##### Table of Contents



UNITED STATES
 SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
 þ
    
    QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended March 31, 2007
 o
    
    TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 Commission File Number 333-49389
 Activant Solutions Inc.
  Delaware
    
    94-2160013(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    Identification No.)7683 Southfront RoadLivermore, CA 94551
    
    94551(Address of principal executive offices)
    
    (Zip Code)
 (925) 449-0606
  þ o
  o o þ
  o þ
  Class
    
    Outstanding at May 10, 2007Common Stock, par value $0.01 per share
    
    10 shares




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##### 



ACTIVANT SOLUTIONS INC.
REPORT ON FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 2007
 INDEX
 PAGEFORWARD-LOOKING STATEMENTS
    
    
    3PART I  FINANCIAL INFORMATIONITEM 1.  FINANCIAL STATEMENTS (Unaudited)
    
    
    4Consolidated Balance Sheets as of September 30, 2006 and March 31, 2007
    
    
    4Consolidated Statements of Operations and Comprehensive Income for the three and six months ended March 31, 2007 (Activant Solutions Inc.) and March 31, 2006 (Predecessor Company)
    
    
    5Consolidated Statements of Cash Flows for the six months ended March 31, 2007 (Activant Solutions Inc.) and March 31, 2006 (Predecessor Company)
    
    
    6Notes to Consolidated Financial Statements
    
    
    7ITEM 2.    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
    
    
    21ITEM 3.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
    
    
    31ITEM 4.   CONTROLS AND PROCEDURES
    
    
    32ITEM 4T.  CONTROLS AND PROCEDURES
    
    
    32PART II  OTHER INFORMATIONITEM 1.  LEGAL PROCEEDINGS
    
    
    33ITEM 1A.  RISK FACTORS
    
    
    33ITEM 2.  UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
    
    
    39ITEM 3.  DEFAULTS UPON SENIOR SECURITIES
    
    
    39ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
    
    
    39ITEM 5.  OTHER INFORMATION
    
    
    39ITEM 6.  EXHIBITS
    
    
    40SIGNATURE
    
    
    41Certification 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




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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 and the failure to attract,
retain and integrate qualified management personnel;
    
    failure of our new Activant Eagle and Vision products to gain acceptance within the automotive parts aftermarket;
    
    our substantial indebtedness;
    
    certain covenants in our debt documents;
    
    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; and
    
    the other factors described under the heading Risk Factors and elsewhere in this report.
  3




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PART I  FINANCIAL INFORMATION
 
 Item 1. Financial Statements (Unaudited).
  
  September 30,
    
    
    March 31,(in thousands, except share data)
    
    2006
    
    
    2007(Unaudited)ASSETS:Current assets:Cash and cash equivalents
    
    $
    36,383
    
    
    $
    16,395Trade accounts receivable, net of allowance for doubtful accounts of
$2,205 and $5,238 at September 30, 2006 and March 31, 2007,
respectively
    
    
    55,689
    
    
    
    50,894Inventories, net
    
    
    4,355
    
    
    
    5,835Deferred income taxes
    
    
    5,401
    
    
    
    8,234Income taxes receivable
    
    
    12,906
    
    
    
    10,763Prepaid expenses and other current assets
    
    
    5,231
    
    
    
    5,259Total current assets
    
    
    119,965
    
    
    
    97,380Property and equipment, net
    
    
    8,727
    
    
    
    8,892Intangible assets, net
    
    
    221,380
    
    
    
    212,479Goodwill
    
    
    598,532
    
    
    
    596,920Deferred financing costs
    
    
    15,137
    
    
    
    15,178Other assets
    
    
    3,945
    
    
    
    4,044Total assets
    
    $
    967,686
    
    
    $
    934,893LIABILITIES AND STOCKHOLDERS EQUITY:Current liabilities:Accounts payable
    
    $
    13,944
    
    
    $
    14,707Payroll related accruals
    
    
    18,266
    
    
    
    13,833Deferred revenue
    
    
    29,688
    
    
    
    26,384Current portion of long-term debt
    
    
    3,900
    
    
    
    Accrued expenses and other current liabilities
    
    
    23,436
    
    
    
    21,785Total current liabilities
    
    
    89,234
    
    
    
    76,709Long-term debt
    
    
    561,150
    
    
    
    538,050Deferred tax liabilities
    
    
    64,817
    
    
    
    60,871Other liabilities
    
    
    4,812
    
    
    
    4,588Total liabilities
    
    
    720,013
    
    
    
    680,218Commitments and contingencies
    
    
    
    
    
    
    Common Stock:Par value $0.01, authorized 1,000 shares, 10 shares issued and
outstanding, at September 30, 2006 and March 31, 2007
    
    
    
    
    
    
    Additional paid-in capital
    
    
    246,744
    
    
    
    248,957Retained earnings
    
    
    3,080
    
    
    
    8,049Other accumulated comprehensive income (loss):Unrealized loss on cash flow hedges
    
    
    (2,103
    )
    
    
    (2,352
    )Cumulative translation adjustment
    
    
    (48
    )
    
    
    21Total stockholders equity
    
    
    247,673
    
    
    
    254,675Total liabilities and stockholders equity
    
    $
    967,686
    
    
    $
    934,893
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Three Months Ended
    
    
    Six Months EndedMarch 31,
    
    
    March 31,2006
    
    
    
    2007
    
    
    2006
    
    
    
    2007Predecessor
    
    
    
    Activant
    
    
    Predecessor
    
    
    
    Activant(in thousands)
    
    Company
    
    
    
    Solutions Inc.
    
    
    Company
    
    
    
    Solutions Inc.Revenues:Systems
    
    $
    40,639
    
    
    
    $
    45,127
    
    
    $
    81,562
    
    
    
    $
    85,508Services
    
    
    58,414
    
    
    
    
    57,948
    
    
    
    115,622
    
    
    
    
    115,798Total revenues
    
    
    99,053
    
    
    
    
    103,075
    
    
    
    197,184
    
    
    
    
    201,306Cost of revenues (exclusive of
depreciation and amortization shown
separately below):Systems
    
    
    21,884
    
    
    
    
    22,603
    
    
    
    42,215
    
    
    
    
    43,421Services
    
    
    21,431
    
    
    
    
    21,075
    
    
    
    41,729
    
    
    
    
    41,752Total cost of revenues
    
    
    43,315
    
    
    
    
    43,678
    
    
    
    83,944
    
    
    
    
    85,173Gross profit
    
    
    55,738
    
    
    
    
    59,397
    
    
    
    113,240
    
    
    
    
    116,133Operating expenses:Sales and marketing
    
    
    13,107
    
    
    
    
    15,420
    
    
    
    26,080
    
    
    
    
    30,975Product development
    
    
    9,496
    
    
    
    
    9,771
    
    
    
    18,928
    
    
    
    
    19,503General and administrative
    
    
    11,022
    
    
    
    
    9,886
    
    
    
    20,024
    
    
    
    
    19,307Depreciation and amortization
    
    
    6,549
    
    
    
    
    7,279
    
    
    
    13,317
    
    
    
    
    14,337Total operating expenses
    
    
    40,174
    
    
    
    
    42,356
    
    
    
    78,349
    
    
    
    
    84,122Operating income
    
    
    15,564
    
    
    
    
    17,041
    
    
    
    34,891
    
    
    
    
    32,011Interest expense
    
    
    (13,652
    )
    
    
    
    (11,746
    )
    
    
    (26,801
    )
    
    
    
    (23,870
    )Write-off of prior deferred financing costs
    
    
    
    
    
    
    
    
    
    
    
    (1,535
    )
    
    
    
    Other income, net
    
    
    386
    
    
    
    
    17
    
    
    
