##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
 For the quarterly period ended June 30, 2007
 o
    
    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 333-49389
 Activant Solutions Inc.
  Delaware
(State or other jurisdiction of 
incorporation or organization)
    
    94-2160013
(I.R.S. Employer
Identification No.)7683 Southfront Road 
Livermore, CA 94551
(Address of principal executive offices)
    
    94551
(Zip Code)
 (925) 449-0606
 þ o
  o o þ
 o þ
  Class
    
    Outstanding at August 13, 2007Common Stock, par value $0.01 per share
    
    10 shares




---



##### 



ACTIVANT SOLUTIONS INC.
REPORT ON FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 2007
 INDEX
 PAGEFORWARD-LOOKING STATEMENTS
    
    
    3PART I  FINANCIAL INFORMATIONITEM 1.  FINANCIAL STATEMENTS (Unaudited)
    
    
    4Consolidated Balance Sheets as of September 30, 2006 and June 30, 2007
    
    
    4Consolidated Statements of Operations and Comprehensive Income for
the three months ended June 30, 2007 and the period from Inception to
June 30, 2006 (Activant Solutions Inc.) and the period from April 1,
2006 to May 2, 2006 (Predecessor Company)
    
    
    5Consolidated Statements of Operations and Comprehensive Income for
the nine months ended June 30, 2007 and the period from Inception to
June 30, 2006 (Activant Solutions Inc.) and the period from October
1, 2005 to May 2, 2006 (Predecessor Company)
    
    
    6Consolidated Statements of Cash Flows for the nine months ended June
30, 2007 and the period from Inception to June 30, 2006 (Activant
Solutions Inc.) and the period from October 1, 2005 to May 2, 2006
(Predecessor Company)
    
    
    7Notes to Consolidated Financial Statements
    
    
    8ITEM 2.    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
    
    
    28ITEM 3.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
    
    
    42ITEM 4.   CONTROLS AND PROCEDURES
    
    
    42PART II  OTHER INFORMATIONITEM 1.  LEGAL PROCEEDINGS
    
    
    43ITEM 1A.  RISK FACTORS
    
    
    43ITEM 2.  UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
    
    
    49ITEM 3.  DEFAULTS UPON SENIOR SECURITIES
    
    
    49ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
    
    
    49ITEM 5.  OTHER INFORMATION
    
    
    49ITEM 6.  EXHIBITS
    
    
    50SIGNATURE
    
    
    51Certification Pursuant to Section 302 by Pervez QureshiCertification Pursuant to Section 302 by Kathleen M. CruscoCertification Pursuant to Section 906 by Pervez QureshiCertification Pursuant to Section 906 by Kathleen M. Crusco
  2




---



##### 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;
    
    discontinuance by one of our largest customers of the use of certain of our products;
    
    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
acquisition of Silk Systems and our recently announced acquisition of 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 lumber industry;
    
    differing interests of debt security holders and our controlling stockholders or investors; and
    
    the other factors described under the heading Risk Factors and elsewhere in this report.
  3




---



##### Table of Contents



PART I  FINANCIAL INFORMATION
 
 Item 1. Financial Statements (Unaudited).
  
  September 30,
    
    
    June 30,(in thousands, except share data)
    
    2006
    
    
    2007(Unaudited)ASSETS:Current assets:Cash and cash equivalents
    
    $
    36,383
    
    
    $
    25,565Trade accounts receivable, net of allowance for doubtful accounts of
$2,205 and $5,175 at September 30, 2006 and June 30, 2007, respectively
    
    
    55,689
    
    
    
    49,824Inventories, net
    
    
    4,355
    
    
    
    5,963Deferred income taxes
    
    
    5,401
    
    
    
    7,453Income taxes receivable
    
    
    12,906
    
    
    
    2,672Prepaid expenses and other current assets
    
    
    5,231
    
    
    
    5,954Total current assets
    
    
    119,965
    
    
    
    97,431Property and equipment, net
    
    
    8,727
    
    
    
    9,328Intangible assets, net
    
    
    221,380
    
    
    
    210,340Goodwill
    
    
    598,532
    
    
    
    600,821Deferred financing costs
    
    
    15,137
    
    
    
    14,628Other assets
    
    
    3,945
    
    
    
    4,418Total assets
    
    $
    967,686
    
    
    $
    936,966LIABILITIES AND STOCKHOLDERS EQUITY:Current liabilities:Accounts payable
    
    $
    13,944
    
    
    $
    13,437Payroll related accruals
    
    
    18,266
    
    
    
    16,557Deferred revenue
    
    
    29,688
    
    
    
    26,194Current portion of long-term debt
    
    
    3,900
    
    
    
    Accrued expenses and other current liabilities
    
    
    23,436
    
    
    
    20,679Total current liabilities
    
    
    89,234
    
    
    
    76,867Long-term debt
    
    
    561,150
    
    
    
    538,050Deferred tax liabilities
    
    
    64,817
    
    
    
    58,483Other liabilities
    
    
    4,812
    
    
    
    4,418Total liabilities
    
    
    720,013
    
    
    
    677,818Commitments and contingencies
    
    
    
    
    
    
    Common Stock:Par value $0.01, authorized 1,000 shares, 10 shares issued and
outstanding, at September 30, 2006 and June 30, 2007
    
    
    
    
    
    
    Additional paid-in capital
    
    
    246,744
    
    
    
    250,024Retained earnings
    
    
    3,080
    
    
    
    9,395Other accumulated comprehensive income (loss):Unrealized loss on cash flow hedges
    
    
    (2,103
    )
    
    
    (310
    )Cumulative translation adjustment
    
    
    (48
    )
    
    
    39Total stockholders equity
    
    
    247,673
    
    
    
    259,148Total liabilities and stockholders equity
    
    $
    967,686
    
    
    $
    936,966
  4




---



##### Table of Contents



(in thousands)
    
    Predecessor
    
    
    
    Activant Solutions
    
    
    Activant SolutionsCompany
    
    
    
    Inc.
    
    
    Inc.Period from
    
    
    
    Period from
    
    
    Three MonthsApril 1, 2006 to
    
    
    
    Inception to
    
    
    EndedMay 2, 2006
    
    
    
    June 30, 2006
    
    
    June 30, 2007Revenues:Systems
    
    $
    9,813
    
    
    
    $
    25,867
    
    
    $
    41,490Services
    
    
    18,218
    
    
    
    
    37,549
    
    
    
    58,759Total revenues
    
    
    28,031
    
    
    
    
    63,416
    
    
    
    100,249Cost of revenues (exclusive of
depreciation and amortization shown
separately below):Systems (1)
    
    
    5,334
    
    
    
    
    13,549
    
    
    
    22,695Services (1)
    
    
    6,852
    
    
    
    
    14,732
    
    
    
    21,699Total cost of revenues
    
    
    12,186
    
    
    
    
    28,281
    
    
    
    44,394Gross profit
    
    
    15,845
    
    
    
    
    35,135
    
    
    
    55,855Operating expenses:Sales and marketing (1)
    
    
    4,469
    
    
    
    
    9,134
    
    
    
    14,071Product development (1)
    
    
    3,057
    
    
    
    
    6,242
    
    
    
    10,490General and administrative (1)
    
    
    3,209
    
    
    
    
    5,842
    
    
    
    9,922Depreciation and amortization
    
    
    2,195
    
    
    
    
    4,690
    
    
    
    7,448Acquisition-related costs
    
    
    30,515
    
    
    
    
    194
    
    
    
    72Restructuring costs
    
    
    116
    
    
    
    
    115
    
    
    
    276Total operating expenses
    
    
    43,561
    
    
    
    
    26,217
    
    
    
    42,279Operating income (loss)
    
    
    (27,716
    )
    
    
    
    8,918
    
    
    
    13,576Interest expense
    
    
    (6,199
    )
    
    
    
    (8,166
    )
    
    
    (11,774
    )Write-off of prior deferred financing costs
    
    
    (14,459
    )
    
    
    
    
    
    
    
    Premiums on debt repurchase
    
    
    (26,671
    )
    
    
    
    
    
    
    
    Other income (loss), net
    
    
    (268
    )
    
    
    
    (38
    )
    
    
    327Income (loss) before income taxes
    
    
    (75,313
    )
    
    
    
    714
    
    
    
    2,129Provision for (benefit from) income taxes
    
    
    (25,490
    )
    
    
    
    119
    
    
    
    783Net income (loss)
    
    $
    (49,823
    )
    
    
    $
    595
    
    
    $
    1,346Comprehensive income:Net income (loss)
    
    $
    (49,823
    )
    
    
    $
    595
    
    
    $
    1,346Unrealized gain on cash flow hedges
    
    
    
    
    
    
    
    1,423
    
    
    
    2,042Foreign currency translation adjustment
    
    
    22
    
    
    
    
    (61
    )
    
    
    18Comprehensive income (loss)
    
    $
    (49,801
    )
    
    
    $
    1,957
    
    
    $
    3,406(1) Includes share-based payment expense as follows:Cost of revenuesSystems
    
    $
    
    
    
    
    $
    
    
    
    $
    11Services
    
    
    
    
    
    
    
    
    
    
    
    88Operating expensesSales and marketing
    
    
    
    
    
    
    
    
    
    
    
    252Product development
    
    
    
    
    
    
    
    
    
    
    
    97General and administrative
    
    $
    1,249
    
    
    
    $
    
    
    
    $
    632
  5




---



##### Table of Contents



(in thousands)
    
    Predecessor
    
    
    
    Activant Solutions
    
    
    Activant SolutionsCompany
    
    
    
    Inc.
    
    
    Inc.Period from
    
    
    
    Period from
    
    
    Nine MonthsOctober 1, 2005
    
    
    
    Inception to
    
    
    Endedto May 2, 2006
    
    
    
    June 30, 2006
    
    
    June 30, 2007Revenues:Systems
    
    $
    91,404
    
    
    
    $
    25,867
    
    
    $
    126,998Services
    
    
    133,811
    
    
    
    
    37,549
    
    
    
    174,557Total revenues
    
    
    225,215
    
    
    
    
    63,416
    
    
    
    301,555Cost of revenues (exclusive of
depreciation and amortization shown
separately below):Systems (1)
    
    
    47,547
    
    
    
    
    13,549
    
    
    
    66,116Services (1)
    
    
    48,581
    
    
    
    
    14,732
    
    
    
    63,451Total cost of revenues
    
    
    96,128
    
    
    
    
    28,281
    
    
    
    129,567Gross profit
    
    
    129,087
    
    
    
    
    35,135
    
    
    
    171,988Operating expenses:Sales and marketing (1)
    
    
    30,549
    
    
    
    
    9,134
    
    
    
    45,046Product development (1)
    
    
    21,986
    
    
    
    
    6,242
    
    
    
    29,993General and administrative (1)
    
    
    21,459
    
    
    
    
    5,842
    
    
    
    28,942Depreciation and amortization
    
    
    15,511
    
    
    
    
    4,690
    
    
    
    21,785Acquisition-related costs
    
    
    32,291
    
    
    
    
    194
    
    
    
    72Restructuring costs
    
    
    116
    
    
    
    
    115
    
    
    
    563Total operating expenses
    
    
    121,912
    
    
    
    
    26,217
    
    
    
    126,401Operating income
    
    
    7,175
    
    
    
    
    8,918
    
    
    
    45,587Interest expense
    
    
    (33,000
    )
    
    
    
    (8,166
    )
    
    
    (35,644
    )Write-off of prior deferred financing costs
    
    
    (15,994
    )
    
    
    
    
    
    
    
    Premiums on debt repurchase
    
    
    (26,671
    )
    
    
    
    
    
    
    
    Other income (loss), net
    
    
    733
    
    
    
    
    (38
    )
    
    
    786Income (loss) before income taxes
    
    
    (67,757
    )
    
    
    
    714
    
    
    
    10,729Provision for (benefit from) income taxes
    
    
    (22,553
    )
    
    
    
    119
    
    
    
    4,414Net income (loss)
    
    $
    (45,204
    )
    
    
    $
    595
    
    
    $
    6,315Comprehensive income:Net income (loss)
    
    $
    (45,204
    )
    
    
    $
    595
    
    
    $
    6,315Unrealized gain on cash flow hedges
    
    
    
    
    
    
    
    1,423
    
    
    
    1,793Foreign currency translation adjustment
    
    
    (131
    )
    
    
    
    (61
    )
    
    
    87Comprehensive income (loss)
    
    $
    (45,335
    )
    
    
    $
    1,957
    
    
    $
    8,195(1) Includes share-based payment expense as follows:Cost of revenuesSystems
    
    $
    
    
    
    
    $
    
    
    
    $
    35Services
    
    
    
    
    
    
    
    
    
    
    
    289Operating expensesSales and marketing
    
    
    
    
    
    
    
    
    
    
    
    837Product development
    
    
    
    
    
    
    
    
    
    
    
    320General and administrative
    
    $
    1,393
    
    
    
    $
    
    
    
    $
    1,812
  6




---



##### Table of Contents



(in thousands)
    
    Predecessor
    
    
    
    Activant Solutions
    
    
    Activant SolutionsCompany
    
    
    
    Inc.
    
