SECURITIES AND EXCHANGE COMMISSION

FORM 10-K

OR

Commission File No. 333-49389

Activant Solutions Inc.

Registrant’s telephone number, including area code: (512) 328-2300

Securities registered pursuant to Section 12(b) of the Act: NONE

Securities registered pursuant to Section 12(g) of the Act: NONE

Indicate by check mark 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 x No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. Yes x

Indicate by check mark whether the Registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). Yes o No x

No established published trading market exists for the Common Stock, par value $0.01 per share, of Activant Solutions Inc. All of the outstanding shares of Common Stock, par value $0.01 per share, of Activant Solutions Inc., are held by Activant Solutions Holdings Inc.

Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date.

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Table of Contents

FORWARD-LOOKING STATEMENTS

Information set forth in this annual report on Form 10-K regarding expected or possible future events, including statements of the plans and objectives of management for future growth, operations, products and services and statements relating to future economic performance, is forward-looking and subject to risks and uncertainties. For those statements, the Company claims the protection of the safe harbor for forward-looking statements provided for by Section 21E of the Securities Exchange Act of 1934, as amended. Such forward-looking statements are based on estimates and assumptions made by management of the Company, which, although believed to be reasonable, are inherently uncertain. Therefore, undue reliance should not be placed upon such estimates and statements. No assurance can be given that any of such estimates or statements will be realized and it is likely that actual results will differ materially from those contemplated by such forward-looking statements. Factors that may cause such differences include the following: (1) loss or obsolescence of the proprietary technology on which the Company depends; (2) changes in the markets in which the Company competes including the manner in which auto parts or hardware and lumber are sourced, sold, distributed or inventoried, and changes in economic conditions in these markets generally; (3) claims by third parties that the Company is infringing on their intellectual property rights; (4) loss of the Company’s executive officers and other key personnel; (5) increased competition or failure to effectively compete; (6) loss of key customers or increase in attrition rates with respect to revenue management views as recurring; (7) manufacturing defects or errors in the Company’s software; (8) prolonged unfavorable general economic and market conditions; (9) failure to recoup the cost of investment in new businesses into which the Company may expend and difficulties or delays in effectively integrating the operations, personnel, technologies or products of such new business into the Company and (10) increases in the Company’s cost of borrowings or unavailability of additional debt or equity capital. Many of such factors will be beyond the control of the Company and its management. In addition, other factors that could affect the future results of the Company and could cause those results to differ materially from those expressed in the forward-looking statements are discussed at greater length under Item 1. “Business” and Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and appear elsewhere in this annual report. These risks, uncertainties and other factors should not be construed as exhaustive, and the Company does not undertake, and specifically disclaims any obligation to update any forward-looking statements to reflect occurrences or unanticipated events or circumstances after the date of such statements.

USE OF TRADEMARKS AND TRADENAMES

Several trademarks and tradenames appear in this Annual Report on Form 10-K. Automotive Aftermarket Information Highway, J-CON, A-DIS, ServiceExpert EZ, Service Estimator II, Series 12, The Paperless Warehouse, InterChange, Telepricing, VISTA, are federally registered trademarks of the Company. Other trademarks of the Company include Activant’s Prism, Activant’s Ultimate, AConneX, Eclipse, Activant’s Eagle, Activant’s Eagle system for Windows, LaborExpert, Service Intervals, Tire by Size, ePartInsight, ePartExpert, LOADSTAR, Activant’s CSD, Activant’s Falcon, INet, IDW, IDX, and Activant’s Gemini. Other trademarks and tradenames are used in this Annual Report on Form 10-K that identify other entities claiming the marks and names of their products. The Company disclaims proprietary interest in such marks and names of others. References herein to AutoZone, Discount Auto Parts, O’Reilly, Reynolds and Reynolds, Automatic Data Processing, Universal Computer Systems, Home Depot, Lowe’s, and Sears mean, respectively, AutoZone, Inc., Discount Auto Parts, CSK Auto, O’Reilly Automotive, Inc., Reynolds and Reynolds Company, Automatic Data Processing, Inc., Universal Computer Systems, Inc., The Home Depot, Inc., Lowe’s Home Centers, Inc., and Sears, Roebuck and Co.

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PART I

Item 1. Business.

General

Activant Solutions Inc. (the “Company”) is a leading provider of business management solutions primarily to retailers and wholesale distributors in the retail hardware market, the lumber and building materials market and the automotive parts aftermarket. The Company’s management solutions include systems, customer support and information services that its customers use to manage their critical day-to-day business operations through automated point-of-sale, inventory management, general accounting and enhanced data collection. The Company’s revenues are derived from the following:

•		Business management systems comprised of proprietary software applications, implementation and training and third-party hardware and peripherals; and
•		Subscription-based services, which are generally recurring in nature, including software and hardware support, maintenance, its electronic automotive parts catalog and other services.

The Company’s diversified customer base consists of manufacturers, wholesale distributors, retailers, franchises, cooperatives, chain stores and single store operations with high service requirements and complex distribution environments. The Company’s operations are organized into two principal business units — its Industry Solutions Group and its Automotive Group.

