##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
 þ
    
    QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
 For the quarterly period ended March 31, 2008
 o
    
    TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
 For
the transition period from ____________ to ____________
 Commission File Number 333-49389
 Activant Solutions Inc.
  Delaware
    
    94-2160013(State or other jurisdiction of 
incorporation or organization)
    
    (I.R.S. Employer
Identification No.)7683 Southfront RoadLivermore, CA
    
    94551(Address of principal executive offices)
    
    (Zip Code)
 (925) 449-0606
 þ o
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer þ
    
    Smaller reporting company o(Do not check if a smaller reporting company)
 o þ
  Class
    
    Outstanding at May 12, 2008Common Stock, par value $0.01 per share
    
    10 shares




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##### 



ACTIVANT SOLUTIONS INC.
REPORT ON FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 2008
 INDEX
 FORWARD-LOOKING STATEMENTS
    
    
    3PART I  FINANCIAL INFORMATIONItem 1  Financial Statements (Unaudited)
    
    
    4Consolidated Balance Sheets as of September 30, 2007 and March 31, 2008
    
    
    4Consolidated Statements of Operations and Comprehensive Income for the
Three and Six Months Ended March 31, 2008 and March 31, 2007
    
    
    5Consolidated Statements of Cash Flows for the Six Months ended March
31, 2008 and March 31, 2007
    
    
    6Notes to Consolidated Financial Statements
    
    
    7Item 2   Managements Discussion and Analysis of Financial Condition and
Results of Operations
    
    
    22Item 3   Quantitative and Qualitative Disclosures About Market Risk
    
    
    34Item 4  Controls and Procedures
    
    
    34PART II  OTHER INFORMATIONItem 1  Legal Proceedings
    
    
    35Item 1A  Risk Factors
    
    
    35Item 2  Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    35Item 3  Defaults Upon Senior Securities
    
    
    35Item 4  Submission of Matters to a Vote of Security Holders
    
    
    35Item 5  Other Information
    
    
    35Item 6  Exhibits
    
    
    35SIGNATURE
    
    
    36Certification Pursuant to Section 302Certification Pursuant to Section 302Certification Pursuant to Section 906Certification Pursuant to Section 906
  2




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##### Table of Contents



FORWARD-LOOKING STATEMENTS
   
    
    failure to anticipate or respond to our customers needs and requirements;
    
    failure of our proprietary technology to support our customers future needs or it
becoming obsolete;
    
    failure to develop new relationships and maintain existing relationships with key
industry participants and/or key customers and/or loss of significant customer revenues;
    
    loss of recurring subscription service revenues;
    
    transition of certain of our senior management personnel and the failure to attract,
retain and integrate qualified management personnel;
    
    failure of our Activant Eagle and Vision products to gain acceptance within the
automotive parts aftermarket;
    
    our substantial indebtedness and our ability to incur additional indebtedness;
    
    certain covenants in our debt documents;
    
    costs and difficulties of integrating acquisitions, including our recently completed
acquisitions of Silk Systems and Intuits distribution software management division;
    
    possible future impairment charges, depending upon the financial results of our
business, in view of the fact that a significant portion of our total assets consist of
goodwill and other intangible assets;
    
    changes in the manner or basis on which we receive third-party information used to
maintain our electronic automotive parts and applications catalog;
    
    failure by certain of our existing customers to upgrade to our current generation of
systems;
    
    failure to effectively compete;
    
    substantial fluctuations in, or failure to maintain current systems sales levels of
one-time sales of software licenses and hardware;
    
    consolidation trends among our customers and consolidation trends in the market segments
in which we operate;
    
    failure to adequately protect our proprietary rights and intellectual property or
limitations on the availability of legal or technical means of effecting such protection;
    
    claims by third parties that we are infringing on their proprietary rights or other
adverse claims;
    
    defects or errors in our software or information services;
    
    interruptions of our connectivity applications or catastrophic failure of our data
center, telecommunications or information technology infrastructure;
    
    claims for damages against us in the event of a failure of our customers systems;
    
    our ability to assume additional debt on favorable terms, if at all;
    
    prolonged unfavorable general economic and market conditions, especially in the
residential housing market and the lumber industry;
    
    differing interests of debt security holders and our controlling stockholders or
investors; and
    
    the other factors described under the heading Risk Factors in our Annual Report on
Form 10-K for the year ended September 30, 2007 and elsewhere in this report.
  3




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##### Table of Contents



PART I  FINANCIAL INFORMATION
 
 Item 1 Financial Statements (Unaudited).
 
 
 September 30,
    
    
    March 31,(in thousands, except share data)
    
    2007
    
    
    2008(Unaudited)ASSETS:Current assets:Cash and cash equivalents
    
    $
    33,379
    
    
    $
    50,205Trade accounts receivable, net of allowance for doubtful accounts of
$5,378 and $6,825 at September 30, 2007 and March 31, 2008,
respectively
    
    
    58,213
    
    
    
    47,414Inventories, net
    
    
    5,359
    
    
    
    6,162Deferred income taxes
    
    
    8,622
    
    
    
    13,301Income taxes receivable
    
    
    2,681
    
    
    
    5,421Prepaid expenses and other current assets
    
    
    5,736
    
    
    
    5,108Total current assets
    
    
    113,990
    
    
    
    127,611Property and equipment, net
    
    
    10,074
    
    
    
    10,101Intangible assets, net
    
    
    235,566
    
    
    
    229,913Goodwill
    
    
    672,206
    
    
    
    667,362Deferred financing costs
    
    
    15,501
    
    
    
    14,366Other assets
    
    
    4,341
    
    
    
    4,222Total assets
    
    $
    1,051,678
    
    
    $
    1,053,575LIABILITIES AND STOCKHOLDERS EQUITY:Current liabilities:Accounts payable
    
    $
    18,401
    
    
    $
    15,888Payroll related accruals
    
    
    15,974
    
    
    
    13,399Deferred revenue
    
    
    29,671
    
    
    
    30,205Current portion of long-term debt
    
    
    750
    
    
    
    750Accrued expenses and other current liabilities
    
    
    21,618
    
    
    
    36,438Total current liabilities
    
    
    86,414
    
    
    
    96,680Long-term debt, net of discount
    
    
    632,113
    
    
    
    631,738Deferred tax liabilities
    
    
    67,072
    
    
    
    61,931Other liabilities
    
    
    9,885
    
    
    
    11,879Total liabilities
    
    
    795,484
    
    
    
    802,228Commitments and contingencies
    
    
    
    
    
    
    Common Stock:Par value $0.01, authorized 1,000 shares, 10 shares issued and
outstanding, at September 30, 2007 and March 31, 2008
    
    
    
    
    
    
    Additional paid-in capital
    
    
    250,893
    
    
    
    252,651Retained earnings
    
    
    8,003
    
    
    
    8,270Other accumulated comprehensive income (loss):Unrealized loss on cash flow hedges
    
    
    (2,891
    )
    
    
    (9,543
    )Cumulative translation adjustment
    
    
    189
    
    
    
    (31
    )Total stockholders equity
    
    
    256,194
    
    
    
    251,347Total liabilities and stockholders equity
    
    $
    1,051,678
    
    
    $
    1,053,575
  4




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Three Months Ended
    
    
    Six Months EndedMarch 31,
    
    
    March 31,(in thousands)
    
    2007
    
    
    2008
    
    
    2007
    
    
    2008Revenues:Systems
    
    $
    47,075
    
    
    $
    44,612
    
    
    $
    89,284
    
    
    $
    90,529Services
    
    
    56,000
    
    
    
    63,480
    
    
    
    112,022
    
    
    
    126,473Total revenues
    
    
    103,075
    
    
    
    108,092
    
    
    
    201,306
    
    
    
    217,002Cost of revenues (exclusive of
depreciation and amortization shown
separately below):Systems (1)
    
    
    24,630
    
    
    
    25,069
    
    
    
    47,282
    
    
    
    51,219Services (1)
    
    
    19,975
    
    
    
    23,073
    
    
    
    39,978
    
    
    
    45,888Total cost of revenues
    
    
    44,605
    
    
    
    48,142
    
    
    
    87,260
    
    
    
    97,107Gross profit
    
    
    58,470
    
    
    
    59,950
    
    
    
    114,046
    
    
    
    119,895Operating expenses:Sales and marketing (1)
    
    
    16,208
    
    
    
    16,102
    
    
    
    32,730
    
    
    
    32,527Product development (1)
    
    
    10,127
    
    
    
    11,012
    
    
    
    20,335
    
    
    
    23,136General and administrative (1)
    
    
    7,815
    
    
    
    9,123
    
    
    
    14,346
    
    
    
    17,274Depreciation and amortization
    
    
    7,279
    
    
    
    9,326
    
    
    
    14,337
    
    
    
    17,921Acquisition related costs
    
    
    
    
    
    
    407
    
    
    
    
    
    
    
