that are recognized or disclosed in the financial statements
on at least an annual basis. This statement is effective for the Company beginning January 1, 2008. The deferred provisions of SFAS 157 will be effective for the Companys fiscal year 2009. The Company is currently evaluating the impact,
if any, of the entirety of SFAS 157 on its financial position and results of operation.

Note 2. Composition of Certain Financial Statement Captions and
Supplemental Cash Flow Information

The following summarizes the components of property and equipment (in thousands):



|                                  |  |              |         |   |      |   |         |  
|--------------------------------- |  | ------------ | ------- | - | ---- | - | ------- | -
|                                  |  | December 31, |        
|                                  |  | 2007         |         |   | 2006 |  
|Computer equipment                |  | $            | 28,522  |   |      | $ | 23,551  |  
|Furniture, fixtures and equipment |  |              | 8,888   |   |      |   | 6,606   |  
|Leasehold improvements            |  |              | 11,930  |   |      |   | 10,683  |  
|                                  |  |              |         |   |      |   |         |  
|                                  |  |              | 49,340  |   |      |   | 40,840  |  
|                                  |  |              |         |   |      |   |         |  
|Less accumulated depreciation     |  |              | (34,578 | ) |      |   | (28,589 | )
|                                  |  |              |         |   |      |   |         |  
|                                  |  | $            | 14,762  |   |      | $ | 12,251  |  
|                                  |  |              |         |   |      |   |         |  

Depreciation expense for the years ended December 31, 2007, 2006 and 2005 was $6,294,000, $5,457,000 and
$3,925,000, respectively.

The following summarizes the components of deferred revenue (in thousands):



|                                 |  |              |         |   |      |   |         |  
|-------------------------------- |  | ------------ | ------- | - | ---- | - | ------- | -
|                                 |  | December 31, |        
|                                 |  | 2007         |         |   | 2006 |  
|Deferred license                 |  | $            | 1,192   |   |      | $ | 1,411   |  
|Deferred maintenance             |  |              | 65,533  |   |      |   | 59,411  |  
|Deferred consulting              |  |              | 4,476   |   |      |   | 4,175   |  
|                                 |  |              |         |   |      |   |         |  
|                                 |  |              | 71,201  |   |      |   | 64,997  |  
|Less current portion             |  |              | (70,378 | ) |      |   | (63,726 | )
|                                 |  |              |         |   |      |   |         |  
|Total long term deferred revenue |  | $            | 823     |   |      | $ | 1,271   |  
|                                 |  |              |         |   |      |   |         |  



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Software license fees are deferred when one or more of the revenue recognition criteria have not been met. Once these
criteria have been fully met, the revenue will be recognized. Deferred maintenance represents fees paid in advance and advance billings for maintenance service agreements which are on a straight-line basis over the term of the contract. Deferred
consulting services represent prepaid and unearned consulting, implementation and training services. Revenue for these services will be recognized as the services are performed. Long-term deferred revenue relates to amounts deferred for maintenance
expected to be provided beyond 2008.

Supplemental cash flow information is as follows (in thousands):



|                                                |  |                         |       |      |   |       |  |   |      
|----------------------------------------------- |  | ----------------------- | ----- | ---- | - | ----- |  | - | -----
|                                                |  | Year Ended December 31,
|                                                |  | 2007                    |       | 2006 |   | 2005 
|Cash paid during the year for:                  |  |                         |       |      |   |       |  |   |      
|Interest                                        |  | $                       | 7,405 |      | $ | 7,630 |  | $ | 1,458
|                                                |  |                         |       |      |   |       |  |   |      
|Income taxes                                    |  | $                       | 4,728 |      | $ | 6,347 |  | $ | 2,382
|                                                |  |                         |       |      |   |       |  |   |      
|NON CASH ITEMS:                                 |  |                         |       |      |   |       |  |   |      
|Capital lease                                   |  | $                       | 656   |      | $ |      |  | $ |     
|                                                |  |                         |       |      |   |       |  |   |      
|Conversion of preferred stock into common stock |  | $                       |      |      | $ |      |  | $ | 3,046
|                                                |  |                         |       |      |   |       |  |   |      

Note 3. Acquisitions and Disposition

Acquisitions are accounted for under the purchase method of accounting, in accordance with SFAS No. 141, Business Combinations. Management is responsible for determining the fair value of the assets
acquired and liabilities assumed. The fair value of the assets acquired and liabilities assumed represent managements estimate of fair value. The Company conducts an active mergers and acquisitions program. Acquisition candidates are
determined to be viable if they meet the Company's stringent criteria which includes, but is not limited to, a fit between the Company and the potential acquisitions product and technology, culture and geography, as well as revenue synergies
and financial contribution. Because the software industry is consolidating, the purchase environment is competitive. Valuations are determined through a combination of earnings per share accretion models which assume certain cost
synergies, internal rate of return calculations, discounted cash flow models, outside valuations and appraisals and market conditions. The results of the acquisitions are included in the accompanying Consolidated Statements of Operations from the
respective acquisition dates forward.

Acquisitions

Professional Advantage Pty Limited

On May 16, 2007, the Company acquired the assets of a division of Professional Advantage Pty
Limited (PA), a privately held reseller located in Australia. The primary purpose of this acquisition was to increase the Companys presence and direct customer base in the territories covered by PA.

The purchase price was allocated to PAs tangible and intangible assets acquired and liabilities assumed based on their estimated fair values as of May 16,
2007. The Company will amortize the acquired customer base over seven years and the acquired technology over five years. The following table summarizes the allocation of the purchase price (in thousands):



|                    |  |   |        |  
|------------------- |  | - | ------ | -
|Cash                |  | $ | 16,000 |  
|Transaction costs   |  |   | 631    |  
|                    |  |   |        |  
|Total               |  | $ | 16,631 |  
|                    |  |   |        |  
|Fixed assets        |  | $ | 49     |  
|Customer base       |  |   | 5,728  |  
|Acquired technology |  |   | 1,199  |  
|Goodwill            |  |   | 10,626 |  
|Accrued liabilities |  |   | (632   | )
|Deferred revenue    |  |   | (339   | )
|                    |  |   |        |  
|Net assets acquired |  | $ | 16,631 |  
|                    |  |   |        |  



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Goodwill is amortizable for tax purposes when determining foreign earnings subject to tax in the U.S. It is not
amortizable for tax in the foreign jurisdictions. The pro forma impact of this acquisition was not significant to the Companys historical results of operations. See Note 4 for a discussion of goodwill and intangibles acquired.

CRS

On December 6, 2005, pursuant to a stock purchase
agreement, the Company acquired approximately 96% of the outstanding capital stock of CRS Retail Technology Group, Inc. (CRS), a privately held company. The Company acquired the remaining 4% of the outstanding capital stock of CRS effective
December 20, 2005. CRS is a provider of merchandising and point-of sale software solutions, hardware and services to the specialty retail industry.

The total purchase price of CRS is as follows (in thousands):



|                     |  |   |        
|-------------------- |  | - | -------
|Cash paid            |  | $ | 121,000
|Transaction costs    |  |   | 2,539  
|                     |  |   |        
|Total purchase price |  | $ | 123,539
|                     |  |   |        

The Company used working capital and funds available under a Credit Agreement (Note 6) in order to finance the
acquisition.

The purchase price was allocated to CRSs tangible and intangible assets acquired and liabilities assumed based on their estimated fair
values as of December 6, 2005 with the excess ascribed to goodwill. The following table summarizes the allocation of the purchase price (in thousands):



|                                             |  |   |         |  
|-------------------------------------------- |  | - | ------- | -
|Fair value of tangible assets acquired:      |  |   |         |  
|Cash and marketable securities               |  | $ | 3,438   |  
|Accounts receivable                          |  |   | 9,356   |  
|Inventory                                    |  |   | 2,305   |  
|Property and equipment                       |  |   | 3,802   |  
|Prepaid and other assets                     |  |   | 5,374   |  
|                                             |  |   |         |  
|Total tangible assets acquired               |  |   | 24,275  |  
|Acquired technology                          |  |   | 26,700  |  
|Acquired in-process research and development |  |   | 2,000   |  
|Customer base                                |  |   | 6,000   |  
|Trade name                                   |  |   | 2,900   |  
|Non competition agreements                   |  |   | 800     |  
|Goodwill                                     |  |   | 78,400  |  
|Accounts payable and accrued expenses        |  |   | (11,918 | )
|Accrued restructuring                        |  |   | (238    | )
|Deferred revenue                             |  |   | (1,835  | )
|Other long-term liabilities                  |  |   | (3,545  | )
|                                             |  |   |         |  
|Net assets acquired                          |  | $ | 123,539 |  
|                                             |  |   |         |  

The acquired in-process research and development of $2,000,000 arose from new product projects that were under
development at the date of the acquisition and were expected to eventually lead to new products but had not yet established technological feasibility and for which no future alternative use was identified. The valuation of the in-process research
and development projects was based upon the discounted expected future cash flows of the products over the products expected life, reflecting the estimated stage of completion of the projects and the estimate of the costs to complete the projects.
This acquired in-process research and development was written-off during the fourth quarter of 2005 and is included in write-off of in-process research and development in the Consolidated Statements of Operations.

Goodwill and identified specific intangibles recorded in this transaction are not deductible for federal tax purposes. Included in the above purchase price allocation is
$2,524,000 of net deferred tax assets.

Other Acquisitions

During 2006 and 2005, the Company acquired three distributors of Scala products and the related consulting services. In October 2006, the Company purchased Scala Africa for a total purchase price of approximately $1,691,000. Goodwill is not
amortizable for tax in the foreign jurisdictions. In April 2005, the Company



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acquired certain assets of Scala Italia SRL (Scala Italy) for approximately $1,497,000. Goodwill is amortizable for tax purposes when determining foreign
earnings subject to tax in the U.S. It is not amortizable for tax in the foreign jurisdictions. In March 2005, the Company acquired the remaining 80.1% of the outstanding shares it did not already own in SC Scala Business Solutions SRL (Scala
Romania) for approximately $2,018,000. No goodwill was acquired as part of this transaction.

Pro Forma Information

Actual results of operations of the companies acquired in 2007, 2006 and 2005 are included in the consolidated financial statements from the date of acquisition. The
unaudited pro forma statement of operations data of the Company set forth below gives effect to the acquisition by Epicor of CRS using the purchase method as if it occurred on January 1, 2005 and includes amortization of identified intangibles,
interest expense on debt incurred to finance the acquisitions, elimination of amortization and interest related to CRS debt and intangibles not assumed in the acquisition, and the write-off of in-process research and development. The pro forma
impact of PA and other acquisitions are not included as the impact of these acquisitions was not significant to the Companys historical results of operations. The following pro forma information is presented for illustrative purposes only and
is not necessarily indicative of the consolidated financial position or results of operations for future periods or the financial position or result of operations that actually would have been realized had the acquisitions occurred at that time
(in thousands, except per share data):



|                      |  |                            |        
|--------------------- |  | -------------------------- | -------
|                      |  | (Unaudited)               
|                      |  | Year EndedDecember 31,2005
|Total revenues        |  | $                          | 343,022
|Net income            |  | $                          | 43,810 
|Net income per share: |  |                            |        
|Basic                 |  | $                          | 0.80   
|                      |  |                            |        
|Diluted               |  | $                          | 0.77   
|                      |  |                            |        

Disposition

Sale of Non-Strategic Asset

During March 2007, the Company entered into an arrangement to sell the assets of its payroll bureau operations
in Russia. In connection with this asset sale arrangement, the Company also entered into an arrangement with the same party to license the iScala payroll product for resale on an exclusive basis in certain Eastern European territories. This
transaction was accounted for as a multiple-element arrangement under EITF Issue No. 00-21. Based on an estimated fair value of the payroll bureau, the Company allocated $2,500,000 of the total consideration to the sale of these assets. This
consideration, less the carrying amounts of $786,000 of goodwill and $113,000 of net customer base intangible assets originally recorded in connection with the 2004 acquisition of Scala and $22,000 of net tangible assets, resulted in a net gain of
$1,579,000 which is included in gain on sale of non-strategic asset in the accompanying Consolidated Statements of Operation for year ended December 31, 2007. The remaining consideration related to the iScala payroll product
license is included in license fees in the accompanying Consolidated Statements of Operations for the year ended December 31, 2007.



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Note 4. Goodwill and Intangible Assets

In acquisitions accounted for using the purchase method, goodwill is recorded for the difference, if any, between the aggregate consideration paid for an acquisition and the fair value of the net tangible and
identified intangible assets acquired. SFAS No. 142, Goodwill and Other Intangible Assets, requires an annual review of goodwill and indefinite-lived intangibles for possible impairment. In accordance with SFAS No. 142, the
Company performed an impairment review of its recorded goodwill in 2007, and determined that no impairment of goodwill existed because the estimated fair value of each reporting unit exceeded its carrying amount. The following table represents the
balance and changes in goodwill by reporting unit as of and for the years ended December 31, 2007 and 2006 (in thousands):



|                                                      |  |         |        |   |            |   |        |             |  |   |        |   |  |   |         |  
|----------------------------------------------------- |  | ------- | ------ | - | ---------- | - | ------ | ----------- |  | - | ------ | - |  | - | ------- | -
|                                                      |  | License |        |   | Consulting |   |        | Maintenance |  |   | Total  |  
|Balance as of December 31, 2005                       |  | $       | 51,279 |   |            | $ | 34,471 |             |  | $ | 78,701 |   |  | $ | 164,451 |  
|CRS goodwill adjustments                              |  |         | 65     |   |            |   | 44     |             |  |   | 90     |   |  |   | 199     |  
|Scala goodwill adjustments                            |  |         | (638   | ) |            |   | (423   | )           |  |   | (1,064 | ) |  |   | (2,125  | )
|Scala Africa acquisition                              |  |         | 108    |   |            |   | 92     |             |  |   | 585    |   |  |   | 785     |  
|Foreign currency translation                          |  |         | 15     |   |            |   | 10     |             |  |   | 25     |   |  |   | 50      |  
|                                                      |  |         |        |   |            |   |        |             |  |   |        |   |  |   |         |  
|Balance as of December 31, 2006                       |  | $       | 50,829 |   |            | $ | 34,194 |             |  | $ | 78,337 |   |  | $ | 163,360 |  
|PA acquisition                                        |  |         | 2,092  |   |            |   | 6,615  |             |  |   | 1,919  |   |  |   | 10,626  |  
|Sale of non-strategic asset                           |  |         |       |   |            |   | (786   | )           |  |   |       |   |  |   | (786    | )
|Foreign currency translation                          |  |         | 375    |   |            |   | 522    |             |  |   | 544    |   |  |   | 1,441   |  
|Adjustments to deferred tax asset valuation allowance |  |         | (1,573 | ) |            |   | (1,042 | )           |  |   | (2,623 | ) |  |   | (5,238  | )
|Other                                                 |  |         | (53    | ) |            |   | (32    | )           |  |   | (51    | ) |  |   | (136    | )
|                                                      |  |         |        |   |            |   |        |             |  |   |        |   |  |   |         |  
|Balance as of December 31, 2007                       |  | $       | 51,670 |   |            | $ | 39,471 |             |  | $ | 78,126 |   |  | $ | 169,267 |  
|                                                      |  |         |        |   |            |   |        |             |  |   |        |   |  |   |         |  

The Company added the following intangible assets as a result of the PA acquisition completed during 2007. The
Company also disposed of the following intangible asset as a result of the sale of a non-strategic asset. The additional change in intangible assets is due to foreign currency translation (in thousands):



|                        |  |    |       |                           |   |      |                            |  |             |       |  |   |      
|----------------------- |  | -- | ----- | ------------------------- | - | ---- | -------------------------- |  | ----------- | ----- |  | - | -----
|                        |  | PA |       | Sale ofNon-StrategicAsset |   |      | ForeignCurrencyTranslation |  | TotalChange
|Acquired technology     |  | $  | 1,199 |                           | $ |     |                            |  | $           | 123   |  | $ | 1,322
|Customer base           |  |    | 5,728 |                           |   | (187 | )                          |  |             | 1,499 |  |   | 7,040
|Trademark               |  |    |      |                           |   |     |                            |  |             | 10    |  |   | 10   
|Covenant not to compete |  |    |      |                           |   |     |                            |  |             | 75    |  |   | 75   

Intangibles assets are amortized over the estimated economic life of the assets. As of December 31, 2007, the
Company has not identified any indicators of impairment associated with identified intangible assets.



