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SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549
 FORM 10-Q þ
    
    QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended December 31, 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 ParkwayAustin, Texas
    
    78746(Address of principal executive offices)
    
    (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  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 February 10, 2005Common Stock
    
    1,000 shares
   1




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ACTIVANT SOLUTIONS INC.
INDEX PAGEFORWARD-LOOKING STATEMENTS
    
    
    3PART I  FINANCIAL INFORMATION
    
    
    4ITEM 1.  FINANCIAL STATEMENTS (Unaudited)
    
    
    4Consolidated Balance Sheets as of September 30, 2004 and December 31, 2004
    
    
    4Consolidated Statements of Operations and Comprehensive Income for the three months ended December 31, 2003 and December 31, 2004
    
    
    5Consolidated Statements of Cash Flows for the three months ended December 31, 2003 and December 31, 2004
    
    
    6Notes to Consolidated Financial Statements
    
    
    7ITEM 2.  MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
    
    
    11ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
    
    
    18ITEM 4.  CONTROLS AND PROCEDURES
    
    
    18PART II  OTHER INFORMATION
    
    
    19ITEM 1.  LEGAL PROCEEDINGS
    
    
    19ITEM 2.  UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
    
    
    19ITEM 3.  DEFAULTS UPON SENIOR SECURITIES
    
    
    19ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
    
    
    19ITEM 5.  OTHER INFORMATION
    
    
    19ITEM 6.  EXHIBITS
    
    
    19SIGNATURE
    
    
    20Certification Pursuant to Section 302-A. Laurence JonesCertification Pursuant to Section 302-Greg PetersenCertification Pursuant to Section 906-A. Laurence JonesCertification Pursuant to Section 906-Greg Petersen
  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, WE CLAIM 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 WE DEPEND; (2) CHANGES IN THE MARKETS IN
WHICH WE COMPETE 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 WE ARE INFRINGING ON THEIR INTELLECTUAL PROPERTY RIGHTS; (4) LOSS OF
OUR 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 OUR SOFTWARE; (8) PROLONGED
UNFAVORABLE GENERAL ECONOMIC AND MARKET CONDITIONS; (9) FAILURE TO RECOUP THE COST OF INVESTMENT IN
NEW BUSINESSES INTO WHICH WE MAY EXPAND AND (10) INCREASES IN OUR 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 OUR FUTURE
RESULTS 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 WE
DO NOT UNDERTAKE, AND SPECIFICALLY DISCLAIM 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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Item 1. Financial
Statements (Unaudited) ACTIVANT SOLUTIONS INC. 
    September 30,
    
    
    December 31,2004
    
    
    2004(Unaudited)ASSETS:Current assets:Cash and cash equivalents
    
    $
    32,065
    
    
    $
    32,975Trade accounts receivable, net of allowance for doubtful accounts of $5,639 and
$5,986 at September 30, 2004 and December 31, 2004, respectively
    
    
    33,516
    
    
    
    35,758Inventories, net
    
    
    2,668
    
    
    
    3,318Investment in leases, net
    
    
    430
    
    
    
    381Deferred income taxes
    
    
    430
    
    
    
    430Prepaid income taxes
    
    
    5,338
    
    
    
    2,079Prepaid expenses and other current assets
    
    
    2,758
    
    
    
    2,555Total current assets
    
    
    77,205
    
    
    
    77,496Service parts, net
    
    
    1,308
    
    
    
    1,162Property and equipment, net
    
    
    4,945
    
    
    
    4,306Long-term investment in leases
    
    
    87
    
    
    
    1Capitalized computer software costs, net
    
    
    5,482
    
    
    
    4,903Databases, net
    
    
    5,290
    
    
    
    5,200Goodwill
    
    
    79,541
    
    
    
    79,541Other assets
    
    
    15,047
    
    
    
    14,879Total assets
    
    $
    188,905
    
    
    $
    187,488LIABILITIES AND STOCKHOLDERS DEFICIT:Current liabilities:Accounts payable
    
    $
    9,026
    
    
    $
    8,424Payroll related accruals
    
    
    14,175
    
    
    
    12,180Deferred revenue
    
    
    15,418
    
    
    
    16,450Current portion of long-term debt
    
    
    276
    
    
    
    268Accrued expenses and other current liabilities
    
    
    9,761
    
    
    
    4,330Total current liabilities
    
    
    48,656
    
    
    
    41,652Long-term debt
    
    
    155,438
    
    
    
    155,436Deferred income taxes and other liabilities
    
    
    4,831
    
    
    
    4,920Total liabilities
    
    
    208,925
    
    
    
    202,008Stockholders deficit:Common Stock:Par value $0.01, authorized, issued and outstanding, 1,000 shares at
September 30, 2004 and December 31, 2004
    
    
    
    
    
    
    Additional paid-in capital
    
    
    83,155
    
    
    
    83,155Retained deficit
    
    
    (102,654
    )
    
    
    (97,610
    )Other accumulated comprehensive income (loss):Cumulative translation adjustment
    
    
    (521
    )
    
    
    (65
    )Total stockholders deficit
    
    
    (20,020
    )
    
    
    (14,520
    )Total liabilities and stockholders deficit
    
    $
    188,905
    
    
    $
    187,488
 See accompanying notes 4




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ACTIVANT SOLUTIONS INC. 
    Three Months EndedDecember 31,2003
    
    
    2004Revenues:Systems
    
    $
    20,987
    
    
    $
    24,992Services
    
    
    35,714
    
    
    
    35,947Total revenues
    
    
    56,701
    
    
    
    60,939Cost of revenues:Systems
    
    
    11,875
    
    
    
    14,800Services
    
    
    15,037
    
    
    
    13,972Total cost of revenues
    
    
    26,912
    
    
    
    28,772Gross profit
    
    
    29,789
    
    
    