Industry Solutions Group

Industry Overview

The primary markets served by the Company’s Industry Solutions Group are the retail hardware and the lumber and building materials industries, which are comprised primarily of hardware stores, lumber and building materials yards, home improvement centers, lawn and garden and farm supply businesses. According to the U.S. Census Bureau and U.S. Department of Labor, these industries have grown from $243 billion to $321 billion over the past five years and accounted for approximately 1.0% of all jobs in the United States in 2003.

The Company believes that growth in these markets will continue to be driven by recent trends, including:

•		new home construction and sales;
•		favorable demographic trends, such as continued proliferation of dual income families;
•		increased spending on home improvement projects; and
•		continued expansion of product and service offerings, such as professional installations and equipment rentals.

The participants in these markets can be segmented into two primary groups:

•		Hardware Stores. This group consists of independent hardware retailers that are usually affiliated with cooperatives and buying groups that enable members to compete through optimized product assortment, buying power, brand and member-wide customer loyalty programs and promotions. According to Dun & Bradstreet, this group represents approximately 23,000 establishments and approximately $14 billion in annual sales revenues.
•		Home Centers and Lumber and Building Materials Dealers. According to Dun & Bradstreet, this group primarily consists of mass merchandisers and independent lumber and building materials dealers who predominantly supply professional builders and contractors and this group represents approximately $190 billion in annual sales revenues and includes over 42,000 establishments.

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Mass Merchandisers. Several major market participants provide products and services using a mass merchandising

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		format. The three largest home center retailers represent over 2,500 stores and over $90 billion in annual revenue. These mass merchandisers include Home Depot, Lowe’s and Menard, Inc. As a result of their size, mass merchandisers generally customize and support their own systems.
•		Lumber and Building Materials Dealers. These dealers operate independent lumber and building material yards and purchase directly from mills or buying groups. They carry a broad assortment of products including low margin commodity lumber items, engineered wood products, and high value assembled products including doors, windows and trusses. Lumber and building materials dealers also provide customized value-added services to professional builders and contractors such as estimating services, job site specific information and delivery services, and installed sales services. According to Dun & Bradstreet, this segment represents approximately $80 billion in annual sales revenues and is served by over 39,000 establishments.

In addition, the Company’s Industry Solutions Group has an installed base of customers in adjacent segments of the wholesale trade market including brick, stone and related materials, roofing, siding and insulation, electrical supply, warm air heating and air conditioning, plumbing, industrial machinery and equipment, industrial supplies and service establishment equipment. According to Dun & Bradstreet, collectively, these market segments generated over $400 billion of revenue in 2003 and consist of over 179,000 businesses. According to the U.S. Census Bureau, the overall wholesale trade market has grown from $553 billion to $594 billion over the past five years. In 2004, the Company began to specifically target these wholesale trade segments for new system sales.

Need for Technology Solutions

There are a number of factors that drive the need for technology solutions within the retail hardware, lumber and building supply industries.

Inventory Management. The Company’s customers operate in complex distribution environments and manage, market and sell vast amounts of inventory. Their ability to manage that inventory efficiently can improve their ability to increase sales, reduce operating costs and improve customer service.

Hardware Marketing Cooperatives. The majority of the Company’s customers are members of marketing cooperatives, such as Ace Hardware Corp., TruServ Corporation and Do it Best Corp., in order to benefit from brand recognition and efficient inventory supply. The cooperatives encourage members to be on the same business management systems in order to gain additional efficiencies.

Many of the systems in use in this market are older, character-based or in-house systems with limited functionality beyond general purpose accounting. In order to compete effectively, manage their complex inventory and meet the high service requirements of their customers, dealers will need to replace these systems with more modern, comprehensive business management solutions.

Competition within the Lumber and Hardware Industries. The need for technology solutions within the lumber and hardware industries has been accelerated by the recent expansion of mass merchandisers throughout the United States. Mass merchandisers have been able to reduce costs and improve merchandising efficiency through, among other things, the implementation of automated retail systems. This has driven the smaller lumber and building materials dealers and cooperative dealers to seek to computerize or upgrade their older systems in order to reduce costs and compete effectively. For example, dealers in these markets are expected by their customers to have the ability to modify and adapt their systems with features such as credit card readers and electronic signature capture.

Customer Service Requirements. The Company’s customers differentiate themselves in their marketplace by providing a high degree of customer service. For example, professional contractors expect on-time delivery of very complex orders to the building site, the ability to charge the orders to their account and the ability to receive a credit for any unused materials. In order to meet these high service requirements, dealers in the Company’s markets increasingly adopt more advanced business management solutions, such as the Company’s products and services.

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The Company’s Systems and Services

The Company’s Industry Solutions Group’s offerings consist of software, connectivity, content and a full range of support services designed to meet the needs of its target markets. The Company’s Industry Solutions Group actively markets two principal systems, Eagle and Falcon, that automate and streamline a customer’s inventory, sales and distribution operations, enabling it to operate more cost efficiently, increase inventory turns and improve relationships with customers and suppliers. Both of these systems provide in-store, retail and contractor-based solutions with fully integrated applications that manage the flow of a customer’s typical sales transaction. These applications include order management and fulfillment, barcode scanning and processing, inventory control, pricing, purchasing, accounts receivables and payables, special order processing, quote and bid processing, vendor and manufacturer communications, payroll, general ledger, credit and debit card authorization.

