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UNITED STATES
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 March 31, 2005
 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 May 13, 2005Common Stock
    
    1,000 shares




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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 March 31, 2005
    
    
    4Consolidated Statements of Operations and Comprehensive Income for the
three and six months ended March 31, 2004 and March 31, 2005
    
    
    5Consolidated Statements of Cash Flows for the six months ended March
31, 2004 and March 31, 2005
    
    
    6Notes to Consolidated Financial Statements
    
    
    7ITEM 2.  MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
    
    
    13ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
    
    
    23ITEM 4.  CONTROLS AND PROCEDURES
    
    
    23PART II  OTHER INFORMATION
    
    
    24ITEM 1.  LEGAL PROCEEDINGS
    
    
    24ITEM 2.  UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
    
    
    24ITEM 3.  DEFAULTS UPON SENIOR SECURITIES
    
    
    24ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
    
    
    24ITEM 5.  OTHER INFORMATION
    
    
    24ITEM 6.  EXHIBITS
    
    
    24SIGNATURE
    
    
    251st Amendment to 3rd Amended/Restated Credit 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, 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:  
    LOSS OR OBSOLESCENCE OF THE PROPRIETARY TECHNOLOGY ON WHICH WE DEPEND;
    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;
    CLAIMS BY THIRD PARTIES THAT WE ARE INFRINGING ON THEIR INTELLECTUAL PROPERTY RIGHTS;
    LOSS OF OUR EXECUTIVE OFFICERS AND OTHER KEY PERSONNEL;
    INCREASED COMPETITION OR FAILURE TO EFFECTIVELY COMPETE;
    LOSS OF KEY CUSTOMERS OR INCREASE IN ATTRITION RATES WITH RESPECT TO REVENUE WHICH
MANAGEMENT VIEWS AS RECURRING;
    MANUFACTURING DEFECTS OR ERRORS IN OUR SOFTWARE;
    PROLONGED UNFAVORABLE GENERAL ECONOMIC AND MARKET CONDITIONS;
    FAILURE TO RECOUP THE COST OF INVESTMENT IN NEW BUSINESSES INTO WHICH WE MAY EXPAND, AND
    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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PART 1. FINANCIAL INFORMATION 
 Item 1. Financial Statements (Unaudited) ACTIVANT SOLUTIONS INC. 
   September 30,
    
    
    March 31,2004
    
    
    2005(Unaudited)ASSETS:Current assets:Cash and cash equivalents
    
    $
    32,065
    
    
    $
    58,417Trade accounts receivable, net of allowance for doubtful
accounts of $5,639 and
$6,208 at September 30, 2004 and March 31, 2005, respectively
    
    
    33,516
    
    
    
    40,574Inventories, net
    
    
    2,668
    
    
    
    4,953Investment in leases, net
    
    
    430
    
    
    
    419Deferred income taxes
    
    
    430
    
    
    
    961Prepaid income taxes
    
    
    5,338
    
    
    
    4,155Prepaid expenses and other current assets
    
    
    2,758
    
    
    
    5,742Total current assets
    
    
    77,205
    
    
    
    115,221Service parts, net
    
    
    1,308
    
    
    
    1,026Property and equipment, net
    
    
    4,945
    
    
    
    5,518Capitalized computer software costs, net
    
    
    5,482
    
    
    
    4,463Databases, net
    
    
    5,290
    
    
    
    5,097Goodwill
    
    
    79,541
    
    
    
    175,735Other assets
    
    
    15,134
    
    
    
    32,209Total assets
    
    $
    188,905
    
    
    $
    339,269LIABILITIES AND STOCKHOLDERS DEFICIT:Current liabilities:Accounts payable
    
    $
    9,026
    
    
    $
    13,726Payroll related accruals
    
    
    14,175
    
    
    
    12,415Deferred revenue
    
    
    15,418
    
    
    
    22,140Current portion of long-term debt
    
    
    276
    
    
    
    351Accrued expenses and other current liabilities
    
    
    9,761
    
    
    
    19,945Total current liabilities
    
    
    48,656
    
    
    
    68,577Long-term debt
    
    
    155,438
    
    
    
    275,563Deferred income taxes and other liabilities
    
    
    4,831
    
    
    
    4,868Total liabilities
    
    
    208,925
    
    
    
    349,008Commitments and contingencies
    
    
    
    
    
    
    Minority interest
    
    
    
    
    
    
    784Stockholders deficit:Common Stock:Par value $0.01, authorized, issued and outstanding, 1,000 shares at
September 30, 2004 and March 31, 2005
    
    
    
    
    
    
    Additional paid-in capital
    
    
    83,155
    
    
    
    83,155Retained deficit
    
    
    (102,654
    )
    
    
    (93,482
    )Other accumulated comprehensive income (loss):Cumulative translation adjustment
    
    
    (521
    )
    
    
    (196
    )Total stockholders deficit
    
    
    (20,020
    )
    
    
    (10,523
    )Total liabilities and stockholders deficit
    
    $
    188,905
    
    
    $
    339,269
 See accompanying notes 4




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ACTIVANT SOLUTIONS INC. 
    Three Months Ended
    
    
    Six Months EndedMarch 31,
    
    
    March 31,2004
    
    
    2005
    
    
    2004
    
    
    2005Revenues:Systems
    
    $
    19,880
    
    
    $
    22,395
    
    
    $
    40,867
    
    
    $
    47,570Services
    
    
    35,421
    
    
    
    35,753
    
    
    
    71,135
    
    
    
    71,517Total revenues
    
    
    55,301
    
    
    
    58,148
    
    
    
    112,002
    
    
    
    119,087Cost of revenues:Systems
    
    
    11,325
    
    
    
    13,813
    
    
    
    23,195
    
    
    
    28,613Services
    
    
    14,575
    
    
    
    13,919
    
    
    
    29,610
    
    
    
    27,891Total cost of revenues
    
    
    25,900
    
    
    
    27,732
    
    
    
    52,805
    
    
    
    56,504Gross profit
    
    
    29,401
    
    
    
    30,416
    
    
    
    59,197
    
    
    
    62,583Operating expenses:Sales and marketing
    
    
    6,917
    
    
    
    8,462
    
    
    
    15,344
    
    
    
    16,972Product development
    
    
    3,556
    
    
    
    4,076
    
    
    
    7,485
    
    
    
    8,146General and administrative
    
    
    5,553
    
    
    
    5,965
    
    
    
    12,340
    
    
    
    13,351Total operating expenses
    
    
    16,026
    
    
    
    18,503
    
    
    
    35,169
    
    
    
    38,469Operating income
    
    
    13,375
    
    
    
    11,913
    
    
    
    24,028
    
    
    
    24,114Interest expense
    
    
    (4,882
    )
    
    
    (5,298
    )
    
    
    (9,913
    )
    
    
    (9,719
    )Foreign exchange gain (loss)
    
    
    (40
    )
    
    
    71
    
    
    
    (107
    )
    
    
    110Gain on sale of assets
    
    
    
    
    
    
    
    
    
    
    6,270
    
    
    
    Other income, net
    
    
    202
    
    
    
    44
    
    
    
    294
    
    
    
    453Income before income taxes
    
    
    8,655
    
    
    
    6,730
    
    
    
    20,572
    
    
    
    14,958Income tax expense
    
    
    3,258
    
    
    
    2,602
    
    
    
    7,960
    
    
    
    5,786Net income
    
    $
    5,397
    
    
    $
    4,128
    
    
    $
    12,612
    
    
    $
    9,172Comprehensive income:Net income
    
    $
    5,397
    
    
    $
    4,128
    
    
    $
    12,612
    
    
    $
    9,172Foreign currency translation adjustment
    
    
    (94
    )
    
    
    (131
    )
    
    
    (252
    )
    
    
    325Comprehensive income
    
    $
    5,303
    
    
    $
    3,997
    
    
    $
    12,360
    
    
    $
    9,497
 See accompanying notes 5




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ACTIVANT SOLUTIONS INC. 
    Six Months EndedMarch 31,2004
    