    32,167Operating expenses:Sales and marketing
    
    
    8,426
    
    
    
    8,510Product development
    
    
    3,928
    
    
    
    4,070General and administrative
    
    
    6,782
    
    
    
    7,386Total operating expenses
    
    
    19,136
    
    
    
    19,966Operating income
    
    
    10,653
    
    
    
    12,201Interest expense
    
    
    (5,032
    )
    
    
    (4,421
    )Foreign exchange gain (loss)
    
    
    (67
    )
    
    
    39Gain on sale of assets
    
    
    6,270
    
    
    
    Other income, net
    
    
    93
    
    
    
    409Income before income taxes
    
    
    11,917
    
    
    
    8,228Income tax expense
    
    
   4,702
    
    
    
    3,184Net income
    
    $
    7,215
    
    
    $
    5,044Comprehensive income:Net income
    
    $
    7,215
    
    
    $
    5,044Foreign currency translation adjustment
    
    
    (158
    )
    
    
    456Comprehensive income
    
    $
    7,057
    
    
    $
    5,500
 See accompanying notes 5




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ACTIVANT SOLUTIONS INC. 
    Three Months EndedDecember 31,2003
    
    
    2004OPERATING ACTIVITIESNet income
    
    $
    7,215
    
    
    $
    5,044Adjustments to reconcile net income to net cash provided by
operating activities:Depreciation
    
    
    1,409
    
    
    
    1,314Amortization
    
    
    2,747
    
    
    
    2,071Deferred income taxes
    
    
    500
    
    
    
    Equity income from partnerships
    
    
    (50
    )
    
    
    (56
    )Lease loss provision
    
    
    (153
    )
    
    
    5Provision for doubtful accounts
    
    
    1,634
    
    
    
    682Gain on sale of assets
    
    
    (6,270
    )
    
    
    Other, net
    
    
    (115
    )
    
    
    501Changes in assets and liabilities:Trade accounts receivable
    
    
    (3,818
    )
    
    
    (2,924
    )Inventories
    
    
    433
    
    
    
    (650
    )Investment in leases
    
    
    952
    
    
    
    130Prepaid expenses and other assets
    
    
    3,806
    
    
    
    3,489Accounts payable
    
    
    (203
    )
    
    
    (602
    )Deferred revenue
    
    
    1,349
    
    
    
    1,032Accrued expenses and other liabilities
    
    
    (5,496
    )
    
    
    (7,337
    )Net cash provided by operating activities
    
    
    3,940
    
    
    
    2,699INVESTING ACTIVITIESPurchase of property and equipment
    
    
    (575
    )
    
    
    (285
    )Capitalized computer software costs and databases
    
    
    (1,526
    )
    
    
    (1,205
    )Purchase of service parts
    
    
    (414
    )
    
    
    (225
    )Proceeds from sale of assets
    
    
    7,212
    
    
    
    Equity distributions from partnerships
    
    
    42
    
    
    
    Net cash provided by (used in) investing activities
    
    
    4,739
    
    
    
    (1,715
    )FINANCING ACTIVITIESPayment on long-term debt
    
    
    (18
    )
    
    
    (74
    )Net cash used in financing activities
    
    
    (18
    )
    
    
    (74
    )Net change in cash and cash equivalents
    
    
    8,661
    
    
    
    910Cash and cash equivalents, beginning of period
    
    
    10,215
    
    
    
    32,065Cash and cash equivalents, end of period
    
    $
    18,876
    
    
    $
    32,975Supplemental disclosures of cash flow informationCash paid during the period for:Interest
    
    $
    7,794
    
    
    $
    8,244Income taxes
    
    $
    193
    
    
    $
    
 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 accounting principles generally accepted in the
United States of America (GAAP) for interim financial information and with the instructions to
Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information
and notes required by GAAP for complete financial statements. Generally accepted accounting
principles require management to make estimates and assumptions that affect the reported amounts of
assets, liabilities, contingencies and results of operations. While management has based their
assumptions and estimates on the facts and circumstances existing at December 31, 2004, final
amounts may differ from these estimates. In the opinion of management of the Company, the accompanying unaudited consolidated financial
statements reflect all adjustments, consisting only of normal recurring adjustments that are
necessary for a fair presentation of the results for the interim periods presented. These financial
statements should be read in conjunction with the Companys audited consolidated financial
statements and notes thereto for the year ended September 30, 2004 included in the Companys Annual
Report to Shareholders on Form 10-K filed with the Securities and Exchange Commission. The results
of operations for interim periods are not necessarily indicative of actual results achieved for
full fiscal years. For further information, refer to the consolidated financial statements and footnotes thereto
included in the Companys annual report on Form 10-K for the year ended September 30, 2004. 2. DEBT The Companys long-term debt consists of the following (in thousands): Three MonthsYear Ended
    
    
    EndedSeptember 30, 2004
    
    
    December 31, 2004Senior
Notes, net of
discount
    
    $
    155,272
    
    
    $
    155,336Other
    
    
    442
    
    
    
    368Total
debt
    
    
    155,714
    
    
    
    155,704Current
portion
    
    
    (276
    )
    
    
    (268
    )Long-term
debt
    
    $
    155,438
    
    
    $
    155,436
 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). Concurrently with the consummation of the Senior Notes Offering the Company
amended and restated its credit agreement by entering into a new $15.0 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 Amended and Restated Credit Agreement. As of December 31, 2004, the Company was in
compliance with the financial amounts and ratios as defined in the Amended and Restated Credit
Agreement and measured quarterly. 7