    658Restructuring costs
    
    
    
    
    
    
    322
    
    
    
    287
    
    
    
    490Total operating expenses
    
    
    41,429
    
    
    
    46,292
    
    
    
    82,035
    
    
    
    92,006Operating income
    
    
    17,041
    
    
    
    13,658
    
    
    
    32,011
    
    
    
    27,889Interest expense
    
    
    (11,746
    )
    
    
    (14,182
    )
    
    
    (23,870
    )
    
    
    (27,872
    )Other income, net
    
    
    17
    
    
    
    509
    
    
    
    459
    
    
    
    1,073Income (loss) before income taxes
    
    
    5,312
    
    
    
    (15
    )
    
    
    8,600
    
    
    
    1,090Income tax expense
    
    
    2,361
    
    
    
    42
    
    
    
    3,631
    
    
    
    554Net income (loss)
    
    $
    2,951
    
    
    $
    (57
    )
    
    $
    4,969
    
    
    $
    536Comprehensive income (loss):Net income (loss)
    
    $
    2,951
    
    
    $
    (57
    )
    
    $
    4,969
    
    
    $
    536Unrealized loss on cash flow hedges
    
    
    (479
    )
    
    
    (4,001
    )
    
    
    (249
    )
    
    
    (6,652
    )Foreign currency translation adjustment
    
    
    21
    
    
    
    (171
    )
    
    
    69
    
    
    
    (220
    )Comprehensive income (loss)
    
    $
    2,493
    
    
    $
    (4,229
    )
    
    $
    4,789
    
    
    $
    (6,336
    )(1)   Includes share-based payment expense as follows:
 Cost of revenuesSystems
    
    $
    16
    
    
    $
    8
    
    
    $
    24
    
    
    $
    16Services
    
    
    134
    
    
    
    72
    
    
    
    201
    
    
    
    141Operating expensesSales and marketing
    
    
    387
    
    
    
    214
    
    
    
    585
    
    
    
    418Product development
    
    
    147
    
    
    
    72
    
    
    
    223
    
    
    
    144General and administrative
    
    
    787
    
    
    
    524
    
    
    
    1,180
    
    
    
    1,053
  5




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##### Table of Contents



Six Months Ended March 31,(in thousands)
    
    2007
    
    
    2008OPERATING ACTIVITIESNet income
    
    $
    4,969
    
    
    $
    536Adjustments to reconcile net income to net cash
provided by operating activities:Share-based payment expense
    
    
    2,213
    
    
    
    1,772Depreciation
    
    
    2,898
    
    
    
    3,032Amortization of intangible assets
    
    
    11,439
    
    
    
    14,889Amortization of deferred financing costs
    
    
    1,036
    
    
    
    1,240Provision for doubtful accounts
    
    
    3,033
    
    
    
    1,905Deferred income taxes, net
    
    
    (6,779
    )
    
    
    (9,820
    )Other, net
    
    
    1,160
    
    
    
    (218
    )Changes in assets and liabilities:Trade accounts receivable
    
    
    1,762
    
    
    
    8,894Inventories
    
    
    (1,480
    )
    
    
    (803
    )Prepaid expenses and other assets
    
    
    1,885
    
    
    
    (1,993
    )Accounts payable
    
    
    763
    
    
    
    (2,513
    )Deferred revenue
    
    
    (3,304
    )
    
    
    534Accrued expenses and other liabilities
    
    
    (6,557
    )
    
    
    6,163Net cash provided by operating activities
    
    
    13,038
    
    
    
    23,618INVESTING ACTIVITIESPurchase of property and equipment
    
    
    (3,111
    )
    
    
    (3,059
    )Capitalized computer software costs and databases
    
    
    (2,538
    )
    
    
    (3,237
    )Purchase price adjustments
    
    
    700
    
    
    
    Net cash used in investing activities
    
    
    (4,949
    )
    
    
    (6,296
    )FINANCING ACTIVITIESRepurchase of common stock
    
    
    
    
    
    
    (14
    )Payment on long-term debt
    
    
    (27,000
    )
    
    
    (375
    )Debt issuance costs
    
    
    (1,077
    )
    
    
    (107
    )Net cash used in financing activities
    
    
    (28,077
    )
    
    
    (496
    )Net change in cash and cash equivalents
    
    
    (19,988
    )
    
    
    16,826Cash and cash equivalents, beginning of period
    
    
    36,383
    
    
    
    33,379Cash and cash equivalents, end of period
    
    $
    16,395
    
    
    $
    50,205Supplemental disclosures of cash flow informationCash paid during the period for interest
    
    $
    23,052
    
    
    $
    23,827Cash paid during the period for income taxes (net
of receipts)
    
    $
    7,144
    
    
    $
    5,012
  6




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##### Table of Contents



Three Months Ended March 31, 2007
    
    
    Six Months Ended March 31, 2007as previously
    
    
    
    
    
    
    
    
    
    
    as previously(in thousands)
    
    reported
    
    
    revised
    
    
    change
    
    
    reported
    
    
    revised
    
    
    changeSystems cost of revenues
    
    $
    404
    
    
    $
    915
    
    
    $
    511
    
    
    $
    808
    
    
    $
    1,802
    
    
    $
    994Services cost of revenues
    
    
    1,038
    
    
    
    1,454
    
    
    
    416
    
    
    
    2,076
    
    
    
    3,170
    
    
    
    1,094Sales and marketing expense
    
    
    468
    
    
    
    907
    
    
    
    439
    
    
    
    936
    
    
    
    2,004
    
    
    
    1,068Product development expense
    
    
    217
    
    
    
    922
    
    
    
    705
    
    
    
    434
    
    
    
    1,952
    
    
    
    1,518General and administrative
expense
    
    
    (2,127
    )
    
    
    (4,198
    )
    
    
    (2,071
    )
    
    
    (4,254
    )
    
    
    (8,928
    )
    
    
    (4,674
    )Net allocations
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
   Business Combinations
 7




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##### Table of Contents



The Fair Value Option for Financial Assets and
Financial Liabilities Fair Value Measurements
 Fair Value Measurements
 Accounting for Uncertainty in Income Taxes -
an interpretation of FASB Statement No. 109
   Silk Systems, Inc.
  Eclipse Distribution Management Solutions
  Pro forma results (unaudited)
   8




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##### Table of Contents



Three Months Ended March 31,
    
    
    Six Months Ended March 31,2007
    
    
    2008
    
    
    2007
    
    
    2008(in thousands)
    
    (pro forma)
    
    
    (actual)
    
    
    (pro forma)
    
    
    (actual)Total revenues
    
    $
    117,503
    
    
    $
    108,092
    
    
    $
    229,893
    
    
    $
    217,002Total cost of revenues
    
    
    52,187
    
    
    
    48,142
    
    
    
    102,278
    
    
    
    97,107Gross profit
    
    
    65,316
    
    
    
    59,950
    
    
    
    127,615
    
    
    
    119,895Total operating expenses
    
    
    46,584
    
    
    
    46,292
    
    
    
    92,310
    
    
    
    92,006Operating income
    
    
    18,732
    
    
    
    13,658
    
    
    
    35,305
    
    
    
    27,889Interest expense
    
    
    (13,707
    )
    
    
    (14,182
    )
    
    
    (27,791
    )
    
    
    (27,872
    )Other income, net
    
    
    134
    
    
    
    509
    
    
    
    595
    
    
    
    1,073Income (loss) before taxes
    
    
    5,159
    
    
    
    (15
    )
    
    
    8,109
    
    
    
    1,090Income tax expense
    
    
    2,307
    
    
    
    42
    
    
    
    3,459
    
    
    
    554Net income (loss)
    
    $
    2,852
    
    
    $
    (57
    )
    
    $
    4,650
    
    
    $
    536
   September 30,
    
    
    March 31,(in thousands)
    
    2007
    
    
    2008Senior secured term loan due 2013
    
    $
    437,863
    
    
    $
    437,488Senior subordinated notes due 2016
    
    
    175,000
    
    
    
    175,000Revolving credit facility due 2011
    
    
    20,000
    
    
    
    20,000Total debt
    
    
    632,863
    
    
    
    632,488Current portion
    
    
    (750
    )
    
    
    (750
    )Long-term debt
    
    $
    632,113
    
    
    $
    631,738
 Senior Secured Credit Agreement
   9




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##### Table of Contents




    
    under the revolving credit facility, 1.25% with respect to base rate borrowings and 2.25%
with respect to Eurodollar rate borrowings, which may be reduced subject to our attainment of
certain leverage ratios;
 
    
    under the term loan, 1.00% with respect to base rate borrowings and 2.00% with respect to
Eurodollar rate borrowings; and
 
    
    under the incremental term loan, 1.5% with respect to base rate borrowings and 2.50% with
respect to Eurodollar rate borrowings.
   Senior Subordinated Notes Due 2016
           10




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Activant Solutions Inc.
    Three Months Ended
    