    
    2005OPERATING ACTIVITIESNet income
    
    $
    12,612
    
    
    $
    9,172Adjustments to reconcile net income to net cash provided by
operating activities:Depreciation
    
    
    2,751
    
    
    
    2,538Amortization
    
    
    5,473
    
    
    
    3,999Deferred income taxes
    
    
    781
    
    
    
    Lease loss provision
    
    
    (1,320
    )
    
    
    (121
    )Provision for doubtful accounts
    
    
    2,390
    
    
    
    1,247Gain on sale of assets
    
    
    (6,270
    )
    
    
    Other, net
    
    
    (176
    )
    
    
    307Changes in assets and liabilities (net of the effect of acquisition):Trade accounts receivable
    
    
    1,249
    
    
    
    (1,779
    )Inventories
    
    
    283
    
    
    
    (1,755
    )Investment in leases
    
    
    3,936
    
    
    
    219Prepaid expenses and other assets
    
    
    4,076
    
    
    
    1,446Accounts payable
    
    
    (1,443
    )
    
    
    (388
    )Deferred revenue
    
    
    873
    
    
    
    960Accrued expenses and other liabilities
    
    
    (4,875
    )
    
    
    (3,841
    )Net cash provided by operating activities
    
    
    20,340
    
    
    
    12,004INVESTING ACTIVITIESPurchase of property and equipment
    
    
    (1,080
    )
    
    
    (940
    )Purchase of businesses, net of cash acquired
    
    
    
    
    
    
    (95,813
    )Capitalized computer software costs and databases
    
    
    (2,934
    )
    
    
    (2,393
    )Purchase of service parts
    
    
    (779
    )
    
    
    (439
    )Proceeds from sale of assets
    
    
    7,212
    
    
    
    Equity distributions from partnerships
    
    
    58
    
    
    
    135Net cash provided by (used in) investing activities
    
    
    2,477
    
    
    
    (99,450
    )FINANCING ACTIVITIESProceeds from debt facility
    
    
    
    
    
    
    120,000Debt issuance costs
    
    
    
    
    
    
    (6,035
    )Payment on long-term debt
    
    
    (200
    )
    
    
    (167
    )Net cash used in financing activities
    
    
    (200
    )
    
    
    113,798Net change in cash and cash equivalents
    
    
    22,617
    
    
    
    26,352Cash and cash equivalents, beginning of period
    
    
    10,215
    
    
    
    32,065Cash and cash equivalents, end of period
    
    $
    32,832
    
    
    $
    58,417Supplemental disclosures of cash flow informationCash paid during the period for:Interest
    
    $
    8,650
    
    
    $
    9,147Income taxes
    
    $
    4,069
    
    
    $
    4,545
 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 March 31, 2005, final amounts
may differ from these estimates. In the opinion of management, 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. Certain prior period amounts have
been reclassified to conform to the current presentation. These financial statements should be read
in conjunction with the Companys audited consolidated financial statements and notes thereto
included in the Companys Annual Report on Form 10-K for the year ended September 30, 2004 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. 2. ACQUISITIONS On March 30, 2005, the Company acquired approximately 96% of the common stock of Speedware
Corporation Inc. (Speedware) in a transaction accounted for under the purchase method of
accounting. The Company acquired the remaining common stock of Speedware on April 7, 2005.
Speedware is a leading vendor of vertical market-focused enterprise software solutions. The
acquisition of Speedware solidifies the Companys position as a leading provider of business
management solutions to the lumber and building materials and wholesale distribution vertical
markets and provides the Companys customers a more comprehensive technology suite and deep
vertical expertise. The Company paid $95.8 million in cash on March 30, 2005 for approximately 96% of Speedwares
common stock and paid $4.1 million in cash for the remaining 4% of Speedwares common stock on
April 7, 2005. The following table summarizes the estimated fair value of the assets acquired and
liabilities assumed at March 30, 2005. The Company is in the process of obtaining third-party
valuations of certain tangible and intangible assets; thus, the allocation of the purchase price is
subject to change. The preliminary purchase price allocation is based upon managements best
estimates of the relative fair values of the identifiable assets acquired and liabilities assumed.
The preliminary purchase price was allocated based on the fair value of net assets acquired as
follows (in thousands): Trade receivables
    
    $
    6,526Property and equipment
    
    
    1,442Other assets
    
    
    4,525Goodwill
    
    
    96,194Other intangible assets
    
    
    11,300Minority interest
    
    
    (784
    )Accounts payable and accrued expenses
    
    
    (23,390
    )Total purchase price
    
    $
    95,813
 The allocation of the purchase price to assets acquired and liabilities assumed is based on
preliminary estimates and certain assumptions that the Company believes are reasonable under the
circumstances. Acquired intangible assets 7




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consist primarily of customer contracts and customer lists with a weighted average estimated useful
life of five years. The amortization expense related to the acquired intangible assets is
estimated to be approximately $0.9 million. The Companys financial statements do not include the results of operations of Speedware for the
quarter ended March 31, 2005. The following table presents the unaudited proforma combined results
of operations of the Company with Speedware for the three and six months ended March 31, 2004 and
2005 after giving effect to certain proforma adjustments primarily related to the amortization of
acquired intangible assets and interest expense on the Companys newly issued floating rate senior
notes due 2010. Included in net income for the three and six months ended March 31, 2004 and 2005,
is $0.6 million and $1.2 million, respectively, of employee costs that will not recur as a result
of post acquisition restructuring activities. These unaudited proforma results are not necessarily
indicative of the actual consolidated results of operations had the acquisition actually occurred
on the first day of the respective periods or of future results of operations of the consolidated
entities. Three months ended March 31,
    
    
    Six months ended March 31,(in thousands)
    
    2004
    
    
    2005
    
    
    2004
    
    
    2005Revenues
    
    $
    62,309
    
    
    $
    71,076
    
    
    $
    126,466
    
    
    $
    145,125Net income
    
    $
    4,212
    
    
    $
    4,203
    
    
    $
    10,245
    
    
    $
    9,120
 3. DEBT The Companys long-term debt consists of the following (in thousands): September 30, 2004
    
    
    March 31, 200510 1/2% senior notes due 2011, net of discount
    
    $
    155,272
    
    
    $
    155,400Floating rate senior notes due 2010
    
    
    
    
    
    
    120,000Other
    
    
    442
    
    
    
    514Total debt
    
    
    155,714
    
    
    
    275,914Current portion
    
    
    (276
    )
    
    
    (351
    )Long-term debt
    
    $
    155,438
    
    
    $
    275,563
 On March 30, 2005, the Company completed a private placement of $120 million aggregate
principal amount of floating rate senior notes due April 1, 2010. The Company used the proceeds
from the offering of the floating rate notes to fund the total consideration paid in connection
with the Companys purchase of all of the issued and outstanding shares of common stock of
Speedware, as described in Note 2 above, and to pay transaction fees and expenses. The floating rate notes bear interest at a rate per annum equal to LIBOR, as defined in the
indenture governing the floating rate notes, plus 600 basis points payable quarterly. The floating
rate notes are redeemable in whole or in part at the option of the Company on or after April 1,
2006. The Company may also redeem up to 35% of the aggregate principal amount of the floating rate
notes using the proceeds from certain public equity offerings completed before April 1, 2006. Upon
the occurrence of a change in control, as defined in the indenture governing the floating rate
notes, the Company will be required to make an offer to purchase the floating rate notes at a
purchase price equal to 101% of the principal amount thereof plus accrued and unpaid interest, if
any. The terms of the floating rate notes 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 and transactions with affiliates. In conjunction with the issuance of the floating rate notes, the Company amended its $15.0 million
Credit Agreement (the Amended and Restated Credit Agreement). The Amended and Restated Credit
Agreement provides for letters of credit up to $5.0 million. 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 8