In addition, these systems provide built-in business intelligence capabilities with flexible management reporting and analysis, including customizable alerts and notifications. Customers are also able to further streamline customer service and improve back-office efficiencies with other optional products, including document imaging, scanned document support, electronic signature capture and hosted e-commerce capabilities, such as invoicing, online quotes and orders, shopping cart and online catalog.

The Company’s principal products, Eagle and Falcon, have similar functionality but were designed for distinct segments of its target markets.

•		Eagle. The Company’s Eagle system for Windows®, launched in 1999, is designed for small and medium-sized retail stores across multiple market segments, including hardware, lumber and building materials, paint and farm supply. The Company’s Eagle system has applications and features designed to meet the unique needs of hardware stores and lumber and building materials operations. In addition, the Company has recently added warehouse distribution functionality to Eagle to make it attractive for customers in those markets.
•		Falcon. The Company’s Falcon system, launched in 1998, is designed for large multi-location lumber and building materials retail stores and home centers. The Company’s Falcon product provides flexibility in tailoring the system to meet the separate needs of individuals, groups, departments and single or multiple retail store locations.

In addition to the above principal products, the Company’s Industry Solutions Group also services and maintains, but does not actively sell, two additional products:

•		CSD. The Company’s CSD system was designed for medium to large-sized hardware and lumber retail stores. The Company’s CSD products are used by hardware and building materials retail chains with up to 40 stores.
•		Gemini. The Company’s Gemini system was designed for large multi-store hardware and lumber retail stores. The Company’s Gemini customers represent some of the largest companies in the hardware and lumber industry.

The Company has approximately 4,800 customers on its Eagle and Falcon systems and over 300 customers on its CSD and Gemini systems. The Company has built upgrade and conversion paths for the customers of its CSD and Gemini products to its Eagle and Falcon products. The Company expects many of these customers to continue to upgrade to its Eagle and Falcon systems over the next five years.

Customer Implementation and Support Services

The Company provides comprehensive maintenance and customer support for each of its software and hardware products. Because the Company’s customers are principally small and medium-sized businesses, they require a high level of service, training and customer support to train users and to maintain their systems. The Company’s Industry Solutions Group offers training for new and existing customers. The Company believes that it offers the broadest set of implementation and support services to businesses in its markets.

In addition to implementation and system conversion services, the Company sells a variety of post-sale support programs through its system support agreements, including on-site maintenance, depot repair services and daily system operating support by phone. Virtually all new system customers enter into system support agreements, and most retain these service agreements as long as they own the system. Monthly fees vary with system size and configuration, and service agreements are generally

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month-to-month. In addition, the Company’s Industry Solutions Group offers seminars and workshops to assist customers in understanding the capabilities of their systems.

Information Services

The Company’s Industry Solutions Group markets its database services products called VISTA, IDW and IDX to manufacturers. VISTA provides product manufacturers with ongoing measurement of brand and item movement with major product classifications using point-of-sale business analysis data from independent hardware stores and consumer survey data. Information provided by VISTA gives manufacturers insight into how a specific product or brand performs against its competitors and the market in general. IDW is an industry warehouse of parts descriptions and prices marketed to electrical parts manufacturers and warehouse distributors. IDX is an industry data exchange for purchase order and related documents using electronic data interchange and Internet technologies for electrical manufacturers and warehouse distributors.

Business Products Sales

A department within the Company’s Industry Solutions Group sells both standard and custom third-party record-keeping and sales forms and other office supplies, primarily to its existing customer base. These forms and supplies include purchase order forms, checks, invoices, ink, toner and ribbons that are compatible with the Company’s software and hardware systems.

Automotive Group

Industry Overview

The Company’s Automotive Group serves businesses in the automotive parts aftermarket. The automotive parts aftermarket consists of the manufacture, distribution, sale and installation of both new and remanufactured parts used in the maintenance and repair of automobiles and light trucks. According to the Automotive Aftermarket Industry Association, or AAIA, the automotive aftermarket generated $167.8 billion in sales in 2001 which, based on the U.S. Department of Commerce’s Bureau of Economic Analysis report for 2001, ranked as the 14th largest industry in the United States. For 2003, AAIA estimates that the automotive aftermarket sales increased to $183.0 billion, or at an annualized rate of 4% growth over 2001. Further, based on the U.S. Department of Labor’s statistics for 2002, the AAIA estimates that the automotive aftermarket accounted for 3% of all jobs in the United States.

The Company believes that growth in the automotive parts aftermarket will continue to be driven by:

•		growth in the aggregate number of vehicles in use;
•		increase in the average age of vehicles in operation;
•		growth in the total number of miles driven per vehicle per year; and
•		increased vehicle complexity.

There are three distinct vertical distribution channels through which automotive parts distribution occurs: the traditional wholesale channel; the retail channel; and the new car manufacturer channel.

Additionally, within each of these three channels, there are varying levels of distribution. In the wholesale channel, there are generally four primary levels of distribution:

•		manufacturers;
•		warehouse distributors;
•		parts stores (wholesalers, retailers and new car dealers); and
•		professional installers (independent professional service dealers and specialized shops).

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Automotive Parts Aftermarket Distribution Channels

The following is a description of the three vertical distribution channels in the automotive parts aftermarket.

