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SECURITIES AND EXCHANGE COMMISSION  FORM 10-Q þ
    
    QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 For the quarterly period ended June 30, 2004 o
    
    TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 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.)804 Las Cimas Parkway
Austin, Texas
(Address of principal executive offices)
    
    78746
(Zip Code)
 (512) 328-2300
(Registrants telephone number,
including area code) Indicate by check whether the registrant: (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes þ No o Indicate by check whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes o No þ Indicate the number of shares outstanding of each of the issuers classes of
common stock, as of the latest practicable date: Class
    
    Outstanding at August 13, 2004Common Stock
    
    1,000 shares
    1




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ACTIVANT SOLUTIONS INC.
INDEX  
 PAGEFORWARD-LOOKING STATEMENTS
    
    
    3PART I - FINANCIAL INFORMATION
    
    
    4ITEM 1. - FINANCIAL STATEMENTS
    
    
    4Consolidated Balance Sheets as of September 30, 2003 and June 30, 2004
    
    
    4Consolidated Statements of Operations for the three and nine months ended June 30, 2003 and June 30, 2004
    
    
    5Consolidated Statements of Cash Flows for the nine months ended June 30, 2003 and June 30, 2004
    
    
    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
    
    
    29ITEM 4. - CONTROLS AND PROCEDURES
    
    
    29PART II - OTHER INFORMATIONITEM 1. - LEGAL PROCEEDINGS
    
    
    30ITEM 2. - CHANGES IN SECURITIES AND USE OF PROCEEDS
    
    
    30ITEM 3. - DEFAULTS UPON SENIOR SECURITIES
    
    
    30ITEM 4. - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
    
    
    30ITEM 5. - OTHER INFORMATION
    
    
    30ITEM 6. - EXHIBITS AND REPORTS ON FORM 8-K
    
    
    30SIGNATURE
    
    
    31Indemnification AgreementCertification Pursuant to Section 302Certification Pursuant to Section 302Certification Pursuant to Section 906Certification Pursuant to Section 906
  2




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FORWARD-LOOKING STATEMENTS INFORMATION SET FORTH IN THIS QUARTERLY REPORT ON FORM 10-Q REGARDING EXPECTED
OR POSSIBLE FUTURE EVENTS, INCLUDING STATEMENTS OF THE PLANS AND OBJECTIVES OF
MANAGEMENT FOR FUTURE GROWTH, OPERATIONS, PRODUCTS AND SERVICES AND STATEMENTS
RELATING TO FUTURE ECONOMIC PERFORMANCE, IS FORWARD-LOOKING AND SUBJECT TO
RISKS AND UNCERTAINTIES. FOR THOSE STATEMENTS, THE COMPANY CLAIMS THE
PROTECTION OF THE SAFE HARBOR FOR FORWARD-LOOKING STATEMENTS PROVIDED FOR BY
SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. SUCH
FORWARD-LOOKING STATEMENTS ARE BASED ON ESTIMATES AND ASSUMPTIONS MADE BY
MANAGEMENT OF THE COMPANY, WHICH, ALTHOUGH BELIEVED TO BE REASONABLE, ARE
INHERENTLY UNCERTAIN. THEREFORE, UNDUE RELIANCE SHOULD NOT BE PLACED UPON SUCH
ESTIMATES AND STATEMENTS. NO ASSURANCE CAN BE GIVEN THAT ANY OF SUCH ESTIMATES
OR STATEMENTS WILL BE REALIZED, AND IT IS LIKELY THAT ACTUAL RESULTS WILL
DIFFER MATERIALLY FROM THOSE CONTEMPLATED BY SUCH FORWARD-LOOKING STATEMENTS.
FACTORS THAT MAY CAUSE SUCH DIFFERENCES INCLUDE THE FOLLOWING (1) LOSS OR
OBSOLESCENCE OF THE PROPRIETARY TECHNOLOGY ON WHICH THE COMPANY DEPENDS; (2)
CHANGES IN THE MARKETS IN WHICH THE COMPANY COMPETES INCLUDING THE MANNER IN
WHICH AUTO PARTS OR HARDWARE AND LUMBER ARE SOURCED, SOLD, DISTRIBUTED OR
INVENTORIED, AND CHANGES IN ECONOMIC CONDITIONS IN THESE MARKETS GENERALLY; (3)
CLAIMS BY THIRD PARTIES THAT THE COMPANY IS INFRINGING ON THEIR INTELLECTUAL
PROPERTY RIGHTS; (4) LOSS OF THE COMPANYS EXECUTIVE OFFICERS AND OTHER KEY
PERSONNEL; (5) INCREASED COMPETITION OR FAILURE TO EFFECTIVELY COMPETE; (6)
LOSS OF KEY CUSTOMERS OR INCREASE IN ATTRITION RATES WITH RESPECT TO REVENUE
MANAGEMENT VIEWS AS RECURRING; (7) MANUFACTURING DEFECTS OR ERRORS IN THE
COMPANYS SOFTWARE; (8) PROLONGED UNFAVORABLE GENERAL ECONOMIC AND MARKET
CONDITIONS; (9) FAILURE TO RECOUP THE COST OF INVESTMENT IN NEW BUSINESSES INTO
WHICH THE COMPANY MAY EXPAND AND (10) INCREASES IN THE COMPANYS COST OF
BORROWINGS OR UNAVAILABILITY OF ADDITIONAL DEBT OR EQUITY CAPITAL. MANY OF SUCH
FACTORS WILL BE BEYOND THE CONTROL OF THE COMPANY AND ITS MANAGEMENT. IN
ADDITION, OTHER FACTORS THAT COULD AFFECT THE FUTURE RESULTS OF THE COMPANY AND
COULD CAUSE THOSE RESULTS TO DIFFER MATERIALLY FROM THOSE EXPRESSED IN THE
FORWARD-LOOKING STATEMENTS ARE DISCUSSED AT GREATER LENGTH UNDER MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS AND
APPEAR ELSEWHERE IN THIS QUARTERLY REPORT. THESE RISKS, UNCERTAINTIES AND OTHER
FACTORS SHOULD NOT BE CONSTRUED AS EXHAUSTIVE, AND THE COMPANY DOES NOT
UNDERTAKE, AND SPECIFICALLY DISCLAIMS ANY OBLIGATION TO UPDATE, ANY
FORWARD-LOOKING STATEMENTS TO REFLECT OCCURRENCES OR UNANTICIPATED EVENTS OR
CIRCUMSTANCES AFTER THE DATE OF SUCH STATEMENTS. 3




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PART 1. FINANCIAL INFORMATION 
 Item 1. Financial Statements ACTIVANT SOLUTIONS INC. 
   September 30,
    
    June 30,2003
    
    2004(Unaudited)ASSETS:Current assets:Cash and cash equivalents
    
    $
    10,215
    
    
    $
    19,192Trade accounts receivable, net of allowance for doubtful accounts of $7,748 and
$6,532 at September 30, 2003 and June 30, 2004, respectively
    
    
    40,152
    
    
    
    33,603Inventories, net
    
    
    3,546
    
    
    
    3,439Investment in leases, net
    
    
    2,115
    
    
    
    545Deferred income taxes
    
    
    10,527
    
    
    
    6,510Prepaid income taxes
    
    
    3,587
    
    
    
    Prepaid expenses and other current assets
    
    
    2,485
    
    
    
    2,636Total current assets
    
    
    72,627
    
    
    
    65,925Service parts, net
    
    
    1,520
    
    
    
    1,387Property and equipment, net
    
    
    5,748
    
    
    
    4,487Long-term investment in leases
    
    
    1,854
    
    
    
    219Capitalized computer software costs, net
    
    
    7,711
    
    
    
    6,406Databases, net
    
    
    7,672
    
    
    
    5,975Goodwill
    
    
    87,159
    
    
    
    87,159Other assets
    
    
    17,994
    
    
    
    15,609Total assets
    
    $
    202,285
    
    
    $
    187,167LIABILITIES AND STOCKHOLDERS DEFICIT:Current liabilities:Accounts payable
    
    $
    9,679
    
    
    $
    9,442Payroll related accruals
    
    
    14,860
    
    
    
    11,811Deferred revenue
    
    
    15,870
    
    
    
    15,675Current portion of long-term debt
    
    
    310
    
    
    
    290Accrued expenses and other current liabilities
    
    
    10,694
    
    
    
    2,915Total current liabilities
    
    
    51,413
    
    
    
    40,133Long-term debt
    
    
    172,990
    
    
    
    155,460Deferred income taxes and other liabilities
    
    
    14,544
    
    
    
    12,962Total liabilities
    
    
    238,947
    
    
    
    208,555Stockholders deficit:Common Stock:Par value $0.01, authorized, issued and outstanding, 1,000 shares at
September 30, 2003 and June 30, 2004
    
    
    
    
    
    
    Additional paid-in capital
    
    
    83,155
    
    
    
    83,155Retained deficit
    
    
    (119,421
    )
    
    
    (104,180
    )Other accumulated comprehensive income (loss):Cumulative translation adjustment
    
    
    (396
    )
    
    
    (363
    )Total stockholders deficit
    
    
    (36,662
    )
    
    
    (21,388
    )Total liabilities and stockholders deficit
    
    $
    202,285
    
    
    $
    187,167
 See accompanying notes 4




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ACTIVANT SOLUTIONS INC. 
    Three Months Ended
    
    Nine Months EndedJune 30,
    
    June 30,2003
    
    2004
    
    2003
    
    2004Revenues:Systems
    
    $
    16,492
    
    
    $
    20,274
    
    
    $
    51,596
    
    
    $
    60,709Services
    
    
    38,331
    
    
    
    37,032
    
    
    
    116,939
    
    
    
    108,599Total revenues
    
    
    54,823
    
    
    
    57,306
    
    
    
    168,535
    
    
    
    169,308Cost of revenues:Systems
    
    
    9,687
    
    
    
    12,846
    
    
    
    29,571
    
    
    
    36,046Services
    
    
    18,465
    
    
    
    15,118
    
    
    
    53,921
    
    
    
    44,730Total cost of revenues
    
    
    28,152
    
    
    
    27,964
    
    
    
    83,492
    
    
    
    80,776Gross profit
    
    
    26,671
    
    
    
    29,342
    
    
    
    85,043
    
    
    
    88,532Operating expenses:Sales and marketing
    
    
    7,823
    
    
    
    7,977
    
    
    
    23,360
    
    
    
    23,320Product development
    
    
    4,327
    
    
    
    4,099
    
    
    
    12,143
    
    
    
    11,583General and administrative
    
    
    7,227
    
    
    
    7,221
    
    
    
    20,570
    
    
    
    19,556Total operating expenses
    
    
    19,377
    
    
    
    19,297
    
    
    
    56,073
    
    
    
    54,459Operating income
    
    
    7,294
    
    
    
    10,045
    
    
    
    28,970
    
    
    
    34,073Interest expense
    
    
    (3,248
    )
    
    
    (5,739
    )
    
    
    (9,778
    )
    
    
    (15,718
    )Expenses related to debt refinancing
    
    
    (6,045
    )
    
    
    
    
    
    
    (6,313
    )
    
    
    Equity gain (loss) in affiliate
    
    
    (267
    )
    
    
    
    
    
    
    (208
    )
    
    
    Foreign exchange gain (loss)
    
    
    (26
    )
    
    
    (70
    )
    
    
    (13
    )
    
    
    (177
    )Gain on sale of assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,270Other income (expense), net
    
    
    190
    
    
    
    (56
    )
    
    
    393
    
    
    
    304Income (loss) before income taxes
    
    
    (2,102
    )
    
    
    4,180
    
    
    
    13,051
    
    
    
    24,752Income tax expense (benefit)
    
    
    (677
    )
    
    
    1,551
    
    
    
    5,278
    
    
    
    9,511Net income (loss)
    
    $
    (1,425
    )
    
    $
    2,629
    
    
    $
    7,773
    
    
    $
    15,241Comprehensive income:Net income (loss)
    
    $
    (1,425
    )
    
    $
    2,629
    
    
    $
    7,773
    
    
    $
    15,241Foreign currency translation adjustment
    
    
    529
    
    
    
    286
    
    
    
    754
    
    
    
    33Comprehensive income (loss)
    
    $
    (896
    )
    
    $
    2,915
    
    
    $
    8,527
    
    
    $
    15,274
 See accompanying notes 5




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ACTIVANT SOLUTIONS INC. 
    Nine Months EndedJune 30,2003
    
