##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
 þ
    
    QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended December 31, 2006
 o
    
    TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 Commission
File Number 333-49389
 Activant Solutions Inc.
  Delaware
(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
 o þ
  o o þ
 o þ
  Class
    
    Outstanding at February 10, 2007Common Stock, par value $0.01 per share
    
    10 shares




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##### 



PAGEFORWARD-LOOKING STATEMENTS
    
    
    3PART I  FINANCIAL INFORMATION
    
    
    4ITEM 1.  FINANCIAL STATEMENTS (Unaudited)
    
    
    4Consolidated Balance Sheets as of September 30, 2006 and December 31, 2006
    
    
    4Consolidated Statements of Operations and Comprehensive Income for the
three months ended December 31, 2006 (Activant Solutions Inc.) and
December 31, 2005 (Predecessor)
    
    
    5Consolidated Statements of Cash Flows for the three months ended December
31, 2006 (Activant Solutions Inc.) and December 31, 2005 (Predecessor)
    
    
    6Notes to Consolidated Financial Statements
    
    
    7ITEM 2.  MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
    
    
    18ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
    
    
    25ITEM 4.  CONTROLS AND PROCEDURES
    
    
    25PART II  OTHER INFORMATION
    
    
    26ITEM 1.  LEGAL PROCEEDINGS
    
    
    26ITEM 1A.  RISK FACTORS
    
    
    26ITEM 2.  UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
    
    
    31ITEM 3.  DEFAULTS UPON SENIOR SECURITIES
    
    
    31ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
    
    
    31ITEM 5.  OTHER INFORMATION
    
    
    31ITEM 6.  EXHIBITS
    
    
    32SIGNATURE
    
    
    33Employment AgreementCertification Pursuant to Section 302Certification Pursuant to Section 302Certification Pursuant to Section 906Certification Pursuant to Section 906
  2




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##### Table of Contents



FORWARD-LOOKING STATEMENTS
   
    
    failure to anticipate or respond to our customers needs and requirements;
    
    failure of our proprietary technology to support our customers future needs or it becoming obsolete;
    
    failure to develop new relationships and maintain existing relationships with key
industry participants and/or key customers and/or loss of significant customer revenues;
    
    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 following the transactions and
the failure to attract, retain and integrate qualified management personnel;
    
    failure of our new Eagle and Vision products to gain acceptance within the automotive parts aftermarket;
    
    costs and difficulties of integrating future acquisitions;
    
    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;
    
    prolonged unfavorable general economic and market conditions;
    
    differing interests of debt security holders and our controlling stockholders or investors;
    
    our substantial indebtedness;
    
    certain covenants in our debt documents; and
    
    the other factors described under the heading Risk Factors and elsewhere in this report.
  3




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September 30,
    
    
    December 31,(in thousands, except share data)
    
    2006
    
    
    2006(Unaudited)ASSETS:Current assets:Cash and cash equivalents
    
    $
    36,383
    
    
    $
    21,743Trade accounts receivable, net of allowance for doubtful accounts of
$2,205 and $4,372 at September 30, 2006 and December 31, 2006,
respectively
    
    
    55,689
    
    
    
    57,121Inventories, net
    
    
    4,355
    
    
    
    5,436Deferred income taxes
    
    
    5,401
    
    
    
    5,401Income taxes receivable
    
    
    12,906
    
    
    
    12,032Prepaid expenses and other current assets
    
    
    5,231
    
    
    
    5,387Total current assets
    
    
    119,965
    
    
    
    107,120Property and equipment, net
    
    
    8,727
    
    
    
    8,565Intangible assets, net
    
    
    221,380
    
    
    
    216,904Goodwill
    
    
    598,532
    
    
    
    597,832Deferred financing costs
    
    
    15,137
    
    
    
    15,296Other assets
    
    
    3,945
    
    
    
    4,319Total assets
    
    $
    967,686
    
    
    $
    950,036LIABILITIES AND STOCKHOLDERS DEFICIT:Current liabilities:Accounts payable
    
    $
    13,944
    
    
    $
    14,392Payroll related accruals
    
    
    18,266
    
    
    
    16,538Deferred revenue
    
    
    29,688
    
    
    
    30,261Current portion of long-term debt
    
    
    3,900
    
    
    
    Accrued expenses and other current liabilities
    
    
    23,436
    
    
    
    18,440Total current liabilities
    
    
    89,234
    
    
    
    79,631Long-term debt
    
    
    561,150
    
    
    
    550,050Deferred tax liabilities
    
    
    64,817
    
    
    
    64,817Other liabilities
    
    
    4,812
    
    
    
    4,827Total liabilities
    
    
    720,013
    
    
    
    699,325Commitments and contingencies
    
    
    
    
    
    
    Common Stock:Par value $0.01, authorized 1,000 shares, 10 shares issued and
outstanding, at September 30, 2006 and December 31, 2006
    
    
    
    
    
    
    Additional paid-in capital
    
    
    246,744
    
    
    
    247,486Retained earnings
    
    
    3,080
    
    
    
    5,098Other accumulated comprehensive income (loss):Unrealized loss on cash flow hedges
    
    
    (2,103
    )
    
    
    (1,873
    )Cumulative translation adjustment
    
    
    (48
    )
    
    
    Total stockholders equity
    
    
    247,673
    
    
    