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Traditional Wholesale Channel. The wholesale channel is the predominant distribution channel in the automotive parts aftermarket. It is characterized by two major distribution methods: a three-step model and a two-step model.

The three-step model involves the movement of parts from the manufacturer to a warehouse distributor, to parts stores and then to professional installers—in three steps. Warehouse distributors sell to professional installers through parts stores, which are positioned geographically near the professional installers they serve. This distribution method provides for the rapid distribution of parts. In recent years, many warehouse distributors have purchased and continue to purchase parts stores both from independent owners and from small wholesale chains. This consolidation improves warehouse distributors’ buying power with manufacturers and strengthens their competitive positions in their local or regional markets. In certain geographic areas, especially in more densely populated urban centers, it is more feasible to combine the warehouse distributor and the parts store into a single distribution point that sells directly to professional installers. The resulting model is commonly known as the two-step model. The Company has products that support both the three-step and the two-step distribution models.

•		Retail Channel. The retail channel is comprised of large specialty retailers, small independent parts stores and regional chains that sell to “do-it-yourself” customers. Larger specialty retailers, such as AutoZone, Inc., Advance Discount Auto Parts, O’Reilly Automotive, Inc. and CSK Auto Corporation, carry a greater number of parts and accessories at more attractive prices than smaller retail outlets and are gaining market share. The management information systems used to communicate between levels in this channel are generally developed internally for the large specialty retailers and purchased from third parties, including the Company, for the smaller organizations. The Company has products that support the retail channel.
•		New Car Manufacturer Channel. New car manufacturers distribute parts through a feeder warehouse to new car dealers. New car dealers purchase systems from a variety of third-party system providers. As a result of their size and financial strength, new car manufacturers generally customize and support their own systems. The Company does not sell a significant amount of products into the new car manufacturer channel.

Need for Technology Solutions

There are a variety of factors that drive the need for technology solutions within the automotive parts aftermarket.

•		Inventory Management. Based on statistical data analysis of parts stores’ inventory from the Company’s ePart Insight data warehouse product, approximately 20% of parts sold are not stocked locally and approximately 22% of parts stocked are not sold within 24 months. In addition, according to the Automotive Warehouse Distributors Association, approximately 27% of parts sold are eventually returned. Thus, there is substantial inefficiency in the automotive parts aftermarket supply chain. This inefficiency results in excess inventory carrying costs and logistical costs and the over-production of parts at the manufacturer level. Overcoming these costly dynamics requires a combination of technology products, including enterprise resource planning systems, catalog information, connectivity, data warehousing and supply chain analytical tools.
•		Competition from Large Specialty Retailers. The need for technology solutions has been accelerated by the expansion of large specialty retailers such as AutoZone Inc. and Advance Auto Parts Inc. This has driven the smaller parts stores and warehouse distributors to computerize or upgrade their existing systems with more modern comprehensive business management solutions. Many of the systems in use in these markets are older, character-based or in-house systems with limited functionality.
•		Volume of Data. Participants in the automotive parts aftermarket are required to manage large quantities of data. There are over 4.5 million different stock-keeping units, or SKUs, available to parts sellers in the Company’s electronic catalog. The number of SKUs in the Company’s electronic catalog rose by approximately 5.6% during the past year. Moreover, manufacturers update catalogs and part prices frequently. As a result, most automotive parts aftermarket participants require comprehensive inventory management systems and catalogs to keep track of these parts.

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Customer Service Requirements. Consumer demand for same day repair service and the need to quickly turn repair bays encourage professional installers to require prompt delivery of specific parts from their suppliers. Therefore, the ability of either a warehouse distributor or parts store to access information about a part’s availability and price and to promptly supply the required product is critical to its success. To meet these high customer service requirements, there is a need for inventory management systems, catalogs and automated communication and ordering between parts stores and professional installers.

The Company’s Systems and Services

Solving the challenges faced by the automotive parts aftermarket requires a combination of business management systems, data, supply chain tools, support, services and connectivity. The Company provides systems and services that address these challenges and help its customers to compete effectively. These tools include four key components:

•		business management systems comprised of the Company’s proprietary software applications, implementation and training and third-party hardware and peripherals;
•		a comprehensive electronic automotive parts catalog, which is used by all segments of the automotive parts aftermarket;
•		products that provide Internet connectivity to warehouse distributors, retailers and professional installers. These connectivity products allow for electronic data interchange and trading partnerships; and
•		custom supply chain analytics for manufacturers and warehouse distributors, to assist them in their inventory and marketing decisions.

The Company’s Automotive Group’s principal products target warehouse distributors or part stores, as follows:

Warehouse Distributors

•		A-DIS. The Company’s A-DIS system is targeted to large warehouse distributors and provides applications for handling complex inventory management issues, parts purchasing, product pricing, parts returns management, sales history and complete financial management services. The Company’s A-DIS product is fully connected to its J-CON product, which is used primarily by parts stores and is described below. In addition, the Company’s Series 12 and Prism store products, which are also used primarily by parts stores, are integrated with A-DIS for key functionality.
•		Ultimate. The Company’s Ultimate product is designed for and targeted to local, regional and national warehouse distributors that seek to manage multiple locations and inventories on a single system in a compact geographic area. Ultimate provides distributors a solution for inventory management, customer maintenance, accounting, purchasing and business analytics.
•		Paperless Warehouse. The Company’s Paperless Warehouse product incorporates radio frequency wireless networking, barcode scanning and handheld computing technology to improve the efficiency of the receiving, picking and shipping functions of the warehouse. This product is fully integrated with the Company’s A-DIS and Ultimate products.