    2004OPERATING ACTIVITIESNet income
    
    $
    7,773
    
    
    $
    15,241Adjustments to reconcile net income to net cash provided by
operating activities:Depreciation
    
    
    4,603
    
    
    
    4,063Amortization
    
    
    11,131
    
    
    
    8,163Deferred income taxes
    
    
    (648
    )
    
    
    4,697Equity loss from affiliate
    
    
    208
    
    
    
    Equity income from partnerships
    
    
    (206
    )
    
    
    (174
    )Write-off of prior debt issuance costs
    
    
    4,063
    
    
    
    438Lease loss provision
    
    
    (900
    )
    
    
    (1,095
    )Provision for doubtful accounts
    
    
    4,510
    
    
    
    3,438Gain on sale of assets
    
    
    
    
    
    
    (6,270
    )Other, net
    
    
    750
    
    
    
    274Changes in assets and liabilities:Trade accounts receivable
    
    
    (8,043
    )
    
    
    1,796Inventories
    
    
    (194
    )
    
    
    107Investment in leases
    
    
    2,112
    
    
    
    4,300Prepaid expenses and other assets
    
    
    (1,035
    )
    
    
    4,323Accounts payable
    
    
    (639
    )
    
    
    (237
    )Deferred revenue
    
    
    2,360
    
    
    
    432Accrued expenses and other liabilities
    
    
    (6,112
    )
    
    
    (12,826
    )Net cash provided by operating activities
    
    
    19,733
    
    
    
    26,670INVESTING ACTIVITIESPurchase of property and equipment
    
    
    (2,636
    )
    
    
    (1,714
    )Capitalized computer software costs and databases
    
    
    (5,616
    )
    
    
    (4,353
    )Purchase of service parts
    
    
    (1,079
    )
    
    
    (1,159
    )Proceeds from sale of assets
    
    
    
    
    
    
    7,212Acquisition of other assets
    
    
    (2,203
    )
    
    
    Equity distributions from partnerships
    
    
    82
    
    
    
    64Net cash provided by (used in) investing activities
    
    
    (11,452
    )
    
    
    50FINANCING ACTIVITIESProceeds from debt facility
    
    
    1,210
    
    
    
    Proceeds from long-term debt
    
    
    154,946
    
    
    
    Debt issuance costs
    
    
    (7,509
    )
    
    
    Payment on debt facility
    
    
    (38,297
    )
    
    
    Payment on long-term debt
    
    
    (82,524
    )
    
    
    (17,743
    )Dividend to parent
    
    
    (30,000
    )
    
    
    Net cash used in financing activities
    
    
    (2,174
    )
    
    
    (17,743
    )Net change in cash and cash equivalents
    
    
    6,107
    
    
    
    8,977Cash and cash equivalents, beginning of period
    
    
    398
    
    
    
    10,215Cash and cash equivalents, end of period
    
    $
    6,505
    
    
    $
    19,192Supplemental disclosures of cash flow informationCash paid during the period for:Interest
    
    $
    11,708
    
    
    $
    18,118Income taxes
    
    $
    13,242
    
    
    $
    4,286
 See accompanying notes 6




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ACTIVANT SOLUTIONS INC. 
    1. BASIS OF PRESENTATION The accompanying unaudited consolidated financial statements of Activant
Solutions Inc. (the Company) have been prepared in accordance with generally
accepted accounting principles for interim financial information. Accordingly,
they do not include all of the information and notes required by generally
accepted accounting principles for complete financial statements. In the
opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the nine months ended June 30, 2004 may not be indicative
of the results for the full fiscal year ending September 30, 2004. 2. LEASE RECEIVABLES Activity in the following servicing and recourse obligation liability accounts
(recorded in other liabilities in the Companys balance sheet) was as follows
(in thousands): LEASE SERVICING
    
    RECOURSEOBLIGATION
    
    OBLIGATIONBalance at September 30, 2003
    
    $
    142
    
    
    $
    3,170Lease loss provision
    
    
    
    
    
    
    (1,396
    )Recoveries
    
    
    
    
    
    
    224Charges and write-offs
    
    
    (109
    )
    
    
    (903
    )Balance at June 30, 2004
    
    $
    33
    
    
    $
    1,095
 3. DEBT The Companys long-term debt consists of the following (in thousands): Year Ended
    
    Nine MonthsSeptember 30,
    
    Ended June 30,2003
    
    2004Senior Notes, net of discount
    
    $
    155,013
    
    
    $
    155,207Senior Subordinated Notes
    
    
    17,476
    
    
    
    Other
    
    
    811
    
    
    
    543Total debt
    
    
    173,300
    
    
    
    155,750Current portion
    
    
    (310
    )
    
    
    (290
    )Long-term debt
    
    $
    172,990
    
    
    $
    155,460
 In June 2003, the Company consummated a private placement offering (the Senior
Notes Offering) of $155.0 million, net of discount of $2.0 million, of 10.5%
Senior Notes due 2011 (the Senior Notes). With the proceeds from the Senior
Notes, the Company repurchased $82.5 million of its Senior Subordinated Notes,
repaid its outstanding term loan facility of $33.0 million, issued a $30.0
million dividend to its parent company and purchased for $1.8 million
outstanding common stock in Internet Autoparts, Inc. that was held by the
Companys majority shareholder. In June 2004, the Company redeemed the
remaining $17.5 million outstanding 9% Senior Subordinated Notes. Concurrently with the consummation of the Senior Notes Offering the Company
amended and restated its credit agreement by entering into a new $15 million
senior credit facility (the Amended and Restated Credit Agreement). The
Amended and Restated Credit Agreement includes letters of credit up to a $5.0
million maximum and matures in June 2006. The terms of the Amended and Restated
Credit Agreement restrict certain activities of the Company, the most
significant of which include limitations on additional indebtedness, liens,
guarantees, payment or declaration of dividends, sale of assets, investments,
capital expenditures, and transactions with affiliates. The Company must also
meet certain tests relating to financial amounts and ratios defined in the
agreement. As of June 30, 2004, the Company was in compliance with the
financial amounts and ratios as defined in the agreement and measured
quarterly. 7




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4. INCOME TAXES The Company recorded income tax expense for the nine months ended June 30, 2004
at an effective rate of 38.4%, which is based on the Companys anticipated
results for the full fiscal year. The Companys income tax expense differs from
the amount computed by applying the statutory rate to income before income
taxes due to the impact of permanent differences, such as meals and
entertainment expense, and amortization of certain acquired intangibles. 5. COMMON STOCK OPTION PLAN During the quarter ended June 30, 2004, Activant Solutions Holdings Inc.
(Holdings), the Companys parent company, approved the grant of 331,750
options and 29,200 options under the Activant Solutions Holdings, Inc. 2000
stock option plan and 2001 stock option plan, respectively, to certain
employees of the Company at an exercise price of $2.25 per share. The Company uses the intrinsic value method in accounting for employee stock
options. Because the exercise price of the employee stock options was greater
than or equal to the market price of the underlying stock, as determined by
Holdings Board of Directors, on the date of grant, no compensation expense was
recognized. The Companys pro forma information follows (amounts in thousands): Three months ended June 30,
    
    Nine months ended June 30,2003
    
    2004
    
    2003
    
    2004Net income reported
    
    $
    (1,425
    )
    
    $
    2,629
    
    
    $
    7,773
    
    
    $
    15,241Pro forma
stock-based
compensation
expense, net of tax
    
    
    53
    
    
    
    53
    
    
    
    161
    
    
    
    175Pro forma net income
    
    $
    (1,478
    )
    
    $
    2,576
    
    
    $
    7,612
    
    
    $
    15,066
 6. RECENT ACCOUNTING PRONOUNCEMENTS In January 2003, the FASB issued Interpretation No. 46, Consolidation of
Variable Interest Entities(FIN 46), which clarifies the application of
Accounting Research Bulletin No. 51, Consolidated Financial Statements. FIN 46
requires variable interest entities (VIE) to be consolidated by a company if
that company is subject to a majority of the risk of loss from the VIE
activities or entitled to receive a majority of the entitys residual returns
or both. A company that consolidates a VIE is called the primary beneficiary of
that entity. FIN 46 also requires disclosures about VIE that a company is not
required to consolidate but in which it has a significant variable interest. In
December 2003, the FASB completed its deliberations regarding the proposed
modification to FIN 46 and issued Interpretation Number 46R, Consolidation of
Variable Interest Entities  an Interpretation of ARB No. 51(FIN 46R). The
decisions reached included a deferral of the effective date and provisions for
additional scope exceptions for certain types of variable interests.
Application of FIN 46R is required in financial statements of public entities
that have interests in VIE or potential VIE commonly referred to as
special-purpose entities for periods ending after December 15, 2003.
Application by public entities (other than small business issuers) for all
other types of entities is required in financial statements for periods ending
after March 15, 2004. There was no material impact from the application of FIN
46R on the Companys financial position or results of operations. 8




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7. SEGMENT REPORTING Operating Segments The Companys business operations are organized into the Industry Solutions
Group and the Automotive Group, as shown below. Both groups provide management
solutions consisting of:  
    
    proprietary software applications, third party hardware and peripherals, and implementation and training;
    
    ongoing hardware and software support and maintenance for its installed customer base; and
    
    databases, exchanges and other information services, including the market leading electronic catalog in the automotive parts aftermarket The Companys Industry Solutions Group serves a variety of retailers and
wholesale distributors in the hardware, lumber, home improvement, paint and
decorating, flooring, lawn, garden, agribusiness, industrial supply, plumbing
supply, HVACR (heating, ventilating, air conditioning and refrigeration) and
electrical supply industries in the United States and its territories. The
Companys Automotive Group serves automotive aftermarket manufacturers,
wholesalers, distributors, professional installers, retailers and service
chains in North America and Europe. Total assets are not allocated by segment. See Item 2 Managements Discussion and Analysis of Financial Condition and
Results of Operations. Three Months Ended June 30, 2003
    
    Three Months Ended June 30, 2004Industry
    
    
    
    
    
    
    
    
    
    
    
    
    
    IndustrySolutions
    
    Automotive
    
    
    
    
    
    
    
    
    
    Solutions
    
    AutomotiveGroup
    
    Group
    
    Corporate
    
    Total
    
    Group
    
    Group
    
    Corporate
    
    TotalRevenues:Systems
    
    $
    12,444
    
    
    $
    4,048
    
    
    $
    
    
    
    $
    16,492
    
    
    $
    16,039
    
    
    $
    4,235
    
    
    $
    
    
    
    $
    20,274Services
    
    
    13,970
    
    
    
    24,361
    
    
    
    
    
    
    
    38,331
    
    
    
    14,427
    
    
    
    2,605
    
    
    
    
    
    
    
    37,032Total Revenues
    
    
    26,414
    
    
    
    28,409
    
    
    
    
    
    
    
    54,823
    
    
    
    30,466
    
    
    
    26,840
    
    
    
    
    
    
    
    57,306Operating expenses
    
    
    5,854
    
    
    
    7,197
    
    
    
    6,326
    
    
    
    19,377
    
    
    
    6,656
    
    
    
    5,505
    
    
    
    7,136
    
    
    
    19,297Income (loss)
before income taxes
    
    
    5,595
    
    
    
    7,383
    
    
    
    (15,080
    )
    
    
    (2,102
    )
    
    
    8,275
    
    
    
    8,961
    
    
    
    (13,056
    )
    
    
    4,180Depreciation and
amortization
    
    
    2,035
    
    
    
    3,073
    
    
    
    758
    
    
    
    5,866
    
    
    
    494
    
    
    
    2,766
    
    
    
    742
    
    
    
    4,002Capital expenditures
    
    
    452
    
    
    
    1,352
    
    
    
    884
    
    
    
    2,688
    
    
    
    491
    
    
    
    1,111
    
    
    
    831
    
    
    
    2,433
 Nine Months Ended June 30, 2003
    
    Nine Months Ended June 30, 2004Industry
    
    
    
    
    
    
    
    
    
    
    
    
    
    IndustrySolutions
    
    Automotive
    
    
    
    
    
    
    
    
    
    Solutions
    
    AutomotiveGroup
    
    Group
    
    Corporate
    
    Total
    
    Group
    
    Group
    
    Corporate
    
    TotalRevenues:Systems
    
    $
    38,640
    
    
    $
    12,956
    
    
    $
    
    
    
    $
    51,596
    
    
    $
    7,459
    
    
    $
    13,250
    
    
    $
    
    
    
    $
    60,709Services
    
    
    43,333
    
    
    
    73,606
    
    
    
    
    
    
    