    250,711Total liabilities and stockholders deficit
    
    $
    967,686
    
    
    $
    950,036
  4




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Three Months Ended(in thousands)
    
    December 31,2005
    
    
    
    2006Predecessor
    
    
    
    ActivantCompany
    
    
    
    Solutions Inc.Revenues:Systems
    
    $
    40,923
    
    
    
    $
    40,381Services
    
    
    57,208
    
    
    
    
    57,850Total revenues
    
    
    98,131
    
    
    
    
    98,231Cost of revenues (exclusive of
depreciation and amortization shown
separately below):Systems
    
    
    20,331
    
    
    
    
    20,810Services
    
    
    20,298
    
    
    
    
    20,610Total cost of revenues
    
    
    40,629
    
    
    
    
    41,420Gross profit
    
    
    57,502
    
    
    
    
    56,811Operating expenses:Sales and marketing
    
    
    12,973
    
    
    
    
    15,358Product development
    
    
    9,432
    
    
    
    
    9,656General and administrative
    
    
    9,002
    
    
    
    
    9,769Depreciation and amortization
    
    
    6,768
    
    
    
    
    7,058Total operating expenses
    
    
    38,175
    
    
    
    
    41,841Operating income
    
    
    19,327
    
    
    
    
    14,970Interest expense
    
    
    (13,149
    )
    
    
    
    (12,124
    )Write-off of prior deferred financing costs
    
    
    (1,535
    )
    
    
    
    Other income, net
    
    
    614
    
    
    
    
    442Income before income taxes
    
    
    5,257
    
    
    
    
    3,288Income tax expense
    
    
    (2,006
    )
    
    
    
    (1,270
    )Net income
    
    $
    3,251
    
    
    
    $
    2,018Comprehensive income:Net income
    
    $
    3,251
    
    
    
    $
    2,018Unrealized gain on cash flow hedges
    
    
    
    
    
    
    
    230Foreign currency translation adjustment
    
    
    (158
    )
    
    
    
    48Comprehensive income
    
    $
    3,093
    
    
    
    $
    2,296
  5




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Three Months Ended(in thousands)
    
    December 31,2005
    
    
    
    2006Predecessor
    
    
    
    ActivantCompany
    
    
    
    Solutions Inc.OPERATING ACTIVITIESNet income
    
    $
    3,251
    
    
    
    $
    2,018Adjustments to reconcile net income to net cash
provided by operating activities:Stock compensation expense
    
    
    25
    
    
    
    
    742Depreciation
    
    
    1,507
    
    
    
    
    1,408Amortization of intangible assets
    
    
    5,261
    
    
    
    
    5,650Amortization of deferred financing costs
    
    
    648
    
    
    
    
    505Write-off of prior deferred financing costs
    
    
    1,535
    
    
    
    
    Provision for doubtful accounts
    
    
    599
    
    
    
    
    2,167Other, net
    
    
    (58
    )
    
    
    
    119Changes in assets and liabilities:Trade accounts receivable
    
    
    (8,335
    )
    
    
    
    (3,599
    )Inventories
    
    
    (546
    )
    
    
    
    (1,081
    )Prepaid expenses and other assets
    
    
    (224
    )
    
    
    
    120Accounts payable
    
    
    215
    
    
    
    
    448Deferred revenue
    
    
    (1,537
    )
    
    
    
    573Accrued expenses and other liabilities
    
    
    (6,463
    )
    
    
    
    (6,334
    )Net cash provided by (used in) operating activities
    
    
    (4,122
    )
    
    
    
    2,736INVESTING ACTIVITIESPurchase of property and equipment
    
    
    (1,412
    )
    
    
    
    (1,238
    )Capitalized computer software costs and databases
    
    
    (1,468
    )
    
    
    
    (1,174
    )Purchase price adjustments
    
    
    508
    
    
    
    
    700Proceeds from disposition of equity interest
    
    
    679
    
    
    
    
    Net cash used in investing activities
    
    
    (1,693
    )
    
    
    
    (1,712
    )FINANCING ACTIVITIESProceeds from long-term debt
    
    
    185,000
    
    
    
    
    Repayment of senior unsecured bridge loan
    
    
    (180,000
    )
    
    
    
    Proceeds from credit facility
    
    
    6,000
    
    
    
    
    Payment on long-term debt
    
    
    (64
    )
    
    
    
    (15,000
    )Repurchase of common stock
    
    
    (840
    )
    
    
    
    Deferred financing costs
    
    
    (3,498
    )
    
    
    
    (664
    )Net cash provided by (used in) financing activities
    
    
    6,598
    
    
    
    
    (15,664
    )Net change in cash and cash equivalents
    
    
    783
    
    
    
    
    (14,640
    )Cash and cash equivalents, beginning of period
    
    
    10,952
    
    
    
    
    36,383Cash and cash equivalents, end of period
    
    $
    11,735
    
    
    
    $
    21,743Supplemental disclosures of cash flow information
Cash paid during the period for:Interest
    
    $
    17,829
    
    
    
    $
    15,862Income taxes
    
    $
    768
    
    
    
    $
    661
  6




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Accounting for Uncertainty in Income Taxes  an interpretation of FASB Statement No. 109
  7




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Pro forma results (unaudited)
  Three months ended December 31,(dollars in thousands)
    
    2005 (pro forma)
    