Parts Stores

•		J-CON. The Company’s J-CON product was developed to manage stores that are members of a national account program, trading principally with a single warehouse distributor or multiple warehouse distributors on an A-DIS system. The Company’s J-CON product serves as an inventory management and electronic purchasing tool. It also allows the parts store to connect with professional installers through the Company’s other products such as AConneX.
•		Prism. The Company’s Prism product is designed to meet the needs of both national and independent stores as well as smaller businesses in a two-step distribution process. Prism is a distribution management system designed to improve point-of-sale operations, fine-tune pricing, optimize inventory and manage cash flow.

In addition to the above principal products, the Company’s Automotive Group also services, maintains and provides upgrades for, but does not actively sell, four additional products for its parts store customers that are still utilizing these systems. These products, Eclipse, JMS, Series 12 and LOADSTAR, track inventory, perform accounting functions and execute point-of-sale operations such as invoicing and billing.

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Information Services

The Company provides electronic catalogs, bar codes, related repair information and reports based on point-of-sale activity through a variety of data services. These proprietary database products and services generate recurring revenues through monthly subscription fees and differentiate the Company’s products from those of its competitors. The Company offers data services to its automotive parts aftermarket customers, including warehouse distributors, manufacturers and parts stores and professional installers. The Company’s principal information services are:

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PartExpert. The Company’s electronic catalog products provide access to a database of over 90 million unique automobile part applications for approximately 6,700 automotive parts aftermarket product lines. These products significantly reduce the time consuming and cumbersome use of printed catalogs and are designed to increase productivity and accuracy in parts selection and handling. Software on the warehouse distributor, parts store and professional installer systems enables the user to access the electronic catalog database. Customers use the catalog feature within their system to identify parts associated with a specific vehicle. The Company charges a monthly subscription fee for its electronic catalog database and provides customers with periodic updates. There are approximately 10,500 warehouse distributor locations, 1,500 retail locations and 9,000 professional installer locations subscribing to the Company’s electronic catalog service.

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ePartExpert. The Company’s electronic catalog database is available in a format designed for Internet use. Named ePartExpert, the database and access software have been modified to enable consumers and service professionals to look up automotive products for themselves, view diagrams and select the parts for their vehicle. This product is used by the manufacturer, warehouse distributor and professional installer segments of the automotive parts aftermarket.

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ePartInsight. This data warehouse product can be connected to all of the Company’s Automotive Group’s warehouse distributor and parts store products as well as third-party software. It provides data hub capability to allow large buying groups to access information throughout the buying group simultaneously.

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Manufacturer Services. The Company provides a number of fee-based services to the manufacturer segment of the market. These services include catalog content comparisons to similar product groups from other manufacturers, pricing comparisons to similar parts available in the market and electronic catalog data mapping and format conversion. These products and services are provided as needed to manufacturers to assist them with their marketing initiatives.

In addition to the above services, other services offered include InterChange, a database that provides cross references of original equipment manufacturer part numbers to aftermarket manufacturer part numbers; TelePricing, a service that provides electronic price updates following a price change by the part manufacturer; LaborExpert, a tool used by professional installers to estimate labor hours for purposes of providing written estimates of repair costs to customers; Service Intervals, a database of maintenance intervals; and Tire by Size, a database that cross-references various tire products and applications.

Customer Support Services

The Company’s Automotive Group sells a variety of post-sale support programs through its system support agreements, including on-site preventive and remedial maintenance, hardware engineering modifications, depot repair and daily system operating support by phone. These customers can call the Company’s Automotive Group’s advice line, which provides them with access to trained personnel who are able to perform on-line diagnostics or to field engineers, if on-site service is necessary. The Company has also developed a web-based product called EntryPoint that allows customers direct access to a call tracking system, on-line product training courses and an on-line knowledge base. These features allow customers to request support services, review specific calls or their entire call history, increase employee system knowledge through on-line coursework or search a knowledge base to obtain immediate answers to questions. Virtually all new system customers enter into system support agreements, and most retain such service agreements for as long as they own the system. Monthly fees vary with the system size and configuration. The agreements are generally month-to-month agreements with up to a 90-day cancellation notice period. The Company’s Automotive Group offers training for customers at both its facilities and the facilities of its customers. In addition to training on system operations and software enhancements, the Company’s Automotive Group offers seminars and workshops to assist customers in understanding the capabilities of their systems.

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Connectivity Services

     The Company offers Internet and modem-based communication services that connect the automotive parts aftermarket from manufacturers through warehouse distributors and parts stores to professional installers. The Company’s flagship service in this area, AConneX, uses the Internet to allow communication between and among both its software systems and other companies’ software systems. AConneX enables:

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Internet ordering of parts by professional installers from parts stores through the Company’s eStore partners; and

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the creation of trading networks among parts stores and warehouse distributors. This enables pooling and trading of inventory at the distribution level.