    116,939
    
    
    
    1,423
    
    
    
    67,176
    
    
    
    
    
    
    
    108,599Total revenues
    
    
    81,973
    
    
    
    86,562
    
    
    
    
    
    
    
    168,535
    
    
    
    88,882
    
    
    
    80,426
    
    
    
    
    
    
    
    169,308Operating expenses
    
    
    16,481
    
    
    
    19,851
    
    
    
    19,741
    
    
    
    56,073
    
    
    
    18,714
    
    
    
    17,577
    
    
    
    18,168
    
    
    
    54,459Income (loss)
before income taxes
    
    
    21,914
    
    
    
    25,538
    
    
    
    (34,401
    )
    
    
    13,051
    
    
    
    25,314
    
    
    
    26,252
    
    
    
    (26,814
    )
    
    
    24,752Depreciation and
amortization
    
    
    4,656
    
    
    
    8,877
    
    
    
    2,201
    
    
    
    15,734
    
    
    
    1,660
    
    
    
    8,293
    
    
    
    2,273
    
    
    
    12,226Capital expenditures
    
    
    1,786
    
    
    
    4,560
    
    
    
    2,985
    
    
    
    9,331
    
    
    
    1,657
    
    
    
    3,210
    
    
    
    2,359
    
    
    
    7,226
 Geographic Segments A breakdown by geographic area of total revenues and total assets is shown
below. The Americas geographic area covers the United States and Canada. The
Europe geographic area covers the United Kingdom, Ireland and France. Three Months Ended June 30, 2003
    
    Three Months Ended June 30, 2004Americas
    
    Europe
    
    Total
    
    Americas
    
    Europe
    
    TotalRevenues
    
    $
    53,150
    
    
    $
    1,673
    
    
    $
    54,823
    
    
    $
    55,427
    
    
    $
    1,879
    
    
    $
    57,306Total Assets
    
    $
    191,209
    
    
    $
    4,383
    
    
    $
    195,592
    
    
    $
    183,470
    
    
    $
    3,697
    
    
    $
    187,167
 Nine Months Ended June 30, 2003
    
    Nine Months Ended June 30, 2004Americas
    
    Europe
    
    Total
    
    Americas
    
    Europe
    
    TotalRevenues
    
    $
    163,952
    
    
    $
    4,583
    
    
    $
    168,535
    
    
    $
    164,235
    
    
    $
    5,073
    
    
    $
    169,308Total Assets
    
    $
    191,209
    
    
    $
    4,383
    
    
    $
    195,592
    
    
    $
    183,470
    
    
    $
    3,697
    
    
    $
    187,167
 9




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##### Table of Contents



8. GUARANTOR TABLES Consolidating Balance Sheet as of June 30, 2004(in thousands) GuarantorPrincipal
    
    Guarantor
    
    Non-GuarantorOperations
    
    Subsidiaries
    
    Subsidiaries
    
    Eliminations
    
    ConsolidatedAssetsCurrent assets:Cash and cash equivalents
    
    $
    15,232
    
    
    $
    (17
    )
    
    $
    3,977
    
    
    $
    
    
    
    $
    19,192Trade accounts receivable, net of allowance
for doubtful accounts
    
    
    30,449
    
    
    
    
    
    
    
    3,154
    
    
    
    
    
    
    
    33,603Intercompany receivable
    
    
    
    
    
    
    43,939
    
    
    
    
    
    
    
    (43,939
    )
    
    
    Inventories, net
    
    
    3,326
    
    
    
    
    
    
    
    113
    
    
    
    
    
    
    
    3,439Investment in leases, net
    
    
    
    
    
    
    488
    
    
    
    57
    
    
    
    
    
    
    
    545Deferred income taxes
    
    
    6,510
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,510Prepaid income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Prepaid expenses and other current assets
    
    
    1,369
    
    
    
    1,172
    
    
    
    95
    
    
    
    
    
    
    
    2,636Total current assets
    
    
    56,886
    
    
    
    45,582
    
    
    
    7,396
    
    
    
    (43,939
    )
    
    
    65,925Service parts, net
    
    
    1,355
    
    
    
    
    
    
    
    32
    
    
    
    
    
    
    
    1,387Property and equipment, net
    
    
    4,320
    
    
    
    
    
    
    
    167
    
    
    
    
    
    
    
    4,487Long-term investment in leases
    
    
    1
    
    
    
    (70
    )
    
    
    288
    
    
    
    
    
    
    
    219Capitalized computer software costs, net
    
    
    6,406
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,406Databases, net
    
    
    5,975
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,975Goodwill
    
    
    87,159
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    87,159Intercompany non-trade
    
    
    
    
    
    
    
    
    
    
    (1,135
    )
    
    
    1,135
    
    
    
    Investments in subs
    
    
    11,558
    
    
    
    
    
    
    
    820
    
    
    
    (12,378
    )
    
    
    Other assets
    
    
    15,581
    
    
    
    
    
    
    
    28
    
    
    
    
    
    
    
    15,609Total assets
    
    $
    189,241
    
    
    $
    45,512
    
    
    $
    7,596
    
    
    $
    (55,182
    )
    
    $
    187,167Liabilities and stockholders equity (deficit)Current liabilities:Accounts payable
    
    $
    9,144
    
    
    $
    12
    
    
    $
    286
    
    
    $
    
    
    
    $
    9,442Intercompany payables
    
    
    36,869
    
    
    
    
    
    
    
    3,535
    
    
    
    (40,404
    )
    
    
    Payroll related accruals
    
    
    11,670
    
    
    
    
    
    
    
    141
    
    
    
    
    
    
    
    11,811Deferred revenue
    
    
    14,578
    
    
    
    86
    
    
    
    1,011
    
    
    
    
    
    
    
    15,675Current portion of long-term debt
    
    
    
    
    
    
    290
    
    
    
    
    
    
    
    
    
    
    
    290Accrued expenses and other current liabilities
    
    
    2,708
    
    
    
    141
    
    
    
    66
    
    
    
    
    
    
    
    2,915Total current liabilities
    
    
    74,969
    
    
    
    529
    
    
    
    5,039
    
    
    
    (40,404
    )
    
    
    40,133Long-term debt, net of discount
    
    
    155,207
    
    
    
    253
    
    
    
    
    
    
    
    
    
    
    
    155,460Deferred tax liabilities and other liabilities
    
    
    12,744
    
    
    
    703
    
    
    
    (485
    )
    
    
    
    
    
    
    12,962Total liabilities
    
    
    242,920
    
    
    
    1,485
    
    
    
    4,554
    
    
    
    (40,404
    )
    
    
    208,555Stockholders equity (deficit):Common stock:
    
    
    
    
    
    
    104
    
    
    
    5,495
    
    
    
    (5,599
    )
    
    
    Additional paid-in capital
    
    
    83,155
    
    
    
    6,300
    
    
    
    3
    
    
    
    (6,303
    )
    
    
    83,155Retained earnings (deficit)
    
    
    (138,613
    )
    
    
    37,623
    
    
    
    (2,924
    )
    
    
    (266
    )
    
    
    (104,180
    )Other accumulated comprehensive income (loss):Cumulative translation adjustment
    
    
    1,779
    
    
    
    
    
    
    
    468
    
    
    
    (2,610
    )
    
    
    (363
    )Total stockholders equity (deficit)
    
    
    (53,679
    )
    
    
    44,027
    
    
    
    3,042
    
    
    
    (14,778
    )
    
    
    (21,388
    )Total liabilities and stockholders equity (deficit)
    
    $
    189,241
    
    
    $
    45,512
    
    
    $
    7,596
    
    
    $
    (55,182
    )
    
    $
    187,167
 10




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##### Table of Contents



Consolidating Balance Sheet as of September 30, 2003(in thousands) GuarantorPrincipal
    
    Guarantor
    
    Non-GuarantorOperations
    
    Subsidiaries
    
    Subsidiaries
    
    Eliminations
    
    ConsolidatedAssetsCurrent assets:Cash and cash equivalents
    
    $
    8,400
    
    
    $
    (169
    )
    
    $
    1,984
    
    
    $
    
    
    
    $
    10,215Trade accounts receivable, net of allowance
for doubtful accounts
    
    
    36,413
    
    
    
    
    
    
    
    3,739
    
    
    
    
    
    
    
    40,152Intercompany receivable
    
    
    
    
    
    
    45,977
    
    
    
    
    
    
    
    (45,977
    )
    
    
    Inventories, net
    
    
    3,432
    
    
    
    
    
    
    
    114
    
    
    
    
    
    
    
    3,546Investment in leases, net
    
    
    
    
    
    
    1,934
    
    
    
    181
    
    
    
    
    
    
    
    2,115Deferred income taxes
    
    
    10,527
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,527Prepaid income taxes
    
    
    2,775
    
    
    
    
    
    
    
    812
    
    
    
    
    
    
    
    3,587Prepaid expenses and other current assets
    
    
    982
    
    
    
    1,450
    
    
    
    53
    
    
    
    
    
    
    
    2,485Total current assets
    
    
    62,529
    
    
    
    49,192
    
    
    
    6,883
    
    
    
    (45,977
    )
    
    
    72,627Service parts, net
    
    
    1,412
    
    
    
    
    
    
    
    108
    
    
    
    
    
    
    
    1,520Property and equipment, net
    
    
    5,567
    
    
    
    
    
    
    
    181
    
    
    
    
    
    
    
    5,748Long-term investment in leases
    
    
    
    
    
    
    1,292
    
    
    
    562
    
    
    
    
    
    
    
    1,854Capitalized computer software costs, net
    
    
    7,711
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,711Databases, net
    
    
    7,672
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,672Goodwill
    
    
    87,159
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    87,159Investments in subs
    
    
    45,362
    
    
    
    
    
    
    
    759
    
    
    
    (46,121
    )
    
    
    Other assets
    
    
    17,620
    
    
    
    348
    
    
    
    26
    
    
    
    
    
    
    
    17,994Total assets
    
    $
    235,032
    
    
    $
    50,832
    
    
    $
    8,519
    
    
    $
    (92,098
    )
    
    $
    202,285Liabilities and stockholders equity (deficit)Current liabilities:Accounts payable
    
    $
    9,470
    
    
    $
    15
    
    
    $
    194
    
    
    $
    
    
    
    $
    9,679Intercompany payables
    
    
    74,657
    
    
    
    
    
    
    
    4,767
    
    
    
    (79,424
    )
    
    
    Payroll related accruals
    
    
    14,702
    
    
    
    
    
    
    
    158
    
    
    
    
    
    
    
    14,860Deferred revenue
    
    
    15,273
    
    
    
    148
    
    
    
    449
    
    
    
    
    
    
    
    15,870Current portion of long-term debt
    
    
    
    
    
    
    310
    
    
    
    
    
    
    
    
    
    
    
    310Accrued expenses and other current liabilities
    
    
    10,127
    
    
    
    359
    
    
    
    208
    
    
    
    
    
    
    
    10,694Total current liabilities
    
    
    124,229
    
    
    
    832
    
    
    
    5,776
    
    
    
    (79,424
    )
    
    
    51,413Long-term debt, net of discount
    
    
    172,489
    
    
    
    501
    
    
    
    
    
    
    
    
    
    
    
    172,990Deferred tax liabilities and other liabilities
    
    
    12,691
    
    
    
    2,323
    
    
    
    (470
    )
    
    
    
    
    
    
    14,544Total liabilities
    
    
    309,409
    
    
    
    3,656
    
    
    
    5,306
    
    
    
    (79,424
    )
    
    
    238,947Stockholders equity (deficit):Common stock:
    
    
    
    
    
    
    104
    
    
    
    5,495
    
    
    
    (5,599
    )
    
    
    Additional paid-in capital
    
    
    83,155
    
    
    
    6,300
    
    
    
    3
    
    
    
    (6,303
    )
    
    
    83,155Retained earnings (deficit)
    
    
    (157,192
    )
    
    
    40,772
    
    
    
    (2,735
    )
    
    
    (266
    )
    
    
    (119,421
    )Other accumulated comprehensive income (loss):Cumulative translation adjustment
    
    
    (340
    )
    
    
    
    
    
    
    450
    
    
    
    (506
    )
    
    
    (396
    )Total stockholders equity (deficit)
    
    
    (74,377
    )
    
    
    47,176
    
    
    
    3,213
    
    
    
    (12,674
    )
    
    
    (36,662
    )Total liabilities and stockholders equity (deficit)
    
    $
    235,032
    
    
    $
    50,832
    
    
    $
    8,519
    
    
    $
    (92,098
    )
    