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The following table summarizes the components of intangible assets and indicates the average amortization period for
intangible assets (in thousands):



|                        |  |                         |         |                         |   |        |  |                     |        |                         |   |         |  |                    |        |  |   |        |  |          
|----------------------- |  | ----------------------- | ------- | ----------------------- | - | ------ |  | ------------------- | ------ | ----------------------- | - | ------- |  | ------------------ | ------ |  | - | ------ |  | ---------
|                        |  | As of December 31, 2007 |         | As of December 31, 2006 |   |       
|                        |  | GrossCarryingAmount     |         | AccumulatedAmortization |   | Net    |  | GrossCarryingAmount |        | AccumulatedAmortization |   | Net     |  | AmortizationPeriod
|Acquired technology     |  | $                       | 78,723  |                         | $ | 54,459 |  | $                   | 24,264 |                         | $ | 77,401  |  | $                  | 42,689 |  | $ | 34,712 |  | 5 years  
|Customer base           |  |                         | 37,355  |                         |   | 18,684 |  |                     | 18,671 |                         |   | 30,315  |  |                    | 14,657 |  |   | 15,658 |  | 7 years  
|Trademark               |  |                         | 10,300  |                         |   | 6,711  |  |                     | 3,589  |                         |   | 10,290  |  |                    | 4,647  |  |   | 5,643  |  | 5 years  
|Covenant not to compete |  |                         | 2,190   |                         |   | 2,190  |  |                     |       |                         |   | 2,115   |  |                    | 1,919  |  |   | 196    |  | 1-2 years
|                        |  |                         |         |                         |   |        |  |                     |        |                         |   |         |  |                    |        |  |   |        |  |          
|Total                   |  | $                       | 128,568 |                         | $ | 82,044 |  | $                   | 46,524 |                         | $ | 120,121 |  | $                  | 63,912 |  | $ | 56,209 |  |          
|                        |  |                         |         |                         |   |        |  |                     |        |                         |   |         |  |                    |        |  |   |        |  |          

Amortization expense of the Companys intangible assets included in cost of revenues for the years ended
December 31, 2007, 2006 and 2005 was $17,419,000, $17,007,000 and $11,759,000, respectively. Amortization expense of the Companys intangible assets included in general and administrative expense for the years ended December 31, 2007,
2006 and 2005 was $196,000, $1,094,000 and $581,000, respectively. Estimated amortization expense for 2008, 2009, 2010, 2011, 2012 and thereafter is approximately $16,990,000, $12,988,000, $9,822,000, $3,495,000, $3,212,000 and $17,000,
respectively.

Note 5. Restructuring and Other

Restructuring

During 2007, the Company recorded restructuring charges of $0.9 million. This includes severance costs of $0.9
million and facility charges of $0.1 million related to the third quarter 2007 restructuring. The facility charges are due to terminating a lease to an office in Europe and the related leasehold improvements on the facility. Additionally,
during 2007, the Company released $0.1 million as a result of a change in estimate associated with the existing restructuring reserves. During the year ended December 31, 2007, the Company made $1.6 million in cash payments or otherwise
settled against reserves associated with its restructuring activities.

Other

During the year ended December 31, 2007, the Company incurred $0.7 million in due diligence costs associated with a potential acquisition. These costs were charged to results of operations in connection with the
decision not to proceed with the acquisition.

Note 6. Long-Term Debt

Long-term debt consists of the following (in thousands):



|                                |  |              |         |   |      |   |        |  
|------------------------------- |  | ------------ | ------- | - | ---- | - | ------ | -
|                                |  | December 31, |        
|                                |  | 2007         |         |   | 2006 |  
|Convertible senior notes        |  | $            | 230,000 |   |      | $ |       |  
|Credit facilities               |  |              |        |   |      |   | 99,250 |  
|Other; including capital leases |  |              | 636     |   |      |   | 125    |  
|                                |  |              |         |   |      |   |        |  
|                                |  |              | 230,636 |   |      |   | 99,375 |  
|Less current portion            |  |              | (145    | ) |      |   | (1,102 | )
|                                |  |              |         |   |      |   |        |  
|Total long-term debt            |  | $            | 230,491 |   |      | $ | 98,273 |  
|                                |  |              |         |   |      |   |        |  

Debt Offering

On May 8, 2007, the Company closed an offering of $230 million aggregate principal amount of 2.375% convertible senior notes due in 2027. The notes are unsecured and pay interest semiannually at a rate of 2.375% per annum until
May 15, 2027. The notes are convertible into cash or, at the Companys option, cash and shares of the Companys common stock, at an initial conversion rate of 55.2608 shares of common stock per $1,000 principal amount of notes, which
is equivalent to an initial conversion price of approximately $18.10 per share. Pursuant to the terms of the notes, the principal amount of the notes is settleable in cash and only the



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amount of conversion value, as defined, in excess of the principal amount of the notes is settleable in cash or shares. The initial conversion price
represents a 30% premium over the last reported sale price of the Companys common stock prior to the offering that began on May 2, 2007, which was $13.92 per share. The conversion rate will be adjusted upon the occurrence of certain
events defined in the indenture. The share settlement feature upon conversion of the senior convertible notes is generally limited to the conversion value in excess of the par value of the notes. The notes do not contain any restrictive financial
covenants.

The notes are convertible under the following circumstances: (1) during any fiscal quarter after the fiscal quarter ending June 30,
2007 (and only during such fiscal quarter), if the closing sale price of the Companys common stock for each of 20 or more trading days in a period of 30 consecutive trading days ending on the last trading day of the immediately preceding
fiscal quarter exceeds 130% of the conversion price in effect on the last trading day of the immediately preceding fiscal quarter; (2) during the five consecutive business days immediately after any five consecutive trading day period (the note
measurement period) in which the trading price per $1,000 principal amount of notes for each such trading day was equal to or less than 98% of the conversion value of the notes for such trading day during the note measurement period; (3) upon
our calling such notes for redemption; (4) upon the occurrence of specified corporate transactions and (5) during the 30 days prior to, but excluding, any scheduled purchase date and at any time on or after May 15, 2026, and before
the close of business on the business day immediately preceding the maturity date.

The net proceeds of the offering were $222.0 million after deducting
the underwriters discounts and commissions and offering expenses. On May 8, 2007, the Company used approximately $94 million of the proceeds to pay in full its term loan outstanding under the 2006 credit facility. The balance of the
net proceeds of the offering will be used for working capital, capital expenditures and other general corporate purposes, which may include funding acquisitions of businesses, technologies or product lines. The Company may also use a portion of the
remaining net proceeds to repurchase outstanding shares of its common stock.

Credit Facilities

On March 30, 2006, the Company entered into a credit agreement with several financial institutions (the 2006 credit facility), consisting of a term loan and a
revolver. On April 25, 2007, the Company made a voluntary prepayment of $5 million against the term loan from discretionary funds. On May 8, 2007, the Company used a portion of the proceeds of the $230 million convertible senior notes to
repay in full the $94 million balance of the term loan. On May 1, 2007, the credit agreement was amended to permit this debt offering described above.

Following the May 8, 2007 payment described above, the Company was no longer able to borrow under the term loan portion of the 2006 credit facility. As a result, during the second quarter of 2007 the Company wrote off $842,000 of
capitalized debt issuance costs related to the term loan. This charge is included in Interest expense in the Companys Consolidated Statements of Operations.

Effective December 17, 2007, the Company voluntarily terminated the 2006 credit facility as a result of entering into the 2007 credit facility described below. There were no premiums or penalties incurred by the
Company in connection with the termination of the 2006 credit facility and all amounts outstanding under 2006 credit facility were deemed paid in full on the termination date.

On December 16, 2007, the Company entered into a credit agreement with several financial institutions (the 2007 credit facility), which provides for term loans in an amount up to $100 million and revolving loans
in an amount up to $100 million with an option for the Company to increase the revolving loan commitments and/or the term loan commitments by an aggregate amount of up to $50 million pursuant to an accordion feature for a total secured loan facility
of up to $250 million. In connection with the 2007 credit facility, the Company agreed to certain financial and other covenants. Funds available under the 2007 credit facility were allowed to be used by the Company to finance its acquisition of NSB
(Note 15) and to pay the fees and expenses incurred in connection with the NSB acquisition and to provide ongoing working capital and for other general corporate purposes of the Company and its subsidiaries following the NSB acquisition. The Company
may also use a portion of the available borrowing capacity to repurchase outstanding shares of its common stock. There were no outstanding borrowings under the 2007 credit facility as of December 31, 2007 since the NSB acquisition had not yet
occurred.



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Note 7. Commitments and Contingencies

Leases

The Company leases certain of its operating facilities and equipment under operating leases with
terms expiring through 2019. The Company also leases certain equipment under capital leases, with terms expiring through 2011, for which the term of the agreement is greater than 75% of useful life of the asset leased. The cost of equipment under
capital leases is included in the accompanying Consolidated Balance Sheets as property, plant and equipment and was $1,298,000 and $653,000 at December 31, 2007 and 2006, respectively. Accumulated amortization of the leased equipment at
December 31, 2007 and 2006 was $625,000 and $390,000, respectively. Depreciation of assets under capital leases is included in depreciation expense.

The following is a schedule of future minimum lease payments under capital leases, operating leases and future noncancellable sublease income (in thousands):



|                                  |  |                                   |     |   |                            |   |                                    |  |                               |       |  |   |        |  
|--------------------------------- |  | --------------------------------- | --- | - | -------------------------- | - | ---------------------------------- |  | ----------------------------- | ----- |  | - | ------ | -
|Years Ending December 31,         |  | FutureMinimumCapitalLeasePayments |     |   | FutureMinimumLeasePayments |   | FutureNoncancellableSubleaseIncome |  | NetFutureMinimumLeasePayments |      
|2008                              |  | $                                 | 220 |   |                            | $ | 13,606                             |  | $                             | 2,719 |  | $ | 11,107 |  
|2009                              |  |                                   | 202 |   |                            |   | 10,223                             |  |                               | 1,837 |  |   | 8,588  |  
|2010                              |  |                                   | 178 |   |                            |   | 6,922                              |  |                               |      |  |   | 7,100  |  
|2011                              |  |                                   | 106 |   |                            |   | 4,826                              |  |                               |      |  |   | 4,932  |  
|2012                              |  |                                   |    |   |                            |   | 2,692                              |  |                               |      |  |   | 2,692  |  
|Thereafter                        |  |                                   |    |   |                            |   | 6,016                              |  |                               |      |  |   | 6,016  |  
|                                  |  |                                   |     |   |                            |   |                                    |  |                               |       |  |   |        |  
|Total                             |  |                                   | 706 |   |                            |   | 44,285                             |  |                               | 4,556 |  |   | 40,435 |  
|                                  |  |                                   |     |   |                            |   |                                    |  |                               |       |  |   |        |  
|Less amount representing interest |  |                                   | (70 | ) |                            |   |                                   |  |                               |      |  |   | (70    | )
|                                  |  |                                   |     |   |                            |   |                                    |  |                               |       |  |   |        |  
|                                  |  | $                                 | 636 |   |                            | $ | 44,285                             |  | $                             | 4,556 |  | $ | 40,365 |  
|                                  |  |                                   |     |   |                            |   |                                    |  |                               |       |  |   |        |  

Rental expense under operating leases, net of sublease income, for 2007, 2006 and 2005 was $12,354,000,
$11,477,000 and $8,725,000, respectively.

Litigation

The Company is subject to legal proceedings and claims in the normal course of business. The Company is currently defending these proceedings and claims, and anticipates that it will be able to resolve these matters in a manner that will
not have a material adverse effect on the Companys consolidated financial position, results of operations or cash flows.

Guarantees

The Company from time to time enters into certain types of contracts that contingently require the Company to indemnify parties against third-party claims.
These contracts primarily relate to: (i) divestiture and acquisition agreements, under which the Company may provide customary indemnifications to either (a) purchasers of the Companys businesses or assets; or (b) entities from
whom the Company is acquiring assets or businesses; (ii) certain real estate leases, under which the Company may be required to indemnify property owners for environmental and other liabilities and other claims arising from the Companys
use of the applicable premises; (iii) certain agreements with the Companys officers, directors and employees, under which the Company may be required to indemnify such persons for liabilities arising out of their relationship with the
Company; and (iv) Company license and consulting agreements with its customers, under which the Company may be required to indemnify such customers for intellectual property infringement claims and other claims arising from the Companys
provision of services to such customers.