    Six Months EndedMarch 31,
    
    March 31,
    
    March 31,
    
    March 31,2007
    
    2008
    
    2007
    
    2008Expected term
    
    6.66 years
    
    6.66 years
    
    6.66 years
    
    6.66 yearsExpected volatility
    
    
    50.00
    %
    
    
    50.00
    %
    
    
    50.00
    %
    
    
    50.00
    %Expected dividends
    
    
    0.00
    %
    
    
    0.00
    %
    
    
    0.00
    %
    
    
    0.00
    %Risk-free rate
    
    
    4.81
    %
    
    
    2.47
    %
    
    
    4.68
    %
    
    
    3.19
    %
   2006 Option PlanWeightedNumber of
    
    
    Average ExerciseShares
    
    
    PriceTotal options outstanding at September 30, 2007
    
    
    6,759,073
    
    
    $
    4.38Options granted
    
    
    495,250
    
    
    
    4.91Options forfeited
    
    
    (736,200
    )
    
    
    4.37Options exercised
    
    
    
    
    
    
    Total options outstanding at March 31, 2008
    
    
    6,518,123
    
    
    $
    4.42Total options exercisable at March 31, 2008
    
    
    1,992,224
    
    
    $
    4.36
 11




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##### Table of Contents



Predecessor Company
   Predecessor Company PlanNumber of
    
    
    Weighted AverageShares
    
    
    Exercise PriceTotal options outstanding at September 30, 2007
    
    
    333,334
    
    
    $
    1.00Options granted
    
    
    
    
    
    
    Options forfeited
    
    
    
    
    
    
    Options exercised
    
    
    
    
    
    
    Total options outstanding at March 31, 2008
    
    
    333,334
    
    
    $
    1.00
   Accounting for Costs
Associated with Exit or Disposal Activities
  Disclosures about Segments of an Enterprise and Related Information.
  12




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##### Table of Contents



Hardlines and Lumber Segment
  Wholesale Distribution Segment
  Automotive Segment
  Other
  Segment Revenue and Contribution Margin
    Three Months Ended March 31, 2007
    
    Six Months Ended March 31, 2007Hardlines
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Hardlinesand
    
    Wholesale
    
    Auto-
    
    
    
    
    
    
    
    
    
    and
    
    Wholesale
    
    Auto-(in thousands)
    
    Lumber
    
    Distribution
    
    motive
    
    Other
    
    Total
    
    Lumber
    
    Distribution
    
    motive
    
    Other
    
    TotalRevenues
    
    $
    44,696
    
    
    $
    30,568
    
    
    $
    22,770
    
    
    $
    5,041
    
    
    $
    103,075
    
    
    $
    85,938
    
    
    $
    60,709
    
    
    $
    45,318
    
    
    $
    9,341
    
    
    $
    201,306Contribution Margin
    
    $
    12,680
    
    
    $
    11,040
    
    
    $
    8,400
    
    
    $
    1,022
    
    
    $
    33,142
    
    
    $
    23,299
    
    
    $
    21,228
    
    
    $
    16,780
    
    
    $
    1,524
    
    
    $
    62,831
 Three Months Ended March 31, 2008
    
    Six Months Ended March 31, 2008Hardlines
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Hardlinesand
    
    Wholesale
    
    Auto-
    
    
    
    
    
    
    
    
    
    and
    
    Wholesale
    
    Auto-(in thousands)
    
    Lumbers
    
    Distribution
    
    motive
    
    Other
    
    Total
    
    Lumbers
    
    Distribution
    
    motive
    
    Other
    
    TotalRevenues
    
    $
    37,110
    
    
    $
    43,444
    
    
    $
    22,437
    
    
    $
    5,101
    
    
    $
    108,092
    
    
    $
    76,900
    
    
    $
    85,884
    
    
    $
    44,222
    
    
    $
    9,996
    
    
    $
    217,002Contribution Margin
    
    $
    7,796
    
    
    $
    16,824
    
    
    $
    8,027
    
    
    $
    896
    
    
    $
    33,543
    
    
    $
    17,263
    
    
    $
    32,589
    
    
    $
    15,438
    
    
    $
    831
    
    
    $
    66,121
  13




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##### Table of Contents



Three Months Ended
    
    
    Six Months Ended(in thousands)
    
    March 31, 2007
    
    
    March 31, 2008
    
    
    March 31, 2007
    
    
    March 31, 2008Segment contribution margin
    
    $
    33,142
    
    
    $
    33,543
    
    
    $
    62,831
    
    
    $
    66,121Corporate and unallocated costs
    
    
    (7,351
    )
    
    
    (8,940
    )
    
    
    (13,983
    )
    
    
    (17,391
    )Share-based payment expense
    
    
    (1,471
    )
    
    
    (890
    )
    
    
    (2,213
    )
    
    
    (1,772
    )Depreciation and amortization
    
    
    (7,279
    )
    
    
    (9,326
    )
    
    
    (14,337
    )
    
    
    (17,921
    )Acquisition related costs
    
    
    
    
    
    
    (407
    )
    
    
    
    
    
    
    (658
    )Restructuring costs
    
    
    
    
    
    
    (322
    )
    
    
    (287
    )
    
    
    (490
    )Interest expense
    
    
    (11,746
    )
    
    
    (14,182
    )
    
    
    (23,870
    )
    
    
    (27,872
    )Other income, net
    
    
    17
    
    
    
    509
    
    
    
    459
    
    
    
    1,073Income (loss) before income taxes
    
    $
    5,312
    
    
    $
    (15
    )
    
    $
    8,600
    
    
    $
    1,090
 Geographic segments
  Three Months Ended March 31,
    
    
    Six Months Ended March 31,(in thousands)
    
    2007
    
    
    2008
    
    
    2007
    
    
    2008Revenues:Americas
    
    $
    101,434
    
    
    $
    106,631
    
    
    $
    197,924
    
    
    $
    213,804Europe
    
    
    1,641
    
    
    
    1,461
    
    
    
    3,382
    
    
    
    3,198Total revenues
    
    $
    103,075
    
    
    $
    108,092
    
    
    $
    201,306
    
    
    $
    217,002
 September 30, 2007
    
    
    March 31, 2008Assets:Americas
    
    $
    1,049,029
    
    
    $
    1,051,317Europe
    
    
    2,649
    
    
    
    2,258Total assets
    
    $
    1,051,678
    
    
    $
    1,053,575
 14




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##### Table of Contents



Consolidating Balance Sheet as of March 31, 2008
 GuarantorGuarantor
    
    
    Non-Guarantor(in thousands)
    
    Principal Operations
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedAssetsCurrent assets:Cash and cash equivalents
    
    $
    33,560
    
    
    $
    11,175
    
    
    $
    5,470
    
    
    $
    
    
    
    $
    50,205Trade accounts receivable, net
of allowance for doubtful
accounts
    
    
    31,086
    
    
    
    13,975
    
    
    
    2,353
    
    
    
    
    
    
    
    47,414Inventories, net
    
    
    4,829
    
    
    
    1,277
    
    
    
    56
    
    
    
    
    
    
    
    6,162Income taxes receivable
    
    
    3,874
    
    
    
    1,478
    
    
    
    69
    
    
    
    
    
    
    
    5,421Deferred income taxes
    
    
    12,212
    
    
    
    942
    
    
    
    147
    
    
    
    
    
    
    
    13,301Prepaid expenses and other
current assets
    
    
    4,586
    
    
    
    154
    
    
    
    368
    
    
    
    
    
    
    
    5,108Total current assets
    
    
    90,147
    
    
    
    29,001
    
    
    
    8,463
    
    
    
    
    
    
    
    127,611Property and equipment, net
    
    
    8,431
    
    
    
    1,118
    
    
    
    552
    
    
    
    
    
    
    
    10,101Intangible assets, net
    
    
    194,377
    
    
    
    33,301
    
    
    
    2,235
    
    
    
    
    
    
    
    229,913Goodwill
    
    
    562,029
    
    
    
    99,063
    
    
    
    233
    
    
    
    6,037
    
    
    
    667,362Investments in subsidiaries
    
    
    9,656
    
    
    
    
    
    
    
    885
    
    
    
    (10,541
    )
    
    
    Intercompany receivables (payables)
    
    
    48,677
    
    
    
    (27,396
    )
    
    
    (21,281
    )
    
    
    
    
    
    
    Deferred financing costs
    
    
    14,366
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    14,366Other assets
    
    
    4,035
    
    
    
    143
    
    
    
    44
    
    
    
    
    
    
    
    4,222Total assets
    
    $
    931,718
    
    
    $
    135,230
    
    
    $
    (8,869
    )
    
    $
    (4,504
    )
    
    $
    1,053,575Liabilities and stockholders
equity (deficit)Current liabilities:Accounts payable
    
    $
    11,732
    
    
    $
    3,116
    
    
    $
    1,040
    
    
    $
    
    
    