    1,000
    
    
    
    
    459Income before provision for income taxes
    
    
    2,298
    
    
    
    
    5,312
    
    
    
    7,555
    
    
    
    
    8,600Provision for income taxes
    
    
    931
    
    
    
    
    2,361
    
    
    
    2,937
    
    
    
    
    3,631Net income
    
    $
    1,367
    
    
    
    $
    2,951
    
    
    $
    4,618
    
    
    
    $
    4,969Comprehensive income:Net income
    
    $
    1,367
    
    
    
    $
    2,951
    
    
    $
    4,618
    
    
    
    $
    4,969Unrealized loss on cash flow hedges
    
    
    
    
    
    
    
    (479
    )
    
    
    
    
    
    
    
    (249
    )Foreign currency translation adjustment
    
    
    5
    
    
    
    
    21
    
    
    
    (153
    )
    
    
    
    69Comprehensive income
    
    $
    1,372
    
    
    
    $
    2,493
    
    
    $
    4,465
    
    
    
    $
    4,789
  5




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Six Months Ended March 31,2006
    
    
    
    2007Predecessor
    
    
    
    Activant Solutions(in thousands)
    
    Company
    
    
    
    Inc.OPERATING ACTIVITIESNet income
    
    $
    4,618
    
    
    
    $
    4,969Adjustments to reconcile net income to net cash
provided by operating activities:Stock compensation expense
    
    
    144
    
    
    
    
    2,213Depreciation
    
    
    2,952
    
    
    
    
    2,898Amortization of intangible assets
    
    
    10,365
    
    
    
    
    11,439Amortization of deferred financing costs
    
    
    1,500
    
    
    
    
    1,036Write-off of prior deferred financing costs
    
    
    1,535
    
    
    
    
    Write-off of capitalized IPO costs
    
    
    1,776
    
    
    
    
    Provision for doubtful accounts
    
    
    1,338
    
    
    
    
    3,033Deferred income taxes, net
    
    
    75
    
    
    
    
    (6,779
    )Other, net
    
    
    (57
    )
    
    
    
    1,160Changes in assets and liabilities:Trade accounts receivable
    
    
    (7,125
    )
    
    
    
    1,762Inventories
    
    
    (2,247
    )
    
    
    
    (1,480
    )Prepaid expenses and other assets
    
    
    (6,289
    )
    
    
    
    1,885Accounts payable
    
    
    1,618
    
    
    
    
    763Deferred revenue
    
    
    685
    
    
    
    
    (3,304
    )Accrued expenses and other liabilities
    
    
    1,534
    
    
    
    
    (6,308
    )Net cash provided by operating activities
    
    
    12,422
    
    
    
    
    13,287INVESTING ACTIVITIESPurchase of property and equipment
    
    
    (2,801
    )
    
    
    
    (3,111
    )Capitalized computer software costs and databases
    
    
    (2,993
    )
    
    
    
    (2,538
    )Unrealized loss on cash flow hedge, net
    
    
    
    
    
    
    
    (249
    )Purchase price adjustments
    
    
    508
    
    
    
    
    700Proceeds from disposition of equity interest
    
    
    679
    
    
    
    
    Net cash used in investing activities
    
    
    (4,607
    )
    
    
    
    (5,198
    )FINANCING ACTIVITIESProceeds from long-term debt
    
    
    185,000
    
    
    
    
    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
    )
    
    
    
    Repurchase of common stock
    
    
    (840
    )
    
    
    
    Exercise of stock options
    
    
    105
    
    
    
    
    Debt issuance costs
    
    
    (3,561
    )
    
    
    
    (1,077
    )Net cash provided by (used in) financing activities
    
    
    555
    
    
    
    
    (28,077
    )Net change in cash and cash equivalents
    
    
    8,370
    
    
    
    
    (19,988
    )Cash and cash equivalents, beginning of period
    
    
    10,952
    
    
    
    
    36,383Cash and cash equivalents, end of period
    
    $
    19,322
    
    
    
    $
    16,395Supplemental disclosures of cash flow informationCash paid during the period for:Interest
    
    $
    17,829
    
    
    
    $
    23,052Income taxes
    
    $
    8,024
    
    
    
    $
    7,144
  6




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7




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September 30,
    
    
    March 31,(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
   8




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1 2
 Senior subordinated notes due 2016
         Predecessor Company
   9




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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 March 31, 2007
    
    
    333,334
    
    
    $
    1.00
 Activant Solutions Inc.
   2006 Option PlanNumber of
    
    
    Weighted AverageShares
    
    
    Exercise PriceTotal options outstanding at September 30, 2006
    
    
    
    
    
    $
    Options granted
    
    
    6,854,073
    
    
    
    4.36Options forfeited
    
    
    (520,000
    )
    
    
    4.35Options exercised
    
    
    
    
    
    
    Total options outstanding at March 31, 2007
    
    
    6,334,073
    
    
    $
    4.36
   Three months ended
    
    Six months endedMarch 31, 2007
    
    March 31, 2007Expected term
    
    6.66
    years
    
    6.66
    yearsExpected volatility
    
    
    50.00
    %
    
    
    50.00
    %Expected dividends
    
    
    0.00
    %
    
    
    0.00
    %Risk-free rate
    
    
    4.81
    %
    
    
    4.68
    %
  10




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
    
    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.
   Three Months Ended March 31, 2006
    
    
    
    Three Months Ended March 31, 2007Predecessor Company
    
    
    
    Activant Solutions Inc.Content
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    ContentProduct
    
    
    & Data
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Product
    
    
    & Data(dollars in thousands)
    
    Systems
    
    
    Support
    
    
    Services
    
    
    Other
    
    
    Total
    
    
    
    Systems
    
    
    Support
    
    
    Services
    
    
    Other
    
    
    TotalRevenues
    
    $
    40,639
    
    
    $
    39,980
    
    
    $
    15,744
    
    
    $
    2,690
    
    
    $
    99,053
    
    
    
    $
    45,127
    
    
    $
    39,843
    
    
    $
    16,303
    
    
    $
    1,802
    
    
    $
    103,075Cost of Revenues
    
    
    21,884
    
    
    
    15,941
    
    
    
    3,573
    
    
    
    1,917
    
    
    
    43,315
    
    
    
    
    22,603
    
    
    
    15,795
    
    
    
    3,763
    
    
    
    1,517
    
    
    
    43,678Gross Profit
    
    $
    18,755
    
    
    $
    24,039
    
    
    $
    12,171
    
    
    $
    773
    
    
    $
    55,738
    
    
    
    $
    22,524
    
    
    $
    24,048
    
    
    $
    12,540
    
    
    $
    285
    
    
    $
    59,397Gross Profit as a
Percentage of Revenues
    
    
    46.2
    %
    
    
    60.1
    %
    
    
    77.3
    %
    
    
    28.7
    %
    
    
    56.3
    %
    
    
    
    49.9
    %
    
    
    60.4
    %
    
    
    76.9
    %
    
    
    15.8
    %
    
    
    57.6
    %
 Six Months Ended March 31, 2006
    
    
    
    Six Months Ended March 31, 2007Predecessor Company
    
    
    
    Activant Solutions Inc.Content
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    ContentProduct
    
    
    & Data
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Product
    
    
    & Data(dollars in thousands)
    
    Systems
    
    
    Support
    
    
    Services
    
    
    Other
    
    
    Total
    
    
    
    Systems
    
    
    Support
    
    
    Services
    
    
    Other
    
    
    TotalRevenues
    
    $
    81,562
    
    
    $
    79,314
    
    
    $
    31,720
    
    
    $
    4,588
    
    
    $
    197,184
    
    
    