    $
    202,285
 11




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##### Table of Contents



Consolidating Statement of Operations for the Three Months Ended June 30, 2004(in thousands) GuarantorPrincipal
    
    Guarantor
    
    Non-GuarantorOperations
    
    Subsidiaries
    
    Subsidiaries
    
    Eliminations
    
    ConsolidatedRevenues:Systems
    
    $
    19,662
    
    
    $
    
    
    
    $
    657
    
    
    $
    (45
    )
    
    $
    20,274Services
    
    
    34,204
    
    
    
    258
    
    
    
    2,570
    
    
    
    
    
    
    
    37,032Total revenues
    
    
    53,866
    
    
    
    258
    
    
    
    3,227
    
    
    
    (45
    )
    
    
    57,306Cost of revenues:Systems
    
    
    12,490
    
    
    
    
    
    
    
    399
    
    
    
    (43
    )
    
    
    12,846Services
    
    
    13,583
    
    
    
    (13
    )
    
    
    1,550
    
    
    
    (2
    )
    
    
    15,118Total cost of revenues
    
    
    26,073
    
    
    
    (13
    )
    
    
    1,949
    
    
    
    (45
    )
    
    
    27,964Gross margin
    
    
    27,793
    
    
    
    271
    
    
    
    1,278
    
    
    
    
    
    
    
    29,342Operating expenses:Sales and marketing
    
    
    7,577
    
    
    
    (83
    )
    
    
    483
    
    
    
    
    
    
    
    7,977Product development
    
    
    4,006
    
    
    
    
    
    
    
    93
    
    
    
    
    
    
    
    4,099General and administrative
    
    
    4,879
    
    
    
    1,774
    
    
    
    568
    
    
    
    
    
    
    
    7,221Total operating expenses
    
    
    16,462
    
    
    
    1,691
    
    
    
    1,144
    
    
    
    
    
    
    
    19,297Operating income (loss)
    
    
    11,331
    
    
    
    (1,420
    )
    
    
    134
    
    
    
    
    
    
    
    10,045Interest expense
    
    
    (5,725
    )
    
    
    (14
    )
    
    
    
    
    
    
    
    
    
    
    (5,739
    )Equity gain in affiliate
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Foreign exchange gain (loss)
    
    
    (27
    )
    
    
    
    
    
    
    (43
    )
    
    
    
    
    
    
    (70
    )Gain on disposal of assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Other income (expense), net
    
    
    (64
    )
    
    
    
    
    
    
    8
    
    
    
    
    
    
    
    (56
    )Income (loss) before income taxes
    
    
    5,515
    
    
    
    (1,434
    )
    
    
    99
    
    
    
    
    
    
    
    4,180Income tax expense
    
    
    1,501
    
    
    
    
    
    
    
    50
    
    
    
    
    
    
    
    1,551Net income (loss)
    
    $
    4,014
    
    
    $
    (1,434
    )
    
    $
    49
    
    
    $
    
    
    
    $
    2,629
 12




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##### Table of Contents



Consolidating Statement of Operations for the Three Months Ended June 30, 2003(in thousands) GuarantorPrincipal
    
    Guarantor
    
    Non-GuarantorOperations
    
    Subsidiaries
    
    Subsidiaries
    
    Eliminations
    
    ConsolidatedRevenues:Systems
    
    $
    15,941
    
    
    $
    
    
    
    $
    551
    
    
    $
    
    
    
    $
    16,492Services
    
    
    35,561
    
    
    
    347
    
    
    
    2,423
    
    
    
    
    
    
    
    38,331Total revenues
    
    
    51,502
    
    
    
    347
    
    
    
    2,974
    
    
    
    
    
    
    
    54,823Cost of revenues:Systems
    
    
    9,390
    
    
    
    
    
    
    
    297
    
    
    
    
    
    
    
    9,687Services
    
    
    17,637
    
    
    
    
    
    
    
    1,292
    
    
    
    (464
    )
    
    
    18,465Total cost of revenues
    
    
    27,027
    
    
    
    
    
    
    
    1,589
    
    
    
    (464
    )
    
    
    28,152Gross margin
    
    
    24,475
    
    
    
    347
    
    
    
    1,385
    
    
    
    464
    
    
    
    26,671Operating expenses:Sales and marketing
    
    
    8,299
    
    
    
    (901
    )
    
    
    425
    
    
    
    
    
    
    
    7,823Product development
    
    
    4,234
    
    
    
    
    
    
    
    93
    
    
    
    
    
    
    
    4,327General and administrative
    
    
    7,147
    
    
    
    1,710
    
    
    
    349
    
    
    
    (1,979
    )
    
    
    7,227Total operating expenses
    
    
    19,680
    
    
    
    809
    
    
    
    867
    
    
    
    (1,979
    )
    
    
    19,377Operating income (loss)
    
    
    4,795
    
    
    
    (462
    )
    
    
    518
    
    
    
    2,443
    
    
    
    7,294Interest expense
    
    
    (3,231
    )
    
    
    (24
    )
    
    
    7
    
    
    
    
    
    
    
    (3,248
    )Expenses related to debt refinancing
    
    
    (6,045
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6,045
    )Equity loss in affiliate
    
    
    (267
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (267
    )Foreign exchange gain (loss)
    
    
    (6
    )
    
    
    
    
    
    
    (20
    )
    
    
    
    
    
    
    (26
    )Gain on disposal of assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Other income, net
    
    
    190
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    190Income (loss) before income taxes
    
    
    (4,564
    )
    
    
    (486
    )
    
    
    505
    
    
    
    2,443
    
    
    
    (2,102
    )Income tax expense
    
    
    (898
    )
    
    
    
    
    
    
    221
    
    
    
    
    
    
    
    (677
    )Net income (loss)
    
    $
    (3,666
    )
    
    $
    (486
    )
    
    $
    284
    
    
    $
    2,443
    
    
    $
    (1,425
    )
 13




---



##### Table of Contents



Consolidating Statement of Operations for the Nine Months Ended June 30, 2004(in thousands) GuarantorPrincipal
    
    Guarantor
    
    Non-GuarantorOperations
    
    Subsidiaries
    
    Subsidiaries
    
    Eliminations
    
    ConsolidatedRevenues:Systems
    
    $
    59,272
    
    
    $
    
    
    
    $
    1,482
    
    
    $
    (45
    )
    
    $
    60,709Services
    
    
    99,914
    
    
    
    757
    
    
    
    7,930
    
    
    
    (2
    )
    
    
    108,599Total revenues
    
    
    159,186
    
    
    
    757
    
    
    
    9,412
    
    
    
    (47
    )
    
    
    169,308Cost of revenues:Systems
    
    
    35,154
    
    
    
    
    
    
    
    935
    
    
    
    (43
    )
    
    
    36,046Services
    
    
    39,911
    
    
    
    (42
    )
    
    
    4,865
    
    
    
    (4
    )
    
    
    44,730Total cost of revenues
    
    
    75,065
    
    
    
    (42
    )
    
    
    5,800
    
    
    
    (47
    )
    
    
    80,776Gross margin
    
    
    84,121
    
    
    
    799
    
    
    
    3,612
    
    
    
    
    
    
    
    88,532Operating expenses:Sales and marketing
    
    
    23,232
    
    
    
    (1,360
    )
    
    
    1,448
    
    
    
    
    
    
    
    23,320Product development
    
    
    11,341
    
    
    
    
    
    
    
    242
    
    
    
    
    
    
    
    11,583General and administrative
    
    
    12,485
    
    
    
    5,257
    
    
    
    1,814
    
    
    
    
    
    
    
    19,556Total operating expenses
    
    
    47,058
    
    
    
    3,897
    
    
    
    3,504
    
    
    
    
    
    
    
    54,459Operating income (loss)
    
    
    37,063
    
    
    
    (3,098
    )
    
    
    108
    
    
    
    
    
    
    
    34,073Interest expense
    
    
    (15,666
    )
    
    
    (51
    )
    
    
    (1
    )
    
    
    
    
    
    
    (15,718
    )Equity gain in affiliate
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Foreign exchange gain (loss)
    
    
    (1
    )
    
    
    
    
    
    
    (176
    )
    
    
    
    
    
    
    (177
    )Gain on disposal of assets
    
    
    6,270
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,270Other income, net
    
    
    274
    
    
    
    
    
    
    
    30
    
    
    
    
    
    
    
    304Income (loss) before income taxes
    
    
    27,940
    
    
    
    (3,149
    )
    
    
    (39
    )
    
    
    
    
    
    
    24,752Income tax expense
    
    
    9,361
    
    
    
    
    
    
    
    150
    
    
    
    
    
    
    
    9,511Net income (loss)
    
    $
    18,579
    
    
    $
    (3,149
    )
    
    $
    (189
    )
    
    $
    
    
    
    $
    15,241
 14




---



##### Table of Contents



Consolidating Statement of Operations for the Nine Months Ended June 30, 2003(in thousands) GuarantorPrincipal
    
    Guarantor
    
    Non-GuarantorOperations
    
    Subsidiaries
    
    Subsidiaries
    
    Eliminations
    
    ConsolidatedRevenues:Systems
    
    $
    50,286
    
    
    $
    
    
    
    $
    1,310
    
    
    $
    
    
    
    $
    51,596Services
    
    
    108,445
    
    
    
    1,223
    
    
    
    7,271
    
    
    
    
    
    
    
    116,939Total revenues
    
    
    158,731
    
    
    
    1,223
    
    
    
    8,581
    
    
    
    
    
    
    
    168,535Cost of revenues:Systems
    
    
    28,790
    
    
    
    
    
    
    
    781
    
    
    
    
    
    
    
    29,571Services
    
    
    50,924
    
    
    
    
    
    
    
    4,383
    
    
    
    (1,386
    )
    
    
    53,921Total cost of revenues
    
    
    79,714
    
    
    
    
    
    
    
    5,164
    
    
    
    (1,386
    )
    
    
    83,492Gross margin
    
    
    79,017
    
    
    
    1,223
    
    
    
    3,417
    
    
    
    1,386
    
    
    
    85,043Operating expenses:Sales and marketing
    
    
    23,114
    
    
    
    (829
    )
    
    
    1,075
    
    
    
    
    
    
    
    23,360Product development
    
    
    11,876
    
    
    
    
    
    
    
    267
    
    
    
    
    
    
    
    12,143General and administrative
    
    
    9,651
    
    
    
    5,122
    
    
    
    1,078
    
    
    
    4,719
    
    
    
    20,570Total operating expenses
    
    
    44,641
    
    
    
    4,293
    
    
    
    2,420
    
    
    
    4,719
    
    
    
    56,073Operating income (loss)
    
    
    34,376
    
    
    
    (3,070
    )
    
    
    997
    
    
    
    (3,333
    )
    
    
    28,970Interest expense
    
    
    (9,701
    )
    
    
    (79
    )
    
    
    2
    
    
    
    
    
    
    
    (9,778
    )Expenses related to debt refinancing
    
    
    (6,313
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6,313
    )Equity gain in affiliate (loss)
    
    
    (208
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (208
    )Foreign exchange gain (loss)
    
    
    13
    
    
    
    
    
    
    
    (26
    )
    
    
    
    
    
    
    (13
    )Gain on disposal of assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Other income, net
    
    
    372
    
    
    
    
    
    
    
    21
    
    
    
    
    
    
    
    393Income (loss) before income taxes
    
    
    18,539
    
    
    
    (3,149
    )
    
    
    994
    
    
    
    (3,333
    )
    
    
    13,051Income tax expense
    
    
    4,600
    
    
    
    
    
    
    
    678
    
    
    
    
    
    
    
    5,278Net income (loss)
    
    $
    13,939
    
    
    $
    (3,149
    )
    
    $
    316
    
    
    $
    (3,333
    )
    
    $
    7,773
 15




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##### Table of Contents



Consolidated Statements of Cash Flows for the Nine Months Ended June 30, 2004(In thousands) Guarantor
    
    Non-Principal
    
    Guarantor
    
    GuarantorOperations
    
    Subsidiaries
    
    Subsidiaries
    
    Eliminations
    
    ConsolidatedOperating activitiesNet income (loss)
    
    $
    18,229
    
    
    $
    (3,149
    )
    
    $
    161
    
    
    $
    
    
    
    $
    15,241Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:Depreciation
    
    
    3,953
    
    
    
    
    
    
    
    110
    
    
    
    
    
    
    
    4,063Amortization
    
    
    8,163
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,163Deferred income taxes
    