    
    2006Total revenues
    
    $
    98,131
    
    
    $
    98,231Total cost of revenues
(exclusive of depreciation and
amortization shown separately
below)
    
    
    40,629
    
    
    
    41,420Gross profit
    
    
    57,502
    
    
    
    56,811Total operating expenses
    
    
    31,407
    
    
    
    34,783Depreciation and amortization
    
    
    7,058
    
    
    
    7,058Operating income
    
    
    19,037
    
    
    
    14,970Interest expense
    
    
    (12,124
    )
    
    
    (12,124
    )Other income (expense), net
    
    
    614
    
    
    
    442Income before taxes
    
    
    7,527
    
    
    
    3,288Income tax expense
    
    
    (2,907
    )
    
    
    (1,270
    )Net income
    
    $
    4,620
    
    
    $
    2,018
   September 30,
    
    
    December 31,(dollars in thousands)
    
    2006
    
    
    200610 1/2 % senior notes due 2011
    
    $
    2,000
    
    
    $
    2,000Senior secured credit agreement
    
    
    388,050
    
    
    
    373,050Senior subordinated notes
    
    
    175,000
    
    
    
    175,000Total debt
    
    
    565,050
    
    
    
    550,050Current portion
    
    
    (3,900
    )
    
    
    Long-term debt
    
    $
    561,150
    
    
    $
    550,050
 Senior Secured Credit Agreement
 8




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Senior Subordinated Notes Due 2016
        9




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##### Table of Contents



2006 Option PlanNumber of
    
    
    Weighted AverageShares
    
    
    Exercise PriceTotal options outstanding at September 30, 2006
    
    
    333,334
    
    
    $
    1.00Options granted
    
    
    6,605,073
    
    
    
    4.35Options forfeited
    
    
    
    
    
    
    Options exercised
    
    
    
    
    
    
    Total options outstanding at December 31, 2006
    
    
    6,938,407
    
    
    $
    4.19
  Expected term
    
    6.66 yearsExpected volatility
    
    
    50
    %Expected dividends
    
    
    0
    %Risk-free rate
    
    
    4.67
    %
   
    
    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 Data Services, 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.
  10




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##### Table of Contents



(dollars in thousands)
    
    Three months ended December 31, 2005 (Predecessor)Product
    
    
    Content &
    
    
    OtherSystems
    
    
    Support
    
    
    Data Services
    
    
    Services
    
    
    TotalRevenues
    
    $
    40,923
    
    
    $
    39,334
    
    
    $
    15,976
    
    
    $
    1,898
    
    
    $
    98,131Cost of Revenues
    
    
    20,331
    
    
    
    15,538
    
    
    
    3,453
    
    
    
    1,307
    
    
    
    40,629Gross Profit
    
    $
    20,592
    
    
    $
    23,796
    
    
    $
    12,523
    
    
    $
    591
    
    
    $
    57,502Gross Profit as a Percentage of Revenues
    
    
    50.3
    %
    
    
    60.5
    %
    
    
    78.4
    %
    
    
    31.1
    %
    
    
    58.6
    %
 (dollars in thousands)
    
    Three months ended December 31, 2006 (Activant Solutions Inc.)Product
    
    
    Content &
    
    
    OtherSystems
    
    
    Support
    
    
    Data Services
    
    
    Services
    
    
    TotalRevenues
    
    $
    40,381
    
    
    $
    39,509
    
    
    $
    16,512
    
    
    $
    1,829
    
    
    $
    98,231Cost of Revenues
    
    
    20,810
    
    
    
    15,706
    
    
    
    3,552
    
    
    
    1,352
    
    
    
    41,420Gross Profit
    
    $
    19,571
    
    
    $
    23,803
    
    
    $
    12,960
    
    
    $
    477
    
    
    $
    56,811Gross Profit as a Percentage of Revenues
    
    
    48.5
    %
    
    
    60.2
    %
    
    
    78.5
    %
    
    
    26.1
    %
    
    
    57.8
    %
 Geographic segments
  (dollars in thousands)
    
    Three months ended December 31,2005
    
    
    
    2006Predecessor
    
    
    
    Activant Solutions Inc.Revenues:Americas
    
    $
    96,448
    
    
    
    $
    96,490Europe
    
    
    1,683
    
    
    
    
    1,741Total revenues
    
    $
    98,131
    
    
    
    $
    98,231September 30, 2006
    
    
    
    December 31, 2006Assets:Americas
    
    $
    965,217
    
    
    
    $
    947,669Europe
    
    
    2,469
    
    
    
    
    2,367Total assets
    
    $
    967,686
    
    
    
    $
    950,036
 11




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Consolidating Balance Sheet as of December 31, 2006
 (in thousands)
    
    GuarantorPrincipal
    
    
    Guarantor
    
    
    Non-GuarantorOperations
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedAssetsCurrent assets:Cash and cash equivalents
    
    $
    13,448
    
    
    $
    5,484
    
    
    $
    2,811
    
    
    $
    
    
    
    $
    21,743Trade accounts receivable, net of allowance for doubtful
accounts
    
    
    43,674
    
    
    
    11,542
    
    
    
    1,905
    
    
    
    
    
    
    
    57,121Inventories, net
    
    
    4,817
    
    
    
    514
    
    
    
    105
    
    
    
    
    
    
    
    5,436Prepaid expenses and other current assets
    
    
    19,924
    
    
    
    1,980
    
    
    