    $
    85,508
    
    
    $
    79,351
    
    
    $
    32,815
    
    
    $
    3,632
    
    
    $
    201,306Cost of Revenues
    
    
    42,215
    
    
    
    31,479
    
    
    
    7,026
    
    
    
    3,224
    
    
    
    83,944
    
    
    
    
    43,421
    
    
    
    31,562
    
    
    
    7,321
    
    
    
    2,869
    
    
    
    85,173Gross Profit
    
    $
    39,347
    
    
    $
    47,835
    
    
    $
    24,694
    
    
    $
    1,364
    
    
    $
    113,240
    
    
    
    $
    42,087
    
    
    $
    47,789
    
    
    $
    25,494
    
    
    $
    763
    
    
    $
    116,133Gross Profit as a
Percentage of
Revenues
    
    
    48.2
    %
    
    
    60.3
    %
    
    
    77.8
    %
    
    
    29.7
    %
    
    
    57.4
    %
    
    
    
    49.2
    %
    
    
    60.2
    %
    
    
    77.7
    %
    
    
    21.0
    %
    
    
    57.7
    %
 11




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Geographic segments
  Three months ended March 31,2006
    
    
    
    2007Predecessor
    
    
    
    Activant(in thousands)
    
    Company
    
    
    
    Solutions Inc.Revenues:Americas
    
    $
    97,300
    
    
    
    $
    101,434Europe
    
    
    1,753
    
    
    
    
    1,641Total revenues
    
    $
    99,053
    
    
    
    $
    103,075
 Six months ended March 31,2006
    
    
    
    2007Predecessor
    
    
    
    ActivantCompany
    
    
    
    Solutions Inc.Revenues:Americas
    
    $
    193,748
    
    
    
    $
    197,924Europe
    
    
    3,436
    
    
    
    
    3,382Total revenues
    
    $
    197,184
    
    
    
    $
    201,306
 September 30, 2006
    
    
    March 31, 2007Assets:Americas
    
    $
    965,217
    
    
    $
    932,180Europe
    
    
    2,469
    
    
    
    2,713Total assets
    
    $
    967,686
    
    
    $
    934,893
   12




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##### Table of Contents



Condensed Consolidating Balance Sheet as of March 31, 2007
Activant Solutions Inc.
 GuarantorPrincipal
    
    
    Guarantor
    
    
    Non-Guarantor(in thousands)
    
    Operations
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedAssetsCurrent assets:Cash and cash equivalents
    
    $
    9,123
    
    
    $
    3,233
    
    
    $
    4,039
    
    
    $
    
    
    
    $
    16,395Trade accounts receivable, net
of allowance for doubtful
accounts
    
    
    39,101
    
    
    
    10,805
    
    
    
    988
    
    
    
    
    
    
    
    50,894Inventories, net
    
    
    5,495
    
    
    
    237
    
    
    
    103
    
    
    
    
    
    
    
    5,835Prepaid expenses and other
current assets
    
    
    21,589
    
    
    
    1,606
    
    
    
    1,061
    
    
    
    
    
    
    
    24,256Total current assets
    
    
    75,308
    
    
    
    15,881
    
    
    
    6,191
    
    
    
    
    
    
    
    97,380Property and equipment, net
    
    
    7,260
    
    
    
    1,040
    
    
    
    592
    
    
    
    
    
    
    
    8,892Intangible assets, net
    
    
    212,479
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    212,479Goodwill
    
    
    596,920
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    596,920Investments in subsidiaries
    
    
    (38,749
    )
    
    
    54,844
    
    
    
    (11,592
    )
    
    
    (4,503
    )
    
    
    Deferred financing costs
    
    
    15,178
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    15,178Other assets
    
    
    3,830
    
    
    
    116
    
    
    
    98
    
    
    
    
    
    
    
    4,044Total assets
    
    $
    872,226
    
    
    $
    71,881
    
    
    $
    (4,711
    )
    
    $
    (4,503
    )
    
    $
    934,893Liabilities and stockholders
equity (deficit)Current liabilities:Accounts payable
    
    $
    11,975
    
    
    $
    2,751
    
    
    $
    (19
    )
    
    $
    
    
    
    $
    14,707Payroll related accruals
    
    
    9,677
    
    
    
    3,145
    
    
    
    1,011
    
    
    
    
    
    
    
    13,833Deferred revenue
    
    
    13,228
    
    
    
    12,356
    
    
    
    800
    
    
    
    
    
    
    
    26,384Accrued expenses and other
current liabilities
    
    
    20,797
    
    
    
    1,742
    
    
    
    (760
    )
    
    
    6
    
    
    
    21,785Total current liabilities
    
    
    55,677
    
    
    
    19,994
    
    
    
    1,032
    
    
    
    6
    
    
    
    76,709Long-term debt
    
    
    538,050
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    538,050Deferred tax liabilities and other
liabilities
    
    
    56,871
    
    
    
    7,565
    
    
    
    1,023
    
    
    
    
    
    
    
    65,459Total liabilities
    
    
    650,598
    
    
    
    27,559
    
    
    
    2,055
    
    
    
    6
    
    
    
    680,218Total stockholders equity (deficit)
    
    
    221,628
    
    
    
    44,322
    
    
    
    (6,766
    )
    
    
    (4,509
    )
    
    
    254,675Total liabilities and stockholders
equity (deficit)
    
    $
    872,226
    
    
    $
    71,881
    
    
    $
    (4,711
    )
    
    $
    (4,503
    )
    
    $
    934,893
 13




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##### Table of Contents



Condensed Consolidating Balance Sheet as of September 30, 2006
Activant Solutions Inc.
 GuarantorPrincipal
    
    
    Guarantor
    
    
    Non-Guarantor(in thousands)
    
    Operations
    
    
    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
 14




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##### Table of Contents



Consolidating Statement of Operations for the Three Months Ended March 31, 2007
Activant Solutions Inc.
 GuarantorPrincipal
    
    
    Guarantor
    
    
    Non-Guarantor(in thousands)
    
    Operations
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    ConsolidatedRevenues:Systems
    
    $
    29,673
    
    
    $
    13,848
    
    
    $
    1,606
    
    
    $
    45,127Services
    
    
    37,427
    
    
    
    16,719
    
    
    
    3,802
    
    
    
    57,948Total revenues
    
    
    67,100
    
    
    
    30,567
    
    
    
    5,408
    
    
    
    103,075Cost of revenues (exclusive of
depreciation and amortization
shown separately below):Systems
    
    
    15,348
    
    
    
    5,372
    
    
    
    1,883
    
    
    
    22,603Services
    
    
    14,841
    
    
    
    3,979
    
    
    
    2,255
    
    
    
    21,075Total cost of revenues
    
    
    30,189
    
    
    
    9,351
    
    
    
    4,138
    
    
    
    43,678Gross profit
    
    
    36,911
    
    
    
    21,216
    
    
    
    1,270
    
    
    
    59,397Operating expenses:Sales and marketing
    
    
    9,813
    
    
    
    4,501
    
    
    
    1,106
    
    
    
    15,420Product development
    
    
    5,447
    
    
    
    3,724
    
    
    
    600
    
    
    
    9,771General and administrative
    
    
    7,865
    
    
    
    1,124
    
    
    
    897
    
    
    
    9,886Depreciation and amortization
    
    
    7,004
    
    
    
    209
    
    
    
    66
    
    
    
    7,279Total operating expenses
    
    
    30,129
    
    
    
    9,558
    
    
    
    2,669
    
    
    
    42,356Operating income (loss)
    
    
    6,782
    
    
    
    11,658
    
    
    
    (1,399
    )
    
    
    17,041Interest expense
    
    
    (11,744
    )
    
    
    (1
    )
    
    
    (1
    )
    