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Note 8. Income Taxes

The Company adopted FIN 48, Accounting for Uncertainty in Income Taxes (FIN 48) on January 1, 2007. As a result of adoption, the Company recognized a charge of $1,131,000 to the January 1, 2007 retained earnings
balance. At December 31, 2007, the Company had $21,480,000 of gross unrecognized tax benefits, of which $2,626,000 would reduce the effective tax rate if recognized. Of the total unrecognized tax benefits at the adoption date, $15,111,000 was
recorded as a reduction to deferred tax assets, which caused a corresponding reduction in the valuation allowance of $12,423,000. To the extent such portion of unrecognized tax benefits is recognized at a time such valuation allowance no longer
exists, the recognition would impact the effective tax rate. The Companys continuing practice is to recognize interest and/or penalties related to income tax matters in income tax expense. During 2007, the Company recognized interest and
penalties of approximately $90,000. As of December 31, 2007, the Company has approximately $230,000 of accrued interest and penalties related to uncertain tax positions.



|                                                  |  |                |       
|------------------------------------------------- |  | -------------- | ------
|Reconciliation of Gross Unrecognized Tax Benefits |  | (in thousands)
|Balance at January 1, 2007                        |  | $              | 21,300
|Increases - tax positions taken in prior years    |  |                | 180   
|Decreases - tax positions taken in prior years    |  |                |      
|Current year tax positions                        |  |                |      
|Settlements                                       |  |                |      
|Lapse of statute of limitations                   |  |                |      
|                                                  |  |                |       
|Balance at December 31, 2007                      |  | $              | 21,480
|                                                  |  |                |       

The tax years 1994 to 2007 remain open to examination by the major taxing jurisdictions to which the Company is
subject. The Company is currently under examination in various locations including Canada and the United Kingdom. The Company does not believe the amount of unrecognized tax benefits as of December 31, 2007 will significantly increase or
decrease within 12 months.

The provision (benefit) for income taxes is comprised of the following (in thousands):



|                    |  |                         |         |   |      |   |        |      |  |   |         |  
|------------------- |  | ----------------------- | ------- | - | ---- | - | ------ | ---- |  | - | ------- | -
|                    |  | Year Ended December 31, |        
|                    |  | 2007                    |         |   | 2006 |   |        | 2005 | 
|Current:            |  |                         |         |   |      |   |        |      |  |   |         |  
|Federal             |  | $                       | 625     |   |      | $ | 661    |      |  | $ | 888     |  
|State               |  |                         | 1,314   |   |      |   | 1,190  |      |  |   | 369     |  
|Foreign             |  |                         | 4,772   |   |      |   | 2,022  |      |  |   | 1,119   |  
|                    |  |                         |         |   |      |   |        |      |  |   |         |  
|Total               |  | $                       | 6,711   |   |      | $ | 3,873  |      |  | $ | 2,376   |  
|                    |  |                         |         |   |      |   |        |      |  |   |         |  
|Deferred:           |  |                         |         |   |      |   |        |      |  |   |         |  
|Federal             |  | $                       | 9,407   |   |      | $ | 9,725  |      |  | $ | 8,534   |  
|State               |  |                         | 447     |   |      |   | 769    |      |  |   | 1,317   |  
|Foreign             |  |                         | (880    | ) |      |   | 1,319  |      |  |   | (128    | )
|Valuation Allowance |  |                         | (14,428 | ) |      |   | (897   | )    |  |   | (30,288 | )
|                    |  |                         |         |   |      |   |        |      |  |   |         |  
|Total               |  | $                       | (5,454  | ) |      | $ | 10,916 |      |  | $ | (20,565 | )
|                    |  |                         |         |   |      |   |        |      |  |   |         |  
|Total               |  | $                       | 1,257   |   |      | $ | 14,789 |      |  | $ | (18,189 | )
|                    |  |                         |         |   |      |   |        |      |  |   |         |  

The income (loss) before income taxes is allocated between U.S. federal and foreign jurisdictions as follows
(in thousands):



|        |  |                         |        |      |   |        |  |   |       
|------- |  | ----------------------- | ------ | ---- | - | ------ |  | - | ------
|        |  | Year Ended December 31,
|        |  | 2007                    |        | 2006 |   | 2005  
|U.S.    |  | $                       | 25,586 |      | $ | 27,686 |  | $ | 18,346
|Foreign |  |                         | 16,948 |      |   | 10,921 |  |   | 15,588
|        |  |                         |        |      |   |        |  |   |       
|Total   |  | $                       | 42,534 |      | $ | 38,607 |  | $ | 33,934
|        |  |                         |        |      |   |        |  |   |       



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The reported provision (benefit) for income taxes differs from the amount computed by applying the statutory U.S. federal
income tax rate of 35% to the income before income taxes as follows (in thousands):



|                                                                                        |  |                         |    |  |      |    |  |       |   
|--------------------------------------------------------------------------------------- |  | ----------------------- | -- |  | ---- | -- |  | ----- | --
|                                                                                        |  | Year Ended December 31, |   
|                                                                                        |  | 2007                    |    |  | 2006 |    |  | 2005  |   
|Provision (benefit) computed at statutory rates                                         |  | 35.0                    | %  |  | 35.0 | %  |  | 35.0  | % 
|Increase (reduction) resulting from:                                                    |  |                         |    |  |      |    |  |       |   
|Earnings in jurisdictions taxed at rates different from the statutory U.S. federal rate |  | (4.2                    | %) |  | (1.0 | %) |  | (15.1 | %)
|State and local taxes, net of Federal benefit                                           |  | 3.5                     | %  |  | 3.3  | %  |  | (3.4  | %)
|Write-off of In-Process R&D                                                             |  |                        |    |  |     |    |  | 2.1   | % 
|Excess officers compensation                                                            |  | 1.4                     | %  |  | 1.6  | %  |  | 2.9   | % 
|Other                                                                                   |  | 1.2                     | %  |  | 1.7  | %  |  | 4.0   | % 
|Valuation allowance                                                                     |  | (33.9                   | %) |  | (2.3 | %) |  | (79.1 | %)
|                                                                                        |  |                         |    |  |      |    |  |       |   
|Total                                                                                   |  | 3.0                     | %  |  | 38.3 | %  |  | (53.6 | %)
|                                                                                        |  |                         |    |  |      |    |  |       |   

The tax effects of temporary differences and carryforwards that give rise to the Company's deferred income taxes
assets and liabilities consist of the following (in thousands):



|                                 |  |              |         |   |      |   |         |  
|-------------------------------- |  | ------------ | ------- | - | ---- | - | ------- | -
|                                 |  | December 31, |        
|                                 |  | 2007         |         |   | 2006 |  
|Net operating loss carryforwards |  | $            | 49,991  |   |      | $ | 73,077  |  
|Accrued expenses                 |  |              | 4,636   |   |      |   | 4,432   |  
|Deferred revenue                 |  |              | 847     |   |      |   | 1,045   |  
|Allowance for doubtful accounts  |  |              | 1,422   |   |      |   | 1,209   |  
|Research credit carryforward     |  |              | 1,092   |   |      |   | 2,054   |  
|Other credit carryforwards       |  |              | 2,751   |   |      |   | 2,179   |  
|Accrued restructuring costs      |  |              | 1,007   |   |      |   | 416     |  
|Depreciation                     |  |              | 2,886   |   |      |   | 2,449   |  
|Stock-based compensation         |  |              | 3,627   |   |      |   | 2,399   |  
|State taxes                      |  |              | 31      |   |      |   | (325    | )
|Purchased intangibles            |  |              | (14,772 | ) |      |   | (16,632 | )
|Valuation allowance              |  |              | (5,164  | ) |      |   | (36,568 | )
|                                 |  |              |         |   |      |   |         |  
|Total                            |  | $            | 48,354  |   |      | $ | 35,735  |  
|                                 |  |              |         |   |      |   |         |  

As previously disclosed, in 2005 the Company released the valuation allowance related to substantially all U.S.
federal and state deferred tax assets and certain foreign deferred tax assets. During the year ended December 31, 2007, the Company determined, primarily based on operating income during recent years, and anticipated operating income and cash
flows for future periods that it is more likely than not that certain foreign deferred tax assets will be realized in the future and accordingly, it was appropriate to release the valuation allowance recorded against those deferred tax assets. As a
result, the Company released certain valuation allowances related to the United Kingdom, the Netherlands, Germany, Canada, Singapore, Hong Kong and other foreign jurisdictions, resulting in an increase in GAAP earnings for the non-cash income tax
benefit, and a credit to goodwill as it related to deferred tax assets existing at the date of Scalas acquisition. For the remaining foreign deferred tax assets the Company intends to maintain a valuation allowance until sufficient positive
evidence exists to support its reversal. The remaining valuation allowance will continue to be evaluated over future quarters. If it is determined that it is more likely than not that all or a portion of these remaining foreign deferred tax assets
will be utilized to offset future taxable income, the valuation allowance could be decreased or eliminated altogether which will result primarily in a decrease to goodwill.

Future releases of the valuation allowance related to these assets will be accounted for as a reduction of goodwill rather than a reduction of income tax expense if the valuation allowance decrease occurs prior to the
effective date of SFAS 141-R. Effective January 1, 2009, SFAS 141-R provides that any reduction to the valuation allowance established in purchase accounting is to be accounted for as a reduction in income tax expense.

The Company has U.S. federal, state and foreign net operating loss (NOL) carryforwards as of December 31, 2007, of approximately $77,800,000, $24,500,000 and
$86,800,000, respectively. The federal and state losses expire in the years 2008 through 2022. Approximately $34,400,000 of the U.S. federal NOL is subject to annual



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limitations on utilization equal to approximately $12,100,000 pursuant to section 382 of the Internal Revenue Code. The foreign losses generally have no
expiration date. In addition, the Company has approximately $1,300,000 of federal and state research and development credit tax carryforwards that expire in the years 2008 through 2025. The Company also has approximately $2,700,000 in alternative
minimum tax credits which do not expire.

U.S. deferred income taxes were not provided for on undistributed earnings from certain non-U.S. subsidiaries at
December 31, 2007. Those earnings are considered to be permanently reinvested in accordance with APB 23 and will not be remitted to the U.S.

The
Company believes it has adequately provided for income tax issues not yet resolved with federal, state and foreign tax authorities. Although not probable, the most adverse resolution of these issues could result in additional charges to earnings in
future periods.

Note 9. Stock-Based Compensation

The
Company adopted SFAS No. 123 (revised 2004), Share-Based Payment (SFAS 123-R) during the first quarter of 2006. Prior to that, the Company followed the disclosure-only provisions of SFAS No. 123, as amended by SFAS 148,
Accounting for Stock-Based Compensation  Transition and Disclosure, and, accordingly, accounted for its employee stock-based compensation plans using the intrinsic value method under APB 25, and related interpretations.

The Company elected to utilize the modified prospective method for the transition to SFAS 123-R. Under the modified prospective method, SFAS 123-R applies to all
awards granted or modified after the date of adoption. In addition, under the modified prospective method, compensation expense will be recognized for all stock-based compensation awards granted prior to, but not yet vested as of January 1,
2006, based on grant-date fair values estimated in accordance with the original provisions of SFAS 123.

The following table sets forth the total
stock-based compensation expense resulting from stock options, restricted stock awards and the employee stock purchase plan included in the Companys Consolidated Statements of Operations (in thousands):



|                                       |  |                         |        |      |   |       |  |   |      
|-------------------------------------- |  | ----------------------- | ------ | ---- | - | ----- |  | - | -----
|                                       |  | Year Ended December 31,
|                                       |  | 2007                    |        | 2006 |   | 2005 
|Cost of consulting revenues            |  | $                       | 1,234  |      | $ | 985   |  | $ | 4    
|Cost of maintenance revenues           |  |                         | 514    |      |   | 445   |  |   |     
|Sales and marketing                    |  |                         | 3,909  |      |   | 2,852 |  |   | 4    
|Software development                   |  |                         | 856    |      |   | 830   |  |   | 1    
|General and administrative             |  |                         | 5,181  |      |   | 4,339 |  |   | 2,616
|                                       |  |                         |        |      |   |       |  |   |      
|Total stock-based compensation expense |  | $                       | 11,694 |      | $ | 9,451 |  | $ | 2,625
|                                       |  |                         |        |      |   |       |  |   |      

Net cash proceeds from the exercise of stock options were $2,268,000, $2,245,000 and $2,299,000 for the years
ended December 31, 2007, 2006 and 2005, respectively. In accordance with SFAS 123-R, the Company presents excess tax benefits from stock-based compensation awards, if any, as financing cash flows rather than operating cash flows. For the years
ended December 31, 2007 and 2006, net cash provided by operating activities decreased by, and financing activities increased by, $1,690,000 and $1,784,000, respectively, related to excess tax benefits from exercise of stock-based awards. The
tax benefit recognized in the statement of operations related to stock-based compensation for the years ended December 31, 2007 and 2006 was $3,718,000 and $2,763,000, respectively. No share-based compensation was capitalized for the years
ended December 31, 2007, 2006 and 2005.



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The following table sets forth share-based compensation related to stock options, employee stock purchase plan and
restricted stock (in thousands):



|                                               |  |                         |        |      |   |       |  |   |      
|---------------------------------------------- |  | ----------------------- | ------ | ---- | - | ----- |  | - | -----
|                                               |  | Year Ended December 31,
|                                               |  | 2007                    |        | 2006 |   | 2005 
|Stock options and employee stock purchase plan |  | $                       | 1,958  |      | $ | 2,493 |  | $ |     
|Restricted stock                               |  |                         | 9,736  |      |   | 6,958 |  |   | 2,625
|                                               |  |                         |        |      |   |       |  |   |      
|Total                                          |  | $                       | 11,694 |      | $ | 9,451 |  | $ | 2,625
|                                               |  |                         |        |      |   |       |  |   |      

For the year ended December 31, 2005, the Company complied with APB 25 in accounting for stock options issued
to employees and the employee stock purchase plan. Stock options were granted with an exercise price equal to the fair market value of the common stock on the date of grant. Accordingly, no compensation expense was recognized for options issued to
employees and stock issued under the stock purchase plan. In accordance with the modified prospective method of transition to SFAS 123-R, prior periods were not restated to reflect the impact of adopting the new standard. Had compensation cost for
the Companys stock option plans and stock purchase plan been determined based upon fair value at the grant date consistent with SFAS 123, the Companys net income and net income per share would have been as follows (in thousands,
except per share amounts):



|                                                                                                                                            |  |                        |        |  
|------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------------- | ------ | -
|                                                                                                                                            |  | Year EndedDecember 31, |       
|                                                                                                                                            |  | 2005                   |       
|Net income as reported                                                                                                                      |  | $                      | 52,035 |  
|Add: Stock-based employee compensation expense included in reported net income,net of related tax effects                                   |  |                        | 2,600  |  
|Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects |  |                        | (8,431 | )
|                                                                                                                                            |  |                        |        |  
|Net income  pro forma                                                                                                                      |  | $                      | 46,204 |  
|                                                                                                                                            |  |                        |        |  
|Net income per share as reported:                                                                                                           |  |                        |        |  
|Basic                                                                                                                                       |  | $                      | 0.95   |  
|Diluted                                                                                                                                     |  | $                      | 0.92   |  
|Net income per share  pro forma:                                                                                                           |  |                        |        |  
|Basic                                                                                                                                       |  | $                      | 0.85   |  
|Diluted                                                                                                                                     |  | $                      | 0.82   |  

For purposes of computing pro forma net income, the Company estimated the fair value of each option grant and
employee stock purchase plan right on the date of grant using the Black-Scholes option-pricing model. The Black-Scholes option-pricing model was developed for use in estimating the value of traded options that have no vesting restrictions and are
fully transferable, while the options issued by the Company are subject to both vesting and restrictions on transfer. In addition, option-pricing models require input of highly subjective assumptions including expected stock price volatility and
expected life. The Company used historical data for expected volatility and the expected life of its stock options.