    916
    
    
    
    
    
    
    
    22,820Total current assets
    
    
    81,863
    
    
    
    19,520
    
    
    
    5,737
    
    
    
    
    
    
    
    107,120Property and equipment, net
    
    
    6,781
    
    
    
    1,179
    
    
    
    605
    
    
    
    
    
    
    
    8,565Intangible assets, net
    
    
    216,904
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    216,904Goodwill
    
    
    597,832
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    597,832Investments in subsidiaries
    
    
    (24,098
    )
    
    
    37,337
    
    
    
    (8,730
    )
    
    
    (4,509
    )
    
    
    Deferred financing costs
    
    
    15,296
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    15,296Other assets
    
    
    4,105
    
    
    
    127
    
    
    
    87
    
    
    
    
    
    
    
    4,319Total assets
    
    $
    898,683
    
    
    $
    58,163
    
    
    $
    (2,301
    )
    
    $
    (4,509
    )
    
    $
    950,036Liabilities and stockholders equity (deficit)Current liabilities:Accounts payable
    
    $
    12,329
    
    
    $
    2,064
    
    
    $
    (1
    )
    
    $
    
    
    
    $
    14,392Intercompany payables (receivables)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Payroll related accruals
    
    
    11,922
    
    
    
    3,833
    
    
    
    783
    
    
    
    
    
    
    
    16,538Deferred revenue
    
    
    18,109
    
    
    
    10,608
    
    
    
    1,544
    
    
    
    
    
    
    
    30,261Accrued expenses and other current liabilities
    
    
    17,083
    
    
    
    1,511
    
    
    
    (154
    )
    
    
    
    
    
    
    18,440Total current liabilities
    
    
    59,443
    
    
    
    18,016
    
    
    
    2,172
    
    
    
    
    
    
    
    79,631Long-term debt
    
    
    550,050
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    550,050Deferred tax liabilities and other liabilities
    
    
    61,056
    
    
    
    7,565
    
    
    
    1,023
    
    
    
    
    
    
    
    69,644Total liabilities
    
    
    670,549
    
    
    
    25,581
    
    
    
    3,195
    
    
    
    
    
    
    
    699,325Total stockholders equity (deficit)
    
    
    228,134
    
    
    
    32,582
    
    
    
    (5,496
    )
    
    
    (4,509
    )
    
    
    250,711Total liabilities and stockholders equity (deficit)
    
    $
    898,683
    
    
    $
    58,163
    
    
    $
    (2,301
    )
    
    $
    (4,509
    )
    
    $
    950,036
 12




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##### Table of Contents



Consolidating Balance Sheet as of September 30, 2006
 (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 equity (deficit)Current liabilities:Accounts payable
    
    $
    10,996
    
    
    $
    2,597
    
    
    $
    351
    
    
    $
    
    
    
    $
    13,944Intercompany payables (receivables)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Payroll 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 (deficit)
    
    
    235,348
    
    
    
    21,905
    
    
    
    2,996
    
    
    
    (12,576
    )
    
    
    247,673Total liabilities and stockholders equity (deficit)
    
    $
    921,746
    
    
    $
    48,811
    
    
    $
    9,705
    
    
    $
    (12,576
    )
    
    $
    967,686
 13




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##### Table of Contents



Consolidating Statement of Operations for the Three Months Ended December 31, 2006
 (in thousands)
    
    GuarantorPrincipal
    
    
    Guarantor
    
    
    Non-GuarantorOperations
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedRevenues:Systems
    
    $
    25,774
    
    
    $
    13,263
    
    
    $
    1,344
    
    
    $
    
    
    
    $
    40,381Services
    
    
    37,262
    
    
    
    16,879
    
    
    
    3,709
    
    
    
    
    
    
    
    57,850Total revenues
    
    
    63,036
    
    
    
    30,142
    
    
    
    5,053
    
    
    
    
    
    
    
    98,231Cost of revenues (exclusive of
depreciation and amortization shown
separately below):Systems
    
    
    14,230
    
    
    
    4,830
    
    
    
    1,750
    
    
    
    
    
    
    
    20,810Services
    
    
    14,500
    
    
    
    4,185
    
    
    
    1,925
    
    
    
    
    
    
    
    20,610Total cost of revenues
    
    
    28,730
    
    
    
    9,015
    
    
    
    3,675
    
    
    
    
    
    
    
    41,420Gross profit
    
    
    34,306
    
    
    
    21,127
    
    
    
    1,378
    
    
    
    
    
    
    
    56,811Operating expenses:Sales and marketing
    
    
    8,934
    
    
    
    5,426
    
    
    
    998
    
    
    
    
    
    
    
    15,358Product development
    
    
    5,197
    
    
    
    3,834
    
    
    
    625
    
    
    
    
    
    
    
    9,656General and administrative
    
    
    7,816
    
    
    
    1,082
    
    
    
    871
    
    
    
    
    
    
    
    9,769Depreciation and amortization
    
    
    6,766
    
    
    
    220
    
    
    
    72
    
    
    
    
    
    
    
    7,058Total operating expenses
    
    
    28,713
    
    
    
    10,562
    
    
    
    2,566
    
    
    
    
    
    
    
    41,841Operating income
    
    
    5,593
    
    
    
    10,565
    
    
    
    (1,188
    )
    
    
    
    
    
    
    14,970Interest expense
    
    
    (12,119
    )
    