    
    (11,746
    )Other income (expense), net
    
    
    (624
    )
    
    
    85
    
    
    
    556
    
    
    
    17Income (loss) before provision
for income taxes
    
    
    (5,586
    )
    
    
    11,742
    
    
    
    (844
    )
    
    
    5,312Provision for income taxes
    
    
    2,359
    
    
    
    2
    
    
    
    
    
    
    
    2,361Net income (loss)
    
    $
    (7,945
    )
    
    $
    11,740
    
    
    $
    (844
    )
    
    $
    2,951
 15




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##### Table of Contents



Consolidating Statement of Operations for the Three Months Ended March 31, 2006
Predecessor Company
 GuarantorParent
    
    
    Principal
    
    
    Guarantor
    
    
    Non-Guarantor(in thousands)
    
    Company
    
    
    Operations
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    ConsolidatedRevenues:Systems
    
    $
    
    
    
    $
    27,301
    
    
    $
    12,786
    
    
    $
    552
    
    
    $
    40,639Services
    
    
    
    
    
    
    38,827
    
    
    
    15,478
    
    
    
    4,109
    
    
    
    58,414Total revenues
    
    
    
    
    
    
    66,128
    
    
    
    28,264
    
    
    
    4,661
    
    
    
    99,053Cost of revenues (exclusive of depreciation
and amortization shown separately below):Systems
    
    
    
    
    
    
    15,747
    
    
    
    5,725
    
    
    
    412
    
    
    
    21,884Services
    
    
    
    
    
    
    13,877
    
    
    
    4,803
    
    
    
    2,751
    
    
    
    21,431Total cost of revenues
    
    
    
    
    
    
    29,624
    
    
    
    10,528
    
    
    
    3,163
    
    
    
    43,315Gross profit
    
    
    
    
    
    
    36,504
    
    
    
    17,736
    
    
    
    1,498
    
    
    
    55,738Operating expenses:Sales and marketing
    
    
    
    
    
    
    8,377
    
    
    
    3,811
    
    
    
    919
    
    
    
    13,107Product development
    
    
    
    
    
    
    4,879
    
    
    
    4,014
    
    
    
    603
    
    
    
    9,496General and administrative
    
    
    679
    
    
    
    6,785
    
    
    
    2,375
    
    
    
    1,183
    
    
    
    11,022Depreciation and amortization
    
    
    
    
    
    
    6,073
    
    
    
    254
    
    
    
    222
    
    
    
    6,549Total operating expenses
    
    
    679
    
    
    
    26,114
    
    
    
    10,454
    
    
    
    2,927
    
    
    
    40,174Operating income (loss)
    
    
    (679
    )
    
    
    10,390
    
    
    
    7,282
    
    
    
    (1,429
    )
    
    
    15,564Interest expense
    
    
    (1,364
    )
    
    
    (12,284
    )
    
    
    (3
    )
    
    
    (1
    )
    
    
    (13,652
    )Other income, net
    
    
    
    
    
    
    338
    
    
    
    14
    
    
    
    34
    
    
    
    386Income (loss) before provision for income taxes
    
    
    (2,043
    )
    
    
    (1,556
    )
    
    
    7,293
    
    
    
    (1,396
    )
    
    
    2,298Provision for (benefit from) income taxes
    
    
    (790
    )
    
    
    1,718
    
    
    
    3
    
    
    
    
    
    
    
    931Net income (loss)
    
    $
    (1,253
    )
    
    $
    (3,274
    )
    
    $
    7,290
    
    
    $
    (1,396
    )
    
    $
    1,367
 16




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##### Table of Contents



Consolidating Statement of Operations for the Six Months Ended March 31, 2007
Activant Solutions Inc.
 GuarantorPrincipal
    
    
    Guarantor
    
    
    Non-Guarantor(in thousands)
    
    Operations
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    ConsolidatedRevenues:Systems
    
    $
    55,447
    
    
    $
    27,111
    
    
    $
    2,950
    
    
    $
    85,508Services
    
    
    74,689
    
    
    
    33,598
    
    
    
    7,511
    
    
    
    115,798Total revenues
    
    
    130,136
    
    
    
    60,709
    
    
    
    10,461
    
    
    
    201,306Cost of revenues (exclusive of
depreciation and amortization
shown separately below):Systems
    
    
    29,586
    
    
    
    10,202
    
    
    
    3,633
    
    
    
    43,421Services
    
    
    29,408
    
    
    
    8,164
    
    
    
    4,180
    
    
    
    41,752Total cost of revenues
    
    
    58,994
    
    
    
    18,366
    
    
    
    7,813
    
    
    
    85,173Gross profit
    
    
    71,142
    
    
    
    42,343
    
    
    
    2,648
    
    
    
    116,133Operating expenses:Sales and marketing
    
    
    18,944
    
    
    
    9,927
    
    
    
    2,104
    
    
    
    30,975Product development
    
    
    10,720
    
    
    
    7,558
    
    
    
    1,225
    
    
    
    19,503General and administrative
    
    
    15,333
    
    
    
    2,206
    
    
    
    1,768
    
    
    
    19,307Depreciation and amortization
    
    
    13,770
    
    
    
    429
    
    
    
    138
    
    
    
    14,337Total operating expenses
    
    
    58,767
    
    
    
    20,120
    
    
    
    5,235
    
    
    
    84,122Operating income (loss)
    
    
    12,375
    
    
    
    22,223
    
    
    
    (2,587
    )
    
    
    32,011Interest expense
    
    
    (23,863
    )
    
    
    (2
    )
    
    
    (5
    )
    
    
    (23,870
    )Other income (expense), net
    
    
    (325
    )
    
    
    212
    
    
    
    572
    
    
    
    459Income (loss) before provision
for income taxes
    
    
    (11,813
    )
    
    
    22,433
    
    
    
    (2,020
    )
    
    
    8,600Provision for income taxes
    
    
    3,626
    
    
    
    5
    
    
    
    
    
    
    
    3,631Net income (loss)
    
    $
    (15,439
    )
    
    $
    22,428
    
    
    $
    (2,020
    )
    
    $
    4,969
 17




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##### Table of Contents



Consolidating Statement of Operations for the Six Months Ended March 31, 2006
Predecessor Company
 Guarantor
    
    
    Non-Parent
    
    
    Principal
    
    
    Guarantor
    
    
    Guarantor(in thousands)
    
    Company
    
    
    Operations
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedRevenues:Systems
    
    $
    
    
    
    $
    53,273
    
    
    $
    27,223
    
    
    $
    1,069
    
    
    $
    (3
    )
    
    $
    81,562Services
    
    
    
    
    
    
    72,469
    
    
    
    34,980
    
    
    
    8,173
    
    
    
    
    
    
    
    115,622Total revenues
    
    
    
    
    
    
    125,742
    
    
    
    62,203
    
    
    
    9,242
    
    
    
    (3
    )
    
    
    197,184Cost of revenues (exclusive
of depreciation and
amortization shown
separately below):Systems
    
    
    
    
    
    
    30,765
    
    
    
    10,366
    
    
    
    1,084
    
    
    
    
    
    
    
    42,215Services
    
    
    
    
    
    
    26,701
    
    
    
    10,321
    
    
    
    4,710
    
    
    
    (3
    )
    
    
    41,729Total cost of revenues
    
    
    
    
    
    
    57,466
    
    
    
    20,687
    
    
    
    5,794
    
    
    
    (3
    )
    
    
    83,944Gross profit
    
    
    
    
    
    
    68,276
    
    
    
    41,516
    
    
    
    3,448
    
    
    
    
    
    
    
    113,240Operating expenses:Sales and marketing
    
    
    
    
    
    
    17,016
    
    
    
    7,443
    
    
    