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Credit Agreement. As of March 31, 2005, the Company was in compliance with the covenants
contained in the Amended and Restated Credit Agreement. 4. INCOME TAXES The Company recorded income tax expense for the three months ended March 31, 2005 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. 5. COMMON STOCK OPTION PLAN During the three months ended March 31, 2005, Activant Solutions Holdings Inc. (Holdings), the
Companys parent company, approved the grant of 1,850,000 options under the Activant Solutions
Holdings Inc. amended and restated 2000 Stock Option Plan to key 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 (in thousands): Three months ended March 31,
    
    
    Six months ended March 31,2004
    
    
    2005
    
    
    2004
    
    
    2005Net income
reported
    
    $
    5,397
    
    
    $
    4,128
    
    
    $
    12,612
    
    
    $
    9,172Pro forma
stock-based
compensation
expense, net of
tax
    
    
    54
    
    
    
    157
    
    
    
    122
    
    
    
    344Pro forma
net
income
    
    $
    5,343
    
    
    $
    3,971
    
    
    $
    12,490
    
    
    $
    8,828
 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. In March 2005, the Securities and Exchange
Commission delayed the implementation of SFAS 123R. The Company is required to adopt SFAS 123R in
the first quarter of fiscal 2006, beginning October 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 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. 9




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7. SEGMENT REPORTING In fiscal 2005, the Company began establishing a new organizational and reporting structure,
whereby its reportable segments were changed in the second quarter of 2005. Commencing in the second
quarter of 2005, the Company has organized the business around its products and services
(Segments) as follows:  
    Systems, which is comprised primarily of proprietary software applications, third-party
hardware and peripherals and implementation and training;
    Product Support, which is comprised of daily operating support through our advice line,
software updates, preventive and remedial on-site maintenance and depot repair services;
    Content and Data Services, which is comprised primarily of databases, exchanges and other
information services, including our electronic catalog in the automotive parts aftermarket;
and
    Other Services, which is comprised primarily of business products, such as forms and
other paper products, and the revenues and earnings from our former leasing operations.
Subsequent to June 2001, the Company outsourced all leasing operations to a third party and
thus has not originated any new leases since that time. Prior periods segment information has been restated to conform to the current presentation. Each
reportable Segment is managed separately on a revenue and gross profit basis. The Company does not
allocate operating expenses, interest expense, other expenses or assets to each Segment, as this
information is not used to measure the operating performance of the Segments. Organizationally, the
functional operating areas that support all of the Companys Segments, including systems
integration, installation and training, product support, data services, product development and
sales and marketing, are integrated under a common reporting and management structure to achieve
operating efficiencies. The following tables set forth, for the periods indicated, the Companys revenues, cost of
revenues, gross profit and gross profit as a percentage of revenue by Segment (dollars in
thousands): Three Months Ended March 31, 2004
    
    

Three Months Ended March 31, 2005Content
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    ContentProduct

    
    
    & Data
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Product
    
    
    & DataSystems
    
    
    Support
    
    
    Services
    
    
    Other
    
    
    Total
    
    
    Systems
    
    
    Support
    
    
    Services
    
    
    Other
    
    
    TotalRevenues
    
    $
    19,880
    
    
    $
    19,803
    
    
    $
    14,111
    
    
    $
    1,507
    
    
    $
    55,301
    
    
    $
    22,395
    
    
    $
    19,704
    
    
    $
    14,301
    
    
    $
    1,748
    
    
    $
    58,148Cost of Revenues
    
    
    11,325
    
    
    
    9,074
    
    
    
    4,588
    
    
    
    913
    
    
    
    25,900
    
    
    
    13,813
    
    
    
    8,837
    
    
    
    3,919
    
    
    
    1,163
    
    
    
    27,732Gross Profit
    
    $
    8,555
    
    
    $
    10,729
    
    
    $
    9,523
    
    
    $
    594
    
    
    $
    29,401
    
    
    $
    8,582
    
    
    $
    10,867
    
    
    $
    10,382
    
    
    $
    585
    
    
    $
    30,416Gross Profit as a
Percentage of
Revenues
    
    
    43.0%
    
    
    
    54.2%
    
    
    
    67.5%
    
    
    
    39.4%
    
    
    
    53.2%
    
    
    
    38.3%
    
    
    
    55.2%
    
    
    
    72.6%
    
    
    
    33.5%
    
    
    
    52.3%
 Six Months Ended March 31, 2004
    
    
    Six Months Ended March 31, 2005Content
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    ContentProduct
    
    
    & Data
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Product
    
    
    & DataSystems
    
    
    Support
    
    
    Services
    
    
    Other
    
    
    Total
    
    
    Systems
    
    
    Support
    
    
    Services
    
    
    Other
    
    
    TotalRevenues
    
    $
    40,867
    
    
    $
    39,726
    
    
    $
    28,607
    
    
    $
    2,802
    
    
    $
    112,002
    
    
    $
    47,570
    
    
    $
    39,612
    
    
    $
    28,746
    
    
    $
    3,159
    
    
    $
    119,087Cost of Revenues
    
    
    23,195
    
    
    
    18,502
    
    
    
    9,131
    
    
    
    1,977
    
    
    
    52,805
    
    
    
    28,613
    
    
    
    17,986
    
    
    
    7,815
    
    
    
    2,090
    
    
    
    56,504Gross Profit
    
    $
    17,672
    
    
    $
    21,224
    
    
    $
    19,476
    
    
    $
    825
    
    
    $
    59,197
    
    
    $
    18,957
    
    
    $
    21,626
    
    
    $
    20,931
    
    
    $
    1,069
    
    
    $
    62,583Gross Profit as a
Percentage of
Revenues
    
    
    43.2%
    
    
    
    53.4%
    
    
    
    68.1%
    
    
    
    29.4%
    
    
    
    52.9%
    
    
    
    40.0%
    
    
    
    54.6%
    
    
    
    72.8%
    
    
    
    33.8%
    
    
    
    52.6%
 The Company sells its products and services to four distinct vertical markets as follows:  
    Automotive (Auto), which includes customers involved in the manufacture, distribution,
sale and installation of new and remanufactured parts used in the maintenance and repair of
automobiles and light trucks, and includes manufacturers, warehouse distributors, parts
stores, professional installers and several chains in North America and Europe;
    Hardware and Home Centers (HWHC), which consists of independent hardware retailers,
home improvement centers, paint, glass and wallpaper stores, agribusiness and retail
nurseries and gardens, primarily in the United States; 10




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##### Table of Contents




    Lumber and Building Materials (LBM), which consists of retailers and distributors to
builders and contractors in the lumber and building materials vertical markets, primarily in
the United States; and
    Wholesale Distribution (WDN), which consists of distributors in a range of markets
including electrical supply, plumbing, heating and air conditioning, brick, stone and
related materials, roofing, siding, insulation, industrial machinery and equipment,
industrial supplies, and service establishment equipment vendors primarily in the United
States. The following tables set forth, for the periods indicated, the Companys revenue by vertical market
within each Segment (in thousands): Three Months Ended March 31, 2004
    
    
    Three Months Ended March 31, 2005Content
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    ContentProduct
    
    
    & Data
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Product
    
    
    & DataSystems
    
    
    Support
    
    
    Services
    
    
    Other
    
    
    Total
    
    
    Systems
    
    
    Support
    
    
    Services
    
    
    Other
    
    
    TotalAuto
    
    $
    4,743
    
    
    $
    9,482
    
    
    $
    12,672
    
    
    $
    
    
    
    $
    26,897
    
    
    $
    3,646
    
    
    $
    8,705
    
    
    $
    12,407
    
    
    $
    
    
    
    $
    24,758HWHC
    
    
    8,591
    
    
    
    6,750
    
    
    
    844
    
    
    
    822
    
    
    
    17,007
    
    
    
    11,014
    
    
    
    7,333
    
    
    
    1,196
    
    
    
    1,041
    
    
    
    20,584LBM
    
    
    6,066
    
    
    
    3,188
    
    
    
    167
    
    
    
    571
    
    
    
    9,992
    
    
    
    7,045
    
    
    
    3,260
    
    
    
    215
    
    
    