    
    (1
    )
    
    
    (4
    )
    
    
    
    
    
    
    (12,124
    )Other income, net
    
    
    299
    
    
    
    127
    
    
    
    16
    
    
    
    
    
    
    
    442Income (loss) before income taxes
    
    
    (6,227
    )
    
    
    10,691
    
    
    
    (1,176
    )
    
    
    
    
    
    
    3,288Income tax expense
    
    
    (1,267
    )
    
    
    (3
    )
    
    
    
    
    
    
    
    
    
    
    (1,270
    )Net income (loss)
    
    $
    (7,494
    )
    
    $
    10,688
    
    
    $
    (1,176
    )
    
    $
    
    
    
    $
    2,018
 14




---



##### Table of Contents



Consolidating Statement of Operations for the Three Months Ended December 31, 2005 (Predecessor)
 (in thousands)
    
    
    
    
    
    GuarantorParent
    
    
    Principal
    
    
    Guarantor
    
    
    Non-GuarantorCompany
    
    
    Operations
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedRevenues:Systems
    
    $
    
    
    
    $
    26,028
    
    
    $
    14,378
    
    
    $
    517
    
    
    $
    
    
    
    $
    40,923Services
    
    
    
    
    
    
    33,583
    
    
    
    19,560
    
    
    
    4,065
    
    
    
    
    
    
    
    57,208Total revenues
    
    
    
    
    
    
    59,611
    
    
    
    33,938
    
    
    
    4,582
    
    
    
    
    
    
    
    98,131Cost of revenues (exclusive of
depreciation and amortization
shown separately below):Systems
    
    
    
    
    
    
    14,904
    
    
    
    4,692
    
    
    
    735
    
    
    
    
    
    
    
    20,331Services
    
    
    
    
    
    
    12,664
    
    
    
    5,559
    
    
    
    2,075
    
    
    
    
    
    
    
    20,298Total cost of revenues
    
    
    
    
    
    
    27,568
    
    
    
    10,251
    
    
    
    2,810
    
    
    
    
    
    
    
    40,629Gross profit
    
    
    
    
    
    
    32,043
    
    
    
    23,687
    
    
    
    1,772
    
    
    
    
    
    
    
    57,502Operating expenses:Sales and marketing
    
    
    
    
    
    
    8,641
    
    
    
    3,625
    
    
    
    707
    
    
    
    
    
    
    
    12,973Product development
    
    
    
    
    
    
    4,639
    
    
    
    4,244
    
    
    
    549
    
    
    
    
    
    
    
    9,432General and administrative
    
    
    
    
    
    
    5,730
    
    
    
    2,431
    
    
    
    841
    
    
    
    
    
    
    
    9,002Depreciation and amortization
    
    
    
    
    
    
    6,231
    
    
    
    262
    
    
    
    275
    
    
    
    
    
    
    
    6,768Total operating expenses
    
    
    
    
    
    
    25,241
    
    
    
    10,562
    
    
    
    2,372
    
    
    
    
    
    
    
    38,175Operating income
    
    
    
    
    
    
    6,802
    
    
    
    13,125
    
    
    
    (600
    )
    
    
    
    
    
    
    19,327Interest expense
    
    
    (1,364
    )
    
    
    (11,781
    )
    
    
    (5
    )
    
    
    1
    
    
    
    
    
    
    
    (13,149
    )Write-off of prior debt
issuance costs
    
    
    (329
    )
    
    
    (1,206
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,535
    )Other income, net
    
    
    
    
    
    
    157
    
    
    
    131
    
    
    
    326
    
    
    
    
    
    
    
    614Income (loss) before income
taxes
    
    
    (1,693
    )
    
    
    (6,028
    )
    
    
    13,251
    
    
    
    (273
    )
    
    
    
    
    
    
    5,257Income tax expense
    
    
    646
    
    
    
    (2,239
    )
    
    
    (447
    )
    
    
    34
    
    
    
    
    
    
    
    (2,006
    )Net income (loss)
    
    $
    (1,047
    )
    
    $
    (8,267
    )
    
    $
    12,804
    
    
    $
    (239
    )
    
    $
    
    
    
    $
    3,251
 15




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##### Table of Contents



Consolidating Statement of Cash Flows for the Three Months Ended December 31, 2006
 (in thousands)
    
    GuarantorPrincipal
    
    
    Guarantor
    
    
    Non-GuarantorOperations
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedNet cash provided by (used in) operating
activities
    
    $
    4,268
    
    
    $
    (2,233
    )
    
    $
    701
    
    
    $
    
    
    
    $
    2,736Investing activitiesPurchase of property and equipment
    
    
    (1,180
    )
    
    
    (55
    )
    
    
    (3
    )
    
    
    
    
    
    
    (1,238
    )Capitalized computer software costs and
databases
    
    
    (1,174
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,174
    )Purchase price adjustments
    
    
    700
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    700Net cash used in investing activities
    
    
    (1,654
    )
    
    
    (55
    )
    
    
    (3
    )
    
    
    
    
    
    
    (1,712
    )Financing activitiesPayment on long-term debt
    
    
    (15,000
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (15,000
    )Deferred financing costs
    
    
    (664
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (664
    )Net cash provided by (used in) financing
activities
    
    
    (15,664
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (15,664
    )Net change in cash and cash equivalents
    