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3. INCOME TAXES The Company recorded income tax expense for the three months ended December 31, 2004 at an
effective rate of 38.7%, 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. 4. COMMON STOCK OPTION PLAN During the quarter ended December 31, 2004, Activant Solutions Holdings Inc. (Holdings), the
Companys parent company, approved the grant of 3,000,000 options and 3,700 options under the
Activant Solutions Holdings, Inc. 2000 stock option plan, as amended, and 2001 stock option plan,
as amended, 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, as if the fair value based method of SFAS No. 123 had been applied
in measuring compensation cost for stock based awards, is as follows (amounts in thousands): Three months ended December 31,2003
    
    
    2004Net income
reported
    
    $
    7,215
    
    
    $
    5,044Pro forma stock-based
comp. expense, net of tax
    
    
    68
    
    
    
    187Pro forma net
income
    
    $
    7,147
    
    
    $
    4,857
 5. SUBSEQUENT EVENT On January 24, 2005, Activant Solutions Inc. (the Company) and Activant Solutions Acquisitionco
Ltd., a newly-formed wholly owned Canadian subsidiary of the Company (Offeror), entered into a
Support Agreement (the Support Agreement) with Speedware Corporation Inc. (Speedware), pursuant
to which Offeror will make an offer (the Offer) to purchase all of the issued and outstanding
shares of common stock of Speedware, including all shares of common stock issuable upon conversion
of outstanding stock options and warrants prior to the Offers expiration time, for CDN$3.91 per
share in cash. Based on the total number of shares, options and warrants outstanding on January 24,
2005 and assuming the exercise in full of all such outstanding options and warrants prior to the
expiration time of the Offer, the total consideration payable by Offeror is expected to be
approximately CDN$143 million less the proceeds from the exercise of options and warrants. 6. RECENT ACCOUNTING PRONOUNCEMENTS In December 2004, the FASB issued SFAS No. 123 (revised 2004), Share-Based Payment (SFAS 123R),
which replaces SFAS No. 123, Accounting for Stock-Based Compensation (SFAS 123), and superseded
APB Opinion No. 25, Accounting for Stock Issued to Employees. SFAS 123R requires all share-based
payments to employees, including grants of employee stock options, to be recognized in the
financial statements based on their fair values beginning with the first interim or annual period
after June 15, 2005, with early adoption encouraged. The Company is required to adopt SFAS 123R in
the fourth quarter of fiscal 2005, beginning July 1, 2005. The transition methods include modified
prospective and modified retrospective adoption options. Under the modified retrospective option,
prior periods may be restated either as of the beginning of the year of adoption or for all periods
presented. The modified prospective method requires that compensation expense be recorded for all
unvested stock options and restricted stock at the beginning of the first quarter of adoption of
SFAS 123R, while the retroactive methods would 8




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record compensation expense for all unvested stock options and restricted stock beginning with the
first period restated. The Company is currently evaluating the expected impact that the adoption
of SFAS 123R will have on its consolidated statement of operations. 7. SEGMENT REPORTING Prior to fiscal year 2005, the Companys operations were organized around two reportable segments
consisting of an automotive segment and a segment doing business in certain non-automotive segments
(formerly referred to as the Industry Solutions Group). Effective October 1, 2004, a new
organizational and reporting structure was established that involved, among other things,
separating the customers and revenue of the non-automotive segment into four segments: (i) Hardware
and Home Center, (ii) Lumber and Building Material, (iii) Wholesale Trade, and (iv) Manufacturing
and Other Distribution. Organizationally, the functional operating areas that support all of the
Companys segments including customer support, product development, and sales and marketing were
integrated under a common reporting and management structure to achieve operating efficiencies.
This new organizational and reporting structure will benefit investors by providing financial
information for each of the vertical segments in which the Company participates. The Company is in
the process of developing processes and systems to accurately capture the financial results of
these five distinct reportable segments. Until this revised financial information is available, the
Company will continue to present segment information split between the automotive segment and the
non-automotive segments. The Companys non-automotive segments and automotive segment both 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 automotive segment serves automotive aftermarket manufacturers, wholesalers,
distributors, professional installers, retailers and service chains in North America and Europe.
The Companys non-automotive segments serve a variety of retailers and wholesale distributors in
the hardware and home center, lumber and building materials, home improvement, paint and
decorating, flooring, lawn, garden, agribusiness, industrial supply, plumbing supply, HVACR
(heating, ventilating, air conditioning and refrigeration) and electrical supply industries,
primarily in the United States. Total assets are not allocated by segment. The Companys president and chief executive officer (the CEO) has been identified as the chief
operating decision maker in assessing the performance of the segments and the allocation of
resources to the segments. Each reportable segment is managed separately on a revenue basis but
the functional operating areas that support all of the segments are integrated. The CEO relies on
the information derived directly from the Companys management reporting system. The primary
financial measure used by the CEO in assessing performance and allocating resources to the segments
is revenue and gross profit or revenue less cost of revenues. Three Months Ended
    
    
    Three Months EndedDecember 31, 2003
    
    
    December 31, 2004Non-
    
    
    
    
    
    
    Non-Automotive
    
    
    Automotive
    
    
    Automotive
    
    
    AutomotiveRevenues:Systems
    
    $
    16,715
    
    
    $
    4,272
    
    
    $
    21,568
    
    
    $
    3,424Services
    
    
    12,998
    
    
    
    22,716
    
    
    
    14,091
    
    
    
    21,856Total Revenues
    
    $
    29,713
    
    
    $
    26,988
    
    
    $
    35,659
    
    
    $
    25,280Gross Profit:Systems
    
    $
    8,134
    
    
    $
    978
    
    
    $
    9,534
    
    
    $
    658Services
    
    
    7,076
    
    
    
    13,601
    
    
    
    7,787
    
    
    
    14,188Total Gross Profit
    
    $
    15,210
    
    
    $
    14,579
    
    
    $
    17,321
    
    
    $
    14,846Capital expenditures
    
    $
    571
    
    
    $
    1,169
    
    
    $
    384
    
    
    $
    961
 9




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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
    