    
    Inc.Period from
    
    
    
    Period from
    
    
    Nine MonthsOctober 1, 2005
    
    
    
    Inception to
    
    
    Endedto May 2, 2006
    
    
    
    June 30, 2006
    
    
    June 30, 2007OPERATING ACTIVITIESNet income (loss)
    
    $
    (45,204
    )
    
    
    $
    595
    
    
    $
    6,315Adjustments to reconcile net income to net cash
provided by operating activities:Stock compensation expense
    
    
    1,393
    
    
    
    
    
    
    
    
    3,293Depreciation
    
    
    3,498
    
    
    
    
    1,022
    
    
    
    4,489Amortization of intangible assets
    
    
    12,013
    
    
    
    
    3,668
    
    
    
    17,296Amortization of deferred financing costs
    
    
    1,783
    
    
    
    
    315
    
    
    
    1,586Write-off of prior deferred financing costs
    
    
    15,994
    
    
    
    
    
    
    
    
    Write-off capitalized IPO costs
    
    
    1,776
    
    
    
    
    
    
    
    
    Provision for doubtful accounts
    
    
    1,558
    
    
    
    
    747
    
    
    
    2,970Deferred income taxes, net
    
    
    (10,192
    )
    
    
    
    (341
    )
    
    
    (8,386
    )Other, net
    
    
    1,331
    
    
    
    
    (221
    )
    
    
    1,697Changes in assets and liabilities:Trade accounts receivable
    
    
    1,797
    
    
    
    
    (3,087
    )
    
    
    3,963Inventories
    
    
    (2,128
    )
    
    
    
    950
    
    
    
    (1,371
    )Prepaid expenses and other assets
    
    
    (22,531
    )
    
    
    
    (1,116
    )
    
    
    8,972Accounts payable
    
    
    (224
    )
    
    
    
    (1,221
    )
    
    
    (515
    )Deferred revenue
    
    
    (4,944
    )
    
    
    
    7,789
    
    
    
    (4,012
    )Accrued expenses and other liabilities
    
    
    56,751
    
    
    
    
    2,731
    
    
    
    (6,053
    )Net cash provided by operating activities
    
    
    12,671
    
    
    
    
    11,831
    
    
    
    30,244INVESTING ACTIVITIESPurchase of Activant Solutions Inc.
    
    
    
    
    
    
    
    (782,893
    )
    
    
    Acquisition,
net of cash acquired
    
    
    
    
    
    
    
    
    
    
    
    (6,502
    )Purchase of property and equipment
    
    
    (3,586
    )
    
    
    
    (596
    )
    
    
    (4,989
    )Capitalized computer software costs and databases
    
    
    (3,455
    )
    
    
    
    (860
    )
    
    
    (3,987
    )Unrealized gain on cash flow hedge, net
    
    
    
    
    
    
    
    
    
    
    
    1,793Purchase price adjustments
    
    
    508
    
    
    
    
    
    
    
    
    700Proceeds from disposition of equity interest
    
    
    679
    
    
    
    
    
    
    
    
    Net cash used in investing activities
    
    
    (5,854
    )
    
    
    
    (784,349
    )
    
    
    (12,985
    )FINANCING ACTIVITIESIssuance of common stock at inception
    
    
    
    
    
    
    
    245,625
    
    
    
    Proceeds from long-term debt
    
    
    185,000
    
    
    
    
    565,000
    
    
    
    Repayment of senior unsecured bridge loan
    
    
    (180,000
    )
    
    
    
    
    
    
    
    Proceeds from credit facility
    
    
    10,000
    
    
    
    
    
    
    
    
    Repayment of credit facility
    
    
    (10,000
    )
    
    
    
    
    
    
    
    (27,000
    )Payment on long-term debt
    
    
    (149
    )
    
    
    
    (975
    )
    
    
    Repurchase of common stock
    
    
    (840
    )
    
    
    
    
    
    
    
    Exercise of stock options
    
    
    105
    
    
    
    
    
    
    
    
    Debt issuance costs
    
    
    (3,561
    )
    
    
    
    (15,910
    )
    
    
    (1,077
    )Net cash provided by (used in) financing activities
    
    
    555
    
    
    
    
    793,740
    
    
    
    (28,077
    )Net change in cash and cash equivalents
    
    
    7,372
    
    
    
    
    21,222
    
    
    
    (10,818
    )Cash and cash equivalents, beginning of period
    
    
    10,952
    
    
    
    
    
    
    
    
    36,383Cash and cash equivalents, end of period
    
    $
    18,324
    
    
    
    $
    21,222
    
    
    $
    25,565Supplemental disclosures of cash flow informationCash paid during the period for:Interest
    
    $
    26,155
    
    
    
    $
    116
    
    
    $
    38,097Income taxes
    
    $
    8,311
    
    
    
    $
    282
    
    
    $
    9,993
  7




---



##### Table of Contents



8




---



##### Table of Contents



9




---



##### Table of Contents



10




---



##### Table of Contents



September 30,
    
    
    June 30,(dollars in thousands)
    
    2006
    
    
    200710 1/2 % senior notes due 2011
    
    $
    2,000
    
    
    $
    Senior secured credit agreement
    
    
    388,050
    
    
    
    363,050Senior subordinated notes
    
    
    175,000
    
    
    
    175,000Total debt
    
    
    565,050
    
    
    
    538,050Current portion
    
    
    (3,900
    )
    
    
    Long-term debt
    
    $
    561,150
    
    
    $
    538,050
 10 1 2 senior notes due 2011
 1 2
 Senior secured credit agreement
   1 2
 Senior subordinated notes due 2016
    11




---



##### Table of Contents



Activant Solutions Inc.
    2006 Option PlanNumber of
    
    
    Weighted AverageShares
    
    
    Exercise PriceTotal options outstanding at September 30, 2006
    
    
    
    
    
    $
    Options granted
    
    
    7,295,073
    
    
    
    4.38Options forfeited
    
    
    (520,000
    )
    
    
    4.35Options exercised
    
    
    
    
    
    
    Total options outstanding at June 30, 2007
    
    
    6,775,073
    
    
    $
    4.38
  12




---



##### Table of Contents



Three months
    
    Nine monthsended
    
    endedJune 30, 2007
    
    June 30, 2007Expected term
    
    6.66 years
    
    6.66 yearsExpected volatility
    
    
    50.00
    %
    
    
    50.00
    %Expected dividends
    
    
    0.00
    %
    
    
    0.00
    %Risk-free rate
    
    
    4.77
    %
    
    
    4.68
    %
  Predecessor Company
    Predecessor Company PlanNumber of
    
    
    Weighted AverageShares
    
    
    Exercise PriceTotal options outstanding at September 30, 2006
    
    
    333,334
    
    
    $
    1.00Options granted
    
    
    
    
    
    
    Options forfeited
    
    
    
    
    
    
    Options exercised
    
    
    
    
    
    
    Total options outstanding at June 30, 2007
    
    
    333,334
    
    
    $
    1.00
   
    
    Systems, which is comprised primarily of proprietary software applications, third-party
hardware and peripherals and implementation and training;
    
    Product Support, which is comprised of daily operating support through our advice line,
software updates, preventive and remedial on-site maintenance and depot repair services;
    
    Content and Supply Chain, which is comprised primarily of databases, exchanges and
other information services, including our electronic catalog in the automotive parts
aftermarket, and
    
    Other Services, which is comprised primarily of business products, such as forms and
other paper products.
  13




---



##### Table of Contents



Period from April 1, 2006 to May 2, 2006(dollars in thousands)
    
    Predecessor CompanyProduct
    
    
    Content &Systems
    
    
    Support
    
    
    Supply Chain
    
    
    Other
    
    
    TotalRevenues
    
    $
    9,813
    
    
    $
    12,874
    
    
    $
    4,554
    
    
    $
    790
    
    
    $
    28,031Cost of Revenues
    
    
    5,334
    
    
    
    5,194
    
    
    
    1,118
    
    
    
    540
    
    
    
    12,186Gross Profit
    
    $
    4,479
    
    
    $
    7,680
    
    
    $
    3,436
    
    
    $
    250
    
    
    $
    15,845Gross Profit as a
Percentage of
Revenues
    
    
    45.6
    %
    
    
    59.7
    %
    
    
    75.5
    %
    
    
    31.6
    %
    
    
    56.5
    %
 Period from Inception to June 30, 2006(dollars in thousands)
    
    Activant Solutions, Inc.Product
    
    
    Content &Systems
    
    
    Support
    
    
    Supply Chain
    
    
    Other
    
    
    TotalRevenues
    
    $
    25,867
    
    
    $
    25,346
    
    
    $
    10,696
    
    
    $
    1,507
    
    
    $
    63,416Cost of Revenues
    
    
    13,549
    
    
    
    11,037
    
    
    
    2,555
    
    
    
    1,140
    
    
    
    28,281Gross Profit
    
    $
    12,318
    
    
    $
    14,309
    
    
    $
    8,141
    
    
    $
    367
    
    
    $
    35,135Gross Profit as a
Percentage of
Revenues
    
    
    47.6
    %
    
    
    56.5
    %
    
    
    76.1
    %
    
    
    24.4
    %
    
    
    55.4
    %
 Three Months Ended June 30, 2007(dollars in thousands)
    
    Activant Solutions, Inc.Product
    
    
    Content &Systems
    
    
    Support
    
    
    Supply Chain
    
    
    Other
    
    
    TotalRevenues
    
    $
    41,490
    
    
    $
    40,017
    
    
    $
    16,401
    
    
    $
    2,341
    
    
    $
    100,249Cost of Revenues
    
    
    22,695
    
    
    
    16,460
    
    
    
    3,837
    
    
    
    1,402
    
    
    
    44,394Gross Profit
    
    $
    18,795
    
    
    $
    23,557
    
    
    $
    12,564
    
    
    $
    939
    
    
    $
    55,855Gross Profit as a
Percentage of
Revenues
    
    
    45.3
    %
    
    
    58.9
    %
    
    
    76.6
    %
    
    
    40.1
    %
    
    
    55.7
    %
  Period from October 1, 2005 to May 2, 2006(dollars in thousands)
    
    Predecessor CompanyProduct
    
    
    Content &Systems
    
    
    Support
    
    
    Supply Chain
    
    
    Other
    
    
    TotalRevenues
    
    $
    91,404
    
    
    $
    91,739
    
    
    $
    36,665
    
    
    $
    5,407
    
    
    $
    225,215Cost of Revenues
    
    
    47,547
    
    
    
    36,694
    
    
    
    8,125
    
    
    
    3,762
    
    
    
    96,128Gross Profit
    
    $
    43,857
    
    
    $
    55,045
    
    
    $
    28,540
    
    
    $
    1,645
    
    
    $
    129,087Gross Profit as a
Percentage of
Revenues
    
    
    48.0
    %
    
    
    60.0
    %
    
    
    77.8
    %
    
    
    30.4
    %
    
    
    57.3
    %
 14




---



##### Table of Contents



Period from Inception to June 30, 2006(dollars in thousands)
    
    Activant Solutions Inc.Product
    
    
    Content &Systems
    
    
    Support
    
    
    Supply Chain
    
    
    Other
    
    
    TotalRevenues
    
    $
    25,867
    
    
    $
    25,346
    
    
    $
    10,696
    
    
    $
    1,507
    
    
    $
    63,416Cost of Revenues
    
    
    13,549
    
    
    
    11,037
    
    
    
    2,555
    
    
    
    1,140
    
    
    
    28,281Gross Profit
    
    $
    12,318
    
    
    $
    14,309
    
    
    $
    8,141
    
    
    $
    367
    
    
    $
    35,135Gross Profit as a
Percentage of
Revenues
    
    
    47.6
    %
    
    
    56.5
    %
    
    
    76.1
    %
    
    
    24.4
    %
    
    
    55.4
    %
 Nine months ended June 30, 2007(dollars in thousands)
    
    Activant Solutions, Inc.Product
    
    
    Content &Systems
    
    
    Support
    
    
    Supply Chain
    
    
    Other
    
    
    TotalRevenues
    
    $
    126,998
    
    
    $
    119,368
    
    
    $
    49,217
    
    
    $
    5,972
    
    
    $
    301,555Cost of Revenues
    
    
    66,116
    
    
    
    48,023
    
    
    
    11,157
    
    
    
    4,271
    
    
    
    129,567Gross Profit
    
    $
    60,882
    
    
    $
    71,345
    
    
    $
    38,060
    
    
    $
    1,701
    
    
    $
    171,988Gross Profit as a
Percentage of
Revenues
    
    
    47.9
    %
    
    
    59.8
    %
    
    
    77.3
    %
    
    
    28.5
    %
    
    
    57.0
    %
 Geographic segments
  (in thousands)
    
    PredecessorCompany
    
    
    
    Activant Solutions Inc.Period from
    
    
    
    Period from
    
    
    Three MonthsApril 1, 2006 to
    
    
    
    Inception to
    
    
    EndedMay 2, 2006
    
    
    