    1,621
    
    
    
    
    
    
    
    26,080Product development
    
    
    
    
    
    
    9,532
    
    
    
    8,260
    
    
    
    1,136
    
    
    
    
    
    
    
    18,928General and administrative
    
    
    679
    
    
    
    12,226
    
    
    
    4,904
    
    
    
    2,215
    
    
    
    
    
    
    
    20,024Depreciation and
amortization
    
    
    
    
    
    
    12,305
    
    
    
    503
    
    
    
    509
    
    
    
    
    
    
    
    13,317Total operating expenses
    
    
    679
    
    
    
    51,079
    
    
    
    21,110
    
    
    
    5,481
    
    
    
    
    
    
    
    78,349Operating income (loss)
    
    
    (679
    )
    
    
    17,197
    
    
    
    20,406
    
    
    
    (2,033
    )
    
    
    
    
    
    
    34,891Interest expense
    
    
    (3,057
    )
    
    
    (23,738
    )
    
    
    (8
    )
    
    
    2
    
    
    
    
    
    
    
    (26,801
    )Write-off of prior debt
issuance costs
    
    
    
    
 
    
    (1,535
    )
    
    

 
    
 
    
    
    
    
    
    
    
    
    (1,535
    )Other income, net
    
    
    
    
    
    
    493
    
    
    
    144
    
    
    
    363
    
    
    
    
    
    
    
    1,000Income (loss) before
provision for income taxes
    
    
    (3,736
    )
    
    
    (7,583
    )
    
    
    20,542
    
    
    
    (1,668
    )
    
    
    
    
    
    
    7,555Provision for (benefit
from) income taxes
    
    
    (1,436
    )
    
    
    3,957
    
    
    
    450
    
    
    
    (34
    )
    
    
    
    
    
    
    2,937Net income (loss)
    
    $
    (2,300
    )
    
    $
    (11,540
    )
    
    $
    20,092
    
    
    $
    (1,634
    )
    
    $
    
    
    
    $
    4,618
 18




---



##### Table of Contents



Condensed Consolidating Statement of Cash Flows for the Six Months Ended March 31, 2007
Activant Solutions Inc.
 GuarantorPrincipal
    
    
    Guarantor
    
    
    Non-Guarantor(in thousands)
    
    Operations
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    ConsolidatedNet cash provided by (used in) operating activities
    
    $
    15,677
    
    
    $
    (4,414
    )
    
    $
    2,024
    
    
    $
    13,287Investing activitiesPurchase of property and equipment
    
    
    (2,888
    )
    
    
    (125
    )
    
    
    (98
    )
    
    
    (3,111
    )Capitalized computer software costs and databases
    
    
    (2,538
    )
    
    
    
    
    
    
    
    
    
    
    (2,538
    )Unrealized loss on cash flow hedge, net
    
    
    (249
    )
    
    
    
    
    
    
    
    
    
    
    (249
    )Purchase price adjustments
    
    
    700
    
    
    
    
    
    
    
    
    
    
    
    700Net cash used in investing activities
    
    
    (4,975
    )
    
    
    (125
    )
    
    
    (98
    )
    
    
    (5,198
    )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
    
    
    (17,375
    )
    
    
    (4,539
    )
    
    
    1,926
    
    
    
    (19,988
    )Cash and cash equivalents, beginning of period
    
    
    26,498
    
    
    
    7,772
    
    
    
    2,113
    
    
    
    36,383Cash and cash equivalents, end of period
    
    $
    9,123
    
    
    $
    3,233
    
    
    $
    4,039
    
    
    $
    16,395
 19




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##### Table of Contents



Condensed Consolidating Statement of Cash Flows for the Six Months Ended March 31, 2006
Predecessor Company
 GuarantorParent
    
    
    Principal
    
    
    Guarantor
    
    
    Non-Guarantor(in thousands)
    
    Company
    
    
    Operations
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    ConsolidatedNet cash provided by (used in) operating
activities
    
    $
    
    
    
    $
    11,866
    
    
    $
    766
    
    
    $
    (210
    )
    
    $
    12,422Investing activitiesPurchase of property and equipment
    
    
    
    
    
    
    (2,525
    )
    
    
    (214
    )
    
    
    (62
    )
    
    
    (2,801
    )Capitalized computer software costs and
databases
    
    
    
    
    
    
    (2,993
    )
    
    
    
    
    
    
    
    
    
    
    (2,993
    )Purchase price adjustments
    
    
    
    
    
    
    508
    
    
    
    
    
    
    
    
    
    
    
    508Proceeds from disposition of equity interest
    
    
    
    
    
    
    679
    
    
    
    
    
    
    
    
    
    
    
    679Net cash used in investing activities
    
    
    
    
    
    
    (4,331
    )
    
    
    (214
    )
    
    
    (62
    )
    
    
    (4,607
    )Financing activitiesProceeds from long-term debt
    
    
    
    
    
    
    185,000
    
    
    
    
    
    
    
    
    
    
    
    185,000Repayment of senior unsecured bridge loan
    
    
    
    
    
    
    (180,000
    )
    
    
    
    
    
    
    
    
    
    
    (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
    
    
    
    
    
    
    
    
    
    
    
    105Debt issuance costs
    
    
    
    
    
    
    (3,561
    )
    
    
    
    
    
    
    
    
    
    
    (3,561
    )Net cash provided by (used in) financing
activities
    
    
    
    
    
    
    704
    
    
    
    (149
    )
    
    
    
    
    
    
    555Net change in cash and cash equivalents
    
    
    
    
    
    
    8,239
    
    
    
    403
    
    
    
    (272
    )
    
    
    8,370Cash and cash equivalents, beginning of
period
    
    
    
    
    
    
    5,800
    
    
    
    3,943
    
    
    
    1,209
    
    
    
    10,952Cash and cash equivalents, end of period
    
    $
    
    
    
    $
    14,039
    
    
    $
    4,346
    
    
    $
    937
    
    
    $
    19,322
 20




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##### 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 six
months ended March 31, 2007, systems revenues accounted for 43% 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 six months ended March 31, 2007, product support revenues
accounted for 39% 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 six
months ended March 31, 2007, content and data services 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 six months ended March 31, 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 six months ended March 31, 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,
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 six months ended March 31, 2007, we generated
approximately 30%
of our total revenues from the wholesale distribution vertical market.
 21




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##### Table of Contents



§
    
    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 six
months ended March 31, 2007, we generated approximately 23% of our total revenues from
Auto.§
    
    The Productivity Tools business consists of software migration and application
development tools. For the six months ended March 31, 2007, we generated approximately 4%
of our total revenues from the productivity tools business.
 Historical Results of Operations
 Three months ended March 31, 2007 compared to three months ended March 31, 2006
 Revenues.
 Three months ended March 31,2006
    
    
    2007Predecessor
    
    
    Activant(dollars
in thousands)
    
    Company
    
    
    Solutions Inc.
    