    
    Three Months EndedDecember 31, 2003
    
    
    December 31, 2004Americas
    
    
    Europe
    
    
    Total
    
    
    Americas
    
    
    Europe
    
    
    TotalRevenues
    
    $
    55,202
    
    
    $
    1,499
    
    
    $
    56,701
    
    
    $
    59,202
    
    
    $
    1,737
    
    
    $
    60,939Total Assets
    
    $
    202,070
    
    
    $
    3,202
    
    
    $
    205,272
    
    
    $
    187,525
    
    
    $
    (37)
    
    
    $
    187,488
 8. GUARANTOR CONSOLIDATION The Senior Notes are guaranteed by the Companys existing, wholly-owned domestic subsidiaries
Triad Systems Financial Corporation, Triad Data Corporation, CCI/TRIAD Gem, Inc., Triad Systems
Corporation and CCI/ARD, Inc. The Companys other subsidiaries (the Non-Guarantors) are not
guaranteeing the Senior Notes. The following tables represent certain stand-alone information of
the Company, the Guarantors and Non-Guarantors. GuarantorNon-Principal
    
    
    Guarantor
    
    
    GuarantorOperations
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedTotal assets as of December 31, 2004
    
    $
    194,866
    
    
    $
    43,397
    
    
    $
    4,263
    
    
    $
    (55,038
    )
    
    $
    187,488Stockholders equity (deficit) as of
December 31, 2004
    
    
    (47,143
    )
    
    
    42,454
    
    
    
    2,902
    
    
    
    (12,733
    )
    
    
    (14,520
    )Revenue for the three months ended
December 31, 2004
    
    
    57,517
    
    
    
    178
    
    
    
    3,291
    
    
    
    (47
    )
    
    
    60,939Revenue for the three months ended
December 31, 2003
    
    
    53,446
    
    
    
    290
    
    
    
    2,967
    
    
    
    (2
    )
    
    
    56,701Net income (loss) for the three months ended
December 31, 2004
    
    
    4,698
    
    
    
    (208
    )
    
    
    554
    
    
    
    
    
    
    
    5,044Net income
(loss) for the three months ended
December 31, 2003
    
    
    8,599
    
    
    
    (1,294
    )
    
    
    (90
    )
    
    
    
    
    
    
    7,215Net cash provided by operating activities for the
three months ended December 31, 2004
    
    
    2,614
    
    
    
    476
    
    
    
    (391
    )
    
    
    
    
    
    
    2,699Net cash provided by operating activities for the
three months ended December 31, 2003
    
    $
    3,545
    
    
    $
    151
    
    
    $
    244
    
    
    $
    
    
    
    $
    3,940
 10




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##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of
Operations In this quarterly report on Form 10-Q, the terms the Company, we, us, and our refer to
Activant Solutions Inc. and its subsidiaries. Overview We are a leading provider of business management solutions primarily to retailers and wholesale
distributors in the retail hardware and home center market, the lumber and building materials
market, the wholesale trade market, and the automotive parts aftermarket. Our business management
solutions include systems, customer support and information services that our customers use to
manage their critical day-to-day business operations through automated point-of-sale, inventory
management, general accounting and enhanced data collection. Our 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 three months ended December 31, 2004,
systems revenues accounted for approximately 41% of our total revenues.  Subscription-based services, which are generally recurring in nature, including software and
hardware support, maintenance, our electronic automotive parts catalog and other services. For the
three months ended December 31, 2004, services revenues accounted for approximately 59% of our
total revenues. Our operations have historically been organized into two principal business unitsan automotive
segment and a group doing business in several non-automotive segments
(formerly referred to as the
Industry Solutions Group). The automotive segment serves the automotive parts aftermarket, which
includes manufacturers, warehouse distributors, parts stores, professional installers, and several
chains in North America and Europe. For the three months ended December 31, 2004, the automotive
segment generated approximately 41% of our total revenues. The non-automotive segment customers
include a variety of retailers and wholesale distributors in the retail hardware, lumber, home
improvement, lawn and garden, farm supply, electrical supply and other industries primarily in the
United States. For the three months ended December 31, 2004, the non-automotive segments generated
approximately 59% of our total revenues. Segment Reporting and Classification Prior to fiscal year 2005, our operations were organized around two reportable segments consisting
of an automotive segment and a group doing business in several non-automotive segments. The
non-automotive segments were formerly referred to as the Industry Solutions Group. Effective
October 1, 2004, a new organizational structure was established that involved, among other things,
separating the businesses of the non-automotive segment into four segments: (i) Hardware and Home
Center, (ii) Lumber and Building Material, (iii) Wholesale Trade, and (iv) Manufacturing and Other
Distribution. We believe that this new reporting structure will benefit our investors by providing
financial information for each of the vertical segments in which we participate. We are currently
developing processes and systems to accurately capture the financial results of these five distinct
reportable segments. Until this revised financial information is available, we will
continue to present the automotive and non-automotive segment information. Our president and chief executive officer (the CEO) has been identified as the chief operating
decision maker in assessing the performance of the segments and the allocation of resources to the
segments. Each reportable segment is managed separately. The CEO relies on the information
derived directly from our management reporting system. The primary financial measure used by the
CEO in assessing performance and allocating resources to the segments is gross profit, a measure
that is comprised of revenue less cost of revenues as described below under Key Components of
Results of Operations. 11