    June 30, 2006
    
    
    June 30, 2007Revenues:Americas
    
    $
    27,499
    
    
    
    $
    62,432
    
    
    $
    98,510Europe
    
    
    532
    
    
    
    
    984
    
    
    
    1,739Total revenues
    
    $
    28,031
    
    
    
    $
    63,416
    
    
    $
    100,249
 Period from
    
    
    
    Period from
    
    
    Nine MonthsOctober 1, 2005
    
    
    
    Inception to
    
    
    Endedto May 2, 2006
    
    
    
    June 30, 2006
    
    
    June 30, 2007Revenues:Americas
    
    $
    221,247
    
    
    
    $
    62,432
    
    
    $
    296,434Europe
    
    
    3,968
    
    
    
    
    984
    
    
    
    5,121Total revenues
    
    $
    225,215
    
    
    
    $
    63,416
    
    
    $
    301,555
 (in thousands)
 September 30,
    
    
    June 30,2006
    
    
    2007Assets:Americas
    
    $
    965,217
    
    
    $
    934,142Europe
    
    
    2,469
    
    
    
    2,824Total assets
    
    $
    967,686
    
    
    $
    936,966
 15




---



##### Table of Contents



16




---



##### Table of Contents



Condensed Consolidating Balance Sheet as of June 30, 2007
Activant Solutions Inc.
 (in thousands)
    
    GuarantorPrincipal
    
    
    Guarantor
    
    
    Non-GuarantorOperations
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedAssetsCurrent assets:Cash and cash equivalents
    
    $
    18,472
    
    
    $
    2,877
    
    
    $
    4,216
    
    
    $
    
    
    
    $
    25,565Trade accounts receivable, net
of allowance for doubtful
accounts
    
    
    38,903
    
    
    
    7,955
    
    
    
    2,966
    
    
    
    
    
    
    
    49,824Inventories, net
    
    
    5,283
    
    
    
    386
    
    
    
    294
    
    
    
    
    
    
    
    5,963Prepaid expenses and other
current assets
    
    
    14,013
    
    
    
    1,524
    
    
    
    542
    
    
    
    
    
    
    
    16,079Total current assets
    
    
    76,671
    
    
    
    12,742
    
    
    
    8,018
    
    
    
    
    
    
    
    97,431Property and equipment, net
    
    
    7,536
    
    
    
    1,035
    
    
    
    757
    
    
    
    
    
    
    
    9,328Intangible assets, net
    
    
    208,071
    
    
    
    
    
    
    
    2,269
    
    
    
    
    
    
    
    210,340Goodwill
    
    
    600,821
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    600,821Investments in subsidiaries
    
    
    (48,245
    )
    
    
    68,746
    
    
    
    (15,998
    )
    
    
    (4,503
    )
    
    
    Deferred financing costs
    
    
    14,628
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    14,628Other assets
    
    
    4,165
    
    
    
    142
    
    
    
    111
    
    
    
    
    
    
    
    4,418Total assets
    
    $
    863,647
    
    
    $
    82,665
    
    
    $
    (4,843
    )
    
    $
    (4,503
    )
    
    $
    936,966Liabilities and stockholders
equity (deficit)Current liabilities:Accounts payable
    
    $
    10,318
    
    
    $
    1,963
    
    
    $
    1,156
    
    
    $
    
    
    
    $
    13,437Payroll related accruals
    
    
    11,126
    
    
    
    3,987
    
    
    
    1,444
    
    
    
    
    
    
    
    16,557Deferred revenue
    
    
    12,377
    
    
    
    12,312
    
    
    
    1,505
    
    
    
    
    
    
    
    26,194Accrued expenses and other
current liabilities
    
    
    20,106
    
    
    
    1,585
    
    
    
    (1,018
    )
    
    
    6
    
    
    
    20,679Total current liabilities
    
    
    53,927
    
    
    
    19,847
    
    
    
    3,087
    
    
    
    6
    
    
    
    76,867Long-term debt
    
    
    538,050
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    538,050Deferred tax liabilities and other
liabilities
    
    
    54,318
    
    
    
    7,560
    
    
    
    1,023
    
    
    
    
    
    
    
    62,901Total liabilities
    
    
    646,295
    
    
    
    27,407
    
    
    
    4,110
    
    
    
    6
    
    
    
    677,818Total stockholders equity (deficit)
    
    
    217,352
    
    
    
    55,258
    
    
    
    (8,953
    )
    
    
    (4,509
    )
    
    
    259,148Total liabilities and stockholders
equity (deficit)
    
    $
    863,647
    
    
    $
    82,665
    
    
    $
    (4,843
    )
    
    $
    (4,503
    )
    
    $
    936,966
 17




---



##### Table of Contents



Condensed Consolidating Balance Sheet as of September 30, 2006
Activant Solutions Inc.
 (in thousands)
    
    GuarantorPrincipal
    
    
    Guarantor
    
    
    Non-GuarantorOperations
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedAssetsCurrent assets:Cash and cash equivalents
    
    $
    26,498
    
    
    $
    7,772
    
    
    $
    2,113
    
    
    $
    
    
    
    $
    36,383Trade accounts receivable, net of allowance for
doubtful accounts
    
    
    39,134
    
    
    
    12,681
    
    
    
    3,874
    
    
    
    
    
    
    
    55,689Inventories, net
    
    
    3,724
    
    
    
    467
    
    
    
    164
    
    
    
    
    
    
    
    4,355Prepaid expenses and other current assets
    
    
    (10,021
    )
    
    
    34,195
    
    
    
    (636
    )
    
    
    
    
    
    
    23,538Total current assets
    
    
    59,335
    
    
    
    55,115
    
    
    
    5,515
    
    
    
    
    
    
    
    119,965Property and equipment, net
    
    
    6,717
    
    
    
    1,341
    
    
    
    669
    
    
    
    
    
    
    
    8,727Intangible assets, net
    
    
    221,380
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    221,380Goodwill
    
    
    598,532
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    598,532Investments in subsidiaries
    
    
    16,911
    
    
    
    (7,772
    )
    
    
    3,437
    
    
    
    (12,576
    )
    
    
    Deferred financing costs
    
    
    15,137
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    15,137Other assets
    
    
    3,734
    
    
    
    127
    
    
    
    84
    
    
    
    
    
    
    
    3,945Total assets
    
    $
    921,746
    
    
    $
    48,811
    
    
    $
    9,705
    
    
    $
    (12,576
    )
    
    $
    967,686Liabilities and stockholders equityCurrent liabilities:Accounts payable
    
    $
    10,996
    
    
    $
    2,597
    
    
    $
    351
    
    
    $
    
    
    
    $
    13,944Payroll related accruals
    
    
    13,362
    
    
    
    3,362
    
    
    
    1,542
    
    
    
    
    
    
    
    18,266Deferred revenue
    
    
    14,186
    
    
    
    11,763
    
    
    
    3,739
    
    
    
    
    
    
    
    29,688Current portion of long-term debt
    
    
    3,900
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,900Accrued expenses and other current liabilities
    
    
    21,798
    
    
    
    1,585
    
    
    
    53
    
    
    
    
    
    
    
    23,436Total current liabilities
    
    
    64,242
    
    
    
    19,307
    
    
    
    5,685
    
    
    
    
    
    
    
    89,234Long-term debt
    
    
    561,150
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    561,150Deferred tax liabilities and other liabilities
    
    
    61,006
    
    
    
    7,599
    
    
    
    1,024
    
    
    
    
    
    
    
    69,629Total liabilities
    
    
    686,398
    
    
    
    26,906
    
    
    
    6,709
    
    
    
    
    
    
    
    720,013Total stockholders equity
    
    
    235,348
    
    
    
    21,905
    
    
    
    2,996
    
    
    
    (12,576
    )
    
    
    247,673Total liabilities and stockholders equity
    
    $
    921,746
    
    
    $
    48,811
    
    
    $
    9,705
    
    
    $
    (12,576
    )
    
    $
    967,686
 18




---



##### Table of Contents



Consolidating Statement of Operations for the Three Months Ended June 30, 2007
Activant Solutions Inc.
 (in thousands)
    
    GuarantorPrincipal
    
    
    Guarantor
    
    
    Non-GuarantorOperations
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    ConsolidatedRevenues:Systems
    
    $
    27,571
    
    
    $
    12,101
    
    
    $
    1,818
    
    
    $
    41,490Services
    
    
    37,787
    
    
    
    17,005
    
    
    
    3,967
    
    
    
    58,759Total revenues
    
    
    65,358
    
    
    
    29,106
    
    
    
    5,785
    
    
    
    100,249Cost of revenues (exclusive of depreciation
and amortization shown separately below):Systems
    
    
    14,685
    
    
    
    4,982
    
    
    
    3,028
    
    
    
    22,695Services
    
    
    15,588
    
    
    
    4,205
    
    
    
    1,906
    
    
    
    21,699Total cost of revenues
    
    
    30,273
    
    
    
    9,187
    
    
    
    4,934
    
    
    
    44,394Gross profit
    
    
    35,085
    
    
    
    19,919
    
    
    
    851
    
    
    
    55,855Operating expenses:Sales and marketing
    
    
    9,129
    
    
    
    3,619
    
    
    
    1,323
    
    
    
    14,071Product development
    
    
    5,685
    
    
    
    4,068
    
    
    
    737
    
    
    
    10,490General and administrative
    
    
    7,870
    
    
    
    1,097
    
    
    
    955
    
    
    
    9,922Depreciation and amortization
    
    
    7,158
    
    
    
    202
    
    
    
    88
    
    
    
    7,448Acquisition-related costs
    
    
    72
    
    
    
    
    
    
    
    
    
    
    
    72Restructuring costs
    
    
    276
    
    
    
    
    
    
    
    
    
    
    
    276Total operating expenses
    
    
    30,190
    
    
    
    8,986
    
    
    
    3,103
    
    
    
    42,279Operating income (loss)
    
    
    4,895
    
    
    
    10,933
    
    
    
    (2,252
    )
    
    
    13,576Interest expense
    
    
    (11,771
    )
    
    
    
    
    
    
    (3
    )
    
    
    (11,774
    )Other income, net
    
    
    168
    
    
    
    4
    
    
    
    155
    
    
    
    327Income (loss) before provision for income taxes
    
    
    (6,708
    )
    
    
    10,937
    
    
    
    (2,100
    )
    
    
    2,129Provision for income taxes
    
    
    781
    
    
    
    2
    
    
    
    
    
    
    
    783Net income (loss)
    
    $
    (7,489
    )
    
    $
    10,935
    
    
    $
    (2,100
    )
    
    $
    1,346
 19




---



##### Table of Contents



Consolidating Statement of Operations for the period from April 1, 2006 to May 2, 2006
Predecessor Company
 (in thousands)
    
    
    
    
    
    GuarantorParent
    
    
    Principal
    
    
    Guarantor
    
    
    Non-GuarantorCompany
    
    
    Operations
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    ConsolidatedRevenues:Systems
    
    $
    
    
    
    $
    6,396
    
    
    $
    2,563
    
    
    $
    854
    
    
    $
    9,813Services
    
    
    
    
    
    
    12,447
    
    
    
    5,173
    
    
    
    598
    
    
    
    18,218Total revenues
    
    
    
    
    
    
    18,843
    
    
    
    7,736
    
    
    
    1,452
    
    
    
    28,031Cost of revenues (exclusive of depreciation
and amortization shown separately below):Systems
    
    
    
    
    
    
    4,170
    
    
    
    1,010
    
    
    
    154
    
    
    
    5,334Services
    
    
    
    
    
    
    4,458
    
    
    
    1,373
    
    
    
    1,021
    
    
    
    6,852Total cost of revenues
    
    
    
    
    
    
    8,628
    
    
    
    2,383
    
    
    
    1,175
    
    
    
    12,186Gross profit
    
    
    
    
    
    
    10,215
    
    
    
    5,353
    
    
    
    277
    
    
    
    15,845Operating expenses:Sales and marketing
    
    
    
    
    
    
    3,319
    
    
    
    867
    
    
    
    283
    
    
    
    4,469Product development
    
    
    
    
    
    
    1,654
    
    
    
    1,239
    
    
    
    164
    
    
    
    3,057General and administrative
    
    
    
    
    
    
    2,316
    
    
    
    684
    
    
    
    209
    
    
    
    3,209Depreciation and amortization
    
    
    
    
    
    
    2,003
    
    
    
    96
    
    
    
    96
    
    
    
    2,195Acquisition-related costs
    
    
    
    
    
    
    30,473
    
    
    
    
    
    
    
    42
    
    
    
    30,515Restructuring costs
    
    
    
    
    
    
    116
    
    
    
    
    
    
    
    
    
    
    
    116Total operating expenses
    
    
    
    
    
    
    39,881
    
    
    
    2,886
    
    
    
    794
    
    
    
    43,561Operating income (loss)
    
    
    
    
    
    
    (29,666
    )
    
    
    2,467
    
    
    
    (517
    )
    
    
    (27,716
    )Interest expense
    
    
    (485
    )
    