    
    Variance $
    
    
    Variance %Systems Revenues:Hardlines and Lumber
    
    $
    20,410
    
    
    $
    23,982
    
    
    $
    3,572
    
    
    
    17.5
    %Auto
    
    
    4,705
    
    
    
    3,920
    
    
    
    (785
    )
    
    
    (16.7
    )Wholesale Distribution
    
    
    13,225
    
    
    
    13,849
    
    
    
    624
    
    
    
    4.7Productivity Tools
    
    
    2,299
    
    
    
    3,376
    
    
    
    1,077
    
    
    
    46.9Total Systems Revenues
    
    $
    40,639
    
    
    $
    45,127
    
    
    $
    4,488
    
    
    
    11.0
    %Product Support Revenues:Hardlines and Lumber
    
    $
    16,282
    
    
    $
    17,181
    
    
    $
    899
    
    
    
    5.5
    %Auto
    
    
    7,493
    
    
    
    6,650
    
    
    
    (843
    )
    
    
    (11.3
    )Wholesale Distribution
    
    
    14,377
    
    
    
    14,427
    
    
    
    50
    
    
    
    0.3Productivity Tools
    
    
    1,828
    
    
    
    1,585
    
    
    
    (243
    )
    
    
    (13.3
    )Total Product Support Revenues
    
    $
    39,980
    
    
    $
    39,843
    
    
    $
    (137
    )
    
    
    (0.3
    )%Content and Data Services Revenues:Hardlines and Lumber
    
    $
    1,405
    
    
    $
    1,811
    
    
    $
    406
    
    
    
    28.9
    %Auto
    
    
    12,013
    
    
    
    12,200
    
    
    
    187
    
    
    
    1.6Wholesale Distribution
    
    
    2,326
    
    
    
    2,292
    
    
    
    (34
    )
    
    
    (1.5
    )Productivity Tools
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total Content and Data Services Revenues
    
    $
    15,744
    
    
    $
    16,303
    
    
    $
    559
    
    
    
    3.6
    %Other Services Revenues:Hardlines and Lumber
    
    $
    2,494
    
    
    $
    1,802
    
    
    $
    (692
    )
    
    
    (27.7
    )%Auto
    
    
    151
    
    
    
    
    
    
    
    (151
    )
    
    
    Wholesale Distribution
    
    
    45
    
    
    
    
    
    
    
    (45
    )
    
    
    Productivity Tools
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total Other Revenues
    
    $
    2,690
    
    
    $
    1,802
    
    
    $
    (888
    )
    
    
    (33.0
    )%Total Revenues:Hardlines and Lumber
    
    $
    40,591
    
    
    $
    44,776
    
    
    $
    4,185
    
    
    
    10.3
    %Auto
    
    
    24,362
    
    
    
    22,770
    
    
    
    (1,592
    )
    
    
    (6.5
    )Wholesale Distribution
    
    
    29,973
    
    
    
    30,568
    
    
    
    595
    
    
    
    2.0Productivity Tools
    
    
    4,127
    
    
    
    4,961
    
    
    
    834
    
    
    
    20.2Total Revenues
    
    $
    99,053
    
    
    $
    103,075
    
    
    $
    4,022
    
    
    
    4.1
    %
  22




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##### Table of Contents



Factors affecting Systems revenues for the three months ended March 31, 2007.
  
    
    Systems revenues from our Hardlines and Lumber vertical market increased by $3.6 million,
or 17.5%, primarily due to increased revenues from strategic alliance partners. One of our
strategic partners announced that they are ending support for their
legacy system and have
encouraged their stores to purchase our Activant Eagle product in 2007, which resulted in increased
sales
for the three months ended March 31, 2007.
    
    Systems revenue for Auto declined by $0.8 million, or 16.7%, primarily due to decreased
installations of certain warehouse systems and lower shipments of legacy add-on products.
    
    Systems revenue from our Wholesale Distribution vertical market increased by $0.6
million, or 4.7%, due to an increase in the number of license sales and related professional
services.
    
    Systems revenues for Productivity Tools increased by $1.1 million, or 46.9%, primarily
due to an increase in the number of platform migration projects currently being implemented
by our customers and the completion of key milestones for those customers.
 Factors affecting Product Support revenues for the three months ended March 31, 2007.
  
    
    Product Support revenues from our Hardlines and Lumber vertical market increased by $0.9
million, or 5.5%. 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 decreased by $0.8 million, or 11.3%. 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 $0.4 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 March 31, 2007.
  
    
    Content and Data Services revenues from our Hardlines and Lumber vertical market
increased by $0.4 million, or 28.9%, primarily due to increased sales of our iNet e-commerce
product and Vista POS/panel data to original equipment manufacturers.
 Factors affecting Other Services revenues for the three months ended March 31, 2007.
  
    
    Other Services revenues from our Hardlines and Lumber vertical market decreased by $0.7
million, or 27.7%, primarily due to a decline in our business products revenues of forms and
other paper products.
 23




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##### Table of Contents



Total cost of revenues and gross margins as a percentage of revenues.
  Three months ended March 31,2006
    
    
    2007Predecessor
    
    
    Activant(dollars
in thousands)
    
    Company
    
    
    Solutions Inc.
    
    
    Variance $
    
    
    Variance %Cost of revenues:Systems
    
    $
    21,884
    
    
    $
    22,603
    
    
    $
    719
    
    
    
    3.3
    %Product Support
    
    
    15,941
    
    
    
    15,795
    
    
    
    (146
    )
    
    
    (0.9
    )Content and Data Services
    
    
    3,573
    
    
    
    3,763
    
    
    
    190
    
    
    
    5.3Other Services
    
    
    1,917
    
    
    
    1,517
    
    
    
    (400
    )
    
    
    (20.9
    )Total cost of revenues
    
    $
    43,315
    
    
    $
    43,678
    
    
    $
    363
    
    
    
    0.8
    %
  Three months ended March 31,2006
    
    2007Predecessor
    
    ActivantCompany
    
    Solutions Inc.Gross margin as a percentage of revenues by segment:Systems
    
    
    46.2
    %
    
    
    49.9
    %Product Support
    
    
    60.1
    
    
    
    60.4Content and Data Services
    
    
    77.3
    
    
    
    76.9Other Services
    
    
    28.7
    
    
    
    15.8Total gross margin as a percentage of revenues
    
    
    56.3
    %
    
    
    57.6
    %
 Total Cost of Revenues.
 
    
    Cost of Systems Revenues.Cost of Systems revenues for the three months ended March 31,
2007 increased by $0.7 million, or 3.3%, compared to the three months ended March 31, 2006
primarily as a result of increased system sales. Gross margin as a percentage of revenues
increased from 46.2% for the three months ended March 31, 2006 to 49.9% for the three months
ended March 31, 2007. The improvement in Systems gross margin is predominantly attributable
to the Hardlines and Lumber and Productivity Tools vertical markets where we experienced
increased revenues with relatively fixed costs.
    
    Cost of Product Support Revenues.Cost of Product Support revenues for the three months
ended March 31, 2007 decreased by $0.1 million, or 0.9%, compared to the three months ended
March 31, 2006. Gross margin as a percentage of revenues increased from 60.1% for the three
months ended March 31, 2006 to 60.4% for the three months ended March 31, 2007.
    
    Cost of Content and Data Services Revenues.Cost of Content and Data Services revenues
for the three months ended March 31, 2007 increased by $0.2 million, or 5.3%, compared to
the three months ended March 31, 2006. Gross margin as a percentage of Content and Data
Services revenues decreased from 77.3% for the three months ended March 31, 2006 to 76.9%
for the three months ended March 31, 2007.
    
    Cost of Other Services Revenues.Cost of Other Services revenues for the three months
ended March 31, 2007 decreased by $0.4 million, or 20.9%, compared to the three months
ended March 31, 2006. Gross margin as a percentage of Other Services revenues decreased
from 28.7% for the three months ended March 31, 2006 to 15.8% for the three months ended
March 31, 2007. The decline was a result of lower sales of business forms and other paper
products without a corresponding decrease in operating costs.
 24




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##### Table of Contents



Total Operating Expenses.
 Three months ended March 31,2006
    
    
    2007Predecessor
    
    
    Activant(dollars
in thousands)
    
    Company
    
    
    Solutions Inc.
    