    
    4,697
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,697Equity loss from affiliate
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Equity from Partnerships
    
    
    (165
    )
    
    
    
    
    
    
    (9
    )
    
    
    
    
    
    
    (174
    )Write off prior debt issuance cost
    
    
    438
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    438Lease loss provision
    
    
    
    
    
    
    (1,095
    )
    
    
    
    
    
    
    
    
    
    
    (1,095
    )Doubtful accounts
    
    
    3,138
    
    
    
    
    
    
    
    300
    
    
    
    
    
    
    
    3,438Gain on sale of assets
    
    
    (6,270
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6,270
    )Other, net
    
    
    274
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    274Changes in assets and liabilities:Trade accounts receivable
    
    
    1,511
    
    
    
    
    
    
    
    285
    
    
    
    
    
    
    
    1,796Inventories
    
    
    106
    
    
    
    
    
    
    
    1
    
    
    
    
    
    
    
    107Investment in leases
    
    
    (1
    )
    
    
    3,903
    
    
    
    398
    
    
    
    
    
    
    
    4,300Prepaid expenses and other
assets
    
    
    2,924
    
    
    
    626
    
    
    
    773
    
    
    
    
    
    
    
    4,323Intercompany transactions
    
    
    (1,560
    )
    
    
    2,038
    
    
    
    (478
    )
    
    
    
    
    
    
    Accounts payable
    
    
    (326
    )
    
    
    (3
    )
    
    
    92
    
    
    
    
    
    
    
    (237
    )Deferred revenue
    
    
    (68
    )
    
    
    (62
    )
    
    
    562
    
    
    
    
    
    
    
    432Accrued expenses and other
liabilities
    
    
    (10,809
    )
    
    
    (1,838
    )
    
    
    (179
    )
    
    
    
    
    
    
    (12,826
    )Net cash provided by operating
activities
    
    
    24,234
    
    
    
    420
    
    
    
    2,016
    
    
    
    
    
    
    
    26,670Investing activitiesPurchase of property and equipment
    
    
    (1,669
    )
    
    
    
    
    
    
    (45
    )
    
    
    
    
    
    
    (1,714
    )Computer software and databases
    
    
    (4,353
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,353
    )Service parts
    
    
    (1,178
    )
    
    
    
    
    
    
    19
    
    
    
    
    
    
    
    (1,159
    )PP&E sale proceeds
    
    
    7,212
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,212Equity distributions from
partnerships
    
    
    61
    
    
    
    
    
    
    
    3
    
    
    
    
    
    
    
    64Investing Cash Flow
    
    
    73
    
    
    
    
    
    
    
    (23
    )
    
    
    
    
    
    
    50Financing activitiesProceeds from debt facility
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Proceeds from long-term debt
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Debt issuance costs
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Payment on debt facility
    
    
    268
    
    
    
    (268
    )
    
    
    
    
    
    
    
    
    
    
    Payment on long-term debt
    
    
    (17,743
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (17,743
    )Dividend to parent
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net cash used in financing activities
    
    
    (17,475
    )
    
    
    (268
    )
    
    
    
    
    
    
    
    
    
    
    (17,743
    )Change in cash and cash equivalents
    
    
    6,832
    
    
    
    152
    
    
    
    1,993
    
    
    
    
    
    
    
    8,977Cash and cash equivalents, beginning
    
    
    8,400
    
    
    
    (169
    )
    
    
    1,984
    
    
    
    
    
    
    
    10,215Cash and cash equivalents, ending
    
    $
    15,232
    
    
    $
    (17
    )
    
    $
    3,977
    
    
    $
    
    
    
    $
    19,192
 16




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##### Table of Contents



Consolidated Statements of Cash Flows for the Nine Months Ended June 30, 2003(In thousands) Guarantor
    
    Non-Principal
    
    Guarantor
    
    GuarantorOperations
    
    Subsidiaries
    
    Subsidiaries
    
    Eliminations
    
    ConsolidatedOperating activitiesNet income (loss)
    
    $
    13,939
    
    
    $
    (3,149
    )
    
    $
    316
    
    
    $
    (3,333
    )
    
    $
    7,773Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:Depreciation
    
    
    4,502
    
    
    
    
    
    
    
    101
    
    
    
    
    
    
    
    4,603Amortization
    
    
    11,131
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11,131Deferred income taxes
    
    
    (518
    )
    
    
    
    
    
    
    (130
    )
    
    
    
    
    
    
    (648
    )Equity gain from affiliate
    
    
    208
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    208Equity gain from partnerships
    
    
    (192
    )
    
    
    
    
    
    
    (14
    )
    
    
    
    
    
    
    (206
    )Write off of prior debt issuance
costs
    
    
    4,063
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,063Lease loss provision
    
    
    
    
    
    
    (900
    )
    
    
    
    
    
    
    
    
    
    
    (900
    )Doubtful accounts
    
    
    4,388
    
    
    
    
    
    
    
    122
    
    
    
    
    
    
    
    4,510Gain on sale of assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Other, net
    
    
    916
    
    
    
    
    
    
    
    (166
    )
    
    
    
    
    
    
    750Changes in assets and liabilities:Trade accounts receivable
    
    
    (7,054
    )
    
    
    
    
    
    
    (989
    )
    
    
    
    
    
    
    (8,043
    )Inventories
    
    
    (180
    )
    
    
    
    
    
    
    (14
    )
    
    
    
    
    
    
    (194
    )Investment in leases
    
    
    
    
    
    
    1,763
    
    
    
    349
    
    
    
    
    
    
    
    2,112Prepaid expenses and other assets
    
    
    (2,081
    )
    
    
    882
    
    
    
    164
    
    
    
    
    
    
    
    (1,035
    )Intercompany transactions
    
    
    (8,396
    )
    
    
    2,597
    
    
    
    2,466
    
    
    
    3,333
    
    
    
    Accounts payable
    
    
    (473
    )
    
    
    6
    
    
    
    (172
    )
    
    
    
    
    
    
    (639
    )Deferred revenue
    
    
    2,157
    
    
    
    (121
    )
    
    
    324
    
    
    
    
    
    
    
    2,360Accrued expenses and other
liabilities
    
    
    (4,772
    )
    
    
    (779
    )
    
    
    (561
    )
    
    
    
    
    
    
    (6,112
    )Net cash provided by operating
activities
    
    
    17,638
    
    
    
    299
    
    
    
    1,796
    
    
    
    
    
    
    
    19,733Investing activitiesPurchase of property and equipment
    
    
    (2,636
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,636
    )Computer software and databases
    
    
    (5,616
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5,616
    )Service parts
    
    
    (1,079
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,079
    )Equity distributions from partnerships
    
    
    82
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    82Acquisition of other assets
    
    
    (2,203
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,203
    )Net cash used in investing activities
    
    
    (11,452
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (11,452
    )Financing activitiesProceeds from debt facility
    
    
    1,210
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,210Proceeds from long term debt
    
    
    154,946
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    154,946Debt issuance costs
    
    
    (7,509
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (7,509
    )Payment on debt facility
    
    
    (38,297
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (38,297
    )Payment on long-term debt
    
    
    (82,225
    )
    
    
    (299
    )
    
    
    
    
    
    
    
    
    
    
    (82,524
    )Dividend to parent
    
    
    (30,000
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (30,000
    )Net cash used in financing activities
    
    
    (1,875
    )
    
    
    (299
    )
    
    
    
    
    
    
    
    
    
    
    (2,174
    )Change in cash and cash equivalents
    
    
    4,311
    
    
    
    
    
    
    
    1,796
    
    
    
    
    
    
    
    6,107Cash and cash equivalents, beginning
    
    
    (157
    )
    
    
    
    
    
    
    555
    
    
    
    
    
    
    
    398Cash and cash equivalents, ending
    
    $
    4,154
    
    
    $
    
    
    
    $
    2,351
    
    
    $
    
    
    
    $
    6,505
 17




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##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results
of Operations Overview The Company is a leading provider of business management solutions primarily to
retailers and wholesale distributors in the retail hardware market, the lumber
and building materials market and the automotive parts aftermarket. The
Companys business management solutions include systems, customer support and
information services that its customers use to manage their critical day-to-day
business operations through automated point-of-sale, inventory management,
general accounting and enhanced data collection. The Companys revenues are
derived from the following:       Business management systems comprised of proprietary software applications,
implementation and training and third-party hardware and peripherals. For the
nine months ended June 30, 2004, systems revenues accounted for approximately
36% of the Companys total revenues.     Subscription-based services, which are generally recurring in nature,
including software and hardware support, maintenance, its electronic automotive
parts catalog and other services. For the nine months ended June 30, 2004,
services revenues accounted for approximately 64% of the Companys total
revenues. The Companys operations are organized into two principal business unitsthe
Industry Solutions Group and the Automotive Group. The Industry Solutions Group
serves a variety of retailers and wholesale distributors in the retail
hardware, lumber, home improvement, lawn and garden, farm supply, electrical
supply and other industries in the United States. For the nine months ended
June 30, 2004, the Industry Solutions Group generated approximately 53% of the
Companys total revenues. The Automotive Group serves the automotive parts
aftermarket, which includes manufacturers, warehouse distributors, parts stores
and professional installers in North America and Europe. For the nine months
ended June 30, 2004, the Automotive Group generated approximately 47% of the
Companys total revenues. Key Trends Over the past several years, the Company has noted several trends that it
believes are integral to understanding its financial results and condition:       Growth in Systems Revenues in the Industry Solutions Group.The Industry
Solutions Groups systems revenues have grown at an annual rate of over 20%.
This growth has been a result of stronger relationships and licensing
agreements with all three primary cooperatives in the retail hardware market,
increased sales of upgraded software applications to customers, and increased
demand for the Companys Falcon product in the lumber and building materials
market. The Company expects that these increased systems revenues will also
result in increased support revenues in future years as the Company adds new
customers and new products.     Increased Profit Margins.The Company has improved its gross profit margin
and operating profit margin every year through product mix, disciplined
operating processes and a more efficient sales and marketing strategy. The
Company continues to maintain a strong focus on profit margins.     Lower Customer Retention on the Companys Older Products.As the Company
stops actively developing and selling several of its older systems, especially
in its Automotive Group, the Company has experienced reduced rates of customer
retention. The Company has developed various upgrade paths for these customers
and has undertaken a specific customer services campaign to increase retention
rates for customers who elect to continue to operate with the Companys older
systems. Despite the Companys efforts, the Company has experienced
year-over-year decreases in its Automotive Group services revenues and the
Company expects lower levels of customer retention to continue. 18




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##### Table of Contents



     Loss of Certain Critical Point-of-Sale Data.In the Industry Solutions
Group, the Company collects specific point-of-sale data from its customer base
and enhances it by acquiring point-of-sale data from mass merchandisers in the
public market. The Company then organizes all of this data and sells it to
manufacturers. In 2001 and 2002, certain mass merchandisers stopped making
their point-of-sale data available which materially reduced the value of this
data to the Companys manufacturer customers. During the fiscal year ended
September 30, 2003, the Company experienced a decline in services revenues
related to the loss of this point-of-sale data. The Company also reduced many
of the expenses associated with producing and selling this data. The Company
does not expect to generate this point-of-sale revenue at historic levels going
forward.     Consolidation of the Companys Customers, Especially in the Automotive Parts
Aftermarket. As in most industries, the Companys customers are undergoing
consolidation. When one of the Companys customers acquires a company that does
not currently use the Companys systems, the Company typically benefits in the
form of new systems sales and increased services revenues associated with that
customer. When a company not currently using the Companys systems acquires one
of our customers, the Company typically loses services revenues. The Company
believes that consolidation has been neither a material benefit nor a material
detriment to its operating results over the past three years. Subsequent Event The Companys largest Automotive Group customer has recently informed the
Company of its intention to replace the Companys J-CON parts store system with
its own branded product at its company-owned stores, and to recommend that its
independent affiliated stores also replace the J-CON system. The customer has
indicated that the replacement of the J-CON system in its company owned stores
will be phased in over a period of approximately one year. J-CON system sales
revenue for all of this customers company-owned and independent affiliated
stores was approximately $4.0 million and $1.9 million for the Companys fiscal
year ended September 30, 2003 and for the nine months ended June 30, 2004,
respectively. J-CON services revenue for all of this customers company-owned
and independent affiliated stores was approximately $7.7 million
and $5.8
million for the Companys fiscal year ended September 30, 2003 and for the nine
months ended June 30, 2004, respectively. Accordingly, we expect that our
future Automotive Services revenue will decline as a result of this decision.
Notwithstanding its decision to replace the Companys J-CON systems, this
customer indicated that it intended to continue to use the Companys warehouse
system and electronic automotive parts catalog at its company-owned and
independent affiliated stores. Sale of Assets On October 1, 2003, the Company sold certain non-core assets consisting of its
Automotive Recycling Division. The total sales price was $6.7 million plus net
working capital of $0.5 million, which resulted in a gain of $6.3 million. The
total revenues generated by these assets for the fiscal years ended September
30, 2003, 2002 and 2001 were $8.2 million, $9.0 million and $9.8 million,
respectively. The total revenues generated by these assets for the nine months
ended June 30, 2004 and 2003 were $0.1 million and $6.1 million, respectively. On January 30, 2004, the Company sold certain lease receivables to its
third-party lease financing provider for approximately $1.8 million. These
lease receivables were direct financing leases due from customers for the sale
of software and hardware systems and other products. The Company has not
originated any direct financing leases since 2001. Key Components of Results of Operations Revenues.The Company derives revenues primarily from two sources: systems
revenues and services revenues. Systems revenues include the sale of the
Companys software applications, implementation, training and third-party
computer hardware equipment and associated peripherals. Systems revenues are
generally non-recurring in nature. Services revenues generally consist of
revenues associated with the software and hardware support and maintenance of
the Companys systems, as well as revenues from the sale of information
databases, including the Companys electronic automotive parts catalog, data
warehouses, system connectivity services and business product sales. Services
revenues are generally recurring in nature. 19