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##### Table of Contents



Key Trends Over the past several years, we have noted several trends that we believe are integral to
understanding our financial results and condition:  Growth in Systems Revenues in the non-automotive segments.The non-automotive segments systems
revenues have grown at an annual rate of over 26% over the last four years. This growth has been a
result of stronger relationships and licensing agreements with all three primary cooperatives in
the hardware and home center segment, increased sales of upgraded software applications to
customers, increased demand for our Falcon product in the lumber and building materials segment,
and entry into the wholesale trade segment. Increased systems revenues generally result in
increased support revenues in future years as we add new customers and new products.  Increased Profit Margins.We have improved our gross profit margin and operating profit margin
every year through product mix, disciplined operating processes and a more efficient sales and
marketing strategy.  Lower Customer Retention on Our Older Products.As we stop actively developing and selling
several of our older systems, especially in our automotive segment, we have experienced reduced
rates of customer retention. We have developed various upgrade paths for these customers and have
undertaken a specific customer services campaign to increase retention rates for customers who
elect to continue to operate with our older systems. Despite our efforts, we have experienced
year-over-year decreases in our automotive segment services revenues and we expect lower levels of
customer retention to continue.  Consolidation of Our Customers, Especially in the Automotive Parts Aftermarket. As in most
industries, our customers are undergoing consolidation. When one of our customers acquires a
company that does not currently use our systems, we typically benefit in the form of new systems
sales and increased services revenues associated with that customer. When a company not currently
using our systems acquires one of our customers, we typically lose services revenues. We believe
that consolidation has been neither a material benefit nor a material detriment to our operating
results over the past three years.  Loss of Key Customer.In the fourth quarter of fiscal year 2004, our largest automotive segment
customer, General Parts, Inc. (GPI) informed us of its intention to replace our 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. GPI has indicated that the
replacement of the J-CON system in its company owned stores would be phased in over a period of
approximately one year. J-CON system sales revenue and services revenue for all of GPIs
company-owned stores and independent affiliated stores was approximately $1.8 million and $7.5
million for the year ended September 30, 2004, respectively. Recently,
GPI representatives informed the Company that they now intend to discontinue the use of our catalog
at their stores. Though we are uncertain of the precise timing of GPIs transition from our catalog
to a newly developed custom GPI catalog, we expect that it will occur over the next two years as
they roll out their new store system. We intend to continue to work with GPI to maintain as much of
that catalog business as possible, but cannot predict whether we will be successful. Our catalog
revenue from GPIs JCON systems in fiscal year 2004 was $6.5 million. Subsequent Event On January 24, 2005, the Company and Activant Solutions Acquisitionco Ltd., a newly-formed wholly
owned Canadian subsidiary of the Company (Offeror), entered into a Support Agreement (the
Support Agreement) with Speedware Corporation Inc. (Speedware), pursuant to which Offeror will
make an offer (the Offer) to purchase all of the issued and outstanding shares of common stock of
Speedware, including all shares of common stock issuable upon conversion of outstanding stock
options and warrants prior to the Offers expiration time, for CDN$3.91 per share in cash. Based on
the total number of shares, options and warrants outstanding on January 24, 2005 and assuming the
exercise in full of all such outstanding options and warrants prior to the expiration time of the
Offer, the total consideration payable by Offeror is expected to be approximately CDN$143 million
less the proceeds from the exercise of options and warrants. 12




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##### Table of Contents



The Support Agreement contains customary representations, warranties and covenants for a
transaction of this type. The obligation of Offeror to make the Offer is subject to the
satisfaction or waiver of certain conditions, including a condition that certain regulatory
approvals have been obtained. The obligation of Offeror to consummate the Offer is also subject to
the satisfaction or waiver by Offeror of certain customary conditions, including a condition that
at least 66 2/3% of the fully diluted outstanding shares of common stock of Speedware have been
validly tendered and not withdrawn at the expiration time of the Offer. In connection with the Support Agreement, Speedware has agreed since December 6, 2004, to cease,
and cause to be terminated, any existing discussions or negotiations with any parties (other than
the Company and the Offeror) with respect to any proposal that constitutes, or may reasonably be
expected to lead to, a proposal to acquire Speedware (an Acquisition Proposal). If at any time
after execution of the Support Agreement, the Board of Directors of Speedware takes certain actions
with respect to its support of the Offer or any other Acquisition Proposal, Speedware is required
to pay to the Company a break-up fee equal to approximately CDN$5.7 million. The Support Agreement may be terminated upon the occurrence of customary events for a transaction
of this nature. The purchase price for the Offer is intended to be funded by Offeror through a combination of
proceeds of at least $90 million in debt financing, cash on hand and, if necessary, revolving
credit borrowings under our existing senior credit facility, which is being amended in connection
with the transaction. We have received commitments from financial institutions for approximately
$90 million in debt financing, subject to entering into a definitive agreement contemporaneously
with the closing of the Acquisition. Sale of Assets On October 1, 2003, we sold certain non-core assets consisting of our 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 in the first quarter of fiscal year 2004. Key Components of Results of Operations Revenues.We derive revenues primarily from two sources: systems revenues and services revenues.
Systems revenues include the sale of our 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 our systems, as well as revenues from the sale of
information databases, including our electronic automotive parts catalog, data warehouses, system
connectivity services and business product sales. Services revenues are generally recurring in
nature. 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 our 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 our systems, personnel costs associated with data entry
into our 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 our sales and marketing efforts, commissions, and bad debt expense related to our
accounts receivable. A portion of depreciation, amortization, telecommunications and facility costs
is allocated to sales and marketing expense based on estimated usage. Product Development Expense.Product development expense primarily consists of personnel costs and
contract services associated with the development and maintenance of our software and databases. A
portion of depreciation, amortization, telecommunications and facility costs is allocated to
product development expense based on estimated usage. 13




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##### Table of Contents



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. Other Income (Expense).Other income (expense) includes income from partnerships, which are being
accounted for under the equity method, and earnings from investments of our 401(e) deferred
compensation plan. Historical Results of Operations Three Months Ended December 31, 2004 Compared to Three Months Ended December 31, 2003 Revenues.The following table sets forth, for the periods indicated, our systems revenues,
services revenues and total revenues and the variance thereof. Three Months EndedDecember 31,2003
    