    607
    
    
    
    11,127WDN
    
    
    480
    
    
    
    383
    
    
    
    428
    
    
    
    114
    
    
    
    1,405
    
    
    
    690
    
    
    
    406
    
    
    
    483
    
    
    
    100
    
    
    
    1,679Total
    
    $
    19,880
    
    
    $
    19,803
    
    
    $
    14,111
    
    
    $
    1,507
    
    
    $
    55,301
    
    
    $
    22,395
    
    
    $
    19,704
    
    
    $
    14,301
    
    
    $
    1,748
    
    
    $
    58,148
 Six Months Ended March 31, 2004
    
    
    Six Months Ended March 31, 2005Content
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    ContentProduct
    
    
    & Data
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Product
    
    
    & DataSystems
    
    
    Support
    
    
    Services
    
    
    Other
    
    
    Total
    
    
    Systems
    
    
    Support
    
    
    Services
    
    
    Other
    
    
    TotalAuto
    
    $
    9,015
    
    
    $
    19,069
    
    
    $
    25,801
    
    
    $
    
    
    
    $
    53,885
    
    
    $
    7,066
    
    
    $
    17,804
    
    
    $
    25,087
    
    
    $
    
    
    
    $
    49,957HWHC
    
    
    19,215
    
    
    
    13,579
    
    
    
    1,659
    
    
    
    1,513
    
    
    
    35,966
    
    
    
    24,520
    
    
    
    14,502
    
    
    
    2,245
    
    
    
    1,905
    
    
    
    43,172LBM
    
    
    11,291
    
    
    
    6,262
    
    
    
    296
    
    
    
    1,114
    
    
    
    18,963
    
    
    
    14,422
    
    
    
    6,469
    
    
    
    417
    
    
    
    1,073
    
    
    
    22,381WDN
    
    
    1,346
    
    
    
    816
    
    
    
    851
    
    
    
    175
    
    
    
    3,188
    
    
    
    1,562
    
    
    
    837
    
    
    
    997
    
    
    
    181
    
    
    
    3,577Total
    
    $
    40,867
    
    
    $
    39,726
    
    
    $
    28,607
    
    
    $
    2,802
    
    
    $
    112,002
    
    
    $
    47,570
    
    
    $
    39,612
    
    
    $
    28,746
    
    
    $
    3,159
    
    
    $
    119,087
 Geographic Segments A breakdown by geographic area of revenues and total assets is shown below (in thousands). The
Americas geographic area covers the United States and Canada. The Europe geographic area covers
the United Kingdom, Ireland and France. Three Months Ended March 31, 2004
    
    
    Three Months Ended March 31, 2005Americas
    
    
    Europe
    
    
    Total
    
    
    Americas
    
    
    Europe
    
    
    TotalRevenues
    
    $
    53,607
    
    
    $
    1,694
    
    
    $
    55,301
    
    
    $
    56,336
    
    
    $
    1,812
    
    
    $
    58,148Total Assets (at
end of
period)
    
    $
    205,324
    
    
    $
    3,464
    
    
    $
    208,788
    
    
    $
    336,344
    
    
    $
    2,925
    
    
    $
    339,269
 Six Months Ended March 31, 2004
    
    
    Six Months Ended March 31, 2005Americas
    
    
    Europe
    
    
    Total
    
    
    Americas
    
    
    Europe
    
    
    TotalRevenues
    
    $
    108,808
    
    
    $
    3,194
    
    
    $
    112,002
    
    
    $
    115,539
    
    
    $
    3,548
    
    
    $
    119,087Total Assets (at
end of
period)
    
    $
    205,324
    
    
    $
    3,464
    
    
    $
    208,788
    
    
    $
    336,344
    
    
    $
    2,925
    
    
    $
    339,269
 11




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8. GUARANTOR CONSOLIDATION The 10 1/2 % senior notes due 2011 and the floating rate senior notes due 2010 are
guaranteed by the following wholly-owned, consolidated domestic subsidiaries of the Company: Triad
Systems Financial Corporation, Triad Data Corporation, CCI/TRIAD Gem, Inc., Triad Systems
Corporation, CCI/ARD, Inc., Prelude Systems, Inc. and Enterprise Computer Systems, Inc. The
Companys consolidated foreign 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 (in thousands). GuarantorNon-Principal
    
    
    Guarantor
    
    
    GuarantorOperations
    
    
    Subsidiaries
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedTotal assets as of March 31, 2005
    
    $
    326,631
    
    
    $
    131,414
    
    
    $
    52,770
    
    
    $
    (171,546
    )
    
    $
    339,269Stockholders equity (deficit) as of
March 31, 2005
    
    
    (42,916
    )
    
    
    113,195
    
    
    
    46,772
    
    
    
    (127,574
    )
    
    
    (10,523
    )Revenue for the three months ended
March 31, 2005
    
    
    54,716
    
    
    
    127
    
    
    
    3,305
    
    
    
    
    
    
    
    58,148Revenue for the three months ended
March 31, 2004
    
    
    51,920
    
    
    
    208
    
    
    
    3,218
    
    
    
    (45
    )
    
    
    55,301Revenue for the six months ended
March 31, 2005
    
    
    112,188
    
    
    
    304
    
    
    
    6,595
    
    
    
    
    
    
    
    119,087Revenue for the six months ended
March 31, 2004
    
    
    105,365
    
    
    
    498
    
    
    
    6,186
    
    
    
    (47
    )
    
    
    112,002Net income (loss) for the three months ended
March 31, 2005
    
    
    4,105
    
    
    
    (138
    )
    
    
    161
    
    
    
    
    
    
    
    4,128Net income (loss) for the three months ended
March 31, 2004
    
    
    5,922
    
    
    
    (422
    )
    
    
    (103
    )
    
    
    
    
    
    
    5,397Net income (loss) for the six months ended
March 31, 2005
    
    
    8,983
    
    
    
    (345
    )
    
    
    534
    
    
    
    
    
    
    
    9,172Net income (loss) for the six months ended
March 31, 2004
    
    
    14,566
    
    
    
    (1,716
    )
    
    
    (238
    )
    
    
    
    
    
    
    12,612Net cash provided by operating activities for
the six months ended March 31, 2005
    
    
    10,726
    
    
    
    444
    
    
    
    834
    
    
    
    
    
    
    
    12,004Net cash provided by operating activities for
the six months ended March 31, 2004
    
    $
    18,558
    
    
    $
    402
    
    
    $
    1,380
    
    
    $
    
    
    
    $
    20,340
 12




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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 serving the specialized needs of small
and medium-sized businesses in four primary retail and wholesale distribution markets: hardware
and home centers, lumber and building materials, the automotive parts aftermarket, and wholesale
distribution. Our turnkey business management solutions include enterprise applications and
systems, customer support services, connectivity and information services that our customers use to
manage their day-to-day business operations through automated point-of-sale functions, inventory
management, general accounting, and enhanced data management. Our revenues are derived from the
following business management solutions:  
    Systems, which is comprised primarily of proprietary software applications, third-party
hardware and peripherals and implementation and training. For the three months ended March
31, 2005, systems revenues accounted for approximately 38% of our total revenues;
    Product Support, which is comprised primarily of daily operating support through our
advice line, software updates, preventive and remedial on-site maintenance and depot repair
services. Our product support services are subscription based, and accordingly, revenues
from this Segment are generally recurring in nature. For the three months ended March 31,
2005, product support revenues accounted for approximately 34% of our total revenues;
    Content and Data Services, which is comprised primarily of databases, exchanges and other
information services, including the market-leading electronic catalog in the automotive
parts aftermarket. For the three months ended March 31, 2005, content and data services
revenues accounted for approximately 25% of our total revenues; and
    Other Services, which is comprised primarily of business products, such as forms and
other paper products, and the revenues and earnings from our former leasing operations.
Subsequent to June 2001, we outsourced all leasing operations to a third party and thus have
not originated any new leases since that time. For the three months ended March 31, 2005,
other services revenues accounted for approximately 3% of our total revenues. For the three months ended March 31, 2005, our revenues were derived from four vertical markets -
Automotive (Auto), Hardware and Home Centers (HWHC), Lumber and Building Materials (LBM) and
Wholesale Distribution (WDN).  
    The Auto vertical market, which includes customers involved in the manufacture,
distribution, sale and installation of new and remanufactured parts used in the maintenance
and repair of automobiles and light trucks, and includes manufacturers, warehouse
distributors, parts stores, professional installers and several chains in North America and
Europe. For the three months ended March 31, 2005, the automotive business generated
approximately 43% of our total revenues.
    The HWHC vertical market consists of independent hardware retailers, home improvement
centers, paint, glass and wallpaper stores, agribusiness and retail nurseries and gardens,
primarily in the United States. For the three months ended March 31, 2005, the HWHC business
generated approximately 35% of our total revenues.
    The LBM vertical market consists of retailers and distributors to builders and
contractors in the lumber and building materials vertical markets, primarily in the United
States. For the three months ended March 31, 2005, the LBM business generated approximately
19% of our total revenues.
    The WDN vertical market consists of distributors in a range of markets including
electrical supply, plumbing, heating and air conditioning, brick, stone and related
materials, roofing, siding, insulation, industrial machinery and equipment, industrial
supplies, and service establishment equipment vendors, primarily in the United States. For
the three months ended March 31, 2005, the WDN business generated approximately 3% of our
total revenues. 13