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The weighted average assumptions used to value the option grants and the stock purchase plan rights are as follows. Stock
options were previously granted with an exercise price equal to the fair market value on the date of grant, generally vest over four years and expire ten years from the date of grant. As there were no options granted for the years ended
December 31, 2007 and 2006, no data is provided for stock option plans with respect to the weighted average assumptions used to value the option grants and the stock purchase plan rights.



|                        |  |                        |   |  |              |  
|----------------------- |  | ---------------------- | - |  | ------------ | -
|                        |  | Year EndedDecember 31, |  
|                        |  | 2005                   |  
|                        |  | StockOptionPlans       |   |  | PurchasePlan |  
|Expected life (years)   |  | 4.0                    |   |  | 0.5          |  
|Risk-free interest rate |  | 3.8                    | % |  | 3.5          | %
|Volatility              |  | 0.7                    |   |  | 0.4          |  
|Dividend rate           |  | 0.0                    | % |  | 0.0          | %

The Company has a total of twelve stock option plans and has available a total of 6,242,033 shares of its common
stock for issuance pursuant to incentive and non-qualified stock option plans and stock purchase rights that may be granted to officers, key employees and directors of the Company as of December 31, 2007. The Company issues new shares to
satisfy stock option exercises and stock purchases under the Companys share-based plans.

The Company has an employee stock purchase plan authorizing
the issuance of up to 1,250,000 shares of common stock to participating employees. The plan permits employees to purchase common stock at a price equal to 95% of the fair market value at the end of a six-month offering period. As of
December 31, 2007, 764,639 shares have been issued under this plan.

During 2007, the Company granted to various members of management and Board of
Directors the right to receive 47,000 restricted shares for a purchase price equal to the par value of such stock. The shares to management vest 25% on the first anniversary of the grant date, then quarterly in equal installments over the remaining
three years. The shares to the Board of Directors vest quarterly in equal installments over a one year period.

During 2007, the Company granted 870,625
shares of performance-based restricted stock to employees for annual promotions and new hires for the 2007 and 2008 plan years. In January 2008, the Companys Board of Directors approved extending the plan to 2009. All existing participants
were granted the same number of shares for the 2009 plan year as they had in the 2008 plan year. The shares are subject to a vesting schedule and were granted pursuant to the terms of the Companys performance-based restricted stock plan. The
maximum number of shares that could vest for the 2009 performance year is 779,746. The recipients will vest in the restricted stock, or a portion thereof, in equal, annual installments depending upon achievement of targets with respect to the
Companys annual revenue and adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) for each of three performance years, 2007, 2008 and 2009. Restricted stock is held in escrow, and the Companys reacquisition
right will not lapse, until the shares are fully vested. Upon an employees termination of service with the Company, shares that have not vested will be forfeited and automatically transferred to and reacquired by the Company. In addition,
restricted shares that do not vest as a result of the Companys non-achievement with respect to annual revenue and adjusted EBITDA for either performance year will be forfeited and automatically transferred to and reacquired by the Company.

The performance conditions for each year are independent of the performance condition for the other year. Therefore, although compensation expense for all
years will be measured based on the grant date fair value of the shares, the related compensation expense will be recognized separately in each year related only to the shares potentially earned in each year, assuming that it is considered to be
probable that the shares will be earned each year. In addition, the compensation expense for each year is estimated and a pro rata amount is accrued on a quarterly basis. Compensation expense may include a cumulative adjustment resulting from
changes in the estimated number of shares expected to be earned during that plan year. Based on the Companys final achievement for the 2007 and 2006 plan years, the Company recorded stock compensation expense related to these grants of
$8,048,000 and $5,900,000 for the years ended December 31, 2007 and 2006, respectively.



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The Company withholds a portion of the vested shares as consideration for the Companys payment of applicable
employee income taxes. As of December 31, 2007, these repurchased shares are held in treasury and are available for future reissuance.

In conjunction
with the quarterly vesting of the restricted stock issued and the annual vesting of the performance based restricted stock, the following treasury stock acquisitions were made during the years ended December 31, 2007 and 2006:



|                   |  |                |  |                |          
|------------------ |  | -------------- |  | -------------- | ---------
|Quarter Ending     |  | Sharesacquired |  | Value ofShares
|March 31, 2006     |  |               |  |                |         
|June 30, 2006      |  |               |  |                |         
|September 30, 2006 |  | 12,513         |  | $              | 130,000  
|December 31, 2006  |  | 6,116          |  | $              | 86,000   
|March 31, 2007     |  | 177,667        |  | $              | 2,462,000
|June 30, 2007      |  | 18,900         |  | $              | 277,000  
|September 30, 2007 |  | 9,870          |  | $              | 137,000  
|December 31, 2007  |  | 9,275          |  | $              | 112,000  

At December 31, 2007, there was approximately $8,583,000 and $2,728,000 of unrecognized compensation cost
related to performance-based restricted stock and other restricted stock grants, respectively. These costs are expected to be recognized over weighted average periods of approximately one year and two years, respectively. The compensation cost
related to the performance-based restricted stock depends on the estimated number of shares that will vest based on the probable outcome of the performance conditions. Therefore, the recognized compensation could vary significantly, depending on the
outcome of those conditions. The Company is required at each reporting date to assess whether achievement of any performance condition is probable. Quarterly compensation expense may include a cumulative adjustment resulting from changes in the
estimated number of shares expected to be earned during that plan year.

At December 31, 2007, there was approximately $323,000 of total unrecognized
compensation cost related to unvested stock options. This cost is expected to be recognized over a weighted-average period of approximately one year.

The
fair value of restricted stock that vested during the years ended December 31, 2007, 2006 and 2005 was $7,529,000, $857,000 and $0, respectively. The following table is a rollforward of restricted stock activity for the year ended
December 31, 2007:



|                                      |  |                         |   |      |                                     |       |                 |           |   |                                     |   |                 |  |                                     |  |   |      
|------------------------------------- |  | ----------------------- | - | ---- | ----------------------------------- | ----- | --------------- | --------- | - | ----------------------------------- | - | --------------- |  | ----------------------------------- |  | - | -----
|                                      |  | Year Ended December 31,
|                                      |  | 2007                    |   | 2006 |                                     | 2005 
|                                      |  | Number ofShares         |   |      | WeightedAverageGrant DateFair Value |       | Number ofShares |           |   | WeightedAverageGrant DateFair Value |   | Numberof Shares |  | WeightedAverageGrant DateFair Value
|Restricted stock, beginning of period |  | 2,486,972               |   |      | $                                   | 11.62 |                 | 201,200   |   |                                     | $ | 13.22           |  |                                    |  | $ |     
|Granted                               |  | 917,625                 |   |      |                                     | 13.88 |                 | 2,350,083 |   |                                     |   | 11.52           |  | 201,200                             |  |   | 13.22
|Vested                                |  | (643,051                | ) |      |                                     | 11.71 |                 | (64,311   | ) |                                     |   | 13.06           |  |                                    |  |   |     
|Forfeited                             |  | (490,742                | ) |      |                                     | 11.81 |                 |          |   |                                     |   |                |  |                                    |  |   |     
|                                      |  |                         |   |      |                                     |       |                 |           |   |                                     |   |                 |  |                                     |  |   |      
|Restricted stock, end of period       |  | 2,270,804               |   |      | $                                   | 12.47 |                 | 2,486,972 |   |                                     | $ | 11.62           |  | 201,200                             |  | $ | 13.22
|                                      |  |                         |   |      |                                     |       |                 |           |   |                                     |   |                 |  |                                     |  |   |      

On February 15, 2008, the Companys reacquisition rights lapsed on 659,646 shares related to the
performance-based restricted stock plan for the 2007 performance year. These shares are included in restricted stock at the end of the period. The lapse occurred following the Companys determination of its achievement of 2007 performance year
targets. The compensation expense related to these shares was included in the Consolidated Statements of Operations for the year ended December 31, 2007.



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The following is a summary of activity under the stock option plans:



|                                 |  |                         |   |      |                              |       |         |           |   |                              |   |         |  |           |                              |  |   |      
|-------------------------------- |  | ----------------------- | - | ---- | ---------------------------- | ----- | ------- | --------- | - | ---------------------------- | - | ------- |  | --------- | ---------------------------- |  | - | -----
|                                 |  | Year Ended December 31,
|                                 |  | 2007                    |   | 2006 |                              | 2005 
|                                 |  | Options                 |   |      | WeightedAverageExercisePrice |       | Options |           |   | WeightedAverageExercisePrice |   | Options |  |           | WeightedAverageExercisePrice
|Outstanding, beginning of period |  | 2,643,494               |   |      | $                            | 7.64  |         | 3,462,981 |   |                              | $ | 7.14    |  | 4,127,333 |                              |  | $ | 6.68 
|Granted                          |  |                        |   |      |                              |      |         |          |   |                              |   |        |  | 155,500   |                              |  |   | 12.40
|Exercised                        |  | (416,553                | ) |      |                              | 5.45  |         | (632,104  | ) |                              |   | 3.55    |  | (570,585  | )                            |  |   | 4.03 
|Expired or canceled              |  | (122,334                | ) |      |                              | 13.30 |         | (187,383  | ) |                              |   | 12.73   |  | (249,267  | )                            |  |   | 9.88 
|                                 |  |                         |   |      |                              |       |         |           |   |                              |   |         |  |           |                              |  |   |      
|Outstanding, end of period       |  | 2,104,607               |   |      | $                            | 7.75  |         | 2,643,494 |   |                              | $ | 7.64    |  | 3,462,981 |                              |  | $ | 7.16 
|                                 |  |                         |   |      |                              |       |         |           |   |                              |   |         |  |           |                              |  |   |      
|Options exercisable              |  | 2,012,804               |   |      | $                            | 7.57  |         | 2,149,403 |   |                              | $ | 7.28    |  | 2,262,492 |                              |  | $ | 6.68 
|                                 |  |                         |   |      |                              |       |         |           |   |                              |   |         |  |           |                              |  |   |      

For the options granted during the year ended December 31, 2005, the weighted average fair value on the date
of grant was $4.86, per option. No options were granted during the years ended December 31, 2007 and 2006. As of December 31, 2007, there were 2,012,804 options exercisable with a weighted average remaining contractual term, weighted
average exercise price and aggregate intrinsic value of 5.3 years, $7.57 and $9,025,000, respectively. As of December 31, 2007, there were 2,098,395 options vested and expected to vest with a weighted average remaining contractual term,
weighted average exercise price and aggregate intrinsic value of 5.3 years, $7.74 and $9,044,000, respectively. Total intrinsic value of options exercised during the years ended December 31, 2007, 2006 and 2005 was $3,550,000, $5,494,000 and
$6,078,000, respectively.

The aggregate intrinsic value above represents the total pretax intrinsic value, which is the difference between the
Companys closing stock price on the last trading day of the year and the exercise price, multiplied by the number of shares that would have been received by the option holders had all option holders exercised their options on December 31,
2007. This amount changes based on the fair market value of the Companys stock.

Note 10. Stock Repurchase Plan

On November 1, 2007, the Company announced that the Board of Directors authorized the Company to institute a stock repurchase program whereby the Company may
repurchase up to $50 million of its common stock from time to time. The duration of the repurchase program is open-ended. Under the program, the Company is able to purchase shares of common stock through open market transactions at prices deemed
appropriate by management, as long as it is compliant with certain maximum leverage covenants contained in the 2007 credit facility. The timing and amount of repurchase transactions under this program will depend on market conditions, and corporate
and regulatory considerations. The program may be discontinued at any time by the Board of Directors.

Note 11. Shareholder Rights Plan

On March 9, 1994, the Board of Directors adopted a Shareholder Rights Plan, which was amended and restated on October 27, 2004 (the Plan) that is
intended to protect stockholders from unfair takeover practices. Under the Plan, each share of common stock carries a right to obtain additional stock according to terms provided in the Plan. The rights will not be exercisable or separable
from the common stock until a third-party acquires at least 15% of the Companys then outstanding common stock or commences a tender offer for at least 15% of the Companys then outstanding common stock. In the event the Company is
acquired in a merger or other business combination transaction in which the Company is not the surviving corporation or 50% or more of the Companys consolidated assets or earning power are sold or transferred, each right will entitle its
holder to receive, at the then current exercise price, common stock of the acquiring company having a market value equal to two times the exercise price of the right. If a person or entity were to acquire 15% or more of the outstanding shares
of the Companys common stock, or if the Company is not the surviving corporation in a merger and its common stock is not changed or exchanged, each right will entitle the holder to receive at the then current exercise price common stock having
a market value equal to two times the exercise price of the right. Until a right is exercised, the holder of a right, as such, will have no rights as a stockholder of the Company, including, without limitation, the rights to vote as a
stockholder or receive dividends.



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Note 12. Employee Benefit Plan

The Company has a 401(k) salary deferral plan (the 401(k) Plan), which is funded based on employee contributions. Terms of the 401(k) Plan provide for the Company to make contributions to the 401(k) Plan on behalf of
each eligible employee (as defined) in an amount equal to 50% on the first 4% of the eligible employees deferred compensation contribution (as defined). The Companys contributions to the 401(k) Plan were approximately $1,342,000,
$1,344,000 and $979,000, respectively, for the years ended December 31, 2007, 2006 and 2005.

In January 2005, the Company implemented a deferred
compensation plan which permits certain eligible U.S. executives to defer a portion of their compensation. Benefit payments under the plan are funded by contributions from the participants. There is no Company match. At
December 31, 2007 and 2006, the Company had $1,825,000 and $1,150,000, respectively, of deferred compensation included in accrued expenses in the accompanying Consolidated Balance Sheet. Such amounts are unsecured obligations of the Company.