    
    (5,712
    )
    
    
    (1
    )
    
    
    (1
    )
    
    
    (6,199
    )Write-off of prior debt issuance costs
    
    
    
    
    
    
    (14,459
    )
    
    
    
    
    
    
    
    
    
    
    (14,459
    )Premiums on debt repurchase
    
    
    
    
    
    
    (26,671
    )
    
    
    
    
    
    
    
    
    
    
    (26,671
    )Other income, net
    
    
    (6,565
    )
    
    
    6,285
    
    
    
    12
    
    
    
    
    
    
    
    (268
    )Income (loss) before provision for income taxes
    
    
    (7,050
    )
    
    
    (70,223
    )
    
    
    2,478
    
    
    
    (518
    )
    
    
    (75,313
    )Provision for (benefit from) income taxes
    
    
    
    
    
    
    (26,109
    )
    
    
    1
    
    
    
    618
    
    
    
    (25,490
    )Net income (loss)
    
    $
    (7,050
    )
    
    $
    (44,114
    )
    
    $
    2,477
    
    
    $
    (1,136
    )
    
    $
    (49,823
    )
 20




---



##### Table of Contents



Consolidating Statement of Operations for the period from Inception to June 30, 2006
Activant Solutions Inc.
 (in thousands)
    
    GuarantorPrincipal
    
    
    Guarantor
    
    
    Non-GuarantorOperations
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    ConsolidatedRevenues:Systems
    
    $
    16,366
    
    
    $
    8,990
    
    
    $
    511
    
    
    $
    25,867Services
    
    
    25,301
    
    
    
    9,813
    
    
    
    2,435
    
    
    
    37,549Total revenues
    
    
    41,667
    
    
    
    18,803
    
    
    
    2,946
    
    
    
    63,416Cost of revenues (exclusive of depreciation
and amortization shown separately below):Systems
    
    
    9,019
    
    
    
    3,462
    
    
    
    1,068
    
    
    
    13,549Services
    
    
    10,726
    
    
    
    2,789
    
    
    
    1,217
    
    
    
    14,732Total cost of revenues
    
    
    19,745
    
    
    
    6,251
    
    
    
    2,285
    
    
    
    28,281Gross profit
    
    
    21,922
    
    
    
    12,552
    
    
    
    661
    
    
    
    35,135Operating expenses:Sales and marketing
    
    
    5,781
    
    
    
    2,696
    
    
    
    657
    
    
    
    9,134Product development
    
    
    3,407
    
    
    
    2,443
    
    
    
    392
    
    
    
    6,242General and administrative
    
    
    4,013
    
    
    
    1,233
    
    
    
    596
    
    
    
    5,842Depreciation and amortization
    
    
    4,469
    
    
    
    173
    
    
    
    48
    
    
    
    4,690Acquisition-related costs
    
    
    194
    
    
    
    
    
    
    
    
    
    
    
    194Restructuring costs
    
    
    115
    
    
    
    
    
    
    
    
    
    
    
    115Total operating expenses
    
    
    17,979
    
    
    
    6,545
    
    
    
    1,693
    
    
    
    26,217Operating income (loss)
    
    
    3,943
    
    
    
    6,007
    
    
    
    (1,032
    )
    
    
    8,918Interest expense
    
    
    (8,159
    )
    
    
    (6
    )
    
    
    (1
    )
    
    
    (8,166
    )Other income, net
    
    
    (1,052
    )
    
    
    801
    
    
    
    213
    
    
    
    (38
    )Income (loss) before provision for income taxes
    
    
    (5,268
    )
    
    
    6,802
    
    
    
    (820
    )
    
    
    714Provision for (benefit from) income taxes
    
    
    (386
    )
    
    
    505
    
    
    
    
    
    
    
    119Net income (loss)
    
    $
    (4,882
    )
    
    $
    6,297
    
    
    $
    (820
    )
    
    $
    595
 21




---



##### Table of Contents



Consolidating Statement of Operations for the Nine Months Ended June 30, 2007
Activant Solutions Inc.
 (in thousands)
    
    GuarantorPrincipal
    
    
    Guarantor
    
    
    Non-GuarantorOperations
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    ConsolidatedRevenues:Systems
    
    $
    83,018
    
    
    $
    39,212
    
    
    $
    4,768
    
    
    $
    126,998Services
    
    
    112,476
    
    
    
    50,603
    
    
    
    11,478
    
    
    
    174,557Total revenues
    
    
    195,494
    
    
    
    89,815
    
    
    
    16,246
    
    
    
    301,555Cost of revenues (exclusive of depreciation
and amortization shown separately below):Systems
    
    
    44,271
    
    
    
    15,184
    
    
    
    6,661
    
    
    
    66,116Services
    
    
    44,996
    
    
    
    12,369
    
    
    
    6,086
    
    
    
    63,451Total cost of revenues
    
    
    89,267
    
    
    
    27,553
    
    
    
    12,747
    
    
    
    129,567Gross profit
    
    
    106,227
    
    
    
    62,262
    
    
    
    3,499
    
    
    
    171,988Operating expenses:Sales and marketing
    
    
    28,073
    
    
    
    13,546
    
    
    
    3,427
    
    
    
    45,046Product development
    
    
    16,405
    
    
    
    11,626
    
    
    
    1,962
    
    
    
    29,993General and administrative
    
    
    22,916
    
    
    
    3,303
    
    
    
    2,723
    
    
    
    28,942Depreciation and amortization
    
    
    20,928
    
    
    
    631
    
    
    
    226
    
    
    
    21,785Acquisition-related costs
    
    
    72
    
    
    
    
    
    
    
    
    
    
    
    72Restructuring costs
    
    
    563
    
    
    
    
    
    
    
    
    
    
    
    563Total operating expenses
    
    
    88,957
    
    
    
    29,106
    
    
    
    8,338
    
    
    
    126,401Operating income (loss)
    
    
    17,270
    
    
    
    33,156
    
    
    
    (4,839
    )
    
    
    45,587Interest expense
    
    
    (35,634
    )
    
    
    (2
    )
    
    
    (8
    )
    
    
    (35,644
    )Other income, net
    
    
    (157
    )
    
    
    216
    
    
    
    727
    
    
    
    786Income (loss) before provision for income taxes
    
    
    (18,521
    )
    
    
    33,370
    
    
    
    (4,120
    )
    
    
    10,729Provision for income taxes
    
    
    4,407
    
    
    
    7
    
    
    
    
    
    
    
    4,414Net income (loss)
    
    $
    (22,928
    )
    
    $
    33,363
    
    
    $
    (4,120
    )
    
    $
    6,315
 22




---



##### Table of Contents



Consolidating Statement of Operations for the period from October 1, 2005 to May 2, 2006
Predecessor Company
 (in thousands)
    
    
    
    
    
    GuarantorParent
    
    
    Principal
    
    
    Guarantor
    
    
    Non-GuarantorCompany
    
    
    Operations
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    ConsolidatedRevenues:Systems
    
    $
    
    
    
    $
    62,373
    
    
    $
    27,108
    
    
    $
    1,923
    
    
    $
    91,404Services
    
    
    
    
    
    
    89,292
    
    
    
    35,759
    
    
    
    8,760
    
    
    
    133,811Total revenues
    
    
    
    
    
    
    151,665
    
    
    
    62,867
    
    
    
    10,683
    
    
    
    225,215Cost of revenues (exclusive of depreciation
and amortization shown separately below):Systems
    
    
    
    
    
    
    35,001
    
    
    
    11,201
    
    
    
    1,345
    
    
    
    47,547Services
    
    
    
    
    
    
    32,396
    
    
    
    10,146
    
    
    
    6,039
    
    
    
    48,581Total cost of revenues
    
    
    
    
    
    
    67,397
    
    
    
    21,347
    
    
    
    7,384
    
    
    
    96,128Gross profit
    
    
    
    
    
    
    84,268
    
    
    
    41,520
    
    
    
    3,299
    
    
    
    129,087Operating expenses:Sales and marketing
    
    
    
    
    
    
    20,375
    
    
    
    8,256
    
    
    
    1,918
    
    
    
    30,549Product development
    
    
    
    
    
    
    11,606
    
    
    
    9,037
    
    
    
    1,343
    
    
    
    21,986General and administrative
    
    
    679
    
    
    
    13,755
    
    
    
    4,951
    
    
    
    2,074
    
    
    
    21,459Depreciation and amortization
    
    
    
    
    
    
    14,310
    
    
    
    613
    
    
    
    588
    
    
    
    15,511Acquisition-related costs
    
    
    
    
    
    
    32,249
    
    
    
    
    
    
    
    42
    
    
    
    32,291Restructuring costs
    
    
    
    
    
    
    116
    
    
    
    
    
    
    
    
    
    
    
    116Total operating expenses
    
    
    679
    
    
    
    92,411
    
    
    
    22,857
    
    
    
    5,965
    
    
    
    121,912Operating income (loss)
    
    
    (679
    )
    
    
    (8,143
    )
    
    
    18,663
    
    
    
    (2,666
    )
    
    
    7,175Interest expense
    
    
    (3,213
    )
    
    
    (29,760
    )
    
    
    (9
    )
    
    
    (18
    )
    
    
    (33,000
    )Write-off of prior debt issuance costs
    
    
    (1,774
    )
    
    
    (14,220
    )
    
    
    
    
    
    
    
    
    
    
    (15,994
    )Premiums on debt repurchase
    
    
    (5,120
    )
    
    
    (21,551
    )
    
    
    
    
    
    
    
    
    
    
    (26,671
    )Other income, net
    
    
    
    
    
    
    281
    
    
    
    234
    
    
    
    218
    
    
    
    733Income (loss) before provision for income taxes
    
    
    (10,786
    )
    
    
    (73,393
    )
    
    
    18,888
    
    
    
    (2,466
    )
    
    
    (67,757
    )Provision for (benefit from) income taxes
    
    
    (1,436
    )
    
    
    (21,708
    )
    
    
    7
    
    
    
    584
    
    
    
    (22,553
    )Net income (loss)
    
    $
    (9,350
    )
    
    $
    (51,685
    )
    
    $
    18,881
    
    
    $
    (3,050
    )
    
    $
    (45,204
    )
 23




---



##### Table of Contents



Consolidating Statement of Operations for the period from Inception to June 30, 2006
Activant Solutions Inc.
 (in thousands)
    
    GuarantorPrincipal
    
    
    Guarantor
    
    
    Non-GuarantorOperations
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    ConsolidatedRevenues:Systems
    
    $
    16,366
    
    
    $
    8,990
    
    
    $
    511
    
    
    $
    25,867Services
    
    
    25,301
    
    
    
    9,813
    
    
    
    2,435
    
    
    
    37,549Total revenues
    
    
    41,667
    
    
    
    18,803
    
    
    
    2,946
    
    
    
    63,416Cost of revenues (exclusive of depreciation
and amortization shown separately below):Systems
    
    
    9,019
    
    
    
    3,462
    
    
    
    1,068
    
    
    
    13,549Services
    
    
    10,726
    
    
    
    2,789
    
    
    
    1,217
    
    
    
    14,732Total cost of revenues
    
    
    19,745
    
    
    
    6,251
    
    
    
    2,285
    
    
    
    28,281Gross profit
    
    
    21,922
    
    
    
    12,552
    
    
    
    661
    
    
    
    35,135Operating expenses:Sales and marketing
    
    
    5,781
    
    
    
    2,696
    
    
    
    657
    
    
    
    9,134Product development
    
    
    3,407
    
    
    
    2,443
    
    
    
    392
    
    
    
    6,242General and administrative
    
    
    4,013
    
    
    
    1,233
    
    
    
    596
    
    
    
    5,842Depreciation and amortization
    
    
    4,469
    
    
    
    173
    
    
    
    48
    
    
    
    4,690Acquisition-related costs
    
    
    194
    
    
    
    
    
    
    
    
    
    
    
    194Restructuring costs
    
    
    115
    
    
    
    
    
    
    
    
    
    
    
    115Total operating expenses
    
    
    17,979
    
    
    
    6,545
    
    
    
    1,693
    
    
    
    26,217Operating income (loss)
    
    
    3,943
    
    
    
    6,007
    
    
    
    (1,032
    )
    
    
    8,918Interest expense
    
    
    (8,159
    )
    
    
    (6
    )
    
    
    (1
    )
    
    
    (8,166
    )Other income, net
    
    
    (1,052
    )
    
    
    801
    
    
    
    213
    
    
    
    (38
    )Income (loss) before provision for income taxes
    
    
    (5,268
    )
    
    
    6,802
    
    
    
    (820
    )
    
    
    714Provision for (benefit from) income taxes
    
    
    (386
    )
    
    
    505
    
    
    
    
    
    
    
    119Net income (loss)
    
    $
    (4,882
    )
    
    $
    6,297
    
    
    $
    (820
    )
    
    $
    595
 24




---



##### Table of Contents



Condensed Consolidating Statement of Cash Flows for the Nine Months Ended June 30, 2007
Activant Solutions Inc.
 (in thousands)
    