In addition, the Company offers an electronic data interchange interface between warehouse distributors and manufacturers.

Company Operations

Sales and Marketing

The Company’s sales and marketing strategy is to provide relevant business expertise to target customers by using sales representatives with strong industry-specific knowledge. To accomplish this, the Company has dedicated sales groups to each of the retail hardware, lumber and building materials and wholesale trade industries and the automotive parts aftermarket. Within these industry groups, the Company uses a combination of field sales, inside sales, value-added resellers and national account programs. The Company seeks to partner with large customers or groups of customers and leverage these program groups to sell to their members. Incentive pay is a significant portion of the total compensation package for all sales representatives and sales managers. The Company’s field sales teams generally focus on identifying and selling to new customers while its inside sales team focuses on selling upgrades and new software applications to its installed base.

The Company’s marketing approach is to develop close relationships with key market influencers, including Ace Hardware Corp. and TruServ Corporation in the retail hardware market and the Aftermarket Auto Parts Alliance Inc. in the automotive parts aftermarket. This strategy includes obtaining endorsements and developing exclusive relationships, warehouse distributor partnerships and other alliances. The goal of these programs is to enhance the productivity of the field sales team and to create leveraged selling opportunities for system sales, information services and support services. These relationships have allowed the Company to streamline the distribution channel and to reduce its direct sales costs.

The Company has approximately 190 employees in sales and marketing, including field sales, inside sales, sales management and support and marketing.

Product Development

The Company’s product development strategy is to both add new features into its current products and to provide a migration path to its customers who operate on the Company’s older systems. This evolutionary approach has four primary benefits. First, it minimizes attrition by adding important features to the Company’s information solutions. Second, it requires less risk for the customer to migrate codes than to move to a different technology solution. Third, the evolution allows continuous layering of features and benefits, which provides a feature-rich solution for key new accounts. Fourth, it creates a new set of features and applications that the Company includes as improvements in its new releases to its installed base, or, in the case of material new functionality, it creates new revenue opportunities as the Company markets the new features and applications separately.

The Company’s development staff is generally divided between its Industry Solutions Group and its Automotive Group. Part of the staff is dedicated to specific enterprise system products (e.g., Eagle developers). Other parts of the development team create applications and features that can be used and leveraged across multiple enterprise systems, or perform quality assessment and other engineering functions.

The Company has approximately 140 employees dedicated to product development. Including amounts capitalized, the Company spent $18.9 million, $19.6 million and $18.4 million in fiscal 2002, 2003 and 2004, respectively, on product development.

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Customer Support and Services

The Company strives to provide comprehensive information technology support to small and medium-sized business customers to build customer relationships, enhance customer satisfaction and maximize customer retention rates. The Company’s customer support and services organization consists of:

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Advice line support. The Company’s customers can call its advice line for access to trained personnel who are able to perform on-line diagnostics or to field engineers if on-site services are necessary.

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Nationwide hardware and networking specialists. The Company’s field service team can be dispatched throughout the United States, Canada and Puerto Rico to diagnose and repair hardware and software on-site. The Company has found that this team of service professionals provides it with a solid customer advantage. Since they are on-site, the customer often develops a relationship with its system specialist. The Company does not believe any competitor offers on-site support and service through its own nationwide network of system professionals.

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Implementation, education and training professionals. When the Company sells a new system or application, its education and training team works to minimize disruption during the conversion process and to optimize the customers’ use of the system by training them to use the primary features of the software.

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Server and peripheral repair. The Company’s depot facility supports remote system and peripheral repair via overnight exchange and other programs from its repair facility in Tracy, California and through outsourced peripheral repair services.

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Systems integration and distribution. The Company does not manufacture the hardware components of its systems, but does integrate some of its products with hardware components and software products of third-party vendors. The Company uses Dell Inc.’s industry standard server and workstation hardware to power most of its software solutions. The Company utilizes a just-in-time inventory system to help ensure that efficient cost controls are in place.

The Company’s customer support organization has approximately 540 employees.

Catalog and Other Information Services Operations

The Company’s catalog and other information services operations manage and produce data for its PartExpert, VISTA and other data exchange products. For the Company’s PartExpert product, this group acquires, enters, cleans, standardizes and formats the data from over 800 automotive parts manufacturers. The data comes from manufacturers in paper or electronic format. The Company generally produces catalog updates on compact discs approximately ten to twelve times per year from its facilities in Livermore, California; Austin, Texas; and Longford, Ireland. For the Company’s VISTA product, this group partners with a third-party provider to identify, query and receive information from customer survey participants. The Company provides this data to its customers in a variety of formats.

The Company employs approximately 190 people in its catalog and other information services operations group.

Competition

The Company’s Industry Solutions Group competes primarily with smaller, niche-focused companies, some of which target specific geographic regions. In the retail hardware and lumber and building materials markets, the Company competes with providers, including Speedware Corporation, Spruce Computer Systems, Inc. and Advantage Business Computer Systems, Inc. In the wholesale trade market, the Company competes with similar niche-focused companies such as Prophet 21, Inc. and NxTrend Technology, Inc.

The Company’s Automotive Group competes primarily with smaller software companies, including iCarz, Autologue. and Wrenchead, Inc., that operate regionally or in a specific niche of the market.