Note 13. Segment and Geographic Information

In
accordance with SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information, the Company has prepared operating segment information to report components that are evaluated regularly by the Companys chief
operating decision maker in deciding how to allocate resources and in assessing performance.

The Companys reportable operating segments include
software licenses, consulting, maintenance and hardware and other. Currently, the Company does not separately allocate amortization of intangible assets or operating expenses to these segments, nor does it allocate specific assets to these segments.
Therefore, the segment information reported includes only revenues, cost of segment revenues and segment gross profit. Excluded from the table below is amortization of intangible assets for the years ended December 31, 2007, 2006 and 2005 of
$17,419,000, $17,007,000 and $11,759,000, respectively.

Operating segment data for the years ended December 31, 2007, 2006 and 2005 is as follows
(in thousands):



|                              |  |         |         |            |   |             |  |       |         |       |   |        |  |   |        
|----------------------------- |  | ------- | ------- | ---------- | - | ----------- |  | ----- | ------- | ----- | - | ------ |  | - | -------
|                              |  | License |         | Consulting |   | Maintenance |  | Other |         | Total
|Year Ended December 31, 2007: |  |         |         |            |   |             |  |       |         |       |   |        |  |   |        
|Revenues                      |  | $       | 109,443 |            | $ | 134,722     |  | $     | 160,278 |       | $ | 25,389 |  | $ | 429,832
|Cost of segment revenues      |  |         | 23,748  |            |   | 110,668     |  |       | 34,956  |       |   | 22,506 |  |   | 191,878
|                              |  |         |         |            |   |             |  |       |         |       |   |        |  |   |        
|Segment Gross Profit          |  | $       | 85,695  |            | $ | 24,054      |  | $     | 125,322 |       | $ | 2,883  |  | $ | 237,954
|                              |  |         |         |            |   |             |  |       |         |       |   |        |  |   |        
|Year Ended December 31, 2006: |  |         |         |            |   |             |  |       |         |       |   |        |  |   |        
|Revenues                      |  | $       | 99,530  |            | $ | 107,520     |  | $     | 150,010 |       | $ | 27,036 |  | $ | 384,096
|Cost of segment revenues      |  |         | 19,295  |            |   | 88,043      |  |       | 34,186  |       |   | 23,937 |  |   | 165,461
|                              |  |         |         |            |   |             |  |       |         |       |   |        |  |   |        
|Segment Gross Profit          |  | $       | 80,235  |            | $ | 19,477      |  | $     | 115,824 |       | $ | 3,099  |  | $ | 218,635
|                              |  |         |         |            |   |             |  |       |         |       |   |        |  |   |        
|Year Ended December 31, 2005: |  |         |         |            |   |             |  |       |         |       |   |        |  |   |        
|Revenues                      |  | $       | 77,052  |            | $ | 73,666      |  | $     | 134,544 |       | $ | 4,151  |  | $ | 289,413
|Cost of segment revenues      |  |         | 15,548  |            |   | 58,640      |  |       | 28,212  |       |   | 2,046  |  |   | 104,446
|                              |  |         |         |            |   |             |  |       |         |       |   |        |  |   |        
|Segment Gross Profit          |  | $       | 61,504  |            | $ | 15,026      |  | $     | 106,332 |       | $ | 2,105  |  | $ | 184,967
|                              |  |         |         |            |   |             |  |       |         |       |   |        |  |   |        



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The following schedule presents the Companys operations by geographic area for the years ended December 31,
2007, 2006 and 2005 (in thousands):



|                              |  |               |         |        |   |                         |  |      |        |       |   |              |  |   |        |  |   |        
|----------------------------- |  | ------------- | ------- | ------ | - | ----------------------- |  | ---- | ------ | ----- | - | ------------ |  | - | ------ |  | - | -------
|                              |  | United States |         | Europe |   | Australiaand NewZealand |  | Asia |        | Other |   | Consolidated
|Year Ended December 31, 2007: |  |               |         |        |   |                         |  |      |        |       |   |              |  |   |        |  |   |        
|Revenues                      |  | $             | 258,973 |        | $ | 109,307                 |  | $    | 16,974 |       | $ | 22,541       |  | $ | 22,037 |  | $ | 429,832
|Identifiable assets           |  |               | 410,895 |        |   | 173,071                 |  |      | 28,318 |       |   | 21,763       |  |   | 11,334 |  |   | 645,381
|                              |  |               |         |        |   |                        
|Year Ended December 31, 2006: |  |               |         |        |   |                         |  |      |        |       |   |              |  |   |        |  |   |        
|Revenues                      |  | $             | 242,907 |        | $ | 93,950                  |  | $    | 10,451 |       | $ | 19,595       |  | $ | 17,193 |  | $ | 384,096
|Identifiable assets           |  |               | 250,664 |        |   | 159,256                 |  |      | 5,753  |       |   | 17,959       |  |   | 8,258  |  |   | 441,890
|                              |  |               |         |        |   |                        
|Year Ended December 31, 2005: |  |               |         |        |   |                         |  |      |        |       |   |              |  |   |        |  |   |        
|Revenues                      |  | $             | 156,919 |        | $ | 90,639                  |  | $    | 9,197  |       | $ | 18,062       |  | $ | 14,596 |  | $ | 289,413
|Identifiable assets           |  |               | 257,776 |        |   | 150,841                 |  |      | 3,421  |       |   | 11,368       |  |   | 5,545  |  |   | 428,951

Revenues are attributed to geographic areas based on the location of the Companys subsidiary that entered
into the related contract. No single customer accounts for greater than 10% of revenues.

Note 14. Selected Quarterly Information (Unaudited)

The following table sets forth selected unaudited quarterly information for the Companys four fiscal quarters in 2007 and 2006. The Company
believes that all necessary adjustments (which, except as discussed below, consisted only of normal recurring adjustments) have been included in the amounts stated below to present fairly the results of such periods when read in conjunction with the
annual financial statements and related notes (in thousands, except per share data):



|                             |  |                         |         |              |   |         |  |          |         |  |   |        
|---------------------------- |  | ----------------------- | ------- | ------------ | - | ------- |  | -------- | ------- |  | - | -------
|                             |  | Year 2007 Quarter Ended
|                             |  | December 31             |         | September 30 |   | June 30 |  | March 31
|Total revenues               |  | $                       | 119,697 |              | $ | 103,100 |  | $        | 105,706 |  | $ | 101,329
|Gross profit                 |  | $                       | 64,699  |              | $ | 52,342  |  | $        | 53,525  |  | $ | 49,969 
|Operating income             |  | $                       | 13,914  |              | $ | 11,128  |  | $        | 10,712  |  | $ | 7,031  
|Net income                   |  | $                       | 22,476  |              | $ | 8,077   |  | $        | 6,291   |  | $ | 4,433  
|Earnings per share  diluted |  | $                       | 0.38    |              | $ | 0.14    |  | $        | 0.11    |  | $ | 0.08   
|Shares outstanding  diluted |  |                         | 58,585  |              |   | 58,038  |  |          | 57,881  |  |   | 57,703 
|                             | 
|                             |  | Year 2006 Quarter Ended
|                             |  | December 31             |         | September 30 |   | June 30 |  | March 31
|Total revenues               |  | $                       | 104,365 |              | $ | 95,710  |  | $        | 99,542  |  | $ | 84,479 
|Gross profit                 |  | $                       | 55,839  |              | $ | 50,058  |  | $        | 51,259  |  | $ | 44,472 
|Operating income             |  | $                       | 12,861  |              | $ | 10,361  |  | $        | 12,913  |  | $ | 8,898  
|Net income                   |  | $                       | 6,748   |              | $ | 5,424   |  | $        | 7,085   |  | $ | 4,561  
|Earnings per share  diluted |  | $                       | 0.12    |              | $ | 0.10    |  | $        | 0.12    |  | $ | 0.08   
|Shares outstanding  diluted |  |                         | 57,607  |              |   | 57,003  |  |          | 56,950  |  |   | 56,639 

Note 15. Subsequent Events

On February 7, 2008, the Company completed its acquisition of NSB Retail Systems PLC (NSB). Pursuant to the terms of the acquisition agreement, shareholders of NSB received £0.38 in cash for each NSB
ordinary share. NSB designs, develops, markets and supports store and merchandising solutions to retailers of apparel, footwear, and specialty merchandise. The acquisition of NSB provides an expanded portfolio of products and services for large
specialty retailers and department stores, as well as a fully hosted, managed service offering designed for smaller and mid-sized retailers who are interested in rapid implementation via an on-demand versus on-premise offering.



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The value of the fully diluted share capital of NSB was approximately $311,847,000, not including transaction costs,
based on the exchange rates in effect at the time the U.S. dollars were converted to pounds sterling for purposes of the transaction. The consideration payable under the agreement was funded by the Company with $161,343,000 in existing cash
balances, with the balance of the consideration being funded by drawing from funds available pursuant to the 2007 credit facility (Note 6). The Company is unable to provide the preliminary purchase allocation or pro forma financial information
related to the NSB acquisition because the initial accounting for the business combination was not completed at the time the Companys financial statements were issued due to the short time between the date of the acquisition and filing of the
Companys Annual Report on Form 10-K.

On February 11, 2008 the Company sold the call options with notional value of £160 million
purchased in connection with the NSB Acquisition (Note 1) for $192,000, resulting in a cumulative realized loss on the options of $3,922,000. The NSB purchase price, which was denominated in pounds sterling, decreased by the equivalent of
$11,505,000 during the period that the call options were outstanding, resulting in a cumulative economic gain of $7,583,000, net of the loss on the call options.

On February 11, 2008, the Company amended the 2007 credit facility to exercise the accordion feature contained in the facility and increase the total credit facility to $250 million, consisting of $100 million of term loans and $150
million of revolving loans. On February 19, 2008, the Company borrowed $100 million in term loans and $60 million of revolving loans under the 2007 credit facility and used the proceeds to finance the NSB acquisition and to pay certain fees and
expenses incurred in connection with the NSB acquisition. Interest under the 2007 credit facility is based, at the option of the Company, on either (i) the base rate, which is defined as a fluctuating rate per annum equal to the higher of the
average rate of the overnight federal funds and Administrative Agents prime rate as announced from time to time, plus a margin equal to between .50% and 1.75%, depending on the Companys senior secured leverage ratio as of the fiscal
quarter most recently ended or (ii) a floating per annum rate (based upon one, two, three, six or nine-month interest periods) based on BBA LIBOR plus a margin equal to between 1.50% and 2.75%, depending on the Companys senior secured
leverage ratio as of the fiscal quarter most recently ended.



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|Item 9. | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
|------- | ------------------------------------------------------------------------------------

None.



|Item 9A. | Controls and Procedures
|-------- | -----------------------

(a) Evaluation of disclosure
controls and procedures

The Companys management evaluated, with the participation of the Chief Executive Officer and the Chief Financial
Officer, the effectiveness of the Companys disclosure controls and procedures as of the end of the period covered by this Annual Report on Form 10-K. Based on this evaluation, the Companys principal executive officer and principal
financial officer have concluded that the Companys disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) (the Exchange Act) are effective to ensure that information required
to be disclosed by the Company in reports that it files or submits under the Exchange Act is accumulated and communicated to the Companys management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow
timely decisions regarding required disclosure, and that such information is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms.

(b) Managements Report on Internal Control Over Financial Reporting

Epicors management is responsible for establishing and maintaining adequate internal control over the Companys financial reporting. There are inherent limitations in the effectiveness of any internal
control, including the possibility of human error and the circumvention or overriding of controls. Accordingly, even effective internal controls can provide only reasonable assurances with respect to financial statement preparation. Further, because
of changes in conditions, the effectiveness of internal controls may vary over time.

We assessed the effectiveness of the Companys internal control
over financial reporting as of December 31, 2007. In making this assessment, we used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in its report entitled Internal Control 
Integrated Framework.

Based on its assessment using those criteria, management (including our Chief Executive Officer and our Chief Financial Officer)
has concluded that, as of December 31, 2007, our internal control over financial reporting was effective.

The effectiveness of the Companys
internal control over financial reporting as of December 31, 2007, has been audited by McGladrey & Pullen, LLP, an independent registered public accounting firm, as stated in its report which is included herein.

(c) Changes in Internal Control

None.



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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders

Epicor Software Corporation

We have audited Epicor Software Corporation's and subsidiaries internal control over financial reporting as of December 31, 2007, based on
criteria established inInternal ControlIntegrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Epicor Software Corporations management is responsible for maintaining
effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in Managements Report on Internal Control Over Financial Reporting in the Annual Report on
Form 10-K of Epicor Software Corporation for the year ended December 31, 2007. Our responsibility is to express an opinion on the Company's internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting,
assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary
in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A companys internal control over financial reporting is
a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal
control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;
(2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being
made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that
could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent
or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or
procedures may deteriorate.

In our opinion, Epicor Software Corporation and subsidiaries maintained, in all material respects, effective internal control
over financial reporting as of December 31, 2007, based on criteria established inInternal ControlIntegrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Epicor
Software Corporation and subsidiaries as of December 31, 2007 and 2006, and the related consolidated statements of operations, stockholders equity and comprehensive income, and cash flows for each of the two years in the period ended
December 31, 2007, of Epicor Software Corporation and subsidiaries, and our report dated March 10, 2008 expressed an unqualified opinion.



|                           
|---------------------------
|/s/ McGladrey & Pullen, LLP
|                           
|Irvine, California         
|March 10, 2008             



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|Item 9B. | OTHER INFORMATION
|-------- | -----------------

The Company confirms that there
was no other information required to be reported on a Form 8-K during the fourth quarter of 2007 which was not reported.

PART III



|Item 10. | DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
|-------- | --------------------------------------------------

The information required hereunder is incorporated by reference from the sections of the Company's Proxy Statement filed in connection with its 2007 Annual Meeting of Stockholders entitled Proposal One: Election of Directors 
Nominees, Proposal One: Election of Directors  Other Executive Officers, Executive Compensation and Other Matters  Section 16(a) Beneficial Ownership Reporting Compliance, Board of Directors
Meetings and Committees  Code of Ethics, Proposal One: Election of DirectorsIdentification and Evaluation of Nominees for Directors and the first paragraph under the section entitled Board of Directors Meetings
and Committees  Audit Committee.



|Item 11. | EXECUTIVE COMPENSATION
|-------- | ----------------------

The information required
hereunder is incorporated by reference from the sections of the Company's Proxy Statement filed in connection with its 2007 Annual Meeting of Stockholders entitled Board of Directors Meetings and Committees  Compensation Committee
Interlocks and Insider Participation, from the section entitled Executive Compensation and Other Matters, except for the portion of such section entitled Section 16(a) Beneficial Ownership Reporting Compliance and from
the section entitled Compensation Committee Report.



|Item 12. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
|-------- | ----------------------------------------------------------------------------------------------

The information required hereunder is incorporated by reference from the sections of the Companys Proxy Statement filed in connection with its 2007
Annual Meeting of Stockholders entitled Security Ownership of Certain Beneficial Owners and Management.