    $
    15,888Payroll related accruals
    
    
    8,450
    
    
    
    4,043
    
    
    
    906
    
    
    
    
    
    
    
    13,399Deferred revenue
    
    
    11,875
    
    
    
    17,432
    
    
    
    898
    
    
    
    
    
    
    
    30,205Current portion of long-term debt
    
    
    750
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    750Accrued expenses and other
current liabilities
    
    
    37,899
    
    
    
    270
    
    
    
    (1,737
    )
    
    
    6
    
    
    
    36,438Total current liabilities
    
    
    70,706
    
    
    
    24,861
    
    
    
    1,107
    
    
    
    6
    
    
    
    96,680Long-term debt, net of discount
    
    
    631,738
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    631,738Deferred tax liabilities and other
liabilities
    
    
    76,797
    
    
    
    (1,387
    )
    
    
    (1,600
    )
    
    
    
    
    
    
    73,810Total liabilities
    
    
    779,241
    
    
    
    23,474
    
    
    
    (493
    )
    
    
    6
    
    
    
    802,228Total stockholders equity (deficit)
    
    
    152,477
    
    
    
    111,756
    
    
    
    (8,376
    )
    
    
    (4,510
    )
    
    
    251,347Total liabilities and stockholders
equity (deficit)
    
    $
    931,718
    
    
    $
    135,230
    
    
    $
    (8,869
    )
    
    $
    (4,504
    )
    
    $
    1,053,575
 15




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##### Table of Contents



Consolidating Balance Sheet as of September 30, 2007
 GuarantorPrincipal
    
    
    Guarantor
    
    
    Non-Guarantor(in thousands)
    
    Operations
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedAssetsCurrent assets:Cash and cash equivalents
    
    $
    24,862
    
    
    $
    4,154
    
    
    $
    4,363
    
    
    $
    
    
    
    $
    33,379Trade accounts receivable, net of allowance for
doubtful accounts
    
    
    40,451
    
    
    
    14,408
    
    
    
    3,354
    
    
    
    
    
    
    
    58,213Inventories, net
    
    
    4,061
    
    
    
    1,014
    
    
    
    284
    
    
    
    
    
    
    
    5,359Income taxes receivable
    
    
    1,638
    
    
    
    514
    
    
    
    529
    
    
    
    
    
    
    
    2,681Deferred income taxes
    
    
    7,534
    
    
    
    942
    
    
    
    146
    
    
    
    
    
    
    
    8,622Prepaid expenses and other current assets
    
    
    5,119
    
    
    
    398
    
    
    
    219
    
    
    
    
    
    
    
    5,736Total current assets
    
    
    83,665
    
    
    
    21,430
    
    
    
    8,895
    
    
    
    
    
    
    
    113,990Property and equipment, net
    
    
    8,066
    
    
    
    1,359
    
    
    
    649
    
    
    
    
    
    
    
    10,074Intangible assets, net
    
    
    203,447
    
    
    
    29,667
    
    
    
    2,452
    
    
    
    
    
    
    
    235,566Goodwill
    
    
    560,880
    
    
    
    103,420
    
    
    
    1,869
    
    
    
    6,037
    
    
    
    672,206Investments in subsidiaries
    
    
    9,656
    
    
    
    
    
    
    
    885
    
    
    
    (10,541
    )
    
    
    Intercompany receivables (payables)
    
    
    78,175
    
    
    
    (52,525
    )
    
    
    (25,650
    )
    
    
    
    
    
    
    Deferred financing costs
    
    
    15,501
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    15,501Other assets
    
    
    4,108
    
    
    
    143
    
    
    
    95
    
    
    
    (5
    )
    
    
    4,341Total assets
    
    $
    963,498
    
    
    $
    103,494
    
    
    $
    (10,805
    )
    
    $
    (4,509
    )
    
    $
    1,051,678Liabilities and stockholders equity (deficit)Current liabilities:Accounts payable
    
    $
    13,606
    
    
    $
    3,104
    
    
    $
    1,691
    
    
    $
    
    
    
    $
    18,401Payroll related accruals
    
    
    11,168
    
    
    
    3,500
    
    
    
    1,306
    
    
    
    
    
    
    
    15,974Deferred revenue
    
    
    12,277
    
    
    
    16,104
    
    
    
    1,290
    
    
    
    
    
    
    
    29,671Current portion of long-term debt
    
    
    750
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    750Accrued expenses and other current liabilities
    
    
    20,111
    
    
    
    1,472
    
    
    
    35
    
    
    
    
    
    
    
    21,618Total current liabilities
    
    
    57,912
    
    
    
    24,180
    
    
    
    4,322
    
    
    
    
    
    
    
    86,414Long-term debt, net of discount
    
    
    632,113
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    632,113Deferred tax liabilities and other liabilities
    
    
    79,941
    
    
    
    (3,049
    )
    
    
    65
    
    
    
    
    
    
    
    76,957Total liabilities
    
    
    769,966
    
    
    
    21,131
    
    
    
    4,387
    
    
    
    
    
    
    
    795,484Total stockholders equity (deficit)
    
    
    193,532
    
    
    
    82,363
    
    
    
    (15,192
    )
    
    
    (4,509
    )
    
    
    256,194Total liabilities and stockholders equity (deficit)
    
    $
    963,498
    
    
    $
    103,494
    
    
    $
    (10,805
    )
    
    $
    (4,509
    )
    
    $
    1,051,678
 16




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##### Table of Contents



Consolidating Statement of Operations for the Three Months Ended March 31, 2008
 GuarantorPrincipal
    
    
    Guarantor
    
    
    Non-Guarantor(in thousands)
    
    Operations
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    ConsolidatedRevenues:Systems
    
    $
    22,571
    
    
    $
    19,649
    
    
    $
    2,392
    
    
    $
    44,612Services
    
    
    35,423
    
    
    
    23,749
    
    
    
    4,308
    
    
    
    63,480Total revenues
    
    
    57,994
    
    
    
    43,398
    
    
    
    6,700
    
    
    
    108,092Cost of revenues (exclusive of
depreciation and amortization
shown separately below):Systems
    
    
    13,323
    
    
    
    8,799
    
    
    
    2,947
    
    
    
    25,069Services
    
    
    14,635
    
    
    
    6,451
    
    
    
    1,987
    
    
    
    23,073Total cost of revenues
    
    
    27,958
    
    
    
    15,250
    
    
    
    4,934
    
    
    
    48,142Gross profit
    
    
    30,036
    
    
    
    28,148
    
    
    
    1,766
    
    
    
    59,950Operating expenses:Sales and marketing
    
    
    9,514
    
    
    
    5,587
    
    
    
    1,001
    
    
    
    16,102Product development
    
    
    4,894
    
    
    
    5,252
    
    
    
    866
    
    
    
    11,012General and administrative
    
    
    7,665
    
    
    
    719
    
    
    
    739
    
    
    
    9,123Depreciation and amortization
    
    
    7,533
    
    
    
    1,623
    
    
    
    170
    
    
    
    9,326Acquisition related costs
    
    
    407
    
    
    
    
    
    
    
    
    
    
    
    407Restructuring costs
    
    
    322
    
    
    
    
    
    
    
    
    
    
    
    322Total operating expenses
    
    
    30,335
    
    
    
    13,181
    
    
    
    2,776
    
    
    
    46,292Operating income (loss)
    
    
    (299
    )
    
    
    14,967
    
    
    
    (1,010
    )
    
    
    13,658Interest expense
    
    
    (14,178
    )
    
    
    
    
    
    
    (4
    )
    
    
    (14,182
    )Other income (expense), net
    
    
    529
    
    
    
    (423
    )
    
    
    403
    
    
    
    509Income (loss) before income taxes
    
    
    (13,948
    )
    
    
    14,544
    
    
    
    (611
    )
    
    
    (15
    )Income tax expense
    
    
    40
    
    
    
    2
    
    
    
    
    
    
    
    42Net income (loss)
    
    $
    (13,988
    )
    
    $
    14,542
    
    
    $
    (611
    )
    
    $
    (57
    )
 17




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##### Table of Contents



Consolidating Statement of Operations for the Three Months Ended March 31, 2007
 GuarantorPrincipal
    
    
    Guarantor
    
    
    Non-Guarantor(in thousands)
    
    Operations
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    ConsolidatedRevenues:Systems
    
    $
    31,621
    
    
    $
    13,848
    
    
    $
    1,606
    
    
    $
    47,075Services
    
    
    35,479
    
    
    
    16,719
    
    
    
    3,802
    
    
    
    56,000Total revenues
    
    
    67,100
    
    
    
    30,567
    
    
    
    5,408
    
    
    
    103,075Cost of revenues (exclusive of
depreciation and amortization
shown separately below):Systems
    
    
    17,375
    
    
    
    5,372
    
    
    
    1,883
    
    
    