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Segment Reporting and Classification Prior to fiscal 2005, we organized our operations around two reportable segments consisting of an
automotive segment and a non-automotive segment. We formerly referred to the non-automotive
segment as the Industry Solutions Group. In fiscal 2005, we began establishing a new
organizational and reporting structure, whereby we changed our reportable segments in the second
quarter of 2005. Commencing in the second quarter of 2005, we organized the business around our
products and services (Segments), which consist of (i) systems, (ii) product support, (iii)
content and data services, and (iv) other services. We sell our products and services to four
distinct vertical markets consisting of Auto, HWHC, LBM, and WDN. Revenue for each Segment is also
reported by each of these four vertical markets. Our president and chief executive officer (the CEO) has been identified as the chief operating
decision maker in assessing the performance of our Segments and the allocation of resources to
them. Each 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 revenues less cost of revenues as described below under Key Components of Results of
Operations. Trends  Growth in Revenues in the HWHC and LBM vertical markets.HWHC and LBM systems revenues have
grown at a compound annual growth rate of approximately 26% over the last three years. This growth
has been a result of stronger relationships and licensing agreements with all three primary
cooperatives in the hardware and home center vertical market, increased sales of upgraded software
applications to customers and increased demand for our Falcon product in the lumber and building
materials vertical market. Increased systems revenues generally result in increased product support
revenues in future years as we add new customers and new products. In each of the last three
years, product support revenues have increased as we added more new customers to our product
support business and sold additional add-on modules.  Decreasing Revenues in our Auto vertical market.As we stop actively developing and selling
several of our older systems, especially in our Auto vertical market, 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 Auto product support revenues and we expect lower levels of
customer retention to continue.  Consolidation of Our Customers Vertical Markets. 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. Recent trends in the
automotive marketplace may cause additional consolidation to become more of a detriment in future
years. Acquisition of Business On March 30, 2005, we acquired approximately 96% of the common stock of Speedware Corporation Inc.
(Speedware) in a transaction accounted for under the purchase method of accounting. We acquired
all of the remaining common stock of Speedware on April 7, 2005. Speedware is a leading vendor of
vertical market-focused enterprise software solutions. The acquisition of Speedware solidifies our
position as a leading provider of vertical business management solutions to the lumber and building
materials and wholesale distribution vertical markets. As part of the Speedware acquisition, we paid $95.8 million in cash on March 30, 2005 for
approximately 96% of Speedwares common stock and paid $4.1 million in cash for the remaining 4% of
Speedwares common stock on April 7, 2005. The preliminary purchase price allocation is based upon
our best estimates of the relative fair values of the
identifiable assets acquired and liabilities assumed. We are in the process of obtaining
third-party valuations of 14




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certain tangible and intangible assets; thus, the allocation of the
purchase price is subject to change. The allocation of the purchase price to assets acquired and
liabilities assumed is based on preliminary estimates and certain assumptions that we believe are
reasonable under the circumstances. The Companys financial statements for the three months ended
March 31, 2005 do not include the results of operations of Speedware. General Parts, Inc. Relationship In the fourth quarter of fiscal 2004, our largest Auto 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 originally 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 revenues and product support revenues for all of GPIs company-owned stores and independent
affiliated stores was approximately $1.8 million and $7.5 million, respectively, for the year ended
September 30, 2004. In January 2005, GPI representatives informed us that GPI now intends to
discontinue the use of our catalog at their stores as well. 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 it rolls out its 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 in fiscal 2004 was $6.5 million. 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 2004. Key Components of Results of Operations Revenues.We derive revenues primarily from three sources: systems, product support, and content
and data services. Systems revenues include the sale of our proprietary software applications,
third-party computer hardware equipment, associated peripherals, and implementation and training.
These revenues are generally non-recurring in nature. Product support revenues generally consist of
revenues associated with the software and hardware support and maintenance of our systems. Content
and data services revenues consist of the sale of information databases, including our electronic
automotive parts catalog, exchanges and other information services. Product support revenues and
content and data services revenues are generally subscription based and 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 product support revenues primarily includes personnel costs associated with the
software and hardware support and maintenance of our systems. Cost of content and data services
revenues primarily includes personnel costs associated with data entry into our information
databases, the amortization of capitalized databases, telecommunications costs and facility costs. Sales and Marketing Expense.Sales and marketing expense primarily consists of personnel costs
associated with our sales and marketing efforts, commissions, bad debt expense related to our
accounts receivable, depreciation, amortization, telecommunication costs and facility costs. 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,
depreciation, amortization, telecommunication costs and facility costs. General and Administrative Expense.These costs include departmental costs for executive, legal,
administrative services, finance, telecommunications, facilities and information technology. 15




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Historical Results of Operations Three Months Ended March 31, 2005 Compared to Three Months Ended March 31, 2004 Revenues.The following table sets forth, for the periods indicated, our Segment revenues by
vertical market and the variance thereof. Three Months EndedMarch 31,2004
    
    
    2005
    
    
    Variance $
    
    
    Variance %(dollars in thousands)Systems Revenues:Auto
    
    $
    4,743
    
    
    $
    3,646
    
    
    $
    (1,097
    )
    
    
    (23.1
    )%HWHC
    
    
    8,591
    
    
    
    11,014
    
    
    
    2,423
    
    
    
    28.2
    %LBM
    
    
    6,066
    
    
    
    7,045
    
    
    
    979
    
    
    
    16.1
    %WDN
    
    
    480
    
    
    
    690
    
    
    
    210
    
    
    
    43.8
    %Total Systems Revenues
    
    $
    19,880
    
    
    $
    22,395
    
    
    $
    2,515
    
    
    
    12.6
    %Product Support Revenues:Auto
    
    $
    9,482
    
    
    $
    8,705
    
    
    $
    (777
    )
    
    
    (8.2
    )%HWHC
    
    
    6,750
    
    
    
    7,333
    
    
    
    583
    
    
    
    8.6
    %LBM
    
    
    3,188
    
    
    
    3,260
    
    
    
    72
    
    
    
    2.3
    %WDN
    
    
    383
    
    
    
    406
    
    
    
    23
    
    
    
    6.0
    %Total Product Support
Revenues
    
    $
    19,803
    
    
    $
    19,704
    
    
    $
    (99
    )
    
    
    (0.5
    )%Content and Data Services Revenues:Auto
    
    $
    12,672
    
    
    $
    12,407
    
    
    $
    (265
    )
    
    
    (2.1
    )%HWHC
    
    
    844
    
    
    
    1,196
    
    
    
    352
    
    
    
    41.7
    %LBM
    
    
    167
    
    
    