    GuarantorPrincipal
    
    
    Guarantor
    
    
    Non-GuarantorOperations
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    ConsolidatedNet cash provided by (used in) operating activities
    
    $
    26,008
    
    
    $
    (4,572
    )
    
    $
    8,808
    
    
    $
    30,244Investing activitiesAcquisition,
net of cash acquired
    
    
    
    
    
    
    
    
    
    
    (6,502
    )
    
    
    (6,502
    )Purchase of property and equipment
    
    
    (4,463
    )
    
    
    (323
    )
    
    
    (203
    )
    
    
    (4,989
    )Capitalized computer software costs and databases
    
    
    (3,987
    )
    
    
    
    
    
    
    
    
    
    
    (3,987
    )Unrealized loss on cash flow hedge, net
    
    
    1,793
    
    
    
    
    
    
    
    
    
    
    
    1,793Purchase price adjustments
    
    
    700
    
    
    
    
    
    
    
    
    
    
    
    700Net cash used in investing activities
    
    
    (5,957
    )
    
    
    (323
    )
    
    
    (6,705
    )
    
    
    (12,985
    )Financing activitiesRepayment of credit facility
    
    
    (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
    
    
    (8,026
    )
    
    
    (4,895
    )
    
    
    2,103
    
    
    
    (10,818
    )Cash and cash equivalents, beginning of period
    
    
    26,498
    
    
    
    7,772
    
    
    
    2,113
    
    
    
    36,383Cash and cash equivalents, end of period
    
    $
    18,472
    
    
    $
    2,877
    
    
    $
    4,216
    
    
    $
    25,565
 25




---



##### Table of Contents



Condensed Consolidating Statement of Cash Flows for the period from October 1, 2005 to May 2, 2006
Predecessor Company
 (in thousands)
    
    
    
    
    
    GuarantorParent
    
    
    Principal
    
    
    Guarantor
    
    
    Non-GuarantorCompany
    
    
    Operations
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    ConsolidatedNet cash provided by (used in) operating
activities
    
    $
    (6,856
    )
    
    $
    20,888
    
    
    $
    (998
    )
    
    $
    (363
    )
    
    $
    12,671Investing activitiesPurchase of property and equipment
    
    
    
    
    
    
    (3,232
    )
    
    
    (210
    )
    
    
    (144
    )
    
    
    (3,586
    )Capitalized computer software costs and
databases
    
    
    
    
    
    
    (3,455
    )
    
    
    
    
    
    
    
    
    
    
    (3,455
    )Purchase price adjustments
    
    
    
    
    
    
    508
    
    
    
    
    
    
    
    
    
    
    
    508Proceeds from disposition of equity interest
    
    
    
    
    
    
    679
    
    
    
    
    
    
    
    
    
    
    
    679Net cash used in investing activities
    
    
    
    
    
    
    (5,500
    )
    
    
    (210
    )
    
    
    (144
    )
    
    
    (5,854
    )Financing activitiesProceeds from long-term debt
    
    
    40,000
    
    
    
    145,000
    
    
    
    
    
    
    
    
    
    
    
    185,000Repayment of senior unsecured bridge loan
    
    
    (40,000
    )
    
    
    (140,000
    )
    
    
    
    
    
    
    
    
    
    
    (180,000
    )Proceeds from credit facility
    
    
    
    
    
    
    10,000
    
    
    
    
    
    
    
    
    
    
    
    10,000Repayment of credit facility
    
    
    
    
    
    
    (10,000
    )
    
    
    
    
    
    
    
    
    
    
    (10,000
    )Payment on long-term debt
    
    
    
    
    
    
    
    
    
    
    (149
    )
    
    
    
    
    
    
    (149
    )Repurchase of common stock
    
    
    (840
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (840
    )Exercise of stock options
    
    
    105
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    105Dividend to/from parent
    
    
    8,384
    
    
    
    (8,384
    )
    
    
    
    
    
    
    
    
    
    
    Debt issuance costs
    
    
    (793
    )
    
    
    (2,768
    )
    
    
    
    
    
    
    
    
    
    
    (3,561
    )Net cash provided by (used in) financing
activities
    
    
    6,856
    
    
    
    (6,152
    )
    
    
    (149
    )
    
    
    
    
    
    
    555Net change in cash and cash equivalents
    
    
    
    
    
    
    9,236
    
    
    
    (1,357
    )
    
    
    (507
    )
    
    
    7,372Cash and cash equivalents, beginning of
period
    
    
    
    
    
    
    5,800
    
    
    
    3,943
    
    
    
    1,209
    
    
    
    10,952Cash and cash equivalents, end of period
    
    $
    
    
    
    $
    15,036
    
    
    $
    2,586
    
    
    $
    702
    
    
    $
    18,324
 26




---



##### Table of Contents



Condensed Consolidating Statement of Cash Flows for the period from Inception to June 30, 2006
Activant Solutions Inc.
 (in thousands)
    
    GuarantorPrincipal
    
    
    Guarantor
    
    
    Non-GuarantorOperations
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    ConsolidatedNet cash provided by operating activities
    
    $
    5,823
    
    
    $
    5,296
    
    
    $
    712
    
    
    $
    11,831Investing activitiesPurchase of Activant Solutions Inc.
    
    
    (782,893
    )
    
    
    
    
    
    
    
    
    
    
    (782,893
    )Purchase of property and equipment
    
    
    (589
    )
    
    
    (75
    )
    
    
    68
    
    
    
    (596
    )Capitalized computer software costs and databases
    
    
    (860
    )
    
    
    
    
    
    
    
    
    
    
    (860
    )Net cash provided by (used in) investing activities
    
    
    (784,342
    )
    
    
    (75
    )
    
    
    68
    
    
    
    (784,349
    )Financing activitiesIssuance of common stock at inception
    
    
    245,625
    
    
    
    
    
    
    
    
    
    
    
    245,625Proceeds from long-term debt
    
    
    565,000
    
    
    
    
    
    
    
    
    
    
    
    565,000Intercompany transfers
    
    
    (3,398
    )
    
    
    2,516
    
    
    
    882
    
    
    
    Payment of long-term debt
    
    
    (975
    )
    
    
    
    
    
    
    
    
    
    
    (975
    )Debt issuance costs
    
    
    (15,910
    )
    
    
    
    
    
    
    
    
    
    
    (15,910
    )Net cash provided by financing activities
    
    
    790,342
    
    
    
    2,516
    
    
    
    882
    
    
    
    793,740Net change in cash and cash equivalents
    
    
    11,823
    
    
    
    7,737
    
    
    
    1,662
    
    
    
    21,222Cash and cash equivalents, beginning of period
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Cash and cash equivalents, end of period
    
    $
    11,823
    
    
    $
    7,737
    
    
    $
    1,662
    
    
    $
    21,222
 27




---



##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of
Operations
 The terms we, us and our refer to Activant Solutions Inc. and Activant Solutions
Holdings Inc. (also known as the Predecessor Company), and their respective periods of
operations, except where specifically stated otherwise. You should read the following discussion
and analysis in conjunction with our financial statements and related notes included in Item 1.
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.
   Overview
  
    
    Systems, which is comprised primarily of proprietary software applications,
implementation and training and third-party software, hardware and peripherals. For the nine
months ended June 30, 2007, systems revenues accounted for 42% of our total revenues;
    
    Product Support, which is comprised primarily of customer support activities, including
support through our advice line, software updates, preventive and remedial on-site
maintenance and depot repair services. Our product support services are generally provided
on a subscription basis, and accordingly, revenues from this segment are generally recurring
in nature. For the nine months ended June 30, 2007, product support revenues accounted for
40% of our total revenues;
    
    Content and Supply Chain, which is comprised primarily of proprietary database and data
management products for the vertical markets we serve (such as our comprehensive electronic
automotive parts and applications catalog and point-of-sale business analysis data),
connectivity services, e-commerce, networking and security monitoring management solutions.
Our content and supply chain products are generally provided on a monthly subscription basis
and accordingly, revenues from this segment are generally recurring in nature. For the nine
months ended June 30, 2007, content and supply chain revenues accounted for 16% of our total
revenues; and
    
    Other Services, which is comprised primarily of business products, such as forms and
other paper products. For the nine months ended June 30, 2007, other services revenues
accounted for 2% of our total revenues.
  
    
    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. For the nine months ended June 30, 2007, we generated approximately 43% of
our total revenues from the hardlines and lumber vertical market.
    
    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,
 28




---



##### Table of Contents



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. For the nine months ended June 30, 2007, we generated approximately 30% of
our total revenues from the wholesale distribution vertical market.
 
    
    Auto 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. For the nine
months ended June 30, 2007, we generated approximately 22% of our total revenues from Auto.
    
    The Productivity Tools business consists of software migration and application
development tools. For the nine months ended June 30, 2007, we generated approximately 5% of
our total revenues from the productivity tools business.
 Recent Acquisitions
     29




---



##### Table of Contents



Historical Results of Operations
 Three months ended June 30, 2007 compared to three months ended June 30, 2006
 Revenues.
 Predecessor
    
    
    Activant
    
    
    
    
    
    
    Activant(dollars in thousands)
    
    Company
    
    
    Solutions Inc.
    
    
    Combined
    
    
    Solutions Inc.Period from
    
    
    Period from
    
    
    April 1, 2006
    
    
    Three monthsApril 1, 2006 to
    
    
    Inception to
    
    
    to
    
    
    endedMay 2, 2006
    
    
    June 30, 2006
    
    
    June 30, 2006
    
    
    June 30, 2007
    
    
    Variance $
    
    
    Variance %Systems Revenues:Hardlines and Lumber
    
    $
    4,890
    
    
    $
    12,693
    
    
    $
    17,583
    
    
    $
    21,057
    
    
    $
    3,474
    
    
    
    19.8
    %Auto
    
    
    1,761
    
    
    
    2,296
    
    
    
    4,057
    
    
    
    3,783
    
    
    
    (274
    )
    
    
    (6.8
    )Wholesale Distribution
    
    
    2,564
    
    
    
    8,990
    
    
    
    11,554
    
    
    
    12,101
    
    
    
    547
    
    
    
    4.7Productivity Tools
    
    
    598
    
    
    
    1,888
    
    
    
    2,486
    
    
    
    4,549
    
    
    
    2,063
    
    
    
    83.0Total Systems Revenues
    
    
    9,813
    
    
    
    25,867
    
    
    
    35,680
    
    
    
    41,490
    
    
    
    5,810
    
    
    
    16.3Product Support Revenues:Hardlines and Lumber
    
    
    5,421
    
    
    
    11,331
    
    
    
    16,752
    
    
    
    17,601
    
    
    
    849
    
    
    
    5.1Auto
    
    
    2,272
    
    
    
    4,647
    
    
    
    6,919
    
    
    
    6,460
    
    
    
    (459
    )
    
    
    (6.6
    )Wholesale Distribution
    
    
    4,589
    
    
    
    8,342
    
    
    
    12,931
    
    
    
    14,449
    
    
    
    1,518
    
    
    
    11.7Productivity Tools
    
    
    592
    
    
    
    1,026
    
    
    
    1,618
    
    
    
    1,507
    
    
    
    (111
    )
    
    
    (6.9
    )Total Product Support
Revenues
    
    
    12,874
    
    
    
    25,346
    
    
    
    38,220
    
    
    
    40,017
    
    
    
    1,797
    
    
    
    4.7Content and Supply Chain
Revenues:Hardlines and Lumber
    
    
    627
    
    
    
    1,520
    
    
    
    2,147
    
    
    
    1,821
    
    
    
    (326
    )
    
    
    (15.2
    )Auto
    
    
    3,350
    
    
    
    7,705
    
    
    
    11,055
    
    
    
    12,025
    
    
    
    970
    
    
    
    8.8Wholesale Distribution
    
    
    577
    
    
    
    1,471
    
    
    
    2,048
    
    
    
    2,555
    
    
    
    507
    
    
    
    24.8Productivity Tools
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total Content and Supply
Chain Revenues
    
    
    4,554
    
    
    
    10,696
    
    
    
    15,250
    
    
    
    16,401
    
    
    
    1,151
    
    
    
    7.5Other Services Revenues:Hardlines and Lumber
    
    
    790
    
    
    
    1,507
    
    
    
    2,297
    
    
    
    2,341
    
    
    
    44
    
    
    
    1.9Auto
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Wholesale Distribution
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Productivity Tools
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total Other Revenues
    
    
    790
    
    
    
    1,507
    
    
    
    2,297
    
    
    
    2,341
    
    
    
    44
    
    
    
    1.9Total Revenues:Hardlines and Lumber
    
    
    11,728
    
    
    
    27,051
    
    
    
    38,779
    
    
    
    42,820
    
    
    
    4,041
    
    
    
    10.4Auto
    
    
    7,383
    
    
    
    14,648
    
    
    
    22,031
    
    
    
    22,268
    
    
    
    237
    
    
    
    1.1Wholesale Distribution
    
    
    7,730
    
    
    
    18,803
    
    
    
    26,533
    
    
    
    29,105
    
    
    
    2,572
    
    
    
    9.7Productivity Tools
    
    
    1,190
    
    
    
    2,914
    
    
    
    4,104
    
    
    
    6,056
    
    
    
    1,952
    
    
    
    47.6Total Revenues
    
    $
    28,031
    
    
    $
    63,416
    
    
    $
    91,447
    
    
    $
    100,249
    
    
    $
    8,802
    
    
    
    9.6
    %
  Factors affecting Systems revenues for the three months ended June 30, 2007.
  