    24,630Services
    
    
    13,741
    
    
    
    3,979
    
    
    
    2,255
    
    
    
    19,975Total cost of revenues
    
    
    31,116
    
    
    
    9,351
    
    
    
    4,138
    
    
    
    44,605Gross profit
    
    
    35,984
    
    
    
    21,216
    
    
    
    1,270
    
    
    
    58,470Operating expenses:Sales and marketing
    
    
    10,601
    
    
    
    4,501
    
    
    
    1,106
    
    
    
    16,208Product development
    
    
    5,803
    
    
    
    3,724
    
    
    
    600
    
    
    
    10,127General and administrative
    
    
    5,794
    
    
    
    1,124
    
    
    
    897
    
    
    
    7,815Depreciation and amortization
    
    
    7,004
    
    
    
    209
    
    
    
    66
    
    
    
    7,279Total operating expenses
    
    
    29,202
    
    
    
    9,558
    
    
    
    2,669
    
    
    
    41,429Operating income (loss)
    
    
    6,782
    
    
    
    11,658
    
    
    
    (1,399
    )
    
    
    17,041Interest expense
    
    
    (11,744
    )
    
    
    (1
    )
    
    
    (1
    )
    
    
    (11,746
    )Other income (expense), net
    
    
    (624
    )
    
    
    85
    
    
    
    556
    
    
    
    17Income (loss) before income taxes
    
    
    (5,586
    )
    
    
    11,742
    
    
    
    (844
    )
    
    
    5,312Income tax expense
    
    
    2,359
    
    
    
    2
    
    
    
    
    
    
    
    2,361Net income (loss)
    
    $
    (7,945
    )
    
    $
    11,740
    
    
    $
    (844
    )
    
    $
    2,951
 18




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##### Table of Contents



Consolidating Statement of Operations for the Six Months Ended March 31, 2008
 GuarantorPrincipal
    
    
    Guarantor
    
    
    Non-Guarantor(in thousands)
    
    Operations
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    ConsolidatedRevenues:Systems
    
    $
    45,923
    
    
    $
    39,035
    
    
    $
    5,571
    
    
    $
    90,529Services
    
    
    70,978
    
    
    
    46,786
    
    
    
    8,709
    
    
    
    126,473Total revenues
    
    
    116,901
    
    
    
    85,821
    
    
    
    14,280
    
    
    
    217,002Cost of revenues (exclusive of
depreciation and amortization
shown separately below):Systems
    
    
    27,662
    
    
    
    16,712
    
    
    
    6,845
    
    
    
    51,219Services
    
    
    29,044
    
    
    
    12,872
    
    
    
    3,972
    
    
    
    45,888Total cost of revenues
    
    
    56,706
    
    
    
    29,584
    
    
    
    10,817
    
    
    
    97,107Gross profit
    
    
    60,195
    
    
    
    56,237
    
    
    
    3,463
    
    
    
    119,895Operating expenses:Sales and marketing
    
    
    18,752
    
    
    
    11,466
    
    
    
    2,309
    
    
    
    32,527Product development
    
    
    10,141
    
    
    
    11,139
    
    
    
    1,856
    
    
    
    23,136General and administrative
    
    
    14,339
    
    
    
    1,456
    
    
    
    1,479
    
    
    
    17,274Depreciation and amortization
    
    
    14,802
    
    
    
    2,754
    
    
    
    365
    
    
    
    17,921Acquisition related costs
    
    
    658
    
    
    
    
    
    
    
    
    
    
    
    658Restructuring costs
    
    
    490
    
    
    
    
    
    
    
    
    
    
    
    490Total operating expenses
    
    
    59,182
    
    
    
    26,815
    
    
    
    6,009
    
    
    
    92,006Operating income (loss)
    
    
    1,013
    
    
    
    29,422
    
    
    
    (2,546
    )
    
    
    27,889Interest expense
    
    
    (27,865
    )
    
    
    (1
    )
    
    
    (6
    )
    
    
    (27,872
    )Other income, net
    
    
    179
    
    
    
    207
    
    
    
    687
    
    
    
    1,073Income (loss) before income taxes
    
    
    (26,673
    )
    
    
    29,628
    
    
    
    (1,865
    )
    
    
    1,090Income tax expense
    
    
    551
    
    
    
    2
    
    
    
    1
    
    
    
    554Net income (loss)
    
    $
    (27,224
    )
    
    $
    29,626
    
    
    $
    (1,866
    )
    
    $
    536
 19




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##### Table of Contents



Consolidating Statement of Operations for the Six Months Ended March 31, 2007
 GuarantorPrincipal
    
    
    Guarantor
    
    
    Non-Guarantor(in thousands)
    
    Operations
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    ConsolidatedRevenues:Systems
    
    $
    59,223
    
    
    $
    27,111
    
    
    $
    2,950
    
    
    $
    89,284Services
    
    
    70,913
    
    
    
    33,598
    
    
    
    7,511
    
    
    
    112,022Total revenues
    
    
    130,136
    
    
    
    60,709
    
    
    
    10,461
    
    
    
    201,306Cost of revenues (exclusive of
depreciation and amortization
shown separately below):Systems
    
    
    33,447
    
    
    
    10,202
    
    
    
    3,633
    
    
    
    47,282Services
    
    
    27,634
    
    
    
    8,164
    
    
    
    4,180
    
    
    
    39,978Total cost of revenues
    
    
    61,081
    
    
    
    18,366
    
    
    
    7,813
    
    
    
    87,260Gross profit
    
    
    69,055
    
    
    
    42,343
    
    
    
    2,648
    
    
    
    114,046Operating expenses:Sales and marketing
    
    
    20,699
    
    
    
    9,927
    
    
    
    2,104
    
    
    
    32,730Product development
    
    
    11,552
    
    
    
    7,558
    
    
    
    1,225
    
    
    
    20,335General and administrative
    
    
    10,372
    
    
    
    2,206
    
    
    
    1,768
    
    
    
    14,346Depreciation and amortization
    
    
    13,770
    
    
    
    429
    
    
    
    138
    
    
    
    14,337Acquisition related costs
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Restructuring costs
    
    
    287
    
    
    
    
    
    
    
    
    
    
    
    287Total operating expenses
    
    
    56,680
    
    
    
    20,120
    
    
    
    5,235
    
    
    
    82,035Operating income (loss)
    
    
    12,375
    
    
    
    22,223
    
    
    
    (2,587
    )
    
    
    32,011Interest expense
    
    
    (23,863
    )
    
    
    (2
    )
    
    
    (5
    )
    
    
    (23,870
    )Other income (expense), net
    
    
    (325
    )
    
    
    212
    
    
    
    572
    
    
    
    459Income (loss) before income taxes
    
    
    (11,813
    )
    
    
    22,433
    
    
    
    (2,020
    )
    
    
    8,600Income tax expense
    
    
    3,626
    
    
    
    5
    
    
    
    
    
    
    
    3,631Net income (loss)
    
    $
    (15,439
    )
    
    $
    22,428
    
    
    $
    (2,020
    )
    
    $
    4,969
 20




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##### Table of Contents



Consolidating Statement of Cash Flows for the Six Months Ended March 31, 2008
 GuarantorPrincipal
    
    
    Guarantor
    
    
    Non-Guarantor(in thousands)
    
    Operations
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    ConsolidatedNet cash provided by operating activities
    
    $
    15,230
    
    
    $
    7,166
    
    
    $
    1,222
    
    
    $
    23,618Investing activitiesPurchase of property and equipment
    
    
    (2,799
    )
    
    
    (145
    )
    
    
    (115
    )
    
    
    (3,059
    )Capitalized computer software costs and databases
    
    
    (3,237
    )
    
    
    
    
    
    
    
    
    
    
    (3,237
    )Net cash used in investing activities
    
    
    (6,036
    )
    
    
    (145
    )
    
    
    (115
    )
    
    
    (6,296
    )Financing activitiesRepurchase of common stock
    
    
    (14
    )
    
    
    
    
    
    
    
    
    
    
    (14
    )Payment on long-term debt
    
    
    (375
    )
    
    
    
    
    
    
    
    
    
    
    (375
    )Debt issuance costs
    
    
    (107
    )
    
    
    
    
    
    
    
    
    
    
    (107
    )Net cash used in financing activities
    
    
    (496
    )
    
    
    
    
    
    
    
    
    
    
    (496
    )Net change in cash and cash equivalents
    
    
    8,698
    
    
    
    7,021
    
    
    
    1,107
    
    
    
    16,826Cash and cash equivalents, beginning of period
    
    
    24,862
    
    
    
    4,154
    
    
    
    4,363
    
    
    
    33,379Cash and cash equivalents, end of period
    
    $
    33,560
    
    
    $
    11,175
    
    
    $
    5,470
    
    
    $
    50,205
 Consolidating Statement of Cash Flows for the Six Months Ended March 31, 2007
 GuarantorPrincipal
    