    
    Variance $
    
    
    Variance %Sales and Marketing expense
    
    $
    13,107
    
    
    $
    15,420
    
    
    $
    2,313
    
    
    
    17.6
    %Product Development expense
    
    
    9,496
    
    
    
    9,771
    
    
    
    275
    
    
    
    2.9General and Administrative expense
    
    
    11,022
    
    
    
    9,886
    
    
    
    (1,136
    )
    
    
    (10.3
    )Depreciation and Amortization
    
    
    6,549
    
    
    
    7,279
    
    
    
    730
    
    
    
    11.1Total operating expenses
    
    $
    40,174
    
    
    $
    42,356
    
    
    $
    2,182
    
    
    
    5.4
    %
  Three months ended March 31,2006
    
    2007Predecessor
    
    ActivantCompany
    
    Solutions Inc.Operating expenses as a percentage of revenues:Sales and Marketing expense
    
    
    13.2
    %
    
    
    15.0
    %Product Development expense
    
    
    9.6
    
    
    
    9.5General and Administrative expense
    
    
    11.1
    
    
    
    9.5Depreciation and Amortization
    
    
    6.6
    
    
    
    7.1Total operating expenses as a percentage of revenues
    
    
    40.6
    %
    
    
    41.1
    %
  
    
    Sales and Marketing Expense.Sales and marketing expense increased by $2.3 million, or
17.6%, for the three months ended March 31, 2007 compared to the three months ended March
31, 2006. The increase was primarily due to increased salaries of $0.8 million as we
continue to expand the sales force, higher commission expense of $0.9 million that is
generally paid upon bookings, and stock compensation expense of $0.4 million.
    
    Product Development Expense.Product development expense increased by $0.3 million, or
2.9%, for the three months ended March 31, 2007 compared to the three months ended March 31,
2006. The increase is primarily a result of stock compensation expense of $0.2 million.
    
    General and Administrative Expense.General and administrative expense declined by $1.1
million, or 10.3%, for the three months ended March 31, 2007 compared to the three months
ended March 31, 2006. The three months ended March 31, 2006 included $1.8 million for
expenses incurred in connection with an initial public offering of our common stock, which
was abandoned in connection with the mergers, and approximately $0.4 million of consulting
costs related to certain projects. For the three months ended March 31, 2007, we incurred
stock compensation expense of $0.8 million and severance costs to our former CFO of $0.4
million.
    
    Depreciation and Amortization.Depreciation and amortization expense increased by $0.7
million, or 11.1%, for the three months ended March 31, 2007 compared to the three months
ended March 31, 2006. The increase resulted from approximately $100.0 million of additional
intangible assets associated with the mergers, partially offset by longer lives of
finite-lived intangible assets.
 Operating Income.
 25




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##### Table of Contents



Interest Expense.
 Net Income.
 Six months ended March 31, 2007 compared to six months ended March 31, 2006
 Revenues.
 Six months ended March 31,2006
    
    
    2007Predecessor
    
    
    Activant(dollars
in thousands)
    
    Company
    
    
    Solutions Inc.
    
    
    Variance $
    
    
    Variance %Systems Revenues:Hardlines and Lumber
    
    $
    43,234
    
    
    $
    44,890
    
    
    $
    1,656
    
    
    
    3.8
    %Auto
    
    
    8,930
    
    
    
    7,656
    
    
    
    (1,274
    )
    
    
    (14.3
    )Wholesale Distribution
    
    
    25,631
    
    
    
    27,112
    
    
    
    1,481
    
    
    
    5.8Productivity Tools
    
    
    3,767
    
    
    
    5,850
    
    
    
    2,083
    
    
    
    55.3Total Systems Revenues
    
    $
    81,562
    
    
    $
    85,508
    
    
    $
    3,946
    
    
    
    4.8
    %Product Support Revenues:Hardlines and Lumber
    
    $
    31,943
    
    
    $
    34,081
    
    
    $
    2,138
    
    
    
    6.7
    %Auto
    
    
    15,353
    
    
    
    13,492
    
    
    
    (1,861
    )
    
    
    (12.1
    )Wholesale Distribution
    
    
    28,308
    
    
    
    28,609
    
    
    
    301
    
    
    
    1.1Productivity Tools
    
    
    3,710
    
    
    
    3,169
    
    
    
    (541
    )
    
    
    (14.6
    )Total Product Support Revenues
    
    $
    79,314
    
    
    $
    79,351
    
    
    $
    37
    
    
    
    0.0
    %Content and Data Services Revenues:Hardlines and Lumber
    
    $
    2,864
    
    
    $
    3,657
    
    
    $
    793
    
    
    
    27.7
    %Auto
    
    
    24,429
    
    
    
    24,170
    
    
    
    (259
    )
    
    
    (1.1
    )Wholesale Distribution
    
    
    4,427
    
    
    
    4,988
    
    
    
    561
    
    
    
    12.7Productivity Tools
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.0Total Content and Data Services Revenues
    
    $
    31,720
    
    
    $
    32,815
    
    
    $
    1,095
    
    
    
    3.5
    %Other Services Revenues:Hardlines and Lumber
    
    $
    4,223
    
    
    $
    3,632
    
    
    $
    (591
    )
    
    
    (14.0)
    %Auto
    
    
    280
    
    
    
    
    
    
    
    (280
    )
    
    
    Wholesale Distribution
    
    
    85
    
    
    
    
    
    
    
    (85
    )
    
    
    Productivity Tools
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total Other Revenues
    
    $
    4,588
    
    
    $
    3,632
    
    
    $
    (956
    )
    
    
    (20.8)
    %Total Revenues:Hardlines and Lumber
    
    $
    82,264
    
    
    $
    86,260
    
    
    $
    3,996
    
    
    
    4.9
    %Auto
    
    
    48,992
    
    
    
    45,318
    
    
    
    (3,674
    )
    
    
    (7.5
    )Wholesale Distribution
    
    
    58,451
    
    
    
    60,709
    
    
    
    2,258
    
    
    
    3.9Productivity Tools
    
    
    7,477
    
    
    
    9,019
    
    
    
    1,542
    
    
    
    20.6Total Revenues
    
    $
    197,184
    
    
    $
    201,306
    
    
    $
    4,122
    
    
    
    2.1
    %
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Factors affecting Systems revenues for the six months ended March 31, 2007.
  
    
    Systems revenues from our Hardlines and Lumber vertical market increased by $1.7 million,
or 3.8%, primarily due to increased revenues from strategic partners. One of our strategic
partners announced that they are ending support for their legacy
system and have encouraged
their stores to purchase our Activant Eagle product in 2007, which resulted in increased sales for
the six months ended March 31, 2007.
    
    Systems revenues for Auto declined by $1.3 million, or 14.3%, primarily due to decreased
installations of certain warehouse systems and lower shipments of add-ons and upgrades for
our legacy products.
    
    Systems revenues from our Wholesale Distribution vertical market increased by $1.5
million, or 5.8%, 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 $2.1 million, or 55.3%, due to an
increase in the number of platform migration projects currently being implemented by our
customers.
 Factors affecting Product Support revenues for the six months ended March 31, 2007.
  
    
    Product Support revenues from our Hardlines and Lumber vertical market increased by $2.1
million, or 6.7%. This increase is primarily attributable to increased systems sales in
prior periods, which over time, results in increased Product Support revenues.
    
    Auto Product Support revenues decreased by $1.9 million, or 12.1%. Auto experienced a
decline of approximately $0.9 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. We do
not expect to recapture this product support revenue.
 Factors affecting Content and Data Services revenues for the six months ended March 31, 2007.
  
    
    Content and Data Services revenues from our Hardlines and Lumber vertical market
increased by $0.8 million, or 27.7%, primarily due to increased sales of our iNet e-commerce
product and our Vista POS/panel data to original equipment manufacturers.
    