    
    Systems revenues from our Hardlines and Lumber vertical market increased by $3.5 million, or 19.8%,
primarily due to increased revenues from members of the cooperatives (co-ops) that we serve and,
to a lesser extent, the inclusion of Silk Systems Inc. revenues for June 2007. One of the co-ops we
serve announced that they are ending support for their legacy system and have encouraged their
member stores to purchase our Activant Eagle product in 2007, which resulted in increased sales for
the three months ended June 30, 2007. As more and more of the member stores convert to our systems,
the opportunity for future conversions declines and we expect this
decline will be rapid.
 30




---



##### Table of Contents




    
    Systems revenues from our Auto vertical market decreased by
$0.3 million, or 6.8%, primarily due to decreased revenues on certain warehouse systems as a result of a product
transition cycle whereby sales of our new product have not yet been recognized as revenue pending
our completion of the installations, and also as a result of a reduced number of shipments of
add-ons and upgrades for our legacy products.
    
    Systems revenue from our Wholesale Distribution vertical market increased by $0.5
million, or 4.7%, due to an increase in software sales, related professional services and
custom development.
    
    Systems revenues for Productivity Tools increased by $2.1 million, or 83.0%, primarily
due to an increase in the number of platform migration projects currently being implemented
and the completion of key milestones for those customers.
 Factors affecting Product Support revenues for the three months ended June 30, 2007.
  
    
    Product Support revenues from our Hardlines and Lumber vertical market increased by $0.8
million, or 5.1%. This increase is attributable to our increased systems sales in prior
periods, which over time, results in increased Product Support revenues.
    
    Product Support revenues for Auto decreased by $0.4 million, or 6.6%. This decline is
associated with customer attrition from our older systems that we continue to support but do
not actively sell to new customers. We expect that product support revenues from our older
systems will continue to decline
    
    Product Support revenues from our Wholesale Distribution vertical market increased by
$1.5 million, or 11.7%, due to addition of add-on licenses and prior period sales that we
are now supporting.
 Factors affecting Content and Supply Chain revenues for the three months ended June 30, 2007.
 Content and Supply Chain revenues for the three months ended June 30, 2007 increased by $1.2
million, or 7.5%, compared to the three months ended June 30, 2006. This increase was primarily
attributable to higher Content and Supply Chain revenues in the Auto vertical market.
 
    
    Content and Supply Chain revenues from our Hardlines and Lumber vertical market decreased
by $0.3 million, or 15.2%,primarily due to the reclassification of IDW/IDX revenues
to the Wholesale Distribution vertical market.
    
    Content and Supply Chain revenues for Auto increased by $1.0 million, or 8.8%, due to new
customers and increased demand from existing customers for Catalog and Data Warehouse data
content.
    
    Content and Supply Chain revenues from our Wholesale Distribution vertical market
increased by $0.5 million, or 24.8%, primarily due to the reclassification of IDX/IDW from
the Hardlines and Lumber vertical market.
 31




---



##### Table of Contents



Total cost of revenues and gross margins as a percentage of revenues.
  Predecessor
    
    
    Activant
    
    
    
    
    
    
    Activant(dollars in thousands)
    
    Company
    
    
    Solutions Inc.
    
    
    Combined
    
    
    Solutions Inc.Period from
    
    
    Period from
    
    
    April 1, 2006
    
    
    Three monthsApril 1, 2006 to
    
    
    Inception to
    
    
    to
    
    
    EndedMay 2, 2006
    
    
    June 30, 2006
    
    
    June 30, 2006
    
    
    June 30, 2007
    
    
    Variance $
    
    
    Variance %Cost of Revenues:Systems
    
    $
    5,334
    
    
    $
    13,549
    
    
    $
    18,883
    
    
    $
    22,695
    
    
    $
    3,812
    
    
    
    20.2
    %Product Support
    
    
    5,194
    
    
    
    11,037
    
    
    
    16,231
    
    
    
    16,460
    
    
    
    229
    
    
    
    1.4Content and Supply Chain
    
    
    1,118
    
    
    
    2,555
    
    
    
    3,673
    
    
    
    3,837
    
    
    
    164
    
    
    
    4.5Other Services
    
    
    540
    
    
    
    1,140
    
    
    
    1,680
    
    
    
    1,402
    
    
    
    (278
    )
    
    
    (16.5
    )Total Cost of Revenues
    
    $
    12,186
    
    
    $
    28,281
    
    
    $
    40,467
    
    
    $
    44,394
    
    
    $
    3,927
    
    
    
    9.7
    %
  Predecessor
    
    Activant
    
    
    
    
    
    ActivantCompany
    
    Solutions Inc.
    
    Combined
    
    Solutions Inc.Period from
    
    Period from
    
    April 1, 2006
    
    Three monthsApril 1, 2006 to
    
    Inception to
    
    to
    
    endedMay 2, 2006
    
    June 30, 2006
    
    June 30, 2006
    
    June 30, 2007Gross margin as a percentage of revenues by
segment:Systems
    
    
    45.6
    %
    
    
    47.6
    %
    
    
    47.1
    %
    
    
    45.3
    %Product Support
    
    
    59.7
    
    
    
    56.5
    
    
    
    57.5
    
    
    
    58.9Content and Supply Chain
    
    
    75.5
    
    
    
    76.1
    
    
    
    75.9
    
    
    
    76.6Other Services
    
    
    31.7
    
    
    
    24.4
    
    
    
    26.9
    
    
    
    40.1Total gross margin as a percentage of revenues
    
    
    56.5
    %
    
    
    55.4
    %
    
    
    55.7
    %
    
    
    55.7
    %
 Total Cost of Revenues.
 
    
    Cost of Systems Revenues.Cost of Systems revenues for the three months ended June 30,
2007 increased by $3.8 million, or 20.2%, compared to the three months ended June 30, 2006
primarily as a result of increased system sales. Gross margin as a percentage of revenues
declined from 47.1% for the three months ended June 30, 2006 to 45.3% for the three months
ended June 30, 2007. The decline in Systems gross margin is predominantly attributable to
longer than expected Vision implementations and average sales prices declining in Hardlines
and Lumber from continued weakness and competition in the Lumber industry.
    
    Cost of Product Support Revenues.Cost of Product Support revenues for the three months
ended June 30, 2007 increased by $0.2 million, or 1.4%, compared to the three months ended
June 30, 2006. Gross margin as a percentage of revenues increased from 57.5% for the three
months ended June 30, 2006 to 58.9% for the three months ended June 30, 2007.
    
    Cost of Content and Supply Chain Revenues.Cost of Content and Supply Chain revenues for
the three months ended June 30, 2007 increased by $0.2 million, or 4.5%, compared to the
three months ended June 30, 2006. Gross margin as a percentage of Content and Supply Chain
revenues increased from 75.9% for the three months ended June 30, 2006 to 76.6% for the
three months ended June 30, 2007.
    
    Cost of Other Services Revenues.Cost of Other Services revenues for the three months
ended June 30, 2007 declined by $0.3 million, or 16.5%, compared to the three months ended
June 30, 2006. Gross margin as a percentage of Other Services revenues increased from 26.9%
for the three months ended June 30, 2006 to 40.1% for the three months ended June 30, 2007.
The improvement in our gross margin was a result of our increased
focus on business operations resulting
in year over year cost reductions on flat revenues.
 32




---



##### Table of Contents



Total Operating Expenses.
 Predecessor
    
    
    Activant
    
    
    
    
    
    
    Activant(dollars in thousands)
    
    Company
    
    
    Solutions Inc.
    
    
    Combined
    
    
    Solutions Inc.Period from
    
    
    Period from
    
    
    April 1, 2006
    
    
    Three monthsApril 1, 2006 to
    
    
    Inception to
    
    
    to
    
    
    endedMay 2, 2006
    
    
    June 30, 2006
    
    
    June 30, 2006
    
    
    June 30, 2007
    
    
    Variance $
    
    
    Variance %Operating expenses:Sales and marketing
    
    $
    4,469
    
    
    $
    9,134
    
    
    $
    13,603
    
    
    $
    14,071
    
    
    $
    468
    
    
    
    3.4
    %Product development
    
    
    3,057
    
    
    
    6,242
    
    
    
    9,299
    
    
    
    10,490
    
    
    
    1,191
    
    
    
    12.8General and administrative
    
    
    3,209
    
    
    
    5,842
    
    
    
    9,051
    
    
    
    9,922
    
    
    
    871
    
    
    
    9.6Depreciation and
amortization
    
    
    2,195
    
    
    
    4,690
    
    
    
    6,885
    
    
    
    7,448
    
    
    
    563
    
    
    
    8.2Acquisition-related costs
    
    
    30,515
    
    
    
    194
    
    
    
    30,709
    
    
    
    72
    
    
    
    (30,637
    )
    
    
    (99.8
    )Restructuring costs
    
    
    116
    
    
    
    115
    
    
    
    231
    
    
    
    276
    
    
    
    45
    
    
    
    19.5Total operating expenses
    
    $
    43,561
    
    
    $
    26,217
    
    
    $
    69,778
    
    
    $
    42,279
    
    
    $
    (27,499
    )
    
    
    (39.4
    )%
  Predecessor
    
    Activant
    
    
    
    
    
    ActivantCompany
    
    Solutions Inc.
    
    Combined
    
    Solutions Inc.Period from
    
    Period from
    
    April 1, 2006
    
    Three monthsApril 1, 2006 to
    
    Inception to
    
    to
    
    endedMay 2, 2006
    
    June 30, 2006
    
    June 30, 2006
    
    June 30, 2007Operating expenses as a percentage of revenues:Sales and marketing
    
    
    15.9
    %
    
    
    14.4
    %
    
    
    14.9
    %
    
    
    14.0
    %Product development
    
    
    10.9
    
    
    
    9.8
    
    
    
    10.2
    
    
    
    10.5General and administrative
    
    
    11.4
    
    
    
    9.2
    
    
    
    9.9
    
    
    
    9.9Depreciation and amortization
    
    
    7.8
    
    
    
    7.4
    
    
    
    7.5
    
    
    
    7.4Acquisition-related costs
    
    
    108.9
    
    
    
    0.3
    
    
    
    33.6
    
    
    
    0.1Restructuring costs
    
    
    0.4
    
    
    
    0.2
    
    
    
    0.3
    
    
    
    0.3Total operating expenses as a percentage of revenues
    
    
    155.4
    %
    
    
    41.3
    %
    
    
    76.3
    %
    
    
    42.2
    %
 
 
    
    Sales and Marketing Expense.Sales and marketing expense increased by $0.5 million, or
3.4%, for the three months ended June 30, 2007 compared to the three months ended June 30,
2006. The increase was primarily due to increased salaries of $0.9 million as we continue to
expand the sales force and higher commission expense of $0.5 million. These increased
expenses were partially offset by lower bad debt expense of $0.7 million as our experience
rate continues to improve and $0.4 million of third-party services. Sales and marketing
expense also included share-based payment expense of $0.3 million for the three months ended
June 30, 2007.
    
    Product Development Expense.Product development expense increased by $1.2 million, or
12.8%, for the three months ended June 30, 2007 compared to the three months ended June 30,
2006. The increase was primarily due to increased salaries of $0.7 million and $0.5 million
of costs related to outsourcing certain operations off shore. Product development expense
included share-based payment expense of $0.1 million for the three months ended June 30,
2007.
    
    General and Administrative Expense.General and administrative expense increased by $0.9
million, or 9.6%, for the three months ended June 30, 2007 compared to the three months
ended June 30, 2006. The increase was a result of higher salary, bonus and related benefit
expenses which were partially offset by lower third-party costs. General and administrative
expense included share-based payment expense of $0.6 million for the three months ended June
30, 2007 compared to $1.2 million for the three months ended June 30, 2006.
    
    Depreciation and Amortization.Depreciation and amortization expense increased by $0.6
million, or 8.2%, for the three months ended June 30, 2007 compared to the three months
ended June 30, 2006. The increase resulted from an increase in
purchased intangible assets as a result of the mergers, which was partially offset by longer
lives of finite-lived intangible assets associated with the mergers.
    