    
    Guarantor
    
    
    Non-Guarantor(in thousands)
    
    Operations
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    ConsolidatedNet cash provided by (used in) operating activities
    
    $
    15,428
    
    
    $
    (4,414
    )
    
    $
    2,024
    
    
    $
    13,038Investing activitiesPurchase of property and equipment
    
    
    (2,888
    )
    
    
    (125
    )
    
    
    (98
    )
    
    
    (3,111
    )Capitalized computer software costs and databases
    
    
    (2,538
    )
    
    
    
    
    
    
    
    
    
    
    (2,538
    )Purchase price adjustments
    
    
    700
    
    
    
    
    
    
    
    
    
    
    
    700Net cash used in investing activities
    
    
    (4,726
    )
    
    
    (125
    )
    
    
    (98
    )
    
    
    (4,949
    )Financing activitiesPayment on long-term debt
    
    
    (27,000
    )
    
    
    
    
    
    
    
    
    
    
    (27,000
    )Debt issuance costs
    
    
    (1,077
    )
    
    
    
    
    
    
    
    
    
    
    (1,077
    )Net cash used in financing activities
    
    
    (28,077
    )
    
    
    
    
    
    
    
    
    
    
    (28,077
    )Net change in cash and cash equivalents
    
    
    (17,375
    )
    
    
    (4,539
    )
    
    
    1,926
    
    
    
    (19,988
    )Cash and cash equivalents, beginning of period
    
    
    26,498
    
    
    
    7,772
    
    
    
    2,113
    
    
    
    36,383Cash and cash equivalents, end of period
    
    $
    9,123
    
    
    $
    3,233
    
    
    $
    4,039
    
    
    $
    16,395
 21




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##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 You should read the following discussion and analysis in conjunction with our financial statements
and related notes included above. This discussion contains forward-looking statements that involve
risks, uncertainties and assumptions. Our actual results may differ materially from those
anticipated in these forward-looking statements as a result of a variety of factors listed below,
including those set forth under Risk Factors included in our Annual Report on Form 10-K for the
year ended September 30, 2007.
  Overview
 Disclosures about Segments of an Enterprise and Related
Information.
  
    
    The hardlines and lumber vertical market consists of independent hardware retailers;
home improvement centers; paint, glass and wallpaper stores; farm supply stores; retail
nurseries and garden centers; and independent lumber and building material dealers,
primarily in the United States.
    
    The wholesale distribution vertical market consists of distributors of a range of
products including electrical supply; plumbing; medical supply; heating and air
conditioning; brick, stone and related materials; roofing; siding; insulation; industrial
machinery and equipment; industrial supplies; fluid power; janitorial and sanitation
products; paper and packaging; and service establishment equipment vendors, primarily in
the United States.
    
    The automotive vertical market consists of customers involved in the manufacture,
distribution, sale and installation of new and remanufactured parts used in the maintenance
and repair of automobiles and light trucks, and includes manufacturers, warehouse
distributors, parts stores, professional installers and several chains in North America and
Europe.
    
    The productivity tools business consists of software migration and application
development tools.
  
    
    Systems, which is comprised primarily of proprietary software applications;
implementation services; training; forms and paper products; and third-party software,
hardware and peripherals.
 22




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##### Table of Contents




    
    Services, which is comprised primarily of product support, content, and supply chain
services. Product support services are comprised of customer support activities, including
support through our advice line, software updates, preventive and
remedial on-site maintenance and depot repair services. Our content services are comprised
of proprietary database and data management products such as our comprehensive electronic
automotive parts and applications catalog and point-of-sale business analysis data. Supply
chain services are comprised of connectivity services, e-commerce, networking and security
monitoring management solutions. We generally provide our services on a monthly
subscription basis, and accordingly, revenues are generally recurring in nature.
 Historical Results of Operations
 Three months ended March 31, 2008 compared to three months ended March 31, 2007
 Revenues.
  Three months ended March 31,(in thousands)
    
    2007
    
    
    2008
    
    
    Variance $
    
    
    Variance %Hardlines and Lumber Revenues:Systems
    
    $
    25,803
    
    
    $
    17,170
    
    
    $
    (8,633
    )
    
    
    (33.5
    )%Services
    
    
    18,893
    
    
    
    19,940
    
    
    
    1,047
    
    
    
    5.5
    %Total Hardlines and Lumber Revenues
    
    $
    44,696
    
    
    $
    37,110
    
    
    $
    (7,586
    )
    
    
    (17.0
    )%Wholesale Distribution Revenues:Systems
    
    $
    13,849
    
    
    $
    19,649
    
    
    $
    5,800
    
    
    
    41.9
    %Services
    
    
    16,719
    
    
    
    23,795
    
    
    
    7,076
    
    
    
    42.3
    %Total Wholesale Distribution Revenues
    
    $
    30,568
    
    
    $
    43,444
    
    
    $
    12,876
    
    
    
    42.1
    %Automotive Revenues:Systems
    
    $
    3,920
    
    
    $
    4,238
    
    
    $
    318
    
    
    
    8.1
    %Services
    
    
    18,850
    
    
    
    18,199
    
    
    
    (651
    )
    
    
    (3.5
    )%Total Automotive Revenues
    
    $
    22,770
    
    
    $
    22,437
    
    
    $
    (333
    )
    
    
    (1.5
    )%Other Revenues:Systems
    
    $
    3,503
    
    
    $
    3,555
    
    
    $
    52
    
    
    
    1.5
    %Services
    
    
    1,538
    
    
    
    1,546
    
    
    
    8
    
    
    
    0.5
    %Total Other Revenues
    
    $
    5,041
    
    
    $
    5,101
    
    
    $
    60
    
    
    
    1.2
    %Total Revenues:Systems
    
    $
    47,075
    
    
    $
    44,612
    
    
    $
    (2,463
    )
    
    
    (5.2
    )%Services
    
    
    56,000
    
    
    
    63,480
    
    
    
    7,480
    
    
    
    13.4
    %Total Revenues
    
    $
    103,075
    
    
    $
    108,092
    
    
    $
    5,017
    
    
    
    4.9
    %
  23




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##### Table of Contents




    
    Hardlines and Lumber Revenues.Hardlines and Lumber revenues decreased by $7.6 million, or
17.0%. The systems revenue decrease was attributed to a reduction in system sales, primarily
as a result of one of our co-op partners substantially completing migrations from their legacy
systems to Activants solution, and a softening of general economic conditions that has
resulted in decreases in new store openings, and impacted our customers businesses,
particularly in the residential housing construction market. These decreases in systems revenue
were partially offset by systems revenue attributable to the Silk acquisition. The services
revenue increase relates primarily to the Silk acquisition and an increase in the base business
resulting from prior systems sales.
    
    Wholesale Distribution Revenues.Wholesale Distribution revenues increased by $12.9 million,
or 42.1%. The systems revenue increase was substantially attributable to the Eclipse
acquisition. The services revenue increase was attributable to the Eclipse acquisition, as
well as annual support price increases and increases in the support customer base.
    
    Automotive Revenues.Automotive revenues decreased by $0.3 million, or 1.5%. The systems
revenue increase was primarily driven by increased volume of systems in both the US and Europe.
The services revenue decreased as a result of planned attrition of a major customer, General
Parts Inc.
    
    Other Revenues.Other revenues were similar to the comparable year ago period.
 Total
cost of revenues and gross margins as a percentage of revenues.
  Three months ended March 31,(in thousands)
    
    2007
    
    2008
    
    VarianceCost of systems revenues
    
    $
    24,630
    
    
    $
    25,069
    
    
    $
    439Systems gross margins
    
    
    47.7
    %
    
    
    43.8
    %Cost of services revenues
    
    $
    19,975
    
    
    $
    23,073
    
    
    $
    3,098Services gross margins
    
    
    64.3
    %
    
    
    63.7
    %Total cost of revenues
    
    $
    44,605
    
    
    $
    48,142
    
    
    $
    3,537Total gross margins
    
    
    56.7
    %
    
    
    55.5
    %
 Cost of Systems Revenues and Systems Gross Margins
   Cost of Services Revenues and Services Gross Margins
   24




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##### Table of Contents



Total Operating Expenses.
 Three months ended March 31,(in thousands)
    
    2007
    
    
    2008
    
    
    Variance $
    
    
    Variance %Sales and Marketing Expense
    
    $
    16,208
    
    
    $
    16,102
    
    
    $
    (106
    )
    
    
    (0.7
    )%Product Development Expense
    
    
    10,127
    
    
    
    11,012
    
    
    
    885
    
    
    
    8.7
    %General and Administrative Expense
    
    
    7,815
    
    
    
    9,123
    
    
    
    1,308
    
    
    
    16.7
    %Depreciation and Amortization
    
    
    7,279
    
    
    
    9,326
    
    
    
    2,047
    
    
    
    28.1
    %Acquisition-related costs
    
    
    
    
    
    
    407
    
    
    
    407
    
    
    
    Restructuring costs
    
    
    
    
    
    
    322
    
    
    
    322
    
    
    
    Total Operating Expenses
    
    $
    41,429
    
    
    $
    46,292
    
    
    $
    4,863
    
    
    
    11.7
    %
  
    
    Sales and Marketing Expense.Sales and marketing expense consist primarily of salaries
and commissions for our sales forces, share-based payment expense, marketing expenses and an
allocation of overhead expenses including facilities and IT costs. Sales and marketing
expenses decreased by $0.1 million, or 0.7%, for the three months ended March 31, 2008
compared to the three months ended March 31, 2007. The decrease was primarily a result of
lower bonus and commission expense and $0.3 million lower bad debt expense, which was
partially offset by $0.8 million of expenses related to Silk Systems and Eclipse.
    