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##### Table of Contents



Cost of Revenues. Cost of systems revenues primarily includes computer
hardware and peripherals purchased from third parties, the labor and overhead
associated with integrating, shipping, installing and training customers on the
Companys systems and the amortization of capitalized software costs. Cost of
services revenues primarily includes personnel costs associated with the
software and hardware support and maintenance of the Companys systems,
personnel costs associated with data entry into the Companys information
databases, bad debt expense, the amortization of capitalized databases and
telecommunications and facility costs. Sales and Marketing Expense.Sales and marketing expense primarily consists of
personnel costs associated with the Companys sales and marketing efforts,
commissions, and bad debt expense related to the Companys accounts receivable.
A portion of depreciation, amortization, telecommunications and facility costs
is allocated to sales and marketing expense based on estimated usage. Sales and
marketing expense also includes the lease loss provision related to the
Companys remaining historical lease portfolio. See Notes to the Consolidated
Financial Statements. Product Development Expense.Product development expense primarily consists of
personnel costs and contract services associated with the development and
maintenance of the Companys software and databases. A portion of depreciation,
amortization, telecommunications and facility costs is allocated to product
development expense based on estimated usage. General and Administrative Expense.These costs include departmental costs for
executive, legal, administrative services, finance, telecommunications,
facilities and information technology. A portion of depreciation, amortization,
telecommunications and facility costs is allocated to general and
administrative expense based on estimated usage. Amortization of Goodwill.Goodwill represents the excess of cost over the fair
value of assets acquired. The Company adopted SFAS 142 as of October 1, 2001
and no longer amortizes goodwill. Other Income (Expense).Other income (expense) includes income from
partnerships, which are being accounted for under the equity method, and the
Companys 401(e) deferred compensation plan. Historical Results of Operations Three Months Ended June 30, 2004 Compared to Three Months Ended June 30, 2003 Revenues.The following table sets forth, for the periods indicated, the
Companys systems revenues, services revenues and total revenues and the
variance thereof. Three Months Ended June 30,2003
    
    2004
    
    Variance $
    
    Variance %(in thousands)Systems Revenues:Industry Solutions Group
    
    $
    12,444
    
    
    $
    16,039
    
    
    $
    3,595
    
    
    
    28.9
    %Automotive Group
    
    
    4,048
    
    
    
    4,235
    
    
    
    187
    
    
    
    4.6
    %Total Systems Revenues
    
    $
    16,492
    
    
    $
    20,274
    
    
    $
    3,782
    
    
    
    22.9
    %Services Revenues:Industry Solutions Group
    
    $
    13,970
    
    
    $
    14,427
    
    
    $
    457
    
    
    
    3.3
    %Automotive Group
    
    
    24,361
    
    
    
    22,605
    
    
    
    (1,756
    )
    
    
    (7.2
    )%Total Services Revenue
    
    $
    38,331
    
    
    $
    37,032
    
    
    $
    (1,299
    )
    
    
    (3.4
    )%Total Revenues:Industry Solutions Group
    
    $
    26,414
    
    
    $
    30,466
    
    
    $
    4,052
    
    
    
    15.3
    %Automotive Group
    
    
    28,409
    
    
    
    26,840
    
    
    
    (1,569
    )
    
    
    (5.5
    )%Total Revenues
    
    $
    54,823
    
    
    $
    57,306
    
    
    $
    2,483
    
    
    
    4.5
    %
 Total Revenues.Total revenues for the three months ended June 30, 2004
increased by approximately $2.5 million, or 4.5%, compared to the three months
ended June 30, 2003. The $3.8 million increase in total systems revenues for
the three months ended June 30, 2004 more than offset a decline in the
Automotive Groups services revenues and the impact of the sale of the
Automotive Recycling Division, which was sold on October 1, 2003. 20




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##### Table of Contents



Excluding the fiscal year 2003 revenues of the Automotive Recycling Division,
total revenues increased by $4.4 million, or 8.3%, from $52.9 million to $57.3
million for the three months ended 2003 and 2004, respectively. Factors affecting systems revenues for the three months ended June 30, 2004.       The increase in systems revenues for the Industry Solutions Group is
principally due to an increase in add-on sales to existing customers and
additional sales to new customers primarily in the retail hardware and lumber
and building materials markets.     The increase in systems revenues for the Automotive Group is primarily
due to the sale of more warehouse and store management systems to the
Companys existing customer base. Excluding the fiscal year 2003 revenues of
the Automotive Recycling Division which was sold on October 1, 2003, systems
revenues for the Automotive Group increased by $0.3 million, or 7.7%, from
$3.9 million to $4.2 million for the three months ended June 30, 2003 and
2004, respectively. Factors affecting services revenues for the three months ended June 30, 2004.       The increase in services revenues for the Industry Solutions Group was
primarily due to an increase in software and hardware support and maintenance
revenue from new and existing customers, partially offset by a reduction in
information database sales to manufacturers as a result of the decision by
two large mass merchandisers to no longer provide point-of-sales data to the
market. The Company does not expect to recapture the sources of this
point-of-sale data and, therefore, does not expect to recover this lost
information services revenue.     The decline in services revenues for the Automotive Group was largely
due to the sale of the Automotive Recycling Division on October 1, 2003. The
Automotive Recycling Division accounted for $1.8 million of the Automotive
Groups services revenues for the three months ended June 30, 2003. Excluding
the fiscal year 2003 revenues of the Automotive Recycling Division, services
revenues of the Automotive Group remained flat at $22.6 million for the three
months ended June 30, 2003 and 2004. During the three months ended June 30,
2004, the Automotive Group continued to experience a decline in services
revenues associated with customer attrition from the Companys older systems,
however, this decline was offset by other services revenue including
electronic catalog and connectivity. The Company expects that services
revenues from these older systems will continue to decline. Cost of Revenues.The following table sets forth, for the periods indicated,
the Companys cost of revenues and the variance thereof. Three Months Ended June 30,2003
    
    2004
    
    Variance $
    
    Variance %(in thousands)Cost of Systems Revenues:Industry Solutions Group
    
    $
    6,576
    
    
    $
    9,168
    
    
    $
    2,592
    
    
    
    39.4
    %Automotive Group
    
    
    3,111
    
    
    
    3,678
    
    
    
    567
    
    
    
    18.2
    %Total Cost of Systems Revenues
    
    $
    9,687
    
    
    $
    12,846
    
    
    $
    3,159
    
    
    
    32.6
    %Cost of Services Revenues:Industry Solutions Group
    
    $
    7,629
    
    
    $
    6,100
    
    
    $
    (1,529
    )
    
    
    (20.0
    )%Automotive Group
    
    
    10,836
    
    
    
    9,018
    
    
    
    (1,818
    )
    
    
    (16.7
    )%Total Cost of Services Revenues
    
    $
    18,465
    
    
    $
    15,118
    
    
    $
    (3,347
    )
    
    
    (18.1
    )%Total Cost of Revenues:Industry Solutions Group
    
    $
    14,205
    
    
    $
    15,268
    
    
    $
    1,063
    
    
    
    7.5
    %Automotive Group
    
    
    13,947
    
    
    
    12,696
    
    
    
    (1,251
    )
    
    
    (9.0
    %)Total Cost of Revenues
    
    $
    28,152
    
    
    $
    27,964
    
    
    $
    (188
    )
    
    
    (0.6
    )%
 21




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##### Table of Contents



The following table sets forth, for the periods indicated, the cost of revenues
as a percentage of revenues. Three MonthsEndedJune 30,2003
    
    2004Systems:Industry Solutions Group
    
    
    52.8
    %
    
    
    57.2
    %Automotive Group
    
    
    76.9
    %
    
    
    86.8
    %Total Cost of Systems Revenues as a Percentage of Total Systems Revenues
    
    
    58.7
    %
    
    
    63.4
    %Services:Industry Solutions Group
    
    
    54.6
    %
    
    
    42.3
    %Automotive Group
    
    
    44.5
    %
    
    
    39.9
    %Total Cost of Services Revenues as a Percentage of Total Services Revenues
    
    
    48.2
    %
    
    
    40.8
    %Total Cost of Revenues:Industry Solutions Group
    
    
    53.8
    %
    
    
    50.1
    %Automotive Group
    
    
    49.1
    %
    
    
    47.3
    %Total Cost of Revenues as a Percentage of Total Revenues
    
    
    51.4
    %
    
    
    48.8
    %
 Total Cost of Revenues.Total cost of revenues for the three months ended June
30, 2004, decreased by approximately $0.2 million, or 0.6%, compared to the
three months ended June 30, 2003. Cost of Systems Revenues.The increase in cost of systems revenues is
predominantly due to increased sales of systems during the three months ended
June 30, 2004. The increase in cost of systems revenues as a percentage of
systems revenues is primarily a result of higher installation costs.       The increase in cost of systems revenues for the Industry Solutions
Group is a result of its increased sales of systems. The increase in the
Industry Solutions Groups cost of systems revenues as a percentage of
systems revenue was primarily due to additional personnel costs associated
with the higher level of system installs and higher royalty expenses.     The Automotive Group experienced an increase in the cost of systems
revenues as a percentage of systems revenue due to higher installation and
third party hardware costs. Cost of Services Revenues.Cost of services revenues declined to 40.8% of
total services revenues for the three months ended June 30, 2004 compared to
48.2% for the three months ended June 30, 2003. Cost of services revenues as a
percentage of services revenue declined in both the Industry Solutions Group
and the Automotive Group. These declines for the three months ended June 30,
2004, are the result of the following:       Cost of services revenues for the Industry Solutions Group does not
include any information product database amortization compared to the
previous period, which included $1.1 million of database amortization costs.
The information product database was fully amortized during fiscal year 2003,
due to the loss of critical sources of point-of-sale data available in the
market and due to the reduced information product services revenues obtained
from the database. The Industry Solutions Group also had lower information
product data acquisition and processing costs.     Cost of services revenues for the Automotive Group declined due to
lower personnel and outside consulting service expenses. Information services
process improvement projects were completed during fiscal year 2003. The
Automotive Group also benefited from lower corporate expense allocations for
the three months ended June 30, 2004, due to reduced facility and
telecommunications costs primarily related to the sale of the Automotive
Recycling Division. 22




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##### Table of Contents



Gross Profit.The following table sets forth, for the periods indicated, the
Companys gross profit and the variance thereof. Three Months Ended June 30,2003
    
    2004
    
    Variance$
    
    Variance %(in thousands)Systems Gross Profit:Industry Solution
Group
    
    $
    5,868
    
    
    $
    6,871
    
    
    $
    1,003
    
    
    
    17.1
    %Automotive Group
    
    
    937
    
    
    
    557
    
    
    
    (380
    )
    
    
    (40.6
    )%Total Systems Gross Profit
    
    $
    6,805
    
    
    $
    7,428
    
    
    $
    623
    
    
    
    9.2
    %Services Gross Profit:Industry Solutions Group
    
    $
    6,341
    
    
    $
    8,327
    
    
    $
    1,986
    
    
    