    
    2004
    
    
    Variance $
    
    
    Variance %(in thousands)Systems Revenues:Non-Automotive Segments
    
    $
    16,715
    
    
    $
    21,568
    
    
    $
    4,853
    
    
    
    29.0
    %Automotive Segment
    
    
    4,272
    
    
    
    3,424
    
    
    
    (848
    )
    
    
    (19.9
    )%Total Systems Revenues
    
    $
    20,987
    
    
    $
    24,992
    
    
    $
    4,005
    
    
    
    19.1
    %Services Revenues:Non-Automotive Segments
    
    $
    12,998
    
    
    $
    14,091
    
    
    $
    1,093
    
    
    
    8.4
    %Automotive Segment
    
    
    22,716
    
    
    
    21,856
    
    
    
    (860
    )
    
    
    (3.8
    )%Total Services Revenue
    
    $
    35,714
    
    
    $
    35,947
    
    
    $
    233
    
    
    
    0.7
    %Total Revenues:Non-Automotive Segments
    
    $
    29,713
    
    
    $
    35,659
    
    
    $
    5,946
    
    
    
    20.0
    %Automotive Segment
    
    
    26,988
    
    
    
    25,280
    
    
    
    (1,708
    )
    
    
    (6.3
    )%Total Revenues
    
    $
    56,701
    
    
    $
    60,939
    
    
    $
    4,238
    
    
    
    7.5
    %
 Total Revenues.Total revenues for the three months ended December 31, 2004 increased by
approximately $4.2 million, or 7.5%, compared to the three months ended December 31, 2003. This
increase was comprised of a $4.0 million increase in systems revenues and a $0.2 million increase
in services revenues. Factors affecting systems revenues for the three months ended December 31, 2004.  The increase in systems revenues for the non-automotive segments is principally due to
additional sales to new customers, primarily in the retail hardware and lumber and building
materials markets, and, to a lesser extent, an increase in add-on sales to existing customers.  The decrease in systems revenues for the automotive segment is primarily due to lower sales to
our largest automotive customer associated with the replacement of our J-CON parts store system
with its own branded system. Factors affecting services revenues for the three months ended December 31, 2004.  The increase in services revenues for the non-automotive segments was primarily due to an
increase in software and hardware support and maintenance revenues from new and existing
customers.  The automotive segment continued to experience a decline in services revenues associated
with customer attrition from our older systems, which was partially offset by growth in
connectivity revenues. We expect that services revenues from our older systems will continue to
decline. 14




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##### Table of Contents



Cost of Revenues.The following table sets forth, for the periods indicated, our cost of revenues
and the variance thereof. Three Months EndedDecember 31,2003
    
    
    2004
    
    
    Variance $
    
    
    Variance %(in thousands)Cost of Systems Revenues:Non-Automotive Segments
    
    $
    8,581
    
    
    $
    12,034
    
    
    $
    3,453
    
    
    
    40.2
    %Automotive Segment
    
    
    3,294
    
    
    
    2,766
    
    
    
    (528
    )
    
    
    (16.0
    )%Total Cost of Systems Revenues
    
    $
    11,875
    
    
    $
    14,800
    
    
    $
    2,925
    
    
    
    24.6
    %Cost of Services Revenues:Non-Automotive Segments
    
    $
    5,922
    
    
    $
    6,304
    
    
    $
    382
    
    
    
    6.5
    %Automotive Segment
    
    
    9,115
    
    
    
    7,668
    
    
    
    (1,447
    )
    
    
    (15.9
    )%Total Cost of Services Revenues
    
    $
    15,037
    
    
    $
    13,972
    
    
    $
    (1,065
    )
    
    
    (7.1
    )%Total Cost of Revenues:Non-Automotive Segments
    
    $
    14,503
    
    
    $
    18,338
    
    
    $
    3,835
    
    
    
    26.4
    %Automotive Segment
    
    
    12,409
    
    
    
    10,434
    
    
    
    (1,975
    )
    
    
    (15.9
    )%Total Cost of Revenues
    
    $
    26,912
    
    
    $
    28,772
    
    
    $
    1,860
    
    
    
    6.9
    %
 The following table sets forth, for the periods indicated, the cost of revenues as a
percentage of revenues. Three MonthsEndedDecember 31,2003
    
    
    2004Systems:Non-Automotive Segments
    
    
    51.3
    %
    
    
    55.8
    %Automotive Segment
    
    
    77.1
    %
    
    
    80.8
    %Total Cost of Systems Revenues as a Percentage of Total Systems Revenues
    
    
    56.6
    %
    
    
    59.2
    %Services:Non-Automotive Segments
    
    
    45.6
    %
    
    
    44.7
    %Automotive Segment
    
    
    40.1
    %
    
    
    35.1
    %Total Cost of Services Revenues as a Percentage of Total Services Revenues
    
    
    42.1
    %
    
    
    38.9
    %Total Cost of Revenues:Non-Automotive Segments
    
    
    48.8
    %
    
    
    51.4
    %Automotive Segment
    
    
    46.0
    %
    
    
    41.3
    %Total Cost of Revenues as a Percentage of Total Revenues
    
    
    47.5
    %
    
    
    47.2
    %
 Total Cost of Revenues.Total cost of revenues for the three months ended December 31,
2004, increased by approximately $1.9 million, or 6.9%, compared to the three months ended December
31, 2003 due to an increase in revenues. Cost of revenues as a percentage of sales continued to
improve from 47.5% for the three months ended December 31, 2003 to 47.2% for the three months ended
December 31, 2004 due to increased operational efficiency. Cost of Systems Revenues.Cost of systems revenues increased to 59.2% of total systems revenues
for the three months ended December 31, 2004 compared to 56.6% for the three months ended December
31, 2003. The increase in cost of systems revenues is predominantly due to increased sales of
systems during the three months ended December 31, 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 non-automotive segments is a result of
its increased sales of systems. The increase in the non-automotive segments cost of systems
revenues as a percentage of systems revenues was primarily due to additional personnel costs
associated with the higher level of system installs.  The automotive segment experienced an increase in the cost of systems revenues as a
percentage of systems revenues due to the product mix of systems sold as well as higher
installation and third party hardware costs. 15