    215
    
    
    
    48
    
    
    
    28.7
    %WDN
    
    
    428
    
    
    
    483
    
    
    
    55
    
    
    
    12.8
    %Total Content and Data
Services Revenues
    
    $
    14,111
    
    
    $
    14,301
    
    
    $
    190
    
    
    
    1.3
    %Other Revenues:Auto
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    
    
    %HWHC
    
    
    822
    
    
    
    1,041
    
    
    
    219
    
    
    
    26.6
    %LBM
    
    
    571
    
    
    
    607
    
    
    
    36
    
    
    
    6.3
    %WDN
    
    
    114
    
    
    
    100
    
    
    
    (14
    )
    
    
    (12.3
    )%Total Other
Revenues
    
    $
    1,507
    
    
    $
    1,748
    
    
    $
    241
    
    
    
    16.0
    %Total Revenues:Auto
    
    $
    26,897
    
    
    $
    24,758
    
    
    $
    (2,139
    )
    
    
    (7.9
    )%HWHC
    
    
    17,007
    
    
    
    20,584
    
    
    
    3,577
    
    
    
    21.0
    %LBM
    
    
    9,992
    
    
    
    11,127
    
    
    
    1,135
    
    
    
    11.4
    %WDN
    
    
    1,405
    
    
    
    1,679
    
    
    
    274
    
    
    
    19.5
    %Total Revenues
    
    $
    55,301
    
    
    $
    58,148
    
    
    $
    2,847
    
    
    
    5.2
    %
 Total Revenues.Total revenues for the three months ended March 31, 2005 increased by $2.9
million, or 5.2%, compared to the three months ended March 31, 2004. This increase was comprised
primarily of a $2.5 million increase in systems revenues. Factors affecting systems revenues for the three months ended March 31, 2005.  HWHC systems revenue increased $2.4 million primarily from our relationship with all three
of the largest cooperatives in the retail hardware market resulting in increased sales of new and
upgraded software applications to new and existing customers affiliated with those cooperatives.
During February 2004, we signed a new systems licensing and marketing agreement with the second
largest hardware cooperative in the HWHC vertical market.  The $1.0 million increase in LBM systems revenues is due to increased sales of our Falcon
and Eagle product in the lumber and building materials vertical market. 16




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##### Table of Contents



 The $1.1 million decrease in systems revenues for Auto is primarily due to lower sales to GPI,
our largest automotive customer, associated with the replacement of our J-CON system with their
own branded store system. We do not expect to sell additional J-CON systems to this customer. Factors affecting product support revenues for the three months ended March 31, 2005.  The $0.6 million increase in product support revenues for HWHC was primarily due to an
increase in software and hardware support and maintenance revenues from new and existing
customers.  Auto product support revenues declined almost $0.8 million. Auto experienced a decline of
over $0.3 million in product support revenues associated with customer attrition from our older
systems. We expect that product support revenues from our older systems will continue to decline.
Over $0.2 million of the decline was associated with our largest Auto customers decision to
begin replacing our parts store system with its own store system and over $0.2 million of the
decline was due primarily to a transfer of a few of the our product support employees to this
customer. Factors affecting content and data services revenues for the three months ended March 31, 2005.  The $0.4 million increase in content and data services revenues for the HWHC vertical
market was primarily due to an increase in sales of our information point-of-sale database.
During fiscal 2004, two large mass merchandisers decided to no longer provide point-of-sale data
to the market, which negatively affected our information database. We subsequently expanded our
point-of-sale database to include new sources of data, which has
resulted in increased sales during
the three months ended March 31, 2005.  The $0.3 million decrease in Auto content and data services revenues is associated with
customer attrition from our older systems, partially offset by new sales to non-systems
customers. We expect that content and data services revenues associated with customers using our
older systems will continue to decline. Cost of Revenues.The following table sets forth, for the periods indicated, our cost of revenues
and the variance thereof. Three Months EndedMarch 31,2004
    
    
    2005
    
    
    Variance $
    
    
    Variance %(dollars in thousands)Cost of Revenues:Systems
    
    $
    11,325
    
    
    $
    13,813
    
    
    $
    2,488
    
    
    
    22.0
    %Product Support
    
    
    9,074
    
    
    
    8,837
    
    
    
    (237
    )
    
    
    (2.6
    )%Content and Data Services
    
    
    4,588
    
    
    
    3,919
    
    
    
    (669
    )
    
    
    (14.6
    )%Other
    
    
    913
    
    
    
    1,163
    
    
    
    250
    
    
    
    27.4
    %Total Cost of Revenues
    
    $
    25,900
    
    
    $
    27,732
    
    
    $
    1,832
    
    
    
    7.1
    %
 The following table sets forth, for the periods indicated, the gross margin as a percentage
of revenues. Three Months EndedMarch 31,2004
    
    
    2005Gross Margin as a Percentage of Revenues:Systems
    
    
    43.0
    %
    
    
    38.3
    %Product Support
    
    
    54.2
    %
    
    
    55.2
    %Content and Data Services
    
    
    67.5
    %
    
    
    72.6
    %Other
    
    
    39.4
    %
    
    
    33.5
    %Total Gross Margin
    
    
    53.2
    %
    
    
    52.3
    %
 Total Cost of Revenues.Total cost of revenues for the three months ended March 31, 2005
increased by $1.8 million, or 7.1%, compared to the three months ended March 31, 2004 primarily due
to an increase in systems revenues. Gross margin as a percentage of revenues declined from 53.2%
for the three months ended March 31, 2004 to 52.3% for the 17




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three months ended March 31, 2005
primarily due to the higher mix of systems revenues which generally have lower margins. Cost of Systems Revenues.Cost of systems revenues for the three months ended March 31, 2005
increased by $2.5 million, or 22.0%, compared to the three months ended March 31, 2004 primarily
resulting from increased systems revenues. Gross margin as a percentage of revenues declined from
43.0% for the three months ended March 31, 2004 to 38.3% for the three months ended March 31, 2005.
The decline in systems gross margin is predominantly due to higher installation costs in the
three-month period ended March 31, 2005. Cost of Content and Data Services Revenues.Cost of content and data services revenues for the
three months ended March 31, 2005 decreased by $0.7 million, or 14.6%, compared to the three months
ended March 31, 2004 primarily resulting from over $0.4 million less database amortization costs
and lower data production costs. Gross profit as a percentage of content and data services
revenues improved from 67.5% to 72.6% for the three months ended March 31, 2005 primarily due to
less database amortization expense in 2005. We expect our cost of content and data services
revenues to increase as we raise our investment in our electronic catalog for the Auto vertical
market. Operating Expenses.The following table sets forth, for the periods indicated, our operating
expenses and the variance thereof. Three Months EndedMarch 31,2004
    
    
    2005
    
    

Variance $
    
    

Variance %(dollars in thousands)Sales and Marketing Expense
    
    $
    6,917
    
    
    $
    8,462
    
    
    $
    1,545
    
    
    
    22.3
    %Product Development
Expense
    
    
    3,556
    
    
    
    4,076
    
    
    
    520
    
    
    
    14.6
    %General and Administrative
Expense
    
    
    5,553
    
    
    
    5,965
    
    
    
    412
    
    
    
    7.4
    %Total Operating Expenses
    
    $
    16,026
    
    
    $
    18,503
    
    
    $
    2,477
    
    
    