    31.3
    %Automotive Group
    
    
    13,525
    
    
    
    13,587
    
    
    
    62
    
    
    
    0.4
    %Total Services Gross Profit
    
    $
    19,866
    
    
    $
    21,914
    
    
    $
    2,048
    
    
    
    10.3
    %Total Gross Profit:Industry Solutions Group
    
    $
    12,209
    
    
    $
    15,198
    
    
    $
    2,989
    
    
    
    24.5
    %Automotive Group
    
    
    14,462
    
    
    
    14,144
    
    
    
    (318
    )
    
    
    (2.2
    )%Total Gross Profit
    
    $
    26,671
    
    
    $
    29,342
    
    
    $
    2,671
    
    
    
    10.0
    %
 The following table sets forth, for the periods indicated, the Companys gross
profit as a percentage of revenues. Three Months EndedJune 30,2003
    
    2004Systems:Industry Solutions
Group
    
    
    47.2
    %
    
    
    42.8
    %Automotive
Group
    
    
    23.1
    %
    
    
    13.2
    %Total Systems Gross Profit as a
Percentage of Systems
Revenues
    
    
    41.3
    %
    
    
    36.6
    %Services:Industry Solutions
Group
    
    
    45.4
    %
    
    
    57.7
    %Automotive
Group
    
    
    55.5
    %
    
    
    60.1
    %Total Services Gross Profit as a
Percentage of Services
Revenues
    
    
    51.8
    %
    
    
    59.2
    %Total Gross Profit:Industry Solutions
Group
    
    
    46.2
    %
    
    
    49.9
    %Automotive
Group
    
    
    50.9
    %
    
    
    52.7
    %Total Gross Profit as a Percentage of
Revenues
    
    
    48.6
    %
    
    
    51.2
    %
 For the reasons described above, total gross profit increased by $2.7 million,
or 10.0%, for the three months ended June 30, 2004 compared to the three months
ended June 30, 2003. Operating Expenses.The following table sets forth, for the periods indicated,
the Companys operating expenses and the variance thereof. Three Months Ended June 30,2003
    
    2004
    
    Variance$
    
    Variance%(in thousands)Sales and Marketing Expense
    
    $
    7,823
    
    
    $
    7,977
    
    
    $
    154
    
    
    
    2.0
    %Product Development Expense
    
    
    4,327
    
    
    
    4,099
    
    
    
    (228
    )
    
    
    (5.3
    )%General and Administrative Expense
    
    
    7,227
    
    
    
    7,221
    
    
    
    (6
    )
    
    
    (0.1
    )%Total Operating Expenses
    
    $
    19,377
    
    
    $
    19,297
    
    
    $
    (80
    )
    
    
    (0.4
    )%
 Operating expenses remained relatively flat at $19.3 million for the
three months ended June 30, 2004, compared to the three months
ended June 30, 2003.       Sales and Marketing Expense.Sales and marketing expense increased as
a result of increases in the Industry Solutions Groups sales personnel and
higher commissions based on increased sales activity. The Industry Solutions
Groups increase was partially offset by personnel reductions associated with
the sale of the Automotive Recycling Division and other cost decreases
including travel and bonuses.     Product Development Expense.The decrease in product development
expense resulted from personnel reductions associated with the sale of the
Automotive Recycling Division which was partially offset by the increased
product 23




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##### Table of Contents



development spending by the Industry Solutions Group.     General and Administrative Expense.General and administrative
expense was flat for the three months ended June 30, 2004 compared to June
30, 2003. Telecommunications costs and consulting expenses associated with
implementing a new enterprise resource planning system were lower in the
three months ended June 30, 2004 compared to the three months ended June 30,
2003, which were offset by higher legal and other professional service
expenses incurred in connection with a potential financing transaction that
was not completed. Interest Expense.Interest expense for the three months ended June 30, 2004
was $5.7 million, compared to $3.2 million for the three months ended June 30,
2003, an increase of $2.5 million, or 76.7%. On June 27, 2003, the Company
completed a debt refinancing resulting in higher average debt balances for the
three months ended June 30, 2004 and causing higher interest expense. See 
Liquidity and Capital Resources. Expenses Related to Debt Refinancing.In the three months ended June 30, 2003,
the Company incurred $6.0 million of expenses related to the June 2003 debt
refinancing, including the write off of $4.1 million of previously deferred
debt issuance costs. Net Income.As a result of the above factors, the Company realized net income
of $2.6 million for the three months ended June 30, 2004, compared to a net
loss of $1.4 million for the three months ended June 30, 2003, an improvement
of $4.0 million. Nine months Ended June 30, 2004 Compared to Nine months Ended June 30, 2003 Revenues.The following table sets forth, for the periods indicated, the
Companys systems revenues, services revenues and total revenues and the
variance thereof. 2004 vs. 2003
    
    2004 vs. 20032003
    
    2004
    
    Variance $
    
    Variance %(in thousands)Systems Revenues:Industry
Solutions
Group
    
    $
    38,640
    
    
    $
    47,459
    
    
    $
    8,819
    
    
    
    22.8
    %Automotive
Group
    
    
    12,956
    
    
    
    13,250
    
    
    
    294
    
    
    
    2.3
    %Total Systems
Revenues
    
    $
    51,596
    
    
    $
    60,709
    
    
    $
    9,113
    
    
    
    17.7
    %Services Revenues:Industry
Solutions
Group
    
    $
    43,333
    
    
    $
    41,423
    
    
    $
    (1,910
    )
    
    
    (4.4
    )%Automotive
Group
    
    
    73,606
    
    
    
    67,176
    
    
    
    (6,430
    )
    
    
    (8.7
    )%Total Services
Revenues
    
    $
    116,939
    
    
    $
    108,599
    
    
    $
    (8,340
    )
    
    
    (7.1
    )%Total Revenues:Industry
Solutions
Group
    
    $
    81,973
    
    
    $
    88,882
    
    
    $
    6,909
    
    
    
    8.4
    %Automotive
Group
    
    
    86,562
    
    
    
    80,426
    
    
    
    (6,136
    )
    
    
    (7.1
    )%Total
Revenues
    
    $
    168,535
    
    
    $
    169,308
    
    
    $
    773
    
    
    
    0.5
    %
 Total Revenues.Total revenues for the nine months ended June 30, 2004
increased by approximately $0.8 million, or 0.5%, compared to the nine months
ended June 30, 2003. The $9.1 million increase in total systems revenues for
the nine months ended June 30, 2004 more than offset a decline in both the
Industry Solutions Groups and Automotive Groups services revenues and the
impact of the sale of the Automotive Recycling Division, which was sold on
October 1, 2003. Excluding the fiscal year 2003 revenues of the Automotive Recycling Division,
total revenues increased by $6.9 million, or 4.2%, from $162.4 million to
$169.3 million for the nine months ended 2003 and 2004, respectively. Factors affecting systems revenues for the fiscal nine months ended June 30,
2004.       The increase in systems revenues for the Industry Solutions Group is
principally due to an increase in add-on sales to existing customers and
additional sales to new customers primarily in the retail hardware and lumber
and building materials markets. 24




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##### Table of Contents



     The increase in systems revenues for the Automotive Group is primarily
due to the sale of more warehouse and store management systems to the
Companys existing customer base. Excluding the fiscal year 2003 revenues of
the Automotive Recycling Division which was sold on October 1, 2003, systems
revenues for the Automotive Group increased by $0.8 million, or 6.3%, from
$12.5 million to $13.3 million for the nine months ended June 30, 2003 and
2004, respectively. Factors affecting services revenues for the fiscal nine months ended June 30,
2004.       The decline in services revenues for the Industry Solutions Group was
primarily due to lower information product sales to manufacturers as a result
of the decision by two large mass merchandisers to cease providing
point-of-sales data to the market. The Company does not expect to recapture
the sources of this point-of-sale data and, therefore, does not expect to
recover this lost revenue of approximately $5.0 million per year. The
reduction in information database sales to manufacturers was partially offset
by an increase in customer service revenue from new customers.     The decline in services revenues for the Automotive Group was largely
due to the sale of the Companys Automotive Recycling Division on October 1,
2003. The Automotive Recycling Division accounted for $5.6 million of the
Automotive Groups services revenues for the nine months ended June 30, 2003.
Excluding the fiscal year 2003 revenues of the Companys Automotive Recycling
Division, services revenues for the Automotive Group decreased by $0.8
million, or 1.2%, from $68.0 million to $67.2 million for the nine months
ended June 30, 2003 and 2004, respectively. The Automotive Group continued to
experience a decline in services revenues associated with customer attrition
from its older systems. The Company expects that revenues from these older
systems will continue to decline. Cost of Revenues.The following table sets forth, for the periods indicated,
the Companys cost of revenues and the variance thereof. 2004 vs. 2003
    
    2004 vs. 20032003
    
    2004
    
    Variance $
    
    Variance %(in thousands)Cost of Systems Revenues:Industry Solutions Group
    
    $
    20,733
    
    
    $
    26,055
    
    
    $
    5,322
    
    
    
    25.7
    %Automotive Group
    
    
    8,838
    
    
    
    9,991
    
    
    
    1,153
    
    
    
    13.0
    %Total Cost of Systems Revenues
    
    $
    29,571
    
    
    $
    36,046
    
    
    $
    6,475
    
    
    
    21.9
    %Cost of Services Revenues:Industry Solutions Group
    
    $
    21,571
    
    
    $
    18,016
    
    
    $
    (3,555
    )
    
    
    (16.5
    )%Automotive Group
    
    
    32,350
    
    
    
    26,714
    
    
    
    (5,636
    )
    
    
    (17.4
    )%Total Cost of Services Revenues
    
    $
    53,921
    
    
    $
    44,730
    
    
    $
    (9,191
    )
    
    
    (17.0
    )%Total Cost of Revenues:Industry Solutions Group
    
    $
    42,304
    
    
    $
    44,071
    
    
    $
    1,767
    
    
    
    4.2
    %Automotive Group
    
    
    41,188
    
    
    
    36,705
    
    
    
    (4,483
    )
    
    
    10.9
    %Total Cost of Revenues
    
    $
    83,492
    
    
    $
    80,776
    
    
    $
    (2,716
    )
    
    
    (3.2
    )%
 The following table sets forth, for the periods indicated, the Companys cost
of revenues as a percentage of revenues. Fiscal Nine months EndedJune 30,2003
    
    2004Systems:Industry Solutions
Group
    
    
    53.7
    %
    
    
    55.0
    %Automotive Group
    
    
    68.2
    %
    
    
    75.3
    %Total Cost of Systems Revenues as a Percentage of Total Systems
Revenues
    
    
    57.3
    %
    
    
    59.3
    %Services:Industry Solutions Group
    
    
    49.8
    %
    
    
    43.5
    %Automotive Group
    
    
    44.0
    %
    
    
    39.7
    %Total Cost of Services Revenues as a Percentage of Total Services
Revenues
    
    
    46.1
    %
    
    
    41.2
    %Total Cost of Revenues:Industry Solutions Group
    
    
    51.6
    %
    
    
    49.6
    %Automotive Group
    
    
    47.6
    %
    
    
    45.6
    %Total Cost of Revenues as a Percentage of Total Revenues
    
    
    49.5
    %
    
    
    47.7
    %
 25




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##### Table of Contents



Total Cost of Revenues.Total cost of revenues for the nine months ended June
30, 2004 decreased by $2.7 million from $83.5 million to $80.8 million for the
nine months ended June 30, 2003 and June 30, 2004, respectively. Higher systems
cost of revenues were more than offset by decreased services cost of revenues. Factors affecting cost of systems revenues for the nine months ended June 30,
2004.       The increase in cost of systems revenues for the Industry Solutions Group
is predominantly due to increased sales of systems recorded during the nine
months ended June 30, 2004. The increase in cost of systems revenues as a
percentage of systems revenues for the nine months ended June 30, 2004, was
primarily due to additional personnel costs associated with the higher level
of system installs and higher royalty expense.     The increase in the cost of systems revenues as a percentage of systems
revenues for the Automotive Group was a result of higher installation and
third party hardware costs. Factors affecting cost of services revenues for the nine months ended June 30,
2004.       Cost of services revenues for the Industry Solutions Group declined
due to the amortization of $1.8 million for an information product database
in the nine months ended June 30, 2003. The information product database was
fully amortized in fiscal year 2003, due to the decision by two large mass
merchandisers to cease providing point-of-sale data to the market and due to
the projected reduced information product revenues to be obtained from the
database. In addition, the Industry Solutions Group experienced lower
information product data acquisition and processing costs.     Cost of services revenues for the Automotive Group declined due to the
sale of the Companys Automotive Recycling Division on October 1, 2003 and
lower personnel and consulting service expenses. Information services
process improvement projects were completed during fiscal year 2003. The
Automotive Group also reduced personnel costs associated with software and
hardware support on the Companys older products. Additionally, improved
receivable collections of services billings caused bad debt expense to
decrease from the prior nine months. These combined cost reductions improved
the cost of services revenues as a percentage of services revenues for the
Automotive Group by 4.3% to 39.7% for the nine months ended June 30, 2004,
compared to 44.0% for the nine months ended June 30, 2003. Gross Profit.The following table sets forth, for the periods indicated, the
Companys gross profit and the variance thereof. 2004 vs. 2003
    