    Auto Content and Data Services revenues declined by $0.3 million, or 1.1%, 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 12.7%, primarily due to an increase in web hosting services
and electronic commerce products.
 Factors affecting Other Services revenues for the six months ended March 31, 2007.
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
    
    Other Services revenues from our Hardlines and Lumber vertical market decreased by $0.6
million, or 14.0%, primarily due to a decline in our business products revenues of forms and
other paper products.
 Total cost of revenues and gross margins as a percentage of revenues.
  Six months ended March 31,2006
    
    
    2007Predecessor
    
    
    Activant(dollars in thousands)
    
    Company
    
    
    Solutions Inc.
    
    
    Variance $
    
    
    Variance %Cost of revenues:Systems
    
    $
    42,215
    
    
    $
    43,421
    
    
    $
    1,206
    
    
    
    2.9
    %Product Support
    
    
    31,479
    
    
    
    31,562
    
    
    
    83
    
    
    
    0.3Content and Data Services
    
    
    7,026
    
    
    
    7,321
    
    
    
    295
    
    
    
    4.2Other Services
    
    
    3,224
    
    
    
    2,869
    
    
    
    (355
    )
    
    
    (11.0
    )Total cost of revenues
    
    $
    83,944
    
    
    $
    85,173
    
    
    $
    1,229
    
    
    
    1.5
    %
  Six months ended March 31,2006
    
    2007Predecessor
    
    ActivantCompany
    
    Solutions Inc.Gross margin as a percentage of revenues by segment:Systems
    
    
    48.2
    %
    
    
    49.2
    %Product Support
    
    
    60.3
    
    
    
    60.2Content and Data Services
    
    
    77.8
    
    
    
    77.7Other Services
    
    
    29.7
    
    
    
    21.0Total gross margin as a percentage of revenues
    
    
    57.4
    %
    
    
    57.7
    %
 Total Cost of Revenues.
 
    
    Cost of Systems Revenues.Cost of Systems revenues for the six months ended March 31,
2007 increased by $1.2 million, or 2.9%, compared to the six months ended March 31, 2006.
This increase was comprised primarily of increased Systems revenues. Gross margin as a
percentage of revenues increased from 48.2% for the six months ended March 31, 2006 to 49.2%
for the six months ended March 31, 2007. The improvement in Systems gross margin is
predominantly attributable to the Hardlines and Lumber and Productivity Tools vertical
markets where we experienced increased revenues with relatively fixed costs.
    
    Cost of Product Support Revenues.Cost of Product Support revenues for the six months
ended March 31, 2007 increased by $0.1 million, or 0.3%, compared to the six months ended
March 31, 2006. Gross margin as a percentage of revenues decreased
slightly from 60.3% for the six months ended March 31, 2006 to 60.2% for the six months ended
March 31, 2007.
    
    Cost of Content and Data Services Revenues.Cost of Content and Data Services revenues
for the six months ended March 31, 2007 increased by $0.3 million, or 4.2%, compared to the
six months ended March 31, 2006. Gross margin as a percentage of Content and Data Services
revenues decreased slightly from 77.8% for the six months ended March 31, 2006, to 77.7% for
the six months ended March 31, 2007.
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Total Operating Expenses.
  Six months ended March 31,2006
    
    
    2007Predecessor
    
    
    Activant(dollars
in thousands)
    
    Company
    
    
    Solutions Inc.
    
    
    Variance $
    
    
    Variance %Sales and Marketing expense
    
    $
    26,080
    
    
    $
    30,975
    
    
    $
    4,895
    
    
    
    18.8
    %Product Development expense
    
    
    18,928
    
    
    
    19,503
    
    
    
    575
    
    
    
    3.0General and Administrative expense
    
    
    20,024
    
    
    
    19,307
    
    
    
    (717
    )
    
    
    (3.6
    )Depreciation and Amortization
    
    
    13,317
    
    
    
    14,337
    
    
    
    1,020
    
    
    
    7.7Total operating expenses
    
    $
    78,349
    
    
    $
    84,122
    
    
    $
    5,773
    
    
    
    7.4
    %
  Six months ended March 31,2006
    
    2007Predecessor
    
    ActivantCompany
    
    Solutions Inc.Operating expenses as a percentage of revenues:Sales and Marketing expense
    
    
    13.2
    %
    
    
    15.4
    %Product Development expense
    
    
    9.6
    
    
    
    9.7General and Administrative expense
    
    
    10.2
    
    
    
    9.6Depreciation and Amortization
    
    
    6.8
    
    
    
    7.1Total operating expenses as a percentage of revenues
    
    
    39.7
    %
    
    
    41.8
    %
  
    
    Sales and Marketing Expense.Sales and marketing expense increased by $4.9 million, or
18.8%, for the six months ended March 31, 2007 compared to the six months ended March 31,
2006. The increase was primarily due to increased salaries of $1.2 million as we continue to
expand the sales force, higher commission expense of $1.6 million that is generally paid
upon bookings, an increase in bad debt expense of $1.3 million and stock compensation
expense of $0.6 million.
    
    Product Development Expense.Product development expense increased by $0.6 million, or
3.0%, for the six months ended March 31, 2007 compared to the six months ended March 31,
2006. The increase was primarily a result of higher salary expense and stock compensation
expense of $0.2 million.
    
    General and Administrative Expense.General and administrative expense decreased by $0.7
million, or 3.6%, for the six months ended March 31, 2007 compared to the six months ended
March 31, 2006. The six months ended March 31, 2006 included $1.8 million for expenses
incurred in connection with an initial public offering of our common stock, which offering
was abandoned in connection with the mergers. In the six months ended March 31, 2007, we
incurred stock compensation expense of $1.2 million, severance costs to our former CFO of
$0.4 million and costs associated with relocating our corporate headquarters, which were
partially offset by one-time rebates and refunds of $0.8 million related to telecom and
insurance costs.
    
    Depreciation and Amortization.Depreciation and amortization expense increased by $1.0
million, or 7.7%, for the six months ended March 31, 2007 compared to the six months ended
March 31, 2006. The increase resulted from approximately $100.0 million of additional
intangible assets associated with the mergers, partially offset by longer lives of
finite-lived intangible
assets.
 Operating Income.
 Interest Expense.
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##### Table of Contents



Net Income.
 Liquidity and Capital Resources
 Overview
     1 2
 
    
    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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##### Table of Contents



Six
Months Ended March 31, 2007 Compared to Six Months Ended March 31, 2006
   1 2
 
 Item 3. Quantitative and Qualitative Disclosures about Market Risk.
 Interest Rate Risk
  Foreign Currency Risk
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Item 4. Controls and Procedures.
 (a) Disclosure controls and procedures.
 (b) Internal controls over financial reporting.
 
 Item 4T. Controls and Procedures.
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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.
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##### Table of Contents



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 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;
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##### 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.
  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 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.
  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.
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##### Table of Contents



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.
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##### Table of Contents



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.
  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.
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##### Table of Contents



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.
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##### Table of Contents



Item 6. Exhibits.
  ExhibitNo.
    
    Description10.1
    
    Form of Indemnification Agreement (incorporated by reference from Activant Solutions
Inc.s Current Report on Form 8-K filed on March 8, 2007)10.2
    
    Offer Letter, dated as of March 19, 2007, by and between Activant Solutions Inc. and
Kathleen M. Crusco (incorporated by reference from Activant Solutions Inc.s Current Report
on Form 8-K filed on March 22, 2007)31.1*
    
    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.
 
 *
    
    Filed herewith. 40




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SIGNATURE
 th
 ACTIVANT SOLUTIONS INC.By:
    
    /s/ KATHLEEN M. CRUSCOKathleen M. CruscoSenior Vice President and Chief Financial Officer(Duly Authorized and Principal Financial Officer)
 41