    15.5
    %
 Operating expenses increased by $2.5 million, or 15.5%, for the three months ended March 31, 2005,
compared to the three months ended March 31, 2004.  Sales and Marketing Expense.Sales and marketing expense increased by $1.5 million in the
three months ended March 31, 2005 compared to the three months ended March 31, 2004. The
increase resulted from additional sales and marketing personnel, and additional commission
expense related to higher systems sales. We also reduced our lease loss reserve by approximately
$1.2 million in the three months ended March 31, 2004 as a result of selling, without any
recourse, approximately $1.8 million, or 55%, of our owned leases to a third-party lease
financing provider, and due to more favorable lease loss experience compared to previous periods.  Product Development Expense.Product development expense increased by $0.5 million in the
three months ended March 31, 2005 due to higher personnel costs and development activity
associated with projects in early stage development that were not being capitalized since they
had not reached technological feasibility. Software capitalization for the three months ended
March 31, 2005 was approximately $0.4 million lower than the prior year comparable period.  General and Administrative Expense.General and administrative expense increased by $0.4
million, or 7.4%, for the three months ended March 31, 2005 compared to the three months ended
March 31, 2004 due to costs associated with the implementation of a new customer relationship
management system which were partially offset by lower legal costs. Interest Expense.Interest expense for the three months ended March 31, 2005 was $5.3 million
compared to $4.9 million for the three months ended March 31, 2004, an increase of $0.4 million, or
8.2%. In the three months ended March 31, 2005 we incurred a $0.9 million finance charge related to
a secondary lending commitment for the Speedware acquisition that we did not exercise. This was
partially offset by lower interest expense due to the redemption of the remaining $17.5 million of
9% senior subordinated notes in the third quarter of fiscal 2004. 18




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##### Table of Contents



Net Income.As a result of the above factors, we realized net income of $4.1 million for the three
months ended March 31, 2005, compared to a net income of $5.4 million for the three months ended
March 31, 2004. Six Months Ended March 31, 2005 Compared to Six Months Ended March 31, 2004 Revenues.The following table sets forth, for the periods indicated, our Segment revenues by
vertical market and the variance thereof. Six Months EndedMarch 31,(dollars in thousands)
    
    2004
    
    
    2005
    
    
    Variance $
    
    
    Variance %Systems Revenues:Auto
    
    $
    9,015
    
    
    $
    7,066
    
    
    $
    (1,949
    )
    
    
    (21.6
    )%HWHC
    
    
    19,215
    
    
    
    24,520
    
    
    
    5,305
    
    
    
    27.6
    %LBM
    
    
    11,291
    
    
    
    14,422
    
    
    
    3,131
    
    
    
    27.7
    %WDN
    
    
    1,346
    
    
    
    1,562
    
    
    
    216
    
    
    
    16.0
    %Total Systems Revenues
    
    $
    40,867
    
    
    $
    47,570
    
    
    $
    6,703
    
    
    
    16.4
    %Product Support Revenues:Auto
    
    $
    19,069
    
    
    $
    17,804
    
    
    $
    (1,265
    )
    
    
    (6.6
    )%HWHC
    
    
    13,579
    
    
    
    14,502
    
    
    
    923
    
    
    
    6.8
    %LBM
    
    
    6,262
    
    
    
    6,469
    
    
    
    207
    
    
    
    3.3
    %WDN
    
    
    816
    
    
    
    837
    
    
    
    21
    
    
    
    2.6
    %Total Product Support
Revenues
    
    $
    39,726
    
    
    $
    39,612
    
    
    $
    (114
    )
    
    
    (0.3
    )%Content and Data Services Revenues:Auto
    
    $
    25,801
    
    
    $
    25,087
    
    
    $
    (714
    )
    
    
    (2.8
    )%HWHC
    
    
    1,659
    
    
    
    2,245
    
    
    
    586
    
    
    
    35.3
    %LBM
    
    
    296
    
    
    
    417
    
    
    
    121
    
    
    
    40.9
    %WDN
    
    
    851
    
    
    
    997
    
    
    
    146
    
    
    
    17.2
    %Total Content and Data
Services Revenues
    
    $
    28,607
    
    
    $
    28,746
    
    
    $
    139
    
    
    
    0.5
    %Other Revenues:Auto
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    
    
    %HWHC
    
    
    1,513
    
    
    
    1,905
    
    
    
    392
    
    
    
    25.8
    %LBM
    
    
    1,114
    
    
    
    1,073
    
    
    
    (41
    )
    
    
    (3.7
    )%WDN
    
    
    175
    
    
    
    181
    
    
    
    6
    
    
    
    3.4
    %Total Other
Revenues
    
    $
    2,802
    
    
    $
    3,159
    
    
    $
    357
    
    
    
    12.7
    %Total Revenues:Auto
    
    $
    53,885
    
    
    $
    49,957
    
    
    $
    (3,928
    )
    
    
    (7.2
    )%HWHC
    
    
    35,966
    
    
    
    43,172
    
    
    
    7,206
    
    
    
    20.0
    %LBM
    
    
    18,963
    
    
    
    22,381
    
    
    
    3,418
    
    
    
    18.0
    %WDN
    
    
    3,188
    
    
    
    3,577
    
    
    
    389
    
    
    
    12.2
    %Total Revenues
    
    $
    112,002
    
    
    $
    119,087
    
    
    $
    7,085
    
    
    
    6.3
    %
 Total Revenues.Total revenues for the six months ended March 31, 2005 increased by $7.1
million, or 6.3%, compared to the six months ended March 31, 2004. This increase was primarily the
result of a $6.7 million increase in systems revenues. Factors affecting systems revenues for the six months ended March 31, 2005.  Systems revenues for HWHC increased by $5.3 million, or 27.6%, as a result of existing
licensing agreements with all three of the primary cooperatives in the retail hardware market and
thus increased sales of new and upgraded software applications to new and existing customers
affiliated with those cooperatives. During February 2004, we signed a new systems licensing and
marketing agreement with the second largest hardware cooperative in HWHC, which has increased
systems revenue.  Systems revenues for LBM increased by $3.1 million, or 27.7%, due to increased sales of
our Falcon and Eagle product in the lumber and building materials vertical market. 19




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##### Table of Contents



 Systems revenues for Auto decreased by $1.9 million, or 21.6%, primarily due to lower sales to
GPI, our largest automotive customer, associated with the replacement of our J-CON system with
their own branded system. Factors affecting product support revenues for the six months ended March 31, 2005.  The $0.9 million increase in product support revenues for HWHC was primarily due to an
increase in software and hardware support and maintenance revenues from new and existing
customers.  Auto product support revenue declined almost $1.3 million. Auto experienced a decline of
$0.7 million in product support revenues associated with customer attrition from our older
systems. We expect that services revenues from our older systems will continue to decline. About
$0.3 million of the decline was primarily associated with our largest Auto customers decision to
begin replacing our parts store system with their own store system and almost $0.4 million of the
decline was due primarily to a transfer of a few of our product support employees to this
customer. Factors affecting content and data services revenues for the six months ended March 31, 2005.  The $0.6 million increase in HWHC content and data services revenues was primarily due to
an increase in manufacturers acceptance of our information point-of-sale database. During
fiscal 2004, two large mass merchandisers decided to no longer provide point-of-sale data to the
market, which negatively affected our information database. We subsequently expanded our
point-of-sale database to include new sources of data, which has resulted in greater sales during
the six months ended March 31, 2005.  The $0.7 million decrease in Auto content and data services revenues is primarily associated
with customer attrition from our older systems, partially offset by new sales to non-systems
customers. We expect that content and data services revenues from our older systems will
continue to decline. Cost of Revenues.The following table sets forth, for the periods indicated, our cost of revenues
and the variance thereof. Six Months EndedMarch 31,2004
    
    
    2005
    
    
    Variance $
    
    
    Variance %(dollars in thousands)Cost of Revenues:Systems
    
    $
    23,195
    
    
    $
    28,613
    
    
    $
    5,418
    
    
    
    23.4
    %Product Support
    
    
    18,502
    
    
    
    17,986
    
    
    
    (516
    )
    
    
    (2.8
    )%Content & Data Services
    
    
    9,131
    
    
    
    7,815
    
    
    
    (1,316
    )
    
    
    (14.4
    )%Other
    
    
    1,977
    
    
    
    2,090
    
    
    
    113
    
    
    
    5.7
    %Total Cost of Revenues
    
    $
    52,805
    
    
    $
    56,504
    
    
    $
    3,699
    
    
    
    7.0
    %
 The following table sets forth, for the periods indicated, the gross margin as a percentage
of revenues. Six Months EndedMarch 31,2004
    