    
    (13,050
    )
    
    
    (2,288
    )
    
    
    698
    
    
    
    
    
    
    
    (14,640
    )Cash and cash equivalents, beginning of
period
    
    
    26,498
    
    
    
    7,772
    
    
    
    2,113
    
    
    
    
    
    
    
    36,383Cash and cash equivalents, end of
period
    
    $
    13,448
    
    
    $
    5,484
    
    
    $
    2,811
    
    
    $
    
    
    
    $
    21,743
 16




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##### Table of Contents



Consolidating Statement of Cash Flows for the Three Months Ended December 31, 2005 (Predecessor)
 GuarantorParent
    
    
    Principal
    
    
    Guarantor
    
    
    Non-GuarantorCompany
    
    
    Operations
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedNet cash provided by (used in)
operating activities
    
    $
    (1,736
    )
    
    $
    (2,677
    )
    
    $
    98
    
    
    $
    193
    
    
    $
    
    
    
    $
    (4,122
    )Investing activitiesPurchase of property and equipment
    
    
    
    
    
    
    (1,258
    )
    
    
    (45
    )
    
    
    (109
    )
    
    
    
    
    
    
    (1,412
    )Capitalized computer software costs
and databases
    
    
    
    
    
    
    (1,468
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,468
    )Purchase price adjustments
    
    
    
    
    
    
    508
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    508Equity distributions from
partnerships
    
    
    
    
    
    
    679
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    679Net cash used in investing
activities
    
    
    
    
    
    
    (1,539
    )
    
    
    (45
    )
    
    
    (109
    )
    
    
    
    
    
    
    (1,693
    )Financing activitiesProceeds from long-term debt
    
    
    40,000
    
    
    
    145,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    185,000Repayment of unsecured bridge loan
    
    
    (40,000
    )
    
    
    (140,000
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (180,000
    )Proceeds from credit facility
    
    
    
    
    
    
    6,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,000Payment on long-term debt
    
    
    
    
    
    
    
    
    
    
    (64
    )
    
    
    
    
    
    
    
    
    
    
    (64
    )Repurchase of common stock
    
    
    (840
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (840
    )Dividend to/from parent
    
    
    3,369
    
    
    
    (3,369
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Deferred financing costs
    
    
    (793
    )
    
    
    (2,705
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,498
    )Net cash provided by (used in)
financing activities
    
    
    1,736
    
    
    
    4,926
    
    
    
    (64
    )
    
    
    
    
    
    
    
    
    
    
    6,598Net change in cash and cash
equivalents
    
    
    
    
    
    
    710
    
    
    
    (11
    )
    
    
    84
    
    
    
    
    
    
    
    783Cash and cash equivalents,
beginning of period
    
    
    
    
    
    
    5,800
    
    
    
    3,943
    
    
    
    1,209
    
    
    
    
    
    
    
    10,952Cash and cash equivalents, end of
period
    
    $
    
    
    
    $
    6,510
    
    
    $
    3,932
    
    
    $
    1,293
    
    
    $
    
    
    
    $
    11,735
 17




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##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of
Operations
 The following discussion and analysis of our results of operations and financial condition
includes the Predecessor periods prior to the consummation of the transactions. We refer to the
operations of both the Predecessor and the Successor as ours, unless specifically stated otherwise.
You should read the following discussion and analysis in conjunction with our financial statements
and related notes included above. This discussion contains forward-looking statements that involve
risks, uncertainties and assumptions. Our actual results may differ materially from those
anticipated in these forward-looking statements as a result of a variety of factors listed below.
  Overview
  §
    
    Systems, which is comprised primarily of proprietary software applications,
implementation and training and third-party software, hardware and peripherals. For the
three months ended December 31, 2006, systems revenues accounted for 41% 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 three months ended December 31, 2006, product support revenues
accounted for 40% of our total revenues;§
    
    Content and Data Services, 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 data services are generally provided on a monthly subscription basis and
accordingly, revenues from this segment are generally recurring in nature. For the three
months ended December 31, 2006, content and data services revenues accounted for 17% of our
total revenues; and§
    
    Other Services, which is comprised primarily of business products, such as forms and
other paper products. For the three months ended December 31, 2006, 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 three months ended December 31, 2006, we generated
approximately 42% 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,
 18




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##### 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 three months ended December 31, 2006, we generated approximately
31% 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
three months ended December 31, 2006, we generated approximately 23% of our total revenues
from Auto.§
    
    The productivity tools business consists of software migration and application
development tools. For the three months ended December 31, 2006, we generated
approximately 4% of our total revenues from the productivity tools business.
 Historical Results of Operations
 Three months ended December 31, 2006 compared to three months ended December 31, 2005
 Revenues.
 19




---



##### Table of Contents



Three months ended December 31,(in thousands)
    
    2005
    
    
    2006
    
    
    Variance $
    
    
    Variance %Systems Revenues:Hardlines and Lumber
    
    $
    22,824
    
    
    $
    20,908
    
    
    $
    (1,916
    )
    
    
    (8.4
    )%Auto
    
    
    4,225
    
    
    
    3,736
    
    
    
    (489
    )
    
    
    (11.6
    )%Wholesale Distribution
    
    
    12,406
    
    
    
    13,263
    
    
    
    857
    
    
    
    6.9
    %Productivity Tools
    
    
    1,468
    
    
    
    2,474
    
    
    