    Acquisition-Related Costs.We incurred acquisition-related costs of $0.1 million for the three months ended June 30, 2007
which related to our acquisition of Silk Systems Inc. and were primarily composed of travel
expenses associated with the integration of Silk Systems Inc. For the three months ended June 30,
2006 we and the Predecessor Company incurred $30.7 million in acquisition-related costs all of
which were related to the mergers. These charges primarily include outside financial advisory,
accounting, legal and consulting fees, and other costs incurred directly related to integrating
acquired companies.
 33




---



##### Table of Contents




    
    Restructuring costs.We incurred restructuring costs of $0.3 million for the three months ended June 30, 2007 which
related to outsourcing certain activities to third-party providers and eliminating certain
positions with the intent to streamline and focus our operations and more properly align our cost
structure with our projected revenue streams.
 Operating Income.
 Interest Expense.
 Net Income.
 34




---



##### Table of Contents



Nine months ended June 30, 2007 compared to nine months ended June 30, 2006
 Revenues.
 Predecessor
    
    
    Activant
    
    
    
    
    
    
    Activant(dollars in thousands)
    
    Company
    
    
    Solutions Inc.
    
    
    Combined
    
    
    Solutions Inc.Period from
    
    
    Period from
    
    
    October 1, 2005
    
    
    Nine monthsOctober 1, 2005
    
    
    Inception to
    
    
    to
    
    
    endedto May 2, 2006
    
    
    June 30, 2006
    
    
    June 30, 2006
    
    
    June 30, 2007
    
    
    Variance $
    
    
    Variance %Systems Revenues:Hardlines and Lumber
    
    $
    49,784
    
    
    $
    12,693
    
    
    $
    62,477
    
    
    $
    65,948
    
    
    $
    3,471
    
    
    
    5.6
    %Auto
    
    
    10,590
    
    
    
    2,296
    
    
    
    12,886
    
    
    
    11,439
    
    
    
    (1,447
    )
    
    
    (11.2
    )Wholesale Distribution
    
    
    27,108
    
    
    
    8,990
    
    
    
    36,098
    
    
    
    39,213
    
    
    
    3,115
    
    
    
    8.6Productivity Tools
    
    
    3,922
    
    
    
    1,888
    
    
    
    5,810
    
    
    
    10,398
    
    
    
    4,588
    
    
    
    79.0Total Systems Revenues
    
    
    91,404
    
    
    
    25,867
    
    
    
    117,271
    
    
    
    126,998
    
    
    
    9,727
    
    
    
    8.3Product Support Revenues:Hardlines and Lumber
    
    
    38,012
    
    
    
    11,331
    
    
    
    49,343
    
    
    
    51,682
    
    
    
    2,339
    
    
    
    4.7Auto
    
    
    17,612
    
    
    
    4,647
    
    
    
    22,259
    
    
    
    19,952
    
    
    
    (2,307
    )
    
    
    (10.4
    )Wholesale Distribution
    
    
    31,365
    
    
    
    8,342
    
    
    
    39,707
    
    
    
    43,058
    
    
    
    3,351
    
    
    
    8.4Productivity Tools
    
    
    4,750
    
    
    
    1,026
    
    
    
    5,776
    
    
    
    4,676
    
    
    
    (1,100
    )
    
    
    (19.0
    )Total Product Support
Revenues
    
    
    91,739
    
    
    
    25,346
    
    
    
    117,085
    
    
    
    119,368
    
    
    
    2,283
    
    
    
    1.9Content and Supply Chain
Revenues:Hardlines and Lumber
    
    
    4,607
    
    
    
    1,520
    
    
    
    6,127
    
    
    
    5,478
    
    
    
    (649
    )
    
    
    (10.6
    )Auto
    
    
    27,935
    
    
    
    7,705
    
    
    
    35,640
    
    
    
    36,195
    
    
    
    555
    
    
    
    1.6Wholesale Distribution
    
    
    4,123
    
    
    
    1,471
    
    
    
    5,594
    
    
    
    7,544
    
    
    
    1,950
    
    
    
    34.9Productivity Tools
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total Content and Supply
Chain Revenues
    
    
    36,665
    
    
    
    10,696
    
    
    
    47,361
    
    
    
    49,217
    
    
    
    1,856
    
    
    
    3.9Other Services Revenues:Hardlines and Lumber
    
    
    5,407
    
    
    
    1,507
    
    
    
    6,914
    
    
    
    5,972
    
    
    
    (942
    )
    
    
    (13.6
    )Auto
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Wholesale Distribution
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Productivity Tools
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total Other Revenues
    
    
    5,407
    
    
    
    1,507
    
    
    
    6,914
    
    
    
    5,972
    
    
    
    (942
    )
    
    
    (13.6
    )Total Revenues:Hardlines and Lumber
    
    
    97,810
    
    
    
    27,051
    
    
    
    124,861
    
    
    
    129,080
    
    
    
    4,219
    
    
    
    3.4Auto
    
    
    56,137
    
    
    
    14,648
    
    
    
    70,785
    
    
    
    67,586
    
    
    
    (3,199
    )
    
    
    (4.5
    )Wholesale Distribution
    
    
    62,596
    
    
    
    18,803
    
    
    
    81,399
    
    
    
    89,815
    
    
    
    8,416
    
    
    
    10.3Productivity Tools
    
    
    8,672
    
    
    
    2,914
    
    
    
    11,586
    
    
    
    15,074
    
    
    
    3,488
    
    
    
    30.1Total Revenues
    
    $
    225,215
    
    
    $
    63,416
    
    
    $
    288,631
    
    
    $
    301,555
    
    
    $
    12,924
    
    
    
    4.5
    %
  Factors affecting Systems revenues for the nine months ended June 30, 2007.
  
    
    Systems revenues from our Hardlines and Lumber vertical market increased by $3.5 million,
or 5.6%, primarily due to increased revenues from members of the cooperatives (co-ops) that we serve and,
to a lesser extent, the inclusion of Silk Systems Inc. revenues for June 2007. One of the co-ops we
serve announced that they are ending support for their legacy system and have encouraged their
member stores to purchase our Activant Eagle product in 2007, which resulted in increased sales for
the nine months ended June 30, 2007. As more and more of the
member stores convert to our systems, the opportunity for future conversions
declines and we expect this decline will be rapid.
 35




---



##### Table of Contents




    
    Systems revenues for Auto declined by $1.4 million, or 11.2%, primarily due to decreased revenues
on certain warehouse systems as a result of a product transition cycle whereby sales of our new
product have not yet been recognized as revenue pending our completion of the installations, and
also as a result of a reduced number of shipments of add-ons and upgrades for our legacy products.
    
    Systems revenues from our Wholesale Distribution vertical market increased by $3.1
million, or 8.6%, due to a higher percentage of sales to large strategic customers, who
generally have a higher average selling price, or ASP, due to their size and complexity.
    
    Systems revenues from Productivity Tools increased $4.6 million, or 79.0%, due to an
increase in the number of platform migration projects currently being implemented by our
customers.
 Factors affecting Product Support revenues for the nine months ended June 30, 2007.
  
    
    Product Support revenues from our Hardlines and Lumber vertical market increased by $2.3
million, or 4.7%. This increase is primarily attributable to increased systems sales in
prior periods, which over time, results in increased Product Support revenues.
    
    Product Support revenues for Auto declined by $2.3 million, or 10.4%. Auto experienced a
decline of approximately $1.3 million in product support revenues associated with customer
attrition from our older systems that we continue to support but do not actively sell to new
customers. We expect that product support revenues from our older systems will continue to
decline. Approximately $1.0 million of the decline was associated with General Parts,
Inc.s decision to begin replacing our J-CON system with its own branded store system as
well as a contractual decline in support revenues for their warehouse systems. We do not
expect to recapture this product support revenue.
    
    Product Support revenues from our Wholesale Distribution vertical market increased by
$3.4 million, or 8.4%, due to an increase in add-on licenses, support from prior period
Systems sales, and increased support fees.
    
    Product Support revenues from Productivity Tools declined by $1.1 million, or 19.0%, due
to attrition in legacy products.
 Factors affecting Content and Supply Chain revenues for the nine months ended June 30, 2007.
  
    
    Content and Supply Chain revenues from our Hardlines and Lumber vertical market declined
by $0.7 million, or 10.6%, primarily due to the reclassification of IDW/IDX revenues to the
Wholesale Distribution vertical market.
    
    Content and Supply Chain revenues for Auto increased by $0.6 million, or 1.6%, due to new
customers and increased demand from existing customers for Catalog and Data Warehouse data
content.
    
    Content and Supply Chain revenues from our Wholesale Distribution vertical market
increased by $2.0 million, or 34.9%, primarily due to an increase in web hosting services
and the reclassification of IDW/IDX revenues from the Hardlines and Lumber vertical market.
 Factors affecting Other Services revenues for the nine months ended June 30, 2007.
 Other Services revenues for the nine months ended June 30, 2007 decreased by $0.9 million, or
13.6%, compared to the nine months ended June 30, 2006 primarily due to a decline in our
business products revenues of forms and other paper products.
 36




---



##### Table of Contents



Total cost of revenues and gross margins as a percentage of revenues.
  Predecessor
    
    
    Activant
    
    
    
    
    
    
    Activant(dollars in thousands)
    
    Company
    
    
    Solutions Inc.
    
    
    Combined
    
    
    Solutions Inc.Period from
    
    
    Period from
    
    
    October 1, 2005
    
    
    Nine monthsOctober 1, 2005
    
    
    Inception to
    
    
    to
    
    
    endedto May 2, 2006
    
    
    June 30, 2006
    
    
    June 30, 2006
    
    
    June 30, 2007
    
    
    Variance $
    
    
    Variance %Cost of Revenues:Systems
    
    $
    47,547
    
    
    $
    13,549
    
    
    $
    61,096
    
    
    $
    66,116
    
    
    $
    5,020
    
    
    
    8.2
    %Product Support
    
    
    36,694
    
    
    
    11,037
    
    
    
    47,731
    
    
    
    48,023
    
    
    
    292
    
    
    
    0.6Content and Supply
Chain
    
    
    8,125
    
    
    
    2,555
    
    
    
    10,680
    
    
    
    11,157
    
    
    
    477
    
    
    
    4.5Other Services
    
    
    3,762
    
    
    
    1,140
    
    
    
    4,902
    
    
    
    4,271
    
    
    
    (631
    )
    
    
    (12.9
    )Total Cost of Revenues
    
    $
    96,128
    
    
    $
    28,281
    
    
    $
    124,409
    
    
    $
    129,567
    
    
    $
    5,158
    
    
    
    4.1
    %
  Predecessor
    
    Activant
    
    
    
    
    
    Activant(dollars in thousands)
    
    Company
    
    Solutions Inc.
    
    Combined
    
    Solutions Inc.Period from
    
    Period from
    
    October 1, 2005
    
    Nine monthsOctober 1, 2005
    
    Inception to
    
    to
    
    endedto May 2, 2006
    
    June 30, 2006
    
    June 30, 2006
    
    June 30, 2007Gross margin as a percentage of revenues by
segment:Systems
    
    
    48.0
    %
    
    
    47.6
    %
    
    
    47.9
    %
    
    
    47.9
    %Product Support
    
    
    60.0
    
    
    
    56.5
    
    
    
    59.2
    
    
    
    59.8Content and Supply Chain
    
    
    77.8
    
    
    
    76.1
    
    
    
    77.4
    
    
    
    77.3Other Services
    
    
    30.4
    
    
    
    24.4
    
    
    
    29.1
    
    
    
    28.5Total gross margin as a percentage of revenues
    
    
    57.3
    %
    
    
    55.4
    %
    
    
    56.9
    %
    
    
    57.0
    %
 Total Cost of Revenues.
 
    
    Cost of Systems Revenues.Cost of Systems revenues for the nine months ended June 30,
2007 increased by $5.0 million, or 8.2%, compared to the nine months ended June 30, 2006.
This increase was comprised primarily of increased Systems revenues. Gross margin as a
percentage of revenues remained flat at 47.9% for the nine months ended June 30, 2006 and
2007.
    
    Cost of Product Support Revenues.Cost of Product Support revenues for the nine months
ended June 30, 2007 increased by $0.3 million, or 0.6%, compared to the nine months ended
June 30, 2006. Gross margin as a percentage of revenues increased from 59.2% for the nine
months ended June 30, 2006 to 59.8% for the nine months ended June 30, 2007.
    
    Cost of Content and Supply Chain Revenues.Cost of Content and Supply Chain revenues for
the nine months ended June 30, 2007 increased by $0.5 million, or 4.5%, compared to the nine
months ended June 30, 2006. Gross margin as a percentage of Content and Supply Chain
revenues decreased slightly from 77.4% for the nine months ended June 30, 2006, to 77.3% for
the nine months ended June 30, 2007.
    
    Cost of Other Services Revenues.Cost of Other Services revenues for the nine months
ended June 30, 2007 declined by $0.6 million, or 12.9%, compared to the nine months ended
June 30, 2006. Gross margin as a percentage of Other Services revenues decreased from 29.1%
for the nine months ended June 30, 2006 to 28.5% for the nine months ended June 30, 2007.
The decline in our gross margin was a result of costs declining at a
slower rate than revenues associated with those costs. However, we
have improved our gross margin during the most recent quarter ended
June 30, 2007 due to our increased focus on business operations resulting in year over year cost reductions on flat revenues.
 37




---



##### Table of Contents



Total Operating Expenses.
 Predecessor
    
    
    Activant
    
    
    
    
    
    
    Activant(dollars in thousands)
    
    Company
    
    
    Solutions Inc.
    