    
    2005Gross Margin as a Percentage of Revenues:Systems
    
    
    43.2
    %
    
    
    39.9
    %Product Support
    
    
    53.4
    %
    
    
    54.6
    %Content & Data Services
    
    
    68.1
    %
    
    
    72.8
    %Other
    
    
    29.4
    %
    
    
    33.8
    %Total Gross Margin
    
    
    52.9
    %
    
    
    52.6
    %
 Cost of Revenues.Total cost of revenues for the six months ended March 31, 2005, increased
by $3.7 million, or 7.0%, compared to the six months ended March 31, 2004 due to an increase in
systems revenues. Gross margin as a 20




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percentage of revenues declined from 52.9% for the six months
ended March 31, 2004 to 52.6% for the six months ended March 31, 2005 due to a higher mix of
systems revenues which generally have lower margins. Cost of Systems Revenues.Total cost of systems revenues for the six months ended March 31, 2005,
increased by $5.4 million, or 23.4%, compared to the six months ended March 31, 2004. The increase
in cost of systems revenues is predominantly due to increased sales of systems during the six
months ended March 31, 2005. Gross profit as a percentage of sales declined from 43.2% for the six
months ended March 31, 2004 to 39.9% for the six months ended March 31, 2005. The decline in
systems gross margin is predominantly due to higher installation costs in the six month period
ended March 31, 2005. Cost of Product Support Revenues.Cost of product support revenues for the six months ended March
31, 2005, decreased by $0.5 million, or 2.8%, compared to the six months ended March 31, 2004.
Gross profit as a percentage of sales improved from 53.4% for the six months ended March 31, 2004
to 54.6% for the six months ended March 31, 2005 primarily as a result of lower facility and
telecommunication costs. Cost of Content and Data Services Revenues.Cost of content and data services revenues for the six
months ended March 31, 2005, decreased by $1.3 million, or 14.4%, compared to the six months ended
March 31, 2004. Gross profit as a percentage of sales improved from 68.1% for the six months ended
March 31, 2004 to 72.8% for the six months ended March 31, 2005. These changes for the six months
ended March 31, 2005, are the result of $0.8 million lower database amortization costs, less third
party services and lower database maintenance costs associated with producing our data products.
We expect our cost of content and data services revenues to increase as we raise our investment in
our electronic catalog for the Auto vertical market. Operating Expenses.The following table sets forth, for the periods indicated, our operating
expenses and the variance thereof. Six Months EndedMarch 31,2004
    
    
    2005
    
    

Variance $
    
    

Variance %(dollars in thousands)Sales and Marketing Expense
    
    $
    15,344
    
    
    $
    16,972
    
    
    $
    1,628
    
    
    
    10.6
    %Product Development Expense
    
    
    7,485
    
    
    
    8,146
    
    
    
    661
    
    
    
    8.8
    %General and Administrative Expense
    
    
    12,340
    
    
    
    13,351
    
    
    
    1,011
    
    
    
    8.2
    %Total Operating Expenses
    
    $
    35,169
    
    
    $
    38,469
    
    
    $
    3,300
    
    
    
    9.4
    %
 Operating expenses increased by $3.3 million, or 9.4%, for the six months ended March 31,
2005, compared to the six months ended March 31, 2004.  Sales and Marketing Expense.Sales and marketing expense increased by $1.6 million in the
six months ended March 31, 2005 compared to the same period ended March 31, 2004. We reduced our
lease loss reserve by approximately $1.2 million in the quarter ended March 31, 2004 as a result of selling,
without any recourse, approximately $1.8 million, or 55%, of our owned leases to a third-party
lease financing provider and due to more favorable lease loss experience compared to previous
periods.  Product Development Expense.Product development expense increased by $0.7 million, or
8.8%, 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 $1.0
million, or 8.2%, for the six months ended March 31, 2005, compared to the six months ended March
31, 2004. 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. Interest Expense.Interest expense for the six months ended March 31, 2005 was $9.7 million,
compared to $9.9 million for the six months ended March 31, 2004, a decrease of $0.2 million. In
the quarter ended March 31, 2005, we 21




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incurred a $0.9 million finance charge related to a secondary
commitment for the Speedware acquisition that we did not exercise. This was partially offset by
lower interest expense due to the redemption of the remaining $17.5 million of 9% senior
subordinated notes in the third quarter of fiscal year 2004. 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 on October 1, 2003. Net Income.As a result of the above factors, we realized net income of $9.2 million for the six
months ended March 31, 2005, compared to a net income of $12.6 million for the six months ended
March 31, 2004. Excluding the one-time gain on the sale of ARD, net income before income taxes
declined by $1.7 million, or 10.2%, from $16.7 million for the six months ending March 31, 2004 to
$15.0 million for the six months ending March 31, 2005. Liquidity and Capital Resources As of March 31, 2005, we had $275.9 million in outstanding indebtedness comprised of $155.4 million
of 10 1/2% senior notes due 2011, net of a $1.6 million discount, $120.0 million of floating rate
senior notes due 2010 and $0.5 million of non-recourse 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 letters of credit up to a maximum limit of
$5.0 million. As of March 31, 2005, there were no borrowings under the Amended and Restated
Credit Agreement; however, there were $0.5 million of letters of credit issued. Our floating rate
senior notes due 2010 bear interest at LIBOR plus 6%. In addition, borrowings under the Amended
and Restated Credit Agreement bear interest at floating rates. As a result of the foregoing, our
results of operations could be affected by changes in prevailing rates. Our Amended and Restated Credit Agreement, our indenture governing the 10 1/2% senior notes due
2011 and our indenture governing the floating rate senior notes due 2010 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 affiliates. In addition, under the Amended and Restated Credit
Agreement, we are obligated to meet certain quarterly tests relating to certain financial amounts
and ratios as defined in the Amended and Restated Credit Agreement. At March 31, 2005, 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 $12.0 million and $20.3 million for the six
months ended March 31, 2005 and 2004, respectively. The decrease in cash flow provided by operating
activities for the six months ended March 31, 2005 compared to the six months ended March 31, 2004
was primarily due to lower net income of $3.0 million and changes in
inventory and trade receivable balances of $5.1 million compared to prior year inventory and trade
receivable balances. Our investing activities used net cash of $99.5 million and provided net cash of $2.5 million
during the six months ended March 31, 2005 and 2004, respectively. During the three months ended
March 31, 2005, we used $95.8 million in cash to acquire 96% of the outstanding stock of Speedware.
The cash provided in investing activities for the six months ended March 31, 2004 included the
$7.2 million received from the sale of our Automotive Recycling Division. Our capital expenditures
were $3.8 million and $4.8 million for the six months ended March 31, 2005 and 2004, respectively.
These amounts included capitalized computer software and database costs of $2.4 million and $2.9
million for the six months ended March 31, 2005 and 2004, respectively. Our financing activities generated cash of $113.8 million for the six months ended March 31, 2005,
primarily consisting of issuing $120.0 million of floating rate senior notes, net of $6.0 million
of related fees. We believe that cash flows from operations, together with amounts available under our Amended and
Restated Credit Agreement, will be sufficient to fund our working capital, capital expenditures and
debt service requirements for at 22




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least the next twelve months. 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. From time to time, we intend to pursue acquisitions, 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 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. 
 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 year ended September 30, 2004. There have been no
material changes in the quarter ended March 31, 2005. 
 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 September 30,
2006 whether the internal controls over financial reporting at September 30, 2006 are effective.
Any material weaknesses in internal controls over financial reporting existing at that date will
preclude management from 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
have 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, 2006 and for our independent registered public
accounting firm 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. 23




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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. None 
 Item 5. Other Information. None 
 Item 6. Exhibits. 10.1 First Amendment to Third Amended and Restated Credit Agreement* 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 24




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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 13th
day of May 2005. ACTIVANT SOLUTIONS INC.By:
    /s/ GREG PETERSENGreg PetersenSenior Vice President and Chief Financial Officer 25