    1,006
    
    
    
    68.5
    %Total Systems Revenues
    
    $
    40,923
    
    
    $
    40,381
    
    
    $
    (542
    )
    
    
    (1.3
    )%Product Support Revenues:Hardlines and Lumber
    
    $
    15,661
    
    
    $
    16,900
    
    
    $
    1,239
    
    
    
    7.9
    %Auto
    
    
    7,860
    
    
    
    6,843
    
    
    
    (1,017
    )
    
    
    (12.9
    )%Wholesale Distribution
    
    
    13,931
    
    
    
    14,182
    
    
    
    251
    
    
    
    1.8
    %Productivity Tools
    
    
    1,882
    
    
    
    1,584
    
    
    
    (298
    )
    
    
    (15.8
    )%Total Product Support Revenues
    
    $
    39,334
    
    
    $
    39,509
    
    
    $
    175
    
    
    
    0.4
    %Content and Data Services Revenues:Hardlines and Lumber
    
    $
    1,459
    
    
    $
    1,846
    
    
    $
    387
    
    
    
    26.5
    %Auto
    
    
    12,416
    
    
    
    11,969
    
    
    
    (447
    )
    
    
    (3.6
    )%Wholesale Distribution
    
    
    2,101
    
    
    
    2,697
    
    
    
    596
    
    
    
    28.4
    %Productivity Tools
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total Content and Data Services Revenues
    
    $
    15,976
    
    
    $
    16,512
    
    
    $
    536
    
    
    
    3.4
    %Other Services Revenues:Hardlines and Lumber
    
    $
    1,729
    
    
    $
    1,829
    
    
    $
    100
    
    
    
    5.8
    %Auto
    
    
    129
    
    
    
    
    
    
    
    (129
    )
    
    
    Wholesale Distribution
    
    
    40
    
    
    
    
    
    
    
    (40
    )
    
    
    Productivity Tools
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total Other Revenues
    
    $
    1,898
    
    
    $
    1,829
    
    
    $
    (69
    )
    
    
    (3.6
    )%Total Revenues:Hardlines and Lumber
    
    $
    41,673
    
    
    $
    41,483
    
    
    $
    (190
    )
    
    
    (0.5
    )%Auto
    
    
    24,630
    
    
    
    22,548
    
    
    
    (2,082
    )
    
    
    (8.5
    )%Wholesale Distribution
    
    
    28,478
    
    
    
    30,142
    
    
    
    1,664
    
    
    
    5.8
    %Productivity Tools
    
    
    3,350
    
    
    
    4,058
    
    
    
    708
    
    
    
    21.1
    %Total Revenues
    
    $
    98,131
    
    
    $
    98,231
    
    
    $
    100
    
    
    
    0.1
    %
  Factors affecting Systems revenues for the three months ended December 31, 2006.
 
    
    Systems revenues from our hardlines and lumber vertical market decreased by $1.9 million,
or 8.4% due to lower demand and timing of customer installations.
    
    Systems revenue for Auto decreased by $0.5 million, or 11.7%, primarily due to the timing
of the implementation of certain warehouse systems.
    
    Systems revenue from our wholesale distribution vertical market increased by $0.9 million
due to a higher percentage of sales to large strategic customers, who generally have a
higher average selling price (ASP) due to their size and complexity.
    
    The $1.0 million increase in productivity tools systems revenues is attributable to an
increase in the number of platform migration projects currently being implemented by our
customers.
 20




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##### Table of Contents



Factors affecting Product Support revenues for the three months ended December 31, 2006.
 
    
    Product Support revenue from our hardlines and lumber vertical market increased by $1.2
million, or 7.9%. This increase is attributable to our increased systems sales in prior
periods, which over time, results in increased Product Support revenues.
    
    Auto Product Support revenues declined by $1.0 million, or 12.9%. Auto experienced a
decline of approximately $0.4 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 $0.6 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. We do
not expect to recapture this product support revenue.
 Factors affecting Content and Data Services revenues for the three months ended December 31, 2006.
 
    
    Content and Data Services revenues from our hardlines and lumber vertical market
increased by $0.4 million, or 26.5%, primarily due to increased sales of our Vista POS/panel
data to original equipment manufactures.
    
    Auto Content and Data Services revenues declined by $0.4 million, or 3.6%, primarily due
to customer attrition from our older systems that we continue to support but do not actively
sell to new customers.
    
    Content and Data Services revenues from our wholesale distribution vertical market
increased by $0.6 million, or 28.4%, primarily due to an increase in web hosting services
and electronic commerce products.
 Total cost of revenues and gross margins as a percentage of revenues.
  Three months ended December 31,(in thousands)
    
    2005
    
    
    2006
    
    
    Variance $
    
    
    Variance %Cost of revenues:Systems
    
    $
    20,331
    
    
    $
    20,810
    
    
    $
    479
    
    
    
    2.4
    %Product Support
    
    
    15,538
    
    
    
    15,706
    
    
    
    168
    
    
    
    1.1
    %Content and Data Services
    
    
    3,453
    
    
    
    3,552
    
    
    
    99
    
    
    
    2.9
    %Other Services
    
    
    1,307
    
    
    
    1,352
    
    
    
    45
    
    
    
    3.4
    %Total cost of revenues
    
    $
    40,629
    
    
    $
    41,420
    
    
    $
    791
    
    
    
    1.9
    %
  Three months endedDecember 31,2005
    
    
    2006Gross margin as a percentage of revenues by segment:Systems
    
    
    50.3
    %
    
    
    48.5
    %Product Support
    
    
    60.5
    %
    
    
    60.2
    %Content and Data Services
    
    
    78.4
    %
    
    
    78.5
    %Other Services
    
    
    31.1
    %
    
    
    26.1
    %Total gross margin as a percentage of revenues
    
    
    58.6
    %
    
    
    57.8
    %
 Total Cost of Revenues.
 