Additionally, the Company is working to displace in-house systems or catalogs. For example, AutoZone, Inc. and Genuine Parts Company’s NAPA Parts Group both produce their own systems and electronic automotive parts catalogs for their stores and members.

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Several large enterprise resource planning and software companies have made public announcements regarding the attractiveness of various small and medium enterprise markets, including Microsoft Corporation, Oracle Corporation and Intuit Inc. The Company has rarely competed with any of these larger software companies. However, there can be no assurance that they will not develop more competitive offerings in the future.

Customers

For its fiscal year ended September 30, 2004, no single customer accounted for more than 10% of the Company’s total revenues. The Company’s top ten customers accounted for 24.3% of its total revenues. Some of the Company’s top 10 customers included Ace Hardware Corp. and TruServ Corporation in its Industry Solutions Group and General Parts, Inc., the Aftermarket Auto Parts Alliance, Inc., O’Reilly Automotive, Inc. and Parts Depot, Inc. in its Automotive Group.

Suppliers

In fiscal 2004, Dell Inc. and ScanSource, Inc. accounted for more than 10% of the total spending on hardware supplies used in the Company’s operations. No other supplier accounted for more than 10% of the Company’s total hardware supply expense. The Company has a number of competitive sources of supply for these and other supplies used in its operations.

Employees

As of September 30, 2004, the Company had approximately 1,200 employees, none of whom were represented by unions. The Company has not experienced any labor problems resulting in a work stoppage and believes it has good relations with its employees.

Joint Venture

The Company owns, directly or indirectly, 47.5% of the outstanding common stock of Internet Autoparts, Inc., or IAP, a joint venture among it and certain of its key customers, including General Parts, Inc., and other investors, which was formed in May 2000. IAP is working to provide the automotive parts aftermarket with a web-based parts ordering and communications platform linking automotive service providers with wholesale distributors and other trading partners.

The Company granted certain non-exclusive, perpetual, non-transferable licenses to IAP in return for a 1/3 interest in IAP. IAP agreed, subject to certain exceptions, not to compete with the Company in the businesses in which the Company is engaged. In addition, the Company agreed, subject to certain exceptions, not to compete with IAP in the business of selling new or rebuilt automotive parts over the Internet to professional installers and consumers.

IAP utilizes the Company’s web-based parts catalog, ePartExpert, and has access to its Internet communications gateway, AConneX, which provides seamless communications among its various business platforms and third-party management systems. AConneX is available for licensing to third-party management systems in addition to IAP. The licenses granted to IAP provide for the payment to the Company of royalties based upon a percentage of net sales made by IAP using the licensed technology. In June 2003, the Company purchased all of the common stock of IAP held by Hicks, Muse, Tate & Furst, Inc. for approximately $1.8 million. The Company has no commitment to invest additional funds; however, it is obligated to provide service and support for AConneX.

Segment Reporting

See Note 13 of Notes to Consolidated Financial Statements.

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Item 2. Properties.

The Company’s properties are leased, and include integration and distribution, software development and data entry facilities and administrative, executive, sales, and customer support offices. The Company’s principal executive offices are located at 804 Las Cimas Parkway, Austin, Texas 78746. The Company considers its properties to be suitable for their present and intended purposes and adequate for the Company’s current level of operations.

Listed below are the principal properties leased by the Company as of December 17, 2004.

In addition, the Company has short-term leases on over 40 offices and field service locations in the United States, Canada, the United Kingdom, and France.

Item 3. Legal Proceedings.

The Company is a party to various legal proceedings and administrative actions, all of which are of an ordinary or routine nature incidental to the operation of the Company. In the opinion of the Company’s management, such proceedings and actions should not, individually or in the aggregate, have a material adverse effect on the Company’s results of operations, financial condition or cash flows.

Item 4. Submission of Matters to a Vote of Security Holders.

On October 11, 2004, the sole stockholder of the Company consented in writing to the removal of Michael A. Aviles as a director and as Chairman of the Board of the Company and appointed Jason Downie to the Board of Directors of the Company. On November 5, 2004 the sole stockholder of the Company consented in writing, in lieu of an annual meeting, to the election of the following directors: Peter Brodsky, Jason Downie, Jack D. Furst, A. Laurence Jones and James R. Porter.

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PART II

Item 5. Market for Registrant’s Common Equity and Related Stockholder Matters.

There is no established public trading market for any class of the Company’s common stock. All of the Company’s common stock is held by Activant Solutions Holdings Inc., a Delaware corporation (“Holding”). The Company paid Holding a $30.0 million dividend in fiscal 2003. The Company’s ability to pay any dividends in the future is limited by the terms of the Company’s existing revolving credit facility and the indenture governing its 10 ½% senior notes due 2011. See Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

Item 6. Selected Financial Data.

The following table sets forth selected financial data of the Company for the years ended September 30, 2000, 2001, 2002, 2003 and 2004. The balance sheet data as of September 30, 2003 and 2004, and the statement of operations data for the years ended September 30, 2002, 2003, and 2004 set forth below are derived from the audited consolidated financial statements of the Company included elsewhere herein. The balance sheet data as of September 30, 2000, 2001 and 2002 and the statement of operations data for the years ended September 30, 2000 and 2001 set forth below are derived from the audited consolidated financial statements of the Company that are not included herein. The selected financial data below should be read in conjunction with Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and the audited consolidated financial statements of the Company included elsewhere herein.