Equity Compensation Plan
Information

The following table sets forth certain information, as of December 31, 2007, concerning shares of common stock authorized for issuance
under the Company's existing equity compensation plans. The table does not include information with respect to shares subject to outstanding options granted under equity compensation plans assumed by the Company in connection with mergers and
acquisitions of the companies, which originally granted those options. Footnote (4) to the table sets forth the total number of shares of the Companys common stock issuable upon the exercise of those assumed options as of
December 31, 2007, and the weighted average exercise price of those options. No additional options may be granted under those assumed plans.



|                                                           |  |                                                                        |  |                                                         |      |                                                                                                                                           |           |    
|---------------------------------------------------------- |  | ---------------------------------------------------------------------- |  | ------------------------------------------------------- | ---- | ----------------------------------------------------------------------------------------------------------------------------------------- | --------- | ---
|Plan Category                                              |  | Number of Securities tobe Issued uponExercise ofOutstanding Options(a) |  | Weighted Average ExercisePrice ofOutstanding Options(b) |      | Number of SecuritiesRemaining Available forFuture Issuance underEquity
CompensationPlans (excluding securitiesreflected in column (a))(c) |          
|Equity compensation plans approved by shareholders (1)     |  | 2,334,095                                                              |  | $                                                       | 8.20 |                                                                                                                                           | 6,727,394 | (3)
|Equity compensation plans not approved by shareholders (2) |  | 529,989                                                                |  | $                                                       | 4.00 |                                                                                                                                           |          | (5)
|                                                           |  |                                                                        |  |                                                         |      |                                                                                                                                           |           |    
|Total                                                      |  | 2,864,084                                                              |  | $                                                       | 7.43 |                                                                                                                                           | 6,727,394 |    
|                                                           |  |                                                                        |  |                                                         |      |                                                                                                                                           |           |    



|(1) | Consists of the Platinum Software Corporation Incentive Stock Option, Nonqualified Stock Option and Restricted Stock Purchase Plan  1990 (the 1990 Plan), 1994 Incentive Stock
Option, Non-qualified Stock Option and Restricted Stock Purchase Plan (the 1994 Plan), 1999 Nonstatutory Stock Option Plan (the 1999 Plan), 2002 Employee Stock Purchase Plan (the Purchase Plan), 2005 Stock Incentive Plan (the 2005 Plan) and 2007
Stock Incentive Plan (the 2007 Plan).
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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|(2) | Consists of the 1993 Nonqualified Stock Option Plan, 1996 Nonqualified Stock Option Plan, 1997 Nonqualified Stock Option Plan, 1998 Nonqualified Stock Option Plan, 1999 Merger
Transition Nonstatutory Stock Option Plan and the 2003 CFO Option Plan (hereinafter collectively referred to as the Non-Shareholder Approved Plans).
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | This number includes 485,361 shares of common stock reserved for issuance under the Purchase Plan, 0 shares available for issuance under the 1994 Plan, 0 shares available for
issuance under the 1999 Plan and 2005 Plan, respectively, and 6,242,033 shares available for issuance under the 2007 Plan. It does not include shares under the 1990 Plan. No new options can be granted under the 1990 Plan. On March 30, 2007, the
Board of Directors approved the 2007 Plan, subject to stockholder approval at the Annual Meeting, which approval was ultimately received on May 22, 2007. Under the terms of those approvals and the terms of the 2007 Plan, any remaining available
shares for issuance under the 1999 Plan and the 2005 Plan rolled into the 2007 Plan. Thus, 0 shares remain available for issuance under those two plans.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(4) | The table does not include information for equity compensation plans assumed by the Company in connection with mergers and acquisitions of the companies that originally established
those plans. As of December 31, 2007, a total of 5,161 shares of the Companys common stock were issuable upon exercise of outstanding options under those assumed plans. The weighted average exercise price of those outstanding options is
$11.50 per share. No additional options may be granted under those assumed plans.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(5) | On March 18, 2003, the Compensation Committee of the Board of Directors approved an amendment to the Company's 1999 Nonstatutory Stock Option Plan to increase the authorized
shares of common stock under the Plan by 4,000,000 to a total of 6,000,000 shares of common stock authorized under the 1999 Plan. In addition, the Board of Directors resolved that if the 4,000,000 share increase to the 1999 Plan was approved, the
Board would cease making grants under the Non-Shareholder Approved Plans. Because the share increase to the 1999 Plan was approved, the Company will no longer make additional grants under those Non-Shareholder Approved Plans.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

1993 Nonqualified Stock Option Plan

In
July 1993, the Board of Directors approved the 1993 Nonqualified Stock Option Plan (the 1993 Plan). The 1993 Plan provides for the grant of nonqualified stock options to officers and other key employees, consultants, business associates and others
with important business relationships with us at the fair market value of our common stock as of the date of grant. The plan administrator determines, on a grant-by-grant basis, when options granted under the 1993 Plan may be exercised. The 1993
Plan provides that vested options may be exercised for 3 months after termination of employment other than due to death or disability and for 1 year after termination of employment as a result of death or disability. The 1993 Plan permits options to
be exercised with cash, check, certain other shares of our common stock, promissory notes, cancellation of indebtedness, waiver of compensation due or consideration received by us under cashless exercise programs. In the event that we
merge with or into another corporation, or sell substantially all of our assets, the 1993 Plan provides that each outstanding option will fully vest and become exercisable unless provision is made in writing in connection with the transaction for
options to be assumed or substituted for by the successor corporation. There are 92,190 shares of common stock reserved under the 1993 Plan and no more options may be granted under the 1993 Plan per note 5 above.

1996 Nonqualified Stock Option Plan

In February 1996, the Board of
Directors approved the 1996 Nonqualified Stock Option Plan (the 1996 Plan). The 1996 Plan provides for the grant of nonqualified stock options to non-executive officers and other key employees, consultants, business associates and others with
important business relationships with us at the fair market value of our common stock as of the date of grant. The plan administrator determines, on a grant-by-grant basis, when options granted under the 1996 Plan may be exercised. The 1996 Plan
permits options to be exercised with cash, check, certain other shares of our common stock, promissory notes, cancellation of indebtedness, waiver of compensation due or consideration received by us under cashless exercise programs. In
the event of our change of control (including our merger with or into another corporation, or our sale of substantially all of our



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assets), the 1996 Plan provides that each optionee may exercise his or her option with respect to any or all of the shares subject to the option (including
shares that were unvested prior to the change of control) and may, depending on the nature of the change of control, exchange the option for a cash payment determined by multiplying the number of vested shares by the excess of any per share merger
consideration over the per share exercise price. There are 49,625 shares of common stock reserved under the 1996 Plan and no more options may be granted under the 1996 Plan per note 5 above.

1997 Nonqualified Stock Option Plan

In July 1997, the Board of
Directors approved the 1997 Nonqualified Stock Option Plan (the 1997 Plan). The 1997 Plan provides for the grant of nonqualified stock options to employees, consultants, business associates and others with important business relationships with us at
the fair market value of our common stock as of the date of grant. The plan administrator determines, on a grant-by-grant basis, when options granted under the 1997 Plan may be exercised. The 1997 Plan permits options to be exercised with cash,
check, certain other shares of our common stock, promissory notes, cancellation of indebtedness, waiver of compensation due or consideration received by us under cashless exercise programs. In the event of our change of control
(including our merger with or into another corporation, or our sale of substantially all of our assets), the 1997 Plan provides that each optionee may exercise his or her option with respect to any or all of the shares subject to the option
(including shares that were unvested prior to the change of control) and may, depending on the nature of the change of control, exchange the option for a cash payment determined by multiplying the number of vested shares by the excess of any per
share merger consideration over the per share exercise price. There are 34,625 shares of common stock reserved under the 1997 Plan and no more options may be granted under the 1997 Plan per note 5 above.

1998 Nonqualified Stock Option Plan

In April 1998, the Board of
Directors approved the 1998 Nonqualified Stock Option Plan (the 1998 Plan). The Board of Directors subsequently amended the 1998 Plan in July 1998 to increase the number of authorized shares. The 1998 Plan provides for the grant of nonqualified
stock options to officers and employees, members of our Board of Directors, consultants, business associates and others with important business relationships with us at the fair market value of our common stock as of the date of grant. The plan
administrator determines, on a grant-by-grant basis, when options granted under the 1998 Plan may be exercised. The 1998 Plan permits options to be exercised with cash, check, certain other shares of our common stock, promissory notes, cancellation
of indebtedness, waiver of compensation due or consideration received by us under cashless exercise programs. In the event of our change of control (including our merger with or into another corporation, or our sale of substantially all
of our assets), the 1998 Plan provides that each optionee may exercise his or her option with respect to any or all of the shares subject to the option (including shares that were unvested prior to the change of control) and may, depending on the
nature of the change of control, exchange the option for a cash payment determined by multiplying the number of vested shares by the excess of any per share merger consideration over the per share exercise price. There are 206,049 shares of common
stock reserved under the 1998 Plan and no more options may be granted under the 1998 Plan per note 5 above.

1999 Merger Transition Nonstatutory Stock
Option Plan

In February 1999, the Board of Directors approved the 1999 Merger Transition Nonqualified Stock Option Plan (the Transition Plan). The
Transition Plan provides for the grant of nonqualified stock options to officers, employees, directors and consultants at the fair market value of our common stock as of the date of grant. However, option grants to individuals at the level of
vice-president or higher are limited to former DataWorks employees as an essential inducement to their entering into an employment agreement with us. The plan administrator determines, on a grant-by-grant basis, when options granted under the
Transition Plan may be exercised. The Transition Plan provides that vested options may generally be exercised for 3 months after termination of employment and for 12 months after termination of employment as a result of death or disability. The
Transition Plan generally permits options to be exercised with cash, check, certain other shares of our common stock, promissory notes, cancellation of indebtedness or consideration received by us under a cashless exercise program. In
the event of our change in control (including our merger with or into another corporation, or our sale of substantially all of our assets), the Transition Plan provides that each outstanding option will fully vest and become exercisable. There are
27,700 shares of common stock reserved under the Transition Plan and no more options may be granted under the 1999 Plan per note 5 above.



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2003 CFO Option Plan

On May 20, 2003, the Board of Directors approved the 2003 CFO Option Plan (the CFO Plan). The CFO Plan provides for the one-time option grant of 250,000 shares of common stock to the Companys new CFO, Michael A.
Piraino, as an essential inducement for his accepting the CFO position with Epicor in May 2003. The options are valued as of the date Mr. Piraino began his employment with the Company. Under the terms of the CFO Plan, 25% of the grant vests on
the first anniversary date of the grant with the remaining 75% vesting quarterly over the next three year period such that the entire grant is vested in four years. The CFO Plan permits options to be exercised with cash, check, certain other shares
of our common stock, waiver of compensation due or consideration received by us under cashless exercise programs. In the event of our change of control (including our merger with or into another corporation, or our sale of substantially
all of our assets), the CFO Plan provides that Mr. Piraino may exercise his option with respect to any or all of the shares subject to the option (including shares that were unvested prior to the change of control) and may, depending on the
nature of the change of control, exchange the option for a cash payment determined by multiplying the number of vested shares by the excess of any per share merger consideration over the per share exercise price. There are 119,800 shares of common
stock reserved under the CFO Plan and no more options may be granted under the CFO Plan.



|Item 13. | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
|-------- | ----------------------------------------------

The information
required hereunder is incorporated by reference from the sections of the Companys Proxy Statement filed in connection with its 2007 Annual Meeting of Stockholders entitled "Certain Relationships and Related Transactions and
Proposal One: Election of DirectorsBoard Independence.



|Item 14. | PRINCIPAL ACCOUNTANT FEES AND SERVICES
|-------- | --------------------------------------

The information required
hereunder is incorporated by reference from the section of the Companys Proxy Statement filed in connection with its 2008 Annual Meeting of Stockholders entitled Fees Billed by McGladrey & Pullen LLP during Fiscal Years 2007 and
2006.



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PART IV



|Item 15. | EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
|-------- | ------------------------------------------



| | (a) | The following documents are filed as part of this Report on 10-K:
| | --- | -----------------------------------------------------------------



| | 1. | Financial Statements
| | -- | --------------------

See Index to Consolidated Financial
Statements at Item 8 on page 56 of this Report.



| | 2. | Financial Statement Schedules
| | -- | -----------------------------

See Index to Consolidated
Financial Statements at Item 8 on page 56 of this Report.