    Product Development Expense.Product development expense consists primarily of salaries,
share-based payment expense, outside services and an allocation of overhead expenses,
including facilities and IT costs. Product development expense increased by $0.9 million, or
8.7%, for the three months ended March 31, 2008 compared to the three months ended March 31,
2007. The increase is primarily due to $1.7 million of expenses related to Silk Systems and
Eclipse, partially offset by $0.3 million higher capitalization of software development
costs and $0.2 million lower third-party service costs.
    
    General and Administrative Expense.General and administrative expense primarily
consists of salaries and bonuses; share-based payment expense; facility costs; finance,
human resource and legal services; IT support and telecommunication costs. General and
administrative expenses increased by $1.3 million, or 16.7%, for the three months ended
March 31, 2008 compared to the three months ended March 31, 2007. The increase is primarily
due to $1.3 million of costs related to strategic initiatives, $0.6 million higher facility
and telecom costs primarily related to the Eclipse and Silk Systems acquisitions, and $0.6
of accounting and legal costs. This increase was partially offset by $0.6 million higher IT
and facilities allocations to our segments, $0.3 million lower bonus expense, and $0.3
million lower share-based compensation expense.
    
    Depreciation and Amortization.Depreciation and amortization expense consists of
depreciation on our fixed assets and amortization of our purchased intangible assets. We do
not allocate depreciation and amortization to our segments. Depreciation and amortization
expense was $9.3 million for the three months ended March 31, 2008 compared to $7.3 million
for the three months ended March 31, 2007. The increase resulted primarily from the
amortization of the additional $38.6 million of intangible assets associated with the
acquisitions of Silk Systems and Eclipse.
    
    Acquisition Related Costs.Acquisition related costs for the three months ended March
31, 2008 were $0.4 million, which primarily included consulting fees and other professional
services incurred in connection with systems integration activities at our acquired
companies.
    
    Restructuring Costs.During the three months ended March 31, 2008, our management also
approved a restructuring plan for eliminating certain additional positions with the intent
to streamline and focus our operations and more properly align our cost structure with our
projected revenue streams. In accordance with SFAS 146, we recorded a charge of
approximately $0.2 million related to this workforce reduction. All payments related to this
action were paid by March 31, 2008.
    
    Interest Expense.Interest expense for the three months ended March 31, 2008 was $14.2
million compared to $11.7 million
 25




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##### Table of Contents



for the three months ended March 31, 2007, an increase of $2.5 million, or 21.4%. The increase
is primarily a result of additional borrowings of $95.0 million to fund the acquisition of
Eclipse in August 2007, partially offset by the repayment of $25.0 million in principal amount
of term loans during our 2007 fiscal year.
    
    Other Income.Other income consisted primarily of interest income and foreign currency
gains, partially offset by losses on marketable securities.
    
    Provision for Income Taxes.We recognized an income tax expense of $42 thousand for the
three months ended March 31, 2008 compared to an income tax expense of $2.4 million or 44.4%
of pre-tax income in the comparable period in 2007.
 Segment Information
   Contribution Margin
  Three months ended March 31,(in thousands)
    
    2007
    
    
    2008
    
    
    Variance $
    
    
    Variance %Hardlines and Lumber
    
    $
    12,680
    
    
    $
    7,796
    
    
    $
    (4,884
    )
    
    
    (38.5
    )%Wholesale Distribution
    
    
    11,040
    
    
    
    16,824
    
    
    
    5,784
    
    
    
    52.4
    %Automotive
    
    
    8,400
    
    
    
    8,027
    
    
    
    (373
    )
    
    
    (4.4
    )%Other
    
    
    1,022
    
    
    
    896
    
    
    
    (126
    )
    
    
    (12.3
    )%Total Contribution Margin
    
    $
    33,142
    
    
    $
    33,543
    
    
    $
    401
    
    
    
    1.2
    %
   26




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##### Table of Contents



Factors affecting Hardlines and Lumber contribution margin for the three months ended March 31,
2008.
  Factors affecting Wholesale Distribution contribution margin for the three months ended March 31,
2008.
  Factors affecting Automotive contribution margin for the three months ended March 31, 2008.
  Factors affecting Other contribution margin for the three months ended March 31, 2008.
  27




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##### Table of Contents



Six months ended March 31, 2008 compared to six months ended March 31, 2007
 Revenues.
  Six Months Ended March 31,(in thousands)
    
    2007
    
    
    2008
    
    
    Variance $
    
    
    Variance %Hardlines and Lumber Revenues:Systems
    
    $
    48,506
    
    
    $
    36,847
    
    
    $
    (11,659
    )
    
    
    (24.0
    )%Services
    
    
    37,432
    
    
    
    40,053
    
    
    
    2,621
    
    
    
    7.0
    %Total Hardlines and Lumber Revenues
    
    $
    85,938
    
    
    $
    76,900
    
    
    $
    (9,038
    )
    
    
    (10.5
    )%Wholesale Distribution Revenues:Systems
    
    $
    27,112
    
    
    $
    39,034
    
    
    $
    11,922
    
    
    
    44.0
    %Services
    
    
    33,598
    
    
    
    46,850
    
    
    
    13,252
    
    
    
    39.4
    %Total Wholesale Distribution Revenues
    
    $
    60,710
    
    
    $
    85,884
    
    
    $
    25,174
    
    
    
    41.5
    %Automotive Revenues:Systems
    
    $
    7,656
    
    
    $
    7,749
    
    
    $
    93
    
    
    
    1.2
    %Services
    
    
    37,661
    
    
    
    36,473
    
    
    
    (1,188
    )
    
    
    (3.2
    )%Total Automotive Revenues
    
    $
    45,317
    
    
    $
    44,222
    
    
    $
    (1,095
    )
    
    
    (2.4
    )%Other Revenues:Systems
    
    $
    6,010
    
    
    $
    6,899
    
    
    $
    889
    
    
    
    14.8
    %Services
    
    
    3,331
    
    
    
    3,097
    
    
    
    (234
    )
    
    
    (7.1
    )%Total Other Revenues
    
    $
    9,341
    
    
    $
    9,996
    
    
    $
    655
    
    
    
    7.0
    %Total Revenues:Systems
    
    $
    89,284
    
    
    $
    90,529
    
    
    $
    1,245
    
    
    
    1.4
    %Services
    
    
    112,022
    
    
    
    126,473
    
    
    
    14,451
    
    
    
    12.9
    %Total Revenues
    
    $
    201,306
    
    
    $
    217,002
    
    
    $
    15,696
    
    
    
    7.8
    %
  
    
    Hardlines and Lumber Revenues.Hardlines and Lumber revenues decreased by $9.0 million, or
10.5%. The decrease in systems revenue was attributable to a reduction in system sales as a
result of one of our co-op partners substantially completing migrations from their legacy
systems to Activants solution, and a softening of general economic conditions that has
resulted in decreases in new store openings, and impacted our customers businesses,
particularly in the residential housing construction market. These decreases in systems revenue
were partially offset by systems revenue attributable to the Silk acquisition. The services
revenue increase relates primarily to the Silk acquisition and an increase in the base business
resulting from prior systems sales.
    
    Wholesale Distribution Revenues.Wholesale Distribution revenues increased by $25.2 million,
or 41.5%. The increase in systems revenue was substantially attributable to the Eclipse
acquisition, which was partially offset by reductions in the base-business system sales. The
increase in services revenue was attributable to the Eclipse acquisition, as well as annual
support price increases and increases to the support customer base.
 28




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##### Table of Contents




    
    Automotive Revenues.Automotive revenues decreased by $1.1 million, or 2.4%. The systems
revenue increase was primarily driven by increased volume of systems in both the US and Europe.
The services revenue decreased as a result of planned attrition of a major customer, General
Parts Inc.
    