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##### Table of Contents



Cost of Services Revenues.Cost of services revenues declined to 38.9% of total services revenues
for the three months ended December 31, 2004 compared to 42.1% for the three months ended December
31, 2003. Cost of services revenues as a percentage of services revenues declined in both the
non-automotive segment and the automotive segment. These declines for the three months ended
December 31, 2004, are the result of the following:  Cost of services revenues for the non-automotive segments declined due to lower hardware
maintenance costs on systems for our installed customer base.  Cost of services revenues for the automotive segment declined due to lower personnel,
hardware support costs and software amortization costs. Gross Profit.The following table sets forth, for the periods indicated, our gross profit and the
variance thereof. Three Months EndedDecember 31,2003
    
    
    2004
    
    

Variance $
    
    
    Variance %(in thousands)Systems Gross Profit:Non-Automotive
Segments
    
    $
    8,134
    
    
    $
    9,534
    
    
    $
    1,400
    
    
    
    17.2
    %Automotive
Segment
    
    
    978
    
    
    
    658
    
    
    
    (320
    )
    
    
    (32.7
    )%Total Systems
Gross
Profit
    
    $
    9,112
    
    
    $
    10,192
    
    
    $
    1,080
    
    
    
    11.9
    %Services Gross Profit:Non-Automotive
Segments
    
    $
    7,076
    
    
    $
    7,787
    
    
    $
    711
    
    
    
    10.0
    %Automotive
Segment
    
    
    13,601
    
    
    
    14,188
    
    
    
    587
    
    
    
    4.3
    %Total Services
Gross
Profit
    
    $
    20,677
    
    
    $
    21,975
    
    
    $
    1,298
    
    
    
    6.3
    %Total Gross Profit:Non-Automotive
Segments
    
    $
    15,210
    
    
    $
    17,321
    
    
    $
    2,111
    
    
    
    13.9
    %Automotive
Segment
    
    
    14,579
    
    
    
    14,846
    
    
    
    267
    
    
    
    1.8
    %Total Gross
Profit
    
    $
    29,789
    
    
    $
    32,167
    
    
    $
    2,378
    
    
    
    8.0
    %
 The following table sets forth, for the periods indicated, the gross profit as a percentage
of revenues. Three Months EndedDecember 31,2003
    
    
    2004Systems:Non-Automotive Segments
    
    
    48.7
    %
    
    
    44.2
    %Automotive Segment
    
    
    22.9
    %
    
    
    19.2
    %Total Systems Gross Profit as a
Percentage of Systems Revenues
    
    
    43.4
    %
    
    
    40.8
    %Services:Non-Automotive Segments
    
    
    54.4
    %
    
    
    55.3
    %Automotive Segment
    
    
    59.9
    %
    
    
    64.9
    %Total Services Gross Profit as a
Percentage of Services Revenues
    
    
    57.9
    %
    
    
    61.1
    %Total Gross Profit:Non-Automotive Segments
    
    
    51.2
    %
    
    
    48.6
    %Automotive Segment
    
    
    54.0
    %
    
    
    58.7
    %Total Gross Profit as a Percentage of
Revenues
    
    
    52.5
    %
    
    
    52.8
    %
 For the reasons described above, total gross profit increased by $2.4 million, or 8.0%, for
the three months ended December 31, 2004 compared to the three months ended December 31, 2003. 16




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##### Table of Contents



Operating Expenses.The following table sets forth, for the periods indicated, our operating
expenses and the variance thereof. Three Months EndedDecember 31,2003
    
    
    2004
    
    

Variance $
    
    

Variance %(in thousands)Sales and Marketing Expense
    
    $
    8,426
    
    
    $
    8,510
    
    
    $
    84
    
    
    
    1.0
    %Product Development
Expense
    
    
    3,928
    
    
    
    4,070
    
    
    
    142
    
    
    
    3.6
    %General and Administrative
Expense
    
    
    6,782
    
    
    
    7,386
    
    
    
    604
    
    
    
    8.9
    %Total Operating Expenses
    
    $
    19,136
    
    
    $
    19,966
    
    
    $
    830
    
    
    
    4.3
    %
 Operating expenses increased by $0.8 million, or 4.3%, for the three months ended
December 31, 2004, compared to the three months ended December 31, 2003.  Sales and Marketing Expense.Sales and marketing expense increased slightly due to higher
commissions and related benefits associated with increased sales activity. These personnel costs
were partially offset by reduced bad debt and trade show expenses.  Product Development Expense.Product development expense increased due to higher activity
associated with projects in early stage development that are not being capitalized since they
have not reached technical feasibility.  General and Administrative Expense.General and administrative expense increased by $0.6
million, or 8.9%, for the three months ended December 31, 2004, compared to the three months
ended December 31, 2003. The first quarter of fiscal year 2005 included $1.0 million of
severance costs associated with the termination of our former Chairman, President and Chief
Executive Officer. These severance costs were partially offset by lower legal costs and
telecommunication costs. Interest Expense.Interest expense for the three months ended December 31, 2004 was $4.4 million,
compared to $5.0 million for the three months ended December 31, 2003, a decrease of $0.6 million,
or 12.0%. In the third quarter of fiscal year 2004, we redeemed the remaining $17.5 million of 9%
senior subordinated notes. See Liquidity and Capital Resources. Gain on Sale of Assets.The first quarter of fiscal year 2004 includes a gain on sale of assets of
$6.3 million related to the sale of our Automotive Recycling Division (ARD) on October 1, 2003. Net Income.As a result of the above factors, we realized net income of $5.0 million for the three
months ended December 31, 2004, compared to a net income of $7.2 million for the three months ended
December 31, 2003. Excluding the one-time gain on the sale of ARD, net income before income taxes
improved by $2.6 million, or 46.4%, from $5.6 million for the quarter ending December 31, 2003 to
$8.2 million for the quarter ending December 31, 2004. Liquidity and Capital Resources As of December 31, 2004, we had $155.7 million in outstanding indebtedness comprised of $155.3
million of 10 1/2% senior notes due 2011, net of a $2.0 million discount, and $0.4 million of debt
related to lease financing that matures in varying amounts over the next three years. Our 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 December 31, 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, our financial condition could be affected by changes in prevailing rates. Our Amended and Restated Credit Agreement and our indenture governing the 10 1/2% senior notes due
2011 impose certain restrictions on us, 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 17