    
    Combined
    
    
    Solutions Inc.Period from
    
    
    Period from
    
    
    October 1, 2005
    
    
    Nine monthsOctober 1, 2005
    
    
    Inception to
    
    
    to
    
    
    endedto May 2, 2006
    
    
    June 30, 2006
    
    
    June 30, 2006
    
    
    June 30, 2007
    
    
    Variance $
    
    
    Variance %Operating expenses:Sales and marketing
    
    $
    30,549
    
    
    $
    9,134
    
    
    $
    39,683
    
    
    $
    45,046
    
    
    $
    5,363
    
    
    
    13.5
    %Product development
    
    
    21,986
    
    
    
    6,242
    
    
    
    28,228
    
    
    
    29,993
    
    
    
    1,765
    
    
    
    6.3General and administrative
    
    
    21,459
    
    
    
    5,842
    
    
    
    27,301
    
    
    
    28,942
    
    
    
    1,641
    
    
    
    6.0Depreciation and
amortization
    
    
    15,511
    
    
    
    4,690
    
    
    
    20,201
    
    
    
    21,785
    
    
    
    1,584
    
    
    
    7.8Acquisition-related costs
    
    
    32,291
    
    
    
    194
    
    
    
    32,485
    
    
    
    72
    
    
    
    (32,413
    )
    
    
    (99.8
    )Restructuring costs
    
    
    116
    
    
    
    115
    
    
    
    231
    
    
    
    563
    
    
    
    332
    
    
    
    143.7Total operating expenses
    
    $
    121,912
    
    
    $
    26,217
    
    
    $
    148,129
    
    
    $
    126,401
    
    
    $
    (21,728
    )
    
    
    (14.7
    )%
  Predecessor
    
    Activant
    
    
    
    
    
    Activant(dollars in thousands)
    
    Company
    
    Solutions Inc.
    
    Combined
    
    Solutions Inc.Period from
    
    Period from
    
    October 1, 2005
    
    Nine monthsOctober 1, 2005
    
    Inception to
    
    to
    
    endedto May 2, 2006
    
    June 30, 2006
    
    June 30, 2006
    
    June 30, 2007Operating expenses as a percentage of revenues:Sales and marketing
    
    
    13.6
    %
    
    
    14.4
    %
    
    
    13.7
    %
    
    
    14.9
    %Product development
    
    
    9.8
    
    
    
    9.8
    
    
    
    9.8
    
    
    
    9.9General and administrative
    
    
    9.5
    
    
    
    9.2
    
    
    
    9.5
    
    
    
    9.6Depreciation and amortization
    
    
    6.9
    
    
    
    7.4
    
    
    
    7.0
    
    
    
    7.2Acquisition-related costs
    
    
    14.3
    
    
    
    0.3
    
    
    
    11.2
    
    
    
    0.0Restructuring costs
    
    
    0.1
    
    
    
    0.2
    
    
    
    0.1
    
    
    
    0.2Total operating expenses as a percentage of
revenues
    
    
    54.1
    %
    
    
    41.3
    %
    
    
    51.3
    %
    
    
    41.9
    %
  
    
    Sales and marketing expense.Sales and marketing expense increased by $5.4 million, or
13.5%, for the nine months ended June 30, 2007 compared to the nine months ended June 30,
2006. The increase was primarily due to increased salary expense of $2.2 million as we
continue to expand the sales force, higher commission expense of $2.0 million, and an
increase in bad debt expense of $0.6 million. Sales and marketing expense also included
share-based payment expense of $0.8 million for the nine months ended June 30, 2007.
    
    Product development expense.Product development expense increased by $1.8 million, or
6.3%, for the nine months ended June 30, 2007 compared to the nine months ended June 30,
2006. The increase was primarily a result of $1.1 million in third-party outsourcing costs
and $0.4 million in higher salary expense. Product development expense also included
share-based payment expense of $0.3 million for the nine months ended June 30, 2007.
    
    General and administrative expense.General and administrative expense increased by $1.6
million, or 6.0%, for the nine months ended June 30, 2007 compared to the nine months ended
June 30, 2006. In the nine months ended June 30, 2007, we incurred $0.5 million of costs
associated with relocating our corporate headquarters, severance costs to our former CFO of
$0.4 million, higher salary and related benefit expense of $0.7 million, and $0.3 million of
increased bonus expense, which were partially offset by rebates and refunds of $0.8 million
related to telecom and insurance costs. General and administrative expense included share-based
payment expense of $1.8 million and $1.4 million for the nine months ended June 30, 2007 and
June 30, 2006, respectively.
    
    Depreciation and Amortization.Depreciation and amortization expense increased by $1.6
million, or 7.8%, for the nine months ended June 30, 2007 compared to the nine months ended
June 30, 2006. The increase resulted from an increase in
 38




---



##### Table of Contents



purchased intangible assets as a
result of the merger, which was partially offset by longer lives of finite-lived intangible
assets associated with the mergers.
 
    
    Acquisition-Related Costs.We incurred acquisition-related costs of $0.1 million for the nine months ended June 30, 2007 which
related to our acquisition of Silk Systems Inc. and were primarily composed of travel expenses
associated with the integration of Silk Systems Inc. For the nine months ended June 30, 2006 we and
the Predecessor Company incurred $32.5 million in acquisition-related costs. $30.7 million of these
expenses were transaction costs related to the mergers. These charges primarily include outside
financial advisory, accounting, legal and consulting fees, and other costs incurred directly
related to integrating acquired companies. The remaining $1.8 million was for professional services
expenses related to an initial public offering of the Predecessor Companys stock which offering
was withdrawn in connection with the mergers.
    
    Restructuring costs.We incurred restructuring costs of $0.6 million for the nine months ended June 30, 2007 which
related to outsourcing certain activities to third-party providers, eliminating certain positions
with the intent to streamline and focus our efforts and more properly align our cost structure with
our projected revenue streams, and one-time benefits paid to certain employees separated in
connection with the relocation of our corporate offices from Austin, Texas to Livermore,
California.
 Operating Income.
 Interest Expense.
 Net Income.
 Liquidity and Capital Resources
 Overview
     1 2
 39




---



##### 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; and
    
    under the term loan facilities, 1.00% with respect to base rate borrowings and 2.00%
with respect to Eurodollar rate borrowings.
        Nine Months Ended June 30, 2007 Compared to Nine Months Ended June 30, 2006.
  40




---



##### Table of Contents



1 2
 41




---



##### Table of Contents



Item 3. Quantitative and Qualitative Disclosures about Market Risk.
 Interest Rate Risk
  Foreign Currency Risk
   
 Item 4. Controls and Procedures.
 (a) Disclosure controls and procedures.
 (b) Internal controls over financial reporting
 42




---



##### Table of Contents



PART II  OTHER INFORMATION
 
 Item 1. Legal Proceedings.
  
 Item 1A. Risk Factors.
 Any of the following risks could materially and adversely affect our business, financial condition
or results of operations. The risks described below are not the only risks facing us. Additional
risks and uncertainties not currently known to us or those we currently view to be immaterial may
also materially and adversely affect our business, financial condition or results of operations.
 If we cannot successfully anticipate or respond to our customers needs and requirements, our
revenues could decline significantly and our operating results could be materially adversely
affected.
  
    
    maintain and enhance our systems and services;
    
    successfully anticipate or respond to our customers needs and requirements; and
    
    develop and market our electronic automotive parts and applications catalog and other
products and services in order to meet changing customer needs.
  If we do not develop new relationships and maintain our existing relationships with key customers
and/or well-known market participants, our revenues could decline significantly and our operating
results could be materially adversely affected.
  General Parts, Inc., our largest customer, intends to discontinue the use of certain of our
products and, as a result, our revenues in the automotive parts aftermarket could decline
significantly and our operating results could be materially adversely affected.
  43




---



##### Table of Contents



Approximately 59% of our total revenues for our fiscal year 2006 was derived from product support
and content and supply chain and other services, which generally are subscription based and not
governed by long-term contracts, and therefore, if our current customers do not continue their
subscriptions, our revenues could decline significantly and our operating results could be
materially adversely affected.
  Our success is dependent in part upon the performance and integration of our new chief executive
officer and on the performance and integration of new members of our senior management replacing
those members of our senior management who left us in 2006-2007. If we are unable to integrate our
new chief executive officer and other members of senior management who replaced members of our
senior management who have terminated their employment with us, there could be a negative effect on
our ability to operate our business.
  Our new Activant Eagle and Vision products developed for the automotive parts aftermarket are key
elements to our strategy to re-establish growth in the automotive parts aftermarket, and if this
product does not gain market acceptance within that market our future growth and operating results
could be adversely affected.
  Our substantial indebtedness could adversely affect our business.
  
    
    requiring a substantial portion of cash flow from operations to be dedicated to the
payment of principal and interest on our indebtedness, therefore reducing our ability to
use our cash flow to fund our operations, capital expenditures and future business
opportunities;
    
    exposing us to the risk of increased interest rates as certain of our borrowings,
including borrowings under our senior secured credit facilities, the outstanding floating
rate senior notes and our receivables facility will be at variable rates of interest;
    
    restricting us from making strategic acquisitions or causing us to make non-strategic divestitures;
    
    increasing our vulnerability to general adverse economic and industry conditions;
 44




---



##### Table of Contents




    
    limiting our ability to obtain additional financing to fund future working capital,
capital expenditures, other general corporate requirements and acquisitions;
    
    limiting our flexibility in planning for, or reacting to, changes in our business and the industry; and
    
    placing us at a competitive disadvantage compared to our competitors with less indebtedness.
  We may be unable to service our indebtedness.
  Our operations are substantially restricted by the terms of our indebtedness, which could adversely
affect us.
  
    
    incur additional indebtedness and issue additional preferred stock;
    
    make capital expenditures and other investments;
    
    merge, consolidate or dispose of our assets or the capital stock or assets of any restricted subsidiary;
    
    engage in sale-leaseback transactions;
    
    pay dividends, make distributions or redeem capital stock;
    
    change our line of business;
    
    enter into transactions with our affiliates; and
    
    grant liens on our assets or the assets of our restricted subsidiaries.
  45




---



##### Table of Contents



The costs and difficulties of integrating current and future acquisitions could impede our future
growth, diminish our competitiveness and materially adversely affect our operations.
  A significant portion of our total assets consist of goodwill and other intangible assets, which
may be subject to impairment charges in the future depending upon the financial results of our
business.
  We rely on third-party information for our electronic automotive parts and applications catalog and
we are increasingly facing pressure to present our electronic automotive parts and applications
catalog in a flexible format, each of which could expose us to a variety of risks, including
increased pressure on our pricing.
  If our existing customers who operate systems that we no longer actively sell do not upgrade or
delay upgrading to our current generation of systems or upgrade to a system not sold by us, our
operating results could be materially adversely affected.
  46




---



##### Table of Contents



We compete with many other technology providers in connection with the sale of our business
management solutions to the retail and wholesale distribution market and our failure to effectively
compete may negatively impact our market share and/or revenue.
   Because of the varying sales cycles applicable to our systems sales, our quarterly systems revenues
and other operating results can be difficult to predict and may fluctuate substantially.
   Future consolidation among our customers and other businesses in the markets in which we operate
may reduce our revenues, which would negatively impact our financial performance.
  If we fail to adequately protect our proprietary rights and intellectual property, we may incur
unanticipated costs and our competitive position may suffer.
  47




---



##### Table of Contents



If we become subject to adverse claims alleging infringement of third-party proprietary rights, we
may incur unanticipated costs and our competitive position may suffer.
  Our software and information services could contain design defects or errors that could affect our
reputation, result in significant costs to us and impair our ability to sell our products.
  If we fail to obtain software and information we license from third parties on acceptable terms, we
may experience delays and disruptions that could materially and adversely affect our business and
results of operations.
  Interruptions in our connectivity applications and our systems could disrupt the services that we
provide and materially adversely affect our business and results of operations.
  In the event of a failure in a customers computer system installed by us, a claim for damages may
be made against us regardless of our responsibility for the failure, which could expose us to
liability.
  48




---



##### Table of Contents



Because we sell to small and medium-sized retail and wholesale distribution businesses, prolonged
unfavorable general economic and market conditions could negatively impact our sales.
  The interests of our controlling stockholders or investors, may differ from the interests of the
holders of our other security holders.
    
 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.
  49




---



##### Table of Contents



Item 6. Exhibits.
  ExhibitNo.
    
    Description31.1*
    
    Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 by Pervez Qureshi.31.2*
    
    Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 by Kathleen M. Crusco.32.1**
    
    Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 by Pervez 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 and shall not be deemed incorporated by reference into any
filing, in accordance with Item 601 of Regulation S-K. 50




---



##### Table of Contents



SIGNATURE
 th
 ACTIVANT SOLUTIONS INC.By:
    
    /s/ KATHLEEN M. CRUSCOKathleen M. CruscoSenior Vice President and Chief Financial Officer(Duly Authorized and Principal Financial Officer)
 51