    Other Revenues.Other revenues increased by $0.7 million, or 7.0%, primarily due to
increased systems revenues from our productivity tools business.
 Total cost of revenues and gross margins as a percentage of revenues.
  Six months ended March 31,(dollars in thousands)
    
    2007
    
    2008
    
    VarianceCost of systems revenues
    
    $
    47,282
    
    
    $
    51,219
    
    
    $
    3,937Systems gross margins
    
    
    47.0
    %
    
    
    43.4
    %Cost of services revenues
    
    $
    39,979
    
    
    $
    45,888
    
    
    $
    5,909Services gross margins
    
    
    64.3
    %
    
    
    63.7
    %Total cost of revenues
    
    $
    87,261
    
    
    $
    97,107
    
    
    $
    9,846Total gross margins
    
    
    56.7
    %
    
    
    55.3
    %
 Cost of Systems Revenues and Systems Gross Margins.
   Cost of Services Revenues and Services Gross Margins
   29




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##### Table of Contents



Total Operating Expenses.
 Six Months Ended March 31,(in thousands)
    
    2007
    
    
    2008
    
    
    Variance $
    
    
    Variance %Sales and Marketing Expense
    
    $
    32,730
    
    
    $
    32,527
    
    
    $
    (203
    )
    
    
    (0.6
    )%Product Development Expense
    
    
    20,335
    
    
    
    23,136
    
    
    
    2,801
    
    
    
    13.8
    %General and Administrative Expense
    
    
    14,346
    
    
    
    17,274
    
    
    
    2,928
    
    
    
    20.4
    %Depreciation and Amortization
    
    
    14,337
    
    
    
    17,921
    
    
    
    3,584
    
    
    
    25.0
    %Acquisition-related costs
    
    
    
    
    
    
    658
    
    
    
    658
    
    
    
    Restructuring costs
    
    
    287
    
    
    
    490
    
    
    
    203
    
    
    
    70.7
    %Total Operating Expenses
    
    $
    82,035
    
    
    $
    92,006
    
    
    $
    9,971
    
    
    
    12.2
    %
  
    
    Sales and Marketing Expense.Sales and marketing expense consist primarily of salaries
and commissions for our sales forces, share-based payment expense, marketing expenses and an
allocation of overhead expenses including facilities and IT costs. Sales and marketing
expenses decreased by $0.2 million, or 0.6%, for the six months ended March 31, 2008
compared to the six months ended March 31, 2007. The decrease was primarily a result of
lower bonus and commission expense and $1.1 million lower bad debt expense, partially offset
by $2.0 million of expenses related to Silk Systems and Eclipse.
    
    Product Development Expense.Product development expense consists primarily of salaries,
share-based payment expense, outside services and an allocation of overhead expenses,
including facilities and IT costs. Product development expense increased by $2.8 million, or
13.8%, for the six months ended March 31, 2008 compared to the six months ended March 31,
2007. The increase is primarily due to $3.9 million of expenses related to Silk Systems and
Eclipse, partially offset by $0.6 million higher capitalization of software development
costs and $0.3 million lower third-party service costs.
    
    General and Administrative Expense.General and administrative expense primarily
consists of salaries and bonuses, share-based payment expense, facility costs, finance and
legal services, IT support and telecommunication costs. General and administrative expenses
increased by $2.9 million, or 20.4%, for the six months ended March 31, 2008 compared to the
six months ended March 31, 2007. The increase is primarily due to $1.6 million of costs
related to strategic initiatives, $1.2 million higher salary costs as we continue to build
the management team, $1.0 million higher facility costs primarily related to the Eclipse and
Silk Systems acquisitions, and $0.6 of merger and acquisition related costs associated. This
increase was partially offset by $1.0 million increased allocations to segments and $0.8
million lower bonus expense.
    
    Depreciation and Amortization.Depreciation and amortization expense consists of
depreciation on our fixed assets and amortization of our purchased intangible assets.
Depreciation and amortization expense is not allocated to our segments. Depreciation and
amortization expense was $17.9 million for the six months ended March 31, 2008 compared to
$14.3 million for the six months ended March 31, 2007. The increase resulted primarily from
the amortization of the additional $38.6 million of intangible assets associated with the
acquisitions of Silk Systems and Eclipse.
    
    Acquisition-Related Costs.Acquisition-related costs for the six months ended March 31,
2008 were $0.7 million, which primarily included consulting fees and other professional
services incurred in connection with systems integration activities at our acquired
companies.
    
    Restructuring Costs.Restructuring costs for the six months ended March 31, 2008 of $0.5
million primarily relate to closing costs of redundant facilities and severance costs
related to a reduction in workforce and consolidation of administrative functions.
Restructuring costs for the six months ended March 31, 2007 of $0.3 million primarily
related to costs associated with moving the corporate headquarters to Livermore, California
in 2006.
    
    Interest Expense.Interest expense for the six months ended March 31, 2008 was $27.9
million compared to $23.9 million for the six months ended March 31, 2007, an increase of
$4.0 million, or 16.7%. The increase is primarily a result of additional borrowings of $95.0
million to fund the acquisition of Eclipse in August 2007, partially offset by the repayment
of $25.0 million in principal amount of term loans during our 2007 fiscal year.
 30




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##### Table of Contents




    
    Other Income.Other income consisted primarily of interest income and gains on foreign
currency transactions, partially offset by losses on marketable securities.
    
    Provision for Income Taxes.We recognized an income tax expense of approximately $0.6
million, or 50.8% of pre-tax income for the six months ended March 31, 2008 compared to an
income tax expense of $3.6 million or 42.2% of pre-tax income in the comparable period in
2007. Then increase in the tax rate is due to the impact of permanent differences and state
income taxes.
 Segment Information
  Contribution Margin
  Six Months Ended March 31,(in thousands)
    
    2007
    
    
    2008
    
    
    Variance $
    
    
    Variance %Hardlines and Lumber
    
    $
    23,299
    
    
    $
    17,263
    
    
    $
    (6,036
    )
    
    
    (25.9
    )%Wholesale Distribution
    
    
    21,228
    
    
    
    32,589
    
    
    
    11,361
    
    
    
    53.5
    %Automotive
    
    
    16,780
    
    
    
    15,438
    
    
    
    (1,342
    )
    
    
    (8.0
    )%Other
    
    
    1,524
    
    
    
    831
    
    
    
    (693
    )
    
    
    (45.5
    )%Total Contribution Margin
    
    $
    62,831
    
    
    $
    66,121
    
    
    $
    3,290
    
    
    
    5.2
    %
 Factors affecting Hardlines and Lumber contribution margin for the six months ended March 31, 2008.
  Factors affecting Wholesale Distribution contribution margin for the six months ended March 31,
2008.
  Factors affecting Automotive contribution margin for the six months ended March 31, 2008.
  Factors affecting Other contribution margin for the six months ended March 31, 2008.
  31




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##### Table of Contents



Liquidity and Capital Resources
 Overview
      
    
    under the revolving credit facility, 1.25% with respect to base rate borrowings and 2.25%
with respect to Eurodollar rate borrowings, which may be reduced subject to our attainment of
certain leverage ratios;
 
    
    under the term loan, 1.00% with respect to base rate borrowings and 2.00% with respect to
Eurodollar rate borrowings; and
 
    
    under the incremental term loan, 1.5% with respect to base rate borrowings and 2.50% with
respect to Eurodollar rate borrowings.
  1 2
  32




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##### Table of Contents



Six Months Ended March 31, 2008 Compared to Six Months Ended March 31, 2007
     33




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##### Table of Contents



Item 3. Quantitative and Qualitative Disclosures about Market Risk.
 Interest Rate Risk
  Foreign Currency Risk
   
 Item 4. Controls and Procedures.
 Evaluation of Disclosure Controls and Procedures
  Internal controls over financial reporting
  Limitations on Effectiveness of Controls
  34




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##### Table of Contents



PART II  OTHER INFORMATION
 
 Item 1. Legal Proceedings.
  
 Item 1A. Risk Factors.
  
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
  
 Item 3. Defaults Upon Senior Securities.
  
 Item 4. Submission of Matters to a Vote of Security Holders.
  
 Item 5. Other Information.
  
 Item 6. Exhibits.
  ExhibitNo.
    
    Description31.1*
    
    Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 by Pervez A. Qureshi.31.2*
    
    Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 by Kathleen M. Crusco32.1**
    
    Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 by Pervez A. Qureshi.32.2**
    
    Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 by Kathleen M. Crusco
 
 *
    
    Exhibit is filed herewith.**
    
    Exhibit is furnished herewith. This certification is not deemed filed for purposes of
Section 18 of the Securities Exchange Act of 1934 or otherwise subject to the liability of
that section. Such certification will not be deemed to be incorporated by reference into any
filing under the Securities Act of 1933 or the Securities Exchange Act of 1934, except to the
extent that the registrant specifically incorporates it by reference. 35




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##### Table of Contents



SIGNATURE
 th
 ACTIVANT SOLUTIONS INC.By:
    /s/ KATHLEEN M. CRUSCOKathleen M. CruscoSenior Vice President and Chief Financial Officer

(Principal Financial and Duly Authorized Officer) 36