| | 3. | Exhibits
| | -- | --------

Index to Exhibits



|            |  |                                                                                                                                                                                                                                                                   |  |          |  
|----------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------- | -
|Exhibit No. |  | Description                                                                                                                                                                                                                                                       |  | Location |  
|1.1         |  | Underwriting Agreement, dated as of May 2, 2007 between the Company, UBS Securities LLC and Lehman Brothers Inc.                                                                                                                                                  |  | (46      | )
|            |  |                                                                                                                                                                                                                                                                  
|2.1         |  | Agreement and Plan of Reorganization and Merger dated as of June 27, 1997 among the Company, CSI Acquisition Corp., Clientele Software, Inc., Dale E. Yocum, Pamela Yocum, William L. Mulert.
(Schedules not included pursuant to Rule 601(b)(2) of Reg. S-K)     |  | (9       | )
|            |  |                                                                                                                                                                                                                                                                  
|2.2         |  | Agreement and Plan of Reorganization dated as of November 4, 1997 by and among the Company, FS Acquisition Corp., FocusSoft, Inc., John Lococo, Michael Zimmerman and Joseph Brumleve.
(Schedules not included pursuant to Rule 601(b)(2) of Reg. S-K).           |  | (11      | )
|            |  |                                                                                                                                                                                                                                                                  
|2.3         |  | Agreement and Plan of Reorganization by and among the Company, Zoo Acquisition Corp. and DataWorks Corporation, dated as of October 13, 1998, as amended as of October 30, 1998. (Schedules not
included pursuant to Rule 601(b)(2) of Reg. S-K).                 |  | (14      | )
|            |  |                                                                                                                                                                                                                                                                  
|2.4         |  | Merger Protocol by and between the Company and Scala Business Solutions N.V. dated as of November 14, 2003                                                                                                                                                        |  | (40      | )
|            |  |                                                                                                                                                                                                                                                                  
|2.5         |  | Stock Purchase Agreement dated as of December 6, 2005 by and among Epicor Software Corporation, Cougar Acquisition Corporation, CRS Retail Technology Group, Inc., certain principal
stockholders of CRS Retail Technology Group, Inc., and certain other parties |  | (43      | )
|            |  |                                                                                                                                                                                                                                                                  
|3.1         |  | Second Restated Certificate of Incorporation of the Company.                                                                                                                                                                                                      |  | (1       | )
|            |  |                                                                                                                                                                                                                                                                  
|3.2         |  | Certificate of Amendment to Second Restated Certificate of Incorporation.                                                                                                                                                                                         |  | (10      | )
|            |  |                                                                                                                                                                                                                                                                  
|3.3         |  | Certificate of Amendment to Second Restated Certificate of Incorporation                                                                                                                                                                                          |  | (39      | )
|            |  |                                                                                                                                                                                                                                                                  
|3.4         |  | Amended and Restated Bylaws of the Company, as currently in effect.                                                                                                                                                                                               |  | (10      | )
|            |  |                                                                                                                                                                                                                                                                  
|3.6         |  | Specimen Certificate of Common Stock.                                                                                                                                                                                                                             |  | (2       | )
|            |  |                                                                                                                                                                                                                                                                  
|3.7         |  | Certificate of Designation of Rights, Preferences and Privileges of Series A Junior Participating Preferred Stock.                                                                                                                                                |  | (4       | )
|            |  |                                                                                                                                                                                                                                                                  
|3.8         |  | Certificate of Designation of Preferences of Series C Preferred Stock.                                                                                                                                                                                            |  | (6       | )
|            |  |                                                                                                                                                                                                                                                                  
|3.9         |  | Certificate of Designation of Preferences of Series D Preferred Stock.                                                                                                                                                                                            |  | (37      | )
|            |  |                                                                                                                                                                                                                                                                  
|4.1         |  | First Supplemental Indenture between the Company and U.S. Bank National Association as trustee dated May 8, 2007                                                                                                                                                  |  | (47      | )
|            |  |                                                                                                                                                                                                                                                                  
|10.1*       |  | Platinum Software Corporation Incentive Stock Option, Nonqualified Stock Option and Restricted Stock Purchase Plan - 1990 (the 1990 Plan).                                                                                                                      |  | (2       | )
|            |  |                                                                                                                                                                                                                                                                  
|10.2*       |  | Form of Incentive Option Agreement pertaining to the 1990 Plan.                                                                                                                                                                                                   |  | (2       | )
|            |  |                                                                                                                                                                                                                                                                  
|10.3*       |  | Form of Nonqualified Stock Option Agreement pertaining to the 1990 Plan.                                                                                                                                                                                          |  | (2       | )
|            |  |                                                                                                                                                                                                                                                                  
|10.4*       |  | Form of Restricted Share Agreement pertaining to the 1990 Plan.                                                                                                                                                                                                   |  | (2       | )
|            |  |                                                                                                                                                                                                                                                                  
|10.5        |  | Form of Indemnification Agreement for Officers and Directors of the Company.                                                                                                                                                                                      |  | (2       | )
|            |  |                                                                                                                                                                                                                                                                  
|10.6*       |  | Platinum Software Corporation Employee Stock Purchase Plan, as amended.                                                                                                                                                                                           |  | (2       | )
|            |  |                                                                                                                                                                                                                                                                  
|10.10*      |  | 1993 Nonqualified Stock Option Plan.                                                                                                                                                                                                                              |  | (3       | )
|            |  |                                                                                                                                                                                                                                                                  
|10.11*      |  | Form of Nonqualified Stock Option Agreement pertaining to the 1993 Nonqualified Stock Option Plan.                                                                                                                                                                |  | (3       | )
|            |  |                                                                                                                                                                                                                                                                  
|10.12*      |  | 1994 Incentive Stock Option, Non-qualified Stock Option and Restricted Stock Purchase Plan.                                                                                                                                                                       |  | (31      | )



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|       |  |                                                                                                                                                                                                            |  |     
|------ |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----
|       |  |                                                                                                                                                                                                           
|10.13* |  | Form of Non-qualified Stock Option Agreement pertaining to the 1994 Plan.                                                                                                                                  |  | (31)
|       |  |                                                                                                                                                                                                           
|10.28  |  | Stock Purchase Agreement dated September 22, 1994 between the Company and the Series B Preferred Stock Investors.                                                                                          |  | (6) 
|       |  |                                                                                                                                                                                                           
|10.29  |  | Registration Rights Agreement dated September 22, 1994 between the Company and the Series B Preferred Stock Investors.                                                                                     |  | (6) 
|10.30  |  | Amendment to Stock Purchase Agreement dated May 26, 1995 between the Company and the Series C Preferred Stock Investors.                                                                                   |  | (6) 
|10.31  |  | Amendment to Registration Rights Agreement dated May 26, 1995 between the Company and the Series C Preferred Stock Investors.                                                                              |  | (6) 
|       |  |                                                                                                                                                                                                           
|10.33* |  | Employment Offer letter with L. George Klaus dated February 7, 1996.                                                                                                                                       |  | (7) 
|       |  |                                                                                                                                                                                                           
|10.34* |  | Restricted Stock Purchase Agreement between the Company and L. George Klaus dated as of February 7, 1996.                                                                                                  |  | (7) 
|       |  |                                                                                                                                                                                                           
|10.44* |  | 1996 Nonqualified Stock Option Plan and Form of Nonqualified Option Agreement.                                                                                                                             |  | (12)
|       |  |                                                                                                                                                                                                           
|10.45* |  | Platinum Software Corporation Clientele Incentive Stock Plan.                                                                                                                                              |  | (12)
|       |  |                                                                                                                                                                                                           
|10.47* |  | 1997 Nonqualified Stock Option Plan.                                                                                                                                                                       |  | (13)
|       |  |                                                                                                                                                                                                           
|10.48* |  | Amended and Restated 1998 Nonqualified Stock Option Plan.                                                                                                                                                  |  | (15)
|       |  |                                                                                                                                                                                                           
|10.49  |  | Software Distribution License Agreement with FRx Software Corporation, as amended to date.                                                                                                                 |  | (15)
|       |  |                                                                                                                                                                                                           
|10.52* |  | DataWorks 1995 Equity Incentive Plan, as amended (Equity Plan).                                                                                                                                          |  | (18)
|       |  |                                                                                                                                                                                                           
|10.54* |  | DataWorks 1995 Non-Employee Directors Stock Option Plan, as amended                                                                                                                                        |  | (18)
|       |  |                                                                                                                                                                                                           
|10.55  |  | Sublease Agreement dated November 22, 1991 between DataWorks and Titan Corporation (Sublease).                                                                                                           |  | (17)
|       |  |                                                                                                                                                                                                           
|10.56  |  | First Amendment to Sublease dated December 1, 1994.                                                                                                                                                        |  | (17)
|       |  |                                                                                                                                                                                                           
|10.57  |  | Lease Agreement dated January 16, 1997 between DataWorks and Whiop Real Estate Limited Partnership.                                                                                                        |  | (19)
|       |  |                                                                                                                                                                                                           
|10.58* |  | 1995 Stock Option Plan, as amended of Interactive (the Interactive Option Plan).                                                                                                                         |  | (20)
|       |  |                                                                                                                                                                                                           
|10.59  |  | Form of Incentive Stock Option Plan under the Interactive Option Plan.                                                                                                                                     |  | (21)
|       |  |                                                                                                                                                                                                           
|10.61  |  | Lease between James S. Hekiman and William Finard, as Trustees of the Burlington Woods Office Trust No. 11 under a declaration of trust dated September 10, 1980 and Interactive dated
September 23, 1991. |  | (21)
|       |  |                                                                                                                                                                                                           
|10.62* |  | 1997 Nonstatutory Stock Plan of Interactive.                                                                                                                                                               |  | (22)
|       |  |                                                                                                                                                                                                           
|10.63  |  | Single Tenant lease between ADI Research Partners, LP and DataWorks, dated as of August 14, 1998.                                                                                                          |  | (23)
|       |  |                                                                                                                                                                                                           
|10.64  |  | 1999 Merger Transition Stock Option Plan.                                                                                                                                                                  |  | (24)
|       |  |                                                                                                                                                                                                           
|10.65  |  | Trademark License Agreement between the Company and Platinum Technology, Inc. dated as of January 14, 1999.                                                                                                |  | (24)
|       |  |                                                                                                                                                                                                           
|10.66  |  | Value Added Reseller Agreement with Ardent Software.                                                                                                                                                       |  | (24)
|       |  |                                                                                                                                                                                                           
|10.67* |  | 1999 Nonstatutory Stock Option Plan.                                                                                                                                                                       |  | (25)
|       |  |                                                                                                                                                                                                           
|10.68  |  | Bracknell Lease Agreement dated May 19, 1999.                                                                                                                                                              |  | (26)
|       |  |                                                                                                                                                                                                           
|10.70* |  | Nonstatutory Stock Option Agreement with Richard L. Roll dated November 16, 1999.                                                                                                                          |  | (27)
|       |  |                                                                                                                                                                                                           
|10.71* |  | Nonstatutory Stock Option Agreement with Richard L. Roll dated November 16, 1999.                                                                                                                          |  | (27)
|       |  |                                                                                                                                                                                                           
|10.72  |  | Loan and Security Agreement by and among Epicor Software Corporation as borrower and Foothill Capital corporation as lender dated as of July 26, 2000.                                                     |  | (28)
|       |  |                                                                                                                                                                                                           
|10.73  |  | Amendment to Loan and Security Agreement dated November 20, 2000.                                                                                                                                          |  | (29)
|       |  |                                                                                                                                                                                                           
|10.74  |  | Amendment to Loan and Security Agreement dated May 21, 2001.                                                                                                                                               |  | (30)
|       |  |                                                                                                                                                                                                           
|10.75* |  | Amendment to Note Secured by Stock Pledge Agreement dated February 7, 2001 by and between the Company and L. George Klaus.                                                                                 |  | (38)
|       |  |                                                                                                                                                                                                           
|10.76* |  | Amendment to Unsecured Note dated February 7, 2001 by and between the Company and L. George Klaus.                                                                                                         |  | (38)
|       |  |                                                                                                                                                                                                           
|10.77* |  | Management Retention Agreement dated as of December 17, 2001 by and between the Company and L. George Klaus.                                                                                               |  | (38)
|       |  |                                                                                                                                                                                                           
|10.78  |  | Amendment to Loan and Security Agreement dated June 25, 2002.                                                                                                                                              |  | (34)
|       |  |                                                                                                                                                                                                           
|10.79* |  | Epicor Software Corporation 2002 Employee Stock Purchase Plan.                                                                                                                                             |  | (35)
|       |  |                                                                                                                                                                                                           
|10.80  |  | Series D Preferred Stock Purchase Agreement dated as of February 11, 2003 by and among the Company and certain Purchasers.                                                                                 |  | (37)
|       |  |                                                                                                                                                                                                           
|10.81* |  | Employment Offer Letter with Michael A. Piraino dated April 30, 2003                                                                                                                                       |  | (39)
|       |  |                                                                                                                                                                                                           
|10.82  |  | Lease Agreement dated October 14, 2003 between Epicor Software Corporation and Koll Center Irvine Number Two, L.L.C.                                                                                       |  | (40)
|       |  |                                                                                                                                                                                                           
|10.83* |  | Compromise Agreement with Andreas Kemi effective August 13, 2005                                                                                                                                           |  | (39)



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|       |  |                                                                                                                                                                                                                                                      |  |      |  
|------ |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | -
|       |  |                                                                                                                                                                                                                                                     
|10.84* |  | Final Statement of Account under Employment Agreement with Andreas Kemi dated September 6, 2004                                                                                                                                                      |  | (40) |  
|       |  |                                                                                                                                                                                                                                                     
|10.85* |  | Consulting Agreement dated October 18, 2004 between Epicor Software Corporation and CHB Management GmbH, a Swiss Corporation                                                                                                                         |  | (40) |  
|       |  |                                                                                                                                                                                                                                                     
|10.86  |  | Credit agreement by and among Epicor Software Corporation and KeyBank National Association dated March 29, 2005                                                                                                                                      |  | (41) |  
|       |  |                                                                                                                                                                                                                                                     
|10.87* |  | 2005 Stock Incentive Plan                                                                                                                                                                                                                            |  | (42) |  
|       |  |                                                                                                                                                                                                                                                     
|10.88* |  | Deferred Compensation Plan                                                                                                                                                                                                                           |  | (51) |  
|       |  |                                                                                                                                                                                                                                                     
|10.89  |  | Credit agreement by and among Epicor Software Corporation and KeyBank National Association dated March 30, 2006                                                                                                                                      |  | (44) |  
|       |  |                                                                                                                                                                                                                                                     
|10.91* |  | Chairman and CEO retention agreement, dated May 26, 2006                                                                                                                                                                                             |  | (45) |  
|       |  |                                                                                                                                                                                                                                                     
|10.92  |  | Form of Notice of Restricted Stock Award and Restricted Stock Purchase Agreement                                                                                                                                                                     |  | (45) |  
|       |  |                                                                                                                                                                                                                                                     
|10.93* |  | Amended Management Retention Agreement by and between L. George Klaus and Epicor Software Corporation, dated March 1, 2007                                                                                                                           |  | (48) |  
|       |  |                                                                                                                                                                                                                                                     
|10.94  |  | First Amendment to Credit Agreement, dated as of May 1, 2007, among the Company, the lenders party thereto, and KeyBank National Association, as Administrative Agent, Sole Book Manager and
Letter of Credit Issuing Lender                         |  | (46) |  
|       |  |                                                                                                                                                                                                                                                     
|10.95  |  | 2007 Stock Incentive Plan                                                                                                                                                                                                                            |  | (49) |  
|       |  |                                                                                                                                                                                                                                                     
|10.96  |  | Form of Time-based restricted stock agreement                                                                                                                                                                                                        |  | (50) |  
|       |  |                                                                                                                                                                                                                                                     
|10.97  |  | Form of Performance-based restricted stock agreement                                                                                                                                                                                                 |  | (50) |  
|       |  |                                                                                                                                                                                                                                                     
|10.98  |  | Implementation Agreement between NSB Retail Systems Plc and Epicor Software Corporation, dated December 17, 2007.                                                                                                                                    |  | (53) |  
|       |  |                                                                                                                                                                                                                                                     
|10.99  |  | Recommended Proposals for the Cash Acquisition of NSB Retail Systems Plc by Epicor Software Corporation, dated December 17, 2007                                                                                                                     |  | (53) |  
|       |  |                                                                                                                                                                                                                                                     
|10.100 |  | Credit Agreement dated December 16, 2007 by and among Epicor Software Corporation, the Guarantors identified therein, the Lenders identified therein and Bank of America, N.A., as
Administrative Agent                                              |  |      |  
|       |  |                                                                                                                                                                                                                                                     
|10.101 |  | Security and Pledge Agreement dated December 16, 2007 by and between Epicor Software Corporation, the Obligors identified therein and Bank of America, N.A., as Administrative
Agent                                                                 |  |      |  
|       |  |                                                                                                                                                                                                                                                     
|10.102 |  | First Amendment dated February 11, 2008, to Credit Agreement dated December 16, 2007, by and among Epicor Software Corporation, the Guarantors identified therein, the Lenders identified
therein and Bank of America, N.A., as Administrative Agent |  |      |  
|       |  |                                                                                                                                                                                                                                                     
|10.103 |  | Notice of Increase of Aggregate Revolving Commitment, dated February 11, 2008, pursuant to Credit Agreement dated December 16, 2007                                                                                                                  |  |      |  
|       |  |                                                                                                                                                                                                                                                     
|12.1   |  | Computation of Ratio of Earnings to Fixed Charges                                                                                                                                                                                                    |  | (52  | )
|       |  |                                                                                                                                                                                                                                                     
|21.1   |  | Subsidiaries of the Company                                                                                                                                                                                                                          |  |      |  
|       |  |                                                                                                                                                                                                                                                     
|23.1   |  | Consent of Independent Registered Public Accounting Firm - McGladrey & Pullen, LLP                                                                                                                                                                   |  |      |  
|       |  |                                                                                                                                                                                                                                                     
|23.2   |  | Consent of Independent Registered Public Accounting Firm  Deloitte & Touche LLP                                                                                                                                                                     |  |      |  
|       |  |                                                                                                                                                                                                                                                     
|31.1   |  | Certification by Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                  |  |      |  
|       |  |                                                                                                                                                                                                                                                     
|31.2   |  | Certification by Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                  |  |      |  
|       |  |                                                                                                                                                                                                                                                     
|32.1   |  | Certification by the Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                   |  |      |  