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion of the Company financial condition and results of operations should be read in conjunction with the audited historical consolidated financial statements and the notes accompanying those statements, which are included elsewhere herein. The results described below are not necessarily indicative of the results to be expected in any future periods. This discussion contains forward-looking statements based on the Company’s current expectations, which are inherently subject to risks and uncertainties. Actual results and the timing of certain events may differ significantly from those projected in such forward-looking statements due to a number of factors. The Company undertakes no obligation beyond what is required under applicable securities law to publicly update or revise any forward looking statement to reflect current or future events or circumstances, including those set forth herein.

Overview

The Company is a leading provider of business management solutions primarily to retailers and wholesale distributors in the retail hardware market, the lumber and building materials market and the automotive parts aftermarket. The Company’s business management solutions include systems, customer support and information services that its customers use to manage their critical day-to-day business operations through automated point-of-sale, inventory management, general accounting and enhanced data collection. The Company’s revenues are derived from the following:

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Business management systems comprised of proprietary software applications, implementation and training and third-party hardware and peripherals. For the year ended September 30, 2004, systems revenues accounted for approximately 36% of the Company’s total revenues; and

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Subscription-based services, which are generally recurring in nature, including software and hardware support, maintenance, its electronic automotive parts catalog and other services. For the year ended September 30, 2004, services revenues accounted for approximately 64% of the Company’s total revenues.

The Company’s operations are organized into two principal business units—the Industry Solutions Group and the Automotive Group. The Company’s Industry Solutions Group serves a variety of retailers and wholesale distributors in the retail hardware, lumber, home improvement, lawn and garden, farm supply, electrical supply and other industries in the United States. For the year ended September 30, 2004, the Company’s Industry Solutions Group generated approximately 53% of its total revenues. The Company’s Automotive Group serves the automotive parts aftermarket, which includes manufacturers, warehouse distributors, parts stores and professional installers in North America and Europe. For the year ended September 30, 2004, the Company’s Automotive Group generated approximately 47% of its total revenues.

Key Trends

Since 2001, the Company has noted several trends that it believes is integral to understanding the Company’s financial results and condition:

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Growth in Systems Revenues in the Industry Solutions Group. The Company’s Industry Solutions Group’s systems revenues have grown at an annual rate of approximately 26% over the past four years. This growth has been a result of stronger relationships and licensing agreements with two of the three primary cooperatives in the retail hardware market, increased sales of upgraded software applications to its customers, and increased acceptance of the Company’s Falcon product in the lumber and building materials market. The Company expects that these increased systems revenues will also result in increased support revenues in future years as it adds new customers and new products.

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Increased Profit Margins. The Company has improved its gross profit margin and operating profit margin every year through disciplined operating processes, selling higher margin systems and a more efficient sales and marketing strategy. The Company continues to apply improved operating processes each year and maintain a strong focus on improving its profit margins.

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Lower Customer Retention on Older Products. As the Company stops actively developing and selling several of its older systems, especially in the Automotive Group, it experiences reduced rates of customer retention. The Company has developed various upgrade paths for these customers and has begun a specific customer services campaign to increase retention rates for customers who elect to continue to operate with the Company’s older systems. Despite its efforts, the Company has experienced year-over-year decreases in its Automotive Group services revenues. The Company expects some lower-level of customer retention to continue.

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•

Loss of Certain Critical Point-of-Sale Data. In the Industry Solutions Group, the Company collected specific point-of-sale data from its customer base and enhanced it by acquiring point-of-sale data from the mass merchandisers available in the public market. The Company then organized all of this data and sold it to manufacturers. In 2001 and 2002, certain mass merchandisers stopped making their point-of-sale data available which materially reduced the value of this data to the Company’s manufacturer customers. During the fiscal year ended September 30, 2003, the Company experienced a decline in services revenues related to the loss of this point-of-sale data. The Company also reduced many of the expenses associated with producing and selling this data. The Company does not expect to generate this point-of-sale revenue at those historic levels going forward.

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Consolidation of Customers, Especially in the Automotive Parts Aftermarket. As in most industries, the Company’s customers are undergoing consolidation. When one of the Company’s customers acquires a company that does not currently use its systems, the Company typically benefits in the form of new systems sales and increased services revenues associated with that customer. When a company not currently using the Company’s systems acquires one of the Company’s customers, it typically loses services revenues. The Company believes that consolidation has been neither a material benefit nor a material detriment to its operating results over the past three years.

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Loss of Key Customer. In 2004, the Company’s largest Automotive Group customer informed the Company of its intention to replace the Company’s J-CON parts store system with its own branded product at its company-owned stores, and to recommend that its independent affiliated stores also replace the J-CON system. The customer has indicated that the replacement of the J-CON system in its company owned stores will be phased in over a period of approximately one year. J-CON system sales revenue for all of this customer’s company-owned and independent affiliated stores was approximately $4.0 million and $1.8 million for the Company’s fiscal years ended September 30, 2003 and September 30, 2004, respectively. J-CON services revenue for all of this customer’s company-owned and