    
    Cost of Systems Revenues.Total cost of Systems revenues for the three months ended
December 31, 2006 increased by $0.5 million, or 2.4%, compared to the three months ended
December 31, 2005. This increase was primarily due to higher costs, primarily salaries in
the education and training support functions. Gross margin as a percentage of revenues
decreased from 50.3% for the three months ended December 31, 2005 to 48.5% for the three
months ended December 31, 2006. The decline in Systems gross margin is predominantly due to
higher general costs associated with product installation, primarily education
and training
support, without a corresponding increase in customer pricing.
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##### Table of Contents




    
    Cost of Product Support Revenues.Cost of Product Support revenues for the three months
ended December 31, 2006 increased by $0.2 million, or 1.1%, compared to the three months
ended December 31, 2005. Gross margin as a percentage of revenues decreased slightly from
60.5% for the three months ended December 31, 2005 to 60.2% for the three months ended
December 31, 2006 as we continue to invest in our customer support center.
 Total Operating Expenses.
 Three months ended December 31,(in thousands)
    
    2005
    
    
    2006
    
    
    Variance $
    
    
    Variance %Sales and Marketing Expense
    
    $
    12,973
    
    
    $
    15,358
    
    
    $
    2,385
    
    
    
    18.4
    %Product Development Expense
    
    
    9,432
    
    
    
    9,656
    
    
    
    224
    
    
    
    2.4
    %General and Administrative Expense
    
    
    9,002
    
    
    
    9,769
    
    
    
    767
    
    
    
    8.5
    %Depreciation and Amortization
    
    
    6,768
    
    
    
    7,058
    
    
    
    290
    
    
    
    4.3
    %Total Operating Expenses
    
    $
    38,175
    
    
    $
    41,841
    
    
    $
    3,666
    
    
    
    9.6
    %
  
    
    Sales and Marketing Expense.Sales and marketing expense increased by $2.4 million, or
18.4%, for the three months ended December 31, 2006 compared to the three months ended
December 31, 2005. The increase was primarily a result of increased salaries as we continue
to expand the sales force, higher bonuses and commissions that are generally paid upon
bookings, and an increase in the allowance for doubtful accounts due to lengthening of our
days sales outstanding.
    
    Product Development Expense.Product development expense increased by $0.2 million, or
2.4%, for the three months ended December 31, 2006 compared to the three months ended
December 31, 2005 primarily due to higher salaries.
    
    General and Administrative Expense.General and administrative expense increased by $0.8
million, or 8.5% for the three months ended December 31, 2006 compared to the three months
ended December 31, 2005. The primary reason for the increase was a charge of $0.7 million
for stock options. Costs associated with relocating our corporate headquarters and
increased investments in our information technology infrastructure were offset by lower
finance department costs resulting from synergies achieved from consolidating functions of
our acquired companies.
    
    Depreciation and Amortization.Amortization expense was $5.6 million for the three
months ended December 31, 2006 compared to $5.3 million for the three months ended December
31, 2005. The increase resulted from approximately $97.0 of additional intangible assets
associated with the mergers, partially offset by longer lives of finite-lived intangible
assets.
 Operating Income.
 Interest Expense.
 Net Income.
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##### Table of Contents



Liquidity and Capital Resources
 Overview
     1
 
    
    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.
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Three Months Ended December 31, 2006 Compared to Three Months Ended December 31, 2005
    24




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Item 3. Quantitative and Qualitative Disclosures about Market Risk.
 Interest Rate Risk
 1
 Foreign Currency Risk
   
 Item 4. Controls and Procedures.
 (a) Disclosure controls and procedures.
 (b) Internal controls over financial reporting.
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##### 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.
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##### Table of Contents



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.
  Approximately 59% of our total revenues for our fiscal year 2006 was derived from product support
and content and data services 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 are terminating their employment, there could be a negative
effect on our ability to operate our business.
  Our new 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.
  The costs and difficulties of integrating future acquisitions could impede our future growth,
diminish our competitiveness and materially adversely affect our operations.
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##### Table of Contents



A significant portion of our total assets consist of goodwill and other intangible assets, which
may be subject 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.
  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 could erode our market share and/or profit margins.
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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.
  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.
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##### Table of Contents



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.
  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.
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##### Table of Contents



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.
    31




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Item 6. Exhibits.
  ExhibitNo.
    
    Description10.1
    
    Employment Agreement, dated as of October 17, 2006, by and between Activant Solutions Inc.
and Brian E. Agle31.1
    
    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 Pervez Qureshi.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 Pervez Qureshi.
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SIGNATURE
 th
 ACTIVANT SOLUTIONS INC.By:
    /s/ PERVEZ QURESHIPervez QureshiPresident, Chief Executive Officer and Acting Chief Financial Officer
(Principal Financial and Duly Authorized Officer) 33