    2004 vs. 20032003
    
    2004
    
    Variance $
    
    Variance %(in thousands)Systems Gross Profit:Industry Solutions Group
    
    $
    17,907
    
    
    $
    21,404
    
    
    $
    3,497
    
    
    
    19.5
    %Automotive Group
    
    
    4,118
    
    
    
    3,259
    
    
    
    (859
    )
    
    
    (20.9
    )%Total Systems Gross Profit
    
    $
    22,025
    
    
    $
    24,663
    
    
    $
    2,638
    
    
    
    12.0
    %Services Gross Profit:Industry Solutions Group
    
    $
    21,762
    
    
    $
    23,407
    
    
    $
    1,645
    
    
    
    7.6
    %Automotive Group
    
    
    41,256
    
    
    
    40,462
    
    
    
    (794
    )
    
    
    (1.9
    )%Total Services Gross Profit
    
    $
    63,018
    
    
    $
    63,869
    
    
    $
    851
    
    
    
    1.4
    %Total Gross Profit:Industry Solutions Group
    
    $
    39,669
    
    
    $
    44,811
    
    
    $
    5,142
    
    
    
    13.0
    %Automotive Group
    
    
    45,374
    
    
    
    43,721
    
    
    
    (1,653
    )
    
    
    3.6
    %Total Gross Profit
    
    $
    85,043
    
    
    $
    88,532
    
    
    $
    3,489
    
    
    
    4.1
    %
 26




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##### Table of Contents



The following table sets forth, for the periods indicated, the Companys gross
profit as a percentage of revenues. 2003
    
    2004Gross Profit as a Percentage of RevenuesSystems:Industry Solutions
Group
    
    
    46.3
    %
    
    
    45.1
    %Automotive
Group
    
    
    31.8
    %
    
    
    24.6
    %Total Systems Gross Profit as a Percentage of Systems
Revenues Services
    
    
    42.7
    %
    
    
    40.7
    %Industry Solutions
Group
    
    
    50.2
    %
    
    
    56.5
    %Automotive
Group
    
    
    56.0
    %
    
    
    60.3
    %Total Services Gross Profit as a Percentage of
Services Revenues
    
    
    53.9
    %
    
    
    58.8
    %Total Gross Profit:Industry Solutions
Group
    
    
    48.4
    %
    
    
    50.4
    %Automotive
Group
    
    
    52.4
    %
    
    
    54.4
    %Total Gross Profit as a Percentage of Total
Revenues
    
    
    50.5
    %
    
    
    52.3
    %
 As a result of the factors described above, gross profit increased by $3.5
million for the nine months ended June 30, 2004, or 4.1%, compared to the nine
months ended June 30, 2003. Operating Expenses.The following table sets forth, for the periods indicated,
the Companys operating expenses and variance thereof. 2004 vs. 2003
    
    2004 vs. 20032003
    
    2004
    
    Variance $
    
    Variance %(in thousands)Sales and Marketing Expense
    
    $
    23,360
    
    
    $
    23,320
    
    
    $
    (40
    )
    
    
    (0.2
    )%Product Development Expense
    
    
    12,143
    
    
    
    11,583
    
    
    
    (560
    )
    
    
    (4.6
    )%General and Administrative Expense
    
    
    20,570
    
    
    
    19,556
    
    
    
    (1,014
    )
    
    
    (4.9
    )%Total Operating
Expenses
    
    $
    56,073
    
    
    $
    54,459
    
    
    $
    (1,614
    )
    
    
    (2.9
    )%
 During the nine months ended June 30, 2004, operating expenses declined by $1.6
million, or 2.9%, compared to the nine months ended June 30, 2003. Factors
affecting operating expenses for the nine months ended June 30, 2004 include:       Sales and Marketing Expense.Sales and marketing expense declined
slightly as a result of a reduction in the Companys lease loss reserve and
lower allocations of telecommunication costs. During January 2004, the
Company sold over 55.0%, or approximately $1.8 million, of its owned lease
portfolio to a third-party lease financing provider. The lease portfolio
sale did not provide for any recourse to the Company. Offsetting this were
increases in the Industry Solutions Groups sales and marketing expenses,
related to increased sales personnel and higher commissions based on
increased sales activity.     Product Development Expense.The decline in product development
expense resulted from the sale of the Automotive Recycling Division which
reduced personnel and other expenditures, and due to lower allocations of
telecommunications expenses. This decline was somewhat offset by the
increased product development spending by the Industry Solutions Group.     General and Administrative Expense.General and administrative
expense was lower due to the costs of implementing a new enterprise resource
planning system in the nine months ended June 30, 2003, lower
telecommunications costs associated with the sale of ARD and more favorable
contracts and usage. These lower expenses were offset by higher legal and
other professional service expenses incurred in connection with a potential
financing transaction that was not completed. Interest Expense.Interest expense for the nine months ended June 30, 2004 was
$15.7 million, compared to $9.8 million for the nine months ended June 30,
2003, an increase of $5.9 million, or 60.2%. On June 27, 2003, the Company completed a
debt refinancing resulting in higher average debt balances for the nine months
ended June 30, 2004, which caused higher interest expense. See Liquidity and
Capital Resources. 27




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##### Table of Contents



Expenses Related to Debt Refinancing.The Company incurred $6.3 million of
expenses related to the June 2003 debt refinancing, including the write off of
$4.1 million of previously deferred debt issuance costs. Net Income.As a result of the above factors, the Company realized net income
of $15.2 million for the nine months ended June 30, 2004, compared to net
income of $7.8 million for the nine months ended June 30, 2003, an increase of
$7.4 million, or 94.9%. Liquidity and Capital Resources As of June 30, 2004, the Company had $155.8 million in outstanding indebtedness
comprised of $155.2 million of 10 1/2% senior notes due 2011, net of a $1.8
million discount and $0.6 million of debt related to lease financing that
matures in varying amounts over the next three years. The Companys Amended and
Restated Credit Agreement provides for maximum borrowings of up to $15.0
million including a maximum $5.0 million of letters of credit. As of June 30,
2004, there were no borrowings under the Amended and Restated Credit Agreement,
however, there was $0.5 million of letters of credit issued. Borrowings under
the Amended and Restated Credit Agreement bear interest at floating rates;
therefore, the Companys financial condition could be affected by changes in
prevailing rates. The Companys Amended and Restated Credit Agreement and its indenture governing
the 10 1/2% senior notes due 2011 impose certain restrictions on the Company,
the most significant of which include limitations on additional indebtedness,
liens, guarantees, payment or declaration of dividends, sale of assets,
investments, capital expenditures, and transactions with affiliates. In
addition, under the Amended and Restated Credit Agreement, the Company is
obligated to meet certain tests relating to certain financial amounts and
ratios as defined in the Amended and Restated Credit Agreement. At June 30,
2004, the Company was in compliance with these covenants. The Companys principal liquidity requirements are for debt service, dividend
payments, capital expenditures and working capital. The Companys ability to service its indebtedness will depend on its ability to
generate cash in the future. The Companys net cash provided by operating
activities was $26.7 million and $19.7 million for the nine months ended June
30, 2004 and 2003, respectively. The increase in cash flow provided by
operating activities from the nine months ended June 30, 2003 to the nine
months ended June 30, 2004 was primarily due to strong operational results. The Companys investing activities provided net cash of $0.1 million and used
net cash of $11.5 million during the nine months ended June 30, 2004 and 2003,
respectively. The increase in cash provided by investing activities from the
nine months ended June 30, 2003 to the nine months ended June 30, 2004 was
primarily due to the $7.2 million received from the sale of the Automotive
Recycling Division and the absence of asset acquisitions during 2004. The
Companys capital expenditures were $7.2 million and $9.3 million for the nine
months ended June 30, 2004 and 2003, respectively. These figures included
capitalized computer software and database costs of $4.4 million and $5.6
million for the nine months ended June 30, 2004 and 2003, respectively. Net cash used in financing activities was $17.7 million and $2.2 million for
the nine months ended June 30, 2004 and 2003, respectively. The cash used in
financing activities for the nine months ended June 30, 2004 was due to the
redemption of the Companys remaining outstanding 9% senior subordinated notes
due 2008. The cash used in financing activities for 2003 resulted from the
Companys June 27, 2003 refinancing largely consisting of the repurchase of
$82.5 million of the Companys 9% senior subordinated notes due 2008, the
repayment of the Companys $33.0 million term loan facility and the $30.0
million repurchase of common stock from the Companys minority stockholders,
offset by the proceeds of the Companys June 2003 offering of $157.0 million of
its 10 1/2% senior notes due 2011. From time to time, the Company intends to pursue acquisition candidates, but
the timing, size or success of any acquisition effort and the related potential
capital commitments cannot be predicted. The Company expects to fund future
cash acquisitions primarily with cash flow from operations and borrowing,
including the unborrowed portion of the credit facility or new debt issuances,
but may also issue additional equity either directly or in connection with any
such acquisitions. There can be no assurance that acquisition funds will be
available at terms acceptable to the Company. 28




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##### Table of Contents



The Company believes that cash flows from operations, together with the amounts
available under its Amended and Restated Credit Agreement, will be sufficient
to fund its working capital and debt service requirements. The Companys
ability to meet its working capital and debt service requirements, however, is
subject to future economic conditions and to financial, business and other
factors, many of which are beyond the Companys control. If the Company is not
able to meet such requirements, it may be required to seek additional
financing. There can be no assurance that the Company will be able to obtain
financing from other sources on terms acceptable to the Company, if at all. 
 Item 3. Quantitative and Qualitative Disclosures about Market Risk. Reference is made to Part II, Item 7A, Quantitative and Qualitative
Disclosures About Market Risk in the Companys Annual Report on Form 10-K for
the fiscal year ended September 30, 2003. There have been no material changes
in the quarter ended June 30, 2004. 
 Item 4. Controls and Procedures. Based on their evaluation of the Companys disclosure controls and procedures
(as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act
of 1934, as amended (the Exchange Act)), the Companys principal executive
and principal financial officers concluded that the Companys disclosure
controls and procedures were effective as of June 30, 2004. There has been no change in the Companys internal control over financial
reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act)
that occurred during the Companys fiscal quarter ended June 30, 2004, that has
materially affected, or is reasonably likely to materially affect, the
Companys internal control over financial reporting. 29




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##### Table of Contents



PART II. OTHER INFORMATION 
 Item 1. Legal Proceedings. The Company is a party to various legal proceedings and administrative actions,
which arise in the ordinary course of business, except as noted below. In the
opinion of the Companys management, such proceedings and actions should not,
individually or in the aggregate, have a material adverse effect on the
Companys results of operations, financial conditions or cash flows. 
 Item 2. Changes in Securities and Use of Proceeds. None 
 Item 3. Defaults Upon Senior Securities. None 
 Item 4. Submission of Matters to a Vote of Security Holders. None 
 Item 5. Other Information. None 
 Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits  10.1
    
    Indemnification agreement dated June 1, 2004,
among Activant Solutions Holding Inc., Activant Solutions Inc.
and Pervez Qureshi*31.1
    
    Certification Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002 by Michael A. Aviles.*31.2
    
    Certification Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002 by Greg Petersen.*32.1
    
    Certification Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002 by Michael A. Aviles.*32.2
    
    Certification Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002 by Greg Petersen.* (b) Reports on Form 8-K The Company filed Form 8-K on May 6, 2004, its press release announcing
its plan to redeem all of its outstanding 9% senior subordinated notes
due 2008. No financial statements were filed with this Form
8-K.    *
    
    Filed Herewith 30




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##### Table of Contents



SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized, on the 13th day of August 2004. ACTIVANT SOLUTIONS INC.By: /s/ GREG PETERSENGreg PetersenSenior Vice President and Chief Financial Officer
 31