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##### Table of Contents



affiliates. In addition, under the Amended and Restated Credit Agreement, we are obligated to meet
certain tests relating to certain financial amounts and ratios as defined in the Amended and
Restated Credit Agreement. At December 31, 2004, we were in compliance with these covenants. Our principal liquidity requirements are for debt service, capital expenditures and working
capital. Our ability to service our indebtedness will depend on our ability to generate cash in the future.
Our net cash provided by operating activities was $2.7 million and $3.9 million for the three
months ended December 31, 2004 and 2003, respectively. The decrease in cash flow provided by
operating activities from the three months ended December 31, 2003 compared to the three months
ended December 31, 2004 was primarily due to severance costs associated with the termination of our
former Chairman, President and Chief Executive Officer. Our investing activities used net cash of $1.7 million and provided net cash of $4.7 million during
the three months ended December 31, 2004 and 2003, respectively. The cash provided in investing
activities for the three months ended December 31, 2003 included the $7.2 million received from the
sale of ARD. Our capital expenditures were $1.7 million and $2.5 million for the three months ended
December 31, 2004 and 2003, respectively. These figures included capitalized computer software and
database costs of $1.2 million and $1.5 million for the three months ended December 31, 2004 and
2003, respectively. From time to time, we intend to pursue acquisition candidates, but the timing, size or success of
any acquisition effort and the related potential capital commitments cannot be predicted. We expect
to fund future cash acquisitions primarily with cash flow from operations and borrowings, including
borrowing from the amounts available under our Amended and Restated Credit Agreement or through new
debt issuances. We 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 us. We believe that cash flows from operations, together with the amounts available under our Amended
and Restated Credit Agreement, will be sufficient to fund our working capital and debt service
requirements. Our ability to meet our 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 our control. If we are not able to meet such requirements, we may be required to seek
additional financing. There can be no assurance that we will be able to obtain financing from other
sources on terms acceptable to us, 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 our Annual Report on Form 10-K for the fiscal year ended September 30, 2004. There have been no
material changes in the quarter ended December 31, 2004. 
 Item 4. Controls and Procedures. (a) Disclosure controls and procedures. We evaluated the effectiveness of the design and
operation of our disclosure controls and procedures. Our disclosure controls and procedures are the
controls and other procedures that we designed to ensure that we record, process, summarize and
report in a timely manner the information we must disclose in reports that we file with or submit
to the SEC. Our President and Chief Executive Officer (CEO), and our Chief Financial Officer (CFO),
reviewed and participated in this evaluation and have concluded that as of the end of our most
recent fiscal quarter, our disclosure controls were effective. (b) Internal controls. During the period covered by this report, there have been no changes in
our internal controls over financial reporting that have materially affected, or are reasonably
likely to materially affect, the Companys internal controls over financial reporting. Section 404
of the Sarbanes-Oxley Act of 2002 requires that management document and test the internal controls
over financial reporting and to assert in our Annual Report on Form 10-K for the year ended
September 30, 2005, whether the internal controls over financial reporting at September 30, 2005
are effective. Any material weaknesses in internal controls over financial reporting existing at
that date will preclude 18




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management making a positive assertion that our internal controls are effective. We are currently
undergoing a comprehensive effort to document and confirm that our system of internal controls is
designed appropriately and operating effectively. To date, the testing and evaluation has uncovered
no significant deficiencies or material weaknesses. Should we identify any internal controls
deficiencies that we would consider to be material, we would endeavor to implement the required
changes and test the revised internal control procedures in order to make a positive assertion as
to the effectiveness of the internal controls over financial reporting. There can be no assurance
that any material weakness or other deficiency so identified would be resolved in time to permit
our management to make a positive assertion that our internal controls are effective as of
September 30, 2005 and for our independent auditors to complete the procedures necessary for them
to issue an attestation report to this effect prior to the required filing date for our Form 10-K. 
 PART II. OTHER INFORMATION 
 Item 1. Legal Proceedings. We are 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 our management, such proceedings and
actions should not, individually or in the aggregate, have a material adverse effect on our results
of operations, financial conditions or cash flows. 
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds. None 
 Item 3. Defaults Upon Senior Securities. None 
 Item 4. Submission of Matters to a Vote of Security Holders. Reference is made to Part I,
Item 4 Submissions of Matters to a Vote of Security
Holders in the
Annual Report on Form 10-K for the fiscal year ended September 30, 2004. 
 Item 5. Other Information. None 
 Item 6. Exhibits. 31.1 Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 by A. Laurence Jones.* 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 A. Laurence Jones.* 32.2 Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 by Greg Petersen.*   *
    
    Filed Herewith 19




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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 10th
day of February 2005. ACTIVANT SOLUTIONS INC.By:
    
    /s/ GREG
PETERSENGreg PetersenSenior Vice President and Chief Financial Officer
 20