|* | Management contract or compensatory plan or arrangement.
|- | --------------------------------------------------------



| | (1) | Incorporated by reference to the referenced exhibit number to the Company's Registration Statement on Form S-1, Reg. No. 33-57294.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------



| | (2) | Incorporated by reference to the referenced exhibit number to the Company's Registration Statement on Form S-1, Reg. No. 33-51566.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------



| | (3) | Incorporated by reference to the referenced exhibit to the Company's Annual Report on Form 10-K for the year ended June 30, 1993.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------



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| | (4) | Incorporated by reference to the Companys Registration Statement on Form 8-A, dated April 14, 1994.
| | --- | ----------------------------------------------------------------------------------------------------



| | (5) | Incorporated by reference to the referenced exhibit to the Companys Amended Registration Statement on Form 8-A, filed November 21, 2001, Reg. No. 000-20740.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (6) | Incorporated by reference to the referenced exhibit to the Companys Annual Report on Form 10-K for the year ended June 30, 1995.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------



| | (7) | Incorporated by reference to the referenced exhibit to the Companys Quarterly Report on Form 10-Q for the quarter ended March 31, 1996.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------



| | (8) | Incorporated by reference to the referenced exhibit to the Companys Current Report on Form 8-K dated June 30, 1997.
| | --- | --------------------------------------------------------------------------------------------------------------------



| | (9) | Incorporated by reference to the referenced exhibit to the Companys Quarterly Report on Form 10-Q for the quarter ended December 31, 1996.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------



| | (10) | Incorporated by reference to Exhibit 2.2 to the Companys Current Report on Form 8-K dated November 14, 1997.
| | ---- | -------------------------------------------------------------------------------------------------------------



| | (11) | Incorporated by reference to the referenced exhibit to the Companys Annual Report on Form 10-K for the year ended June 30, 1997.
| | ---- | ---------------------------------------------------------------------------------------------------------------------------------



| | (12) | Incorporated by reference to the referenced exhibit to the Companys Quarterly Report on Form 10-Q for the quarter ended September 30, 1997.
| | ---- | --------------------------------------------------------------------------------------------------------------------------------------------



| | (13) | Incorporated by reference to Exhibit 1 to the Companys Schedule 13D filed with the SEC on October 23, 1998, as amended.
| | ---- | ------------------------------------------------------------------------------------------------------------------------



| | (14) | Incorporated by reference to the referenced exhibit to the Companys Annual Report on Form 10-K for the year ended June 30, 1998, as amended.
| | ---- | ---------------------------------------------------------------------------------------------------------------------------------------------



| | (15) | Incorporated by reference to Companys Registration Statement on Form S-4, Reg. No. 333-67577.
| | ---- | ----------------------------------------------------------------------------------------------



| | (16) | Incorporated by reference to the DataWorks Registration Statement on Form S B-2 (No. 33-97022LA) or amendments thereto.
| | ---- | -----------------------------------------------------------------------------------------------------------------------



| | (17) | Incorporated by reference to the referenced exhibit to the DataWorks Annual Report on Form 10-K for its fiscal year ended December 31, 1997.
| | ---- | --------------------------------------------------------------------------------------------------------------------------------------------



| | (18) | Incorporated by reference to the DataWorks Annual Report on Form 10-K for its fiscal year ended December 31, 1996.
| | ---- | ------------------------------------------------------------------------------------------------------------------



| | (19) | Incorporated by reference to the Interactive Group, Inc. Annual Report on Form 10-K for its fiscal year ended December 31, 1996.
| | ---- | --------------------------------------------------------------------------------------------------------------------------------



| | (20) | Incorporated by reference to the Interactive Group, Inc. Registration Statement on Form S-1 (Reg. No. 33-90816).
| | ---- | ----------------------------------------------------------------------------------------------------------------



| | (21) | Incorporated by reference to the Interactive Group, Inc. Registration Statement on Form S-8 (Reg. No. 333-30259).
| | ---- | -----------------------------------------------------------------------------------------------------------------



| | (22) | Incorporated by reference to the referenced exhibit to the Companys Transition Report on Form 10-K for the six months ended December 31, 1998.
| | ---- | -----------------------------------------------------------------------------------------------------------------------------------------------



| | (23) | Incorporated by reference to the Companys Quarterly Report on Form 10-Q for the quarter ended March 31, 1999.
| | ---- | --------------------------------------------------------------------------------------------------------------



| | (24) | Incorporated by reference to the Companys Registration Statement on Form S-8, Registration No. 333-85105.
| | ---- | ----------------------------------------------------------------------------------------------------------



98



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| | (25) | Incorporated by reference to the Companys Quarterly Report on Form 10-Q for the quarter ended June 30, 1999.
| | ---- | -------------------------------------------------------------------------------------------------------------



| | (26) | Incorporated by reference to the referenced exhibit to the Companys Annual Report on Form 10-K for the year ended December 31, 1999.
| | ---- | -------------------------------------------------------------------------------------------------------------------------------------



| | (27) | Incorporated by reference to the referenced exhibit to the Companys Quarterly Report on Form 10-Q for the quarter ended September 30, 2000.
| | ---- | --------------------------------------------------------------------------------------------------------------------------------------------



| | (28) | Incorporated by reference to the referenced exhibit to the Companys Annual Report on Form 10-K for the year ended December 31, 2000.
| | ---- | -------------------------------------------------------------------------------------------------------------------------------------



| | (29) | Incorporated by reference to the referenced exhibit to the Companys Quarterly Report on Form 10-Q for the quarter ended June 30, 2001.
| | ---- | ---------------------------------------------------------------------------------------------------------------------------------------



| | (30) | Incorporated by reference from the Companys Annual Report on Form 10-K for the year ended June 30, 1994.
| | ---- | ---------------------------------------------------------------------------------------------------------



| | (31) | Incorporated by reference to the referenced exhibit to the Companys Amendment No. 1 to Annual Report on Form 10-K for the year ended December 31, 1999, filed
March 31, 2000.
| | ---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (32) | Incorporated by reference to the referenced exhibit to the Companys Annual Report on Form 10-K for the year ended December 31, 2001.
| | ---- | -------------------------------------------------------------------------------------------------------------------------------------



| | (33) | Incorporated by reference to the referenced exhibit to the Companys Quarterly Report on Form 10-Q for the quarter ended June 30, 2002.
| | ---- | ---------------------------------------------------------------------------------------------------------------------------------------



| | (34) | Incorporated by reference to the Companys Registration Statement on Form S-8, Reg. No. 333-97063.
| | ---- | --------------------------------------------------------------------------------------------------



| | (35) | Incorporated by reference to the Companys Current Report on Form 8-K filed December 23, 2002.
| | ---- | ----------------------------------------------------------------------------------------------



| | (36) | Incorporated by reference to the Companys Current Report on Form 8-K filed February 18, 2003.
| | ---- | ----------------------------------------------------------------------------------------------



| | (37) | Incorporated by reference to the Companys Annual Report on Form 10-K for the year ended December 31, 2001.
| | ---- | -----------------------------------------------------------------------------------------------------------



| | (38) | Incorporated by reference to the Companys Quarterly Report on Form 10-Q for the quarter ended June 30, 2003.
| | ---- | -------------------------------------------------------------------------------------------------------------



| | (39) | Incorporated by reference to the Companys Quarterly Report on Form 10-Q for the quarter ended September 30, 2004.
| | ---- | ------------------------------------------------------------------------------------------------------------------



| | (40) | Incorporated by reference to the Companys Annual Report on Form 10-K for the year ended December 31, 2003.
| | ---- | -----------------------------------------------------------------------------------------------------------



| | (41) | Incorporated by reference to the Companys Quarterly Report on Form 10-Q for the quarter ended March 31, 2005.
| | ---- | --------------------------------------------------------------------------------------------------------------



| | (42) | Incorporated by reference to the Companys Quarterly Report on Form 10-Q for the quarter ended June 30, 2005.
| | ---- | -------------------------------------------------------------------------------------------------------------



| | (43) | Incorporated by reference to the Companys Current Report on Form 8-K filed December 12, 2005.
| | ---- | ----------------------------------------------------------------------------------------------



| | (44) | Incorporated by reference to the Companys Quarterly Report on Form 10-Q for the quarter ended March 31, 2006.
| | ---- | --------------------------------------------------------------------------------------------------------------



| | (45) | Incorporated by reference to the Companys Quarterly Report on Form 10-Q for the quarter ended June 30, 2006.
| | ---- | -------------------------------------------------------------------------------------------------------------



| | (46) | Incorporated by reference to the Companys Current Report on Form 8-K/A filed May 8, 2007.
| | ---- | ------------------------------------------------------------------------------------------



99



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| | (47) | Incorporated by reference to the Companys Current Report on Form 8-K filed May 14, 2007.
| | ---- | -----------------------------------------------------------------------------------------



| | (48) | Incorporated by reference the Company Quarterly Report on Form 10-Q filed May 10, 2007.
| | ---- | ---------------------------------------------------------------------------------------



| | (49) | Incorporated by reference to the Companys Current Report on Form 8-K filed May 29, 2007.
| | ---- | -----------------------------------------------------------------------------------------



| | (50) | Incorporated by reference to the Companys Registration Statement on Form S-8 filed June 18, 2007.
| | ---- | --------------------------------------------------------------------------------------------------



| | (51) | Incorporated by reference to the Companys Registration Statement on Form S-8 filed August 3, 2005.
| | ---- | ---------------------------------------------------------------------------------------------------



| | (52) | Incorporated by reference to the Companys Registration Statement on Form S-3 filed May 1, 2007.
| | ---- | ------------------------------------------------------------------------------------------------



| | (53) | Incorporated by reference to the Companys Current Report on Form 8-K filed on February 13, 2008
| | ---- | ------------------------------------------------------------------------------------------------

The following trademarks may be mentioned in the foregoing Annual Report on Form 10-K: Epicor, e by Epicor, Vantage, Avanté, Vista, Clientele and Platinum.
Epicor, e by Epicor, Vantage, Avanté, Vista, Clientele, Scala, iScalaandCRSare trademarks or registered trademarks of the Company. Platinum is a registered trademark of Computer Associates International, Inc. All other
product names are trademarks or registered trademarks of their respective companies.



100



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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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, in
the City of Irvine, State of California, on March 10, 2008.



EPICOR SOFTWARE CORPORATIONBy:

/s/ Thomas F. KellyThomas F. KellyPresident and Chief Executive Officer (Principal Executive Officer)


POWER OF ATTORNEY

We, the undersigned directors and officers of Epicor Software Corporation, do hereby constitute and appoint Thomas F. Kelly our true and lawful attorney
and agent, with full power of substitution to do any and all acts and things in our name and behalf in our capacities as directors and officers and to execute any and all instruments for us and in our names in the capacities indicated below, which
said attorney and agent may deem necessary or advisable to enable said corporation to comply with the Securities Exchange Act of 1934, as amended, and any rules, regulations and requirements of the Securities and Exchange Commission, in connection
with this Annual Report on Form 10-K, including specifically but without limitation, power and authority to sign for us or any of us in our names in the capacities indicated below, any and all amendments (including post-effective amendments) hereto;
and we do hereby ratify and confirm all that said attorney and agent, shall do or cause to be done by virtue hereof.

Pursuant to the
requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.



|                                            |  |                                                                                                   |  |               
|------------------------------------------- |  | ------------------------------------------------------------------------------------------------- |  | --------------
|Signature                                   |  | Title                                                                                             |  | Date          
|/s/ Thomas F. Kelly Thomas F. Kelly         |  | President and Chief Executive Officer (Principal
Executive Officer)                               |  | March 10, 2008
|                                            |  |                                                                                                  
|/s/ Michael A. Piraino Michael A. Piraino   |  | Executive Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) |  | March 10, 2008
|                                            |  |                                                                                                  
|/s/ L. George Klaus L. George Klaus         |  | Chairman of the Board                                                                             |  | March 10, 2008
|                                            |  |                                                                                                  
|/s/ Robert H. Smith Robert H. Smith         |  | Director                                                                                          |  | March 10, 2008
|                                            |  |                                                                                                  
|/s/ Harold D. Copperman Harold D. Copperman |  | Director                                                                                          |  | March 10, 2008
|                                            |  |                                                                                                  
|/s/ Michael Kelly Michael Kelly             |  | Director                                                                                          |  | March 10, 2008
|                                            |  |                                                                                                  
|/s/ Michael Hackworth Michael Hackworth     |  | Director                                                                                          |  | March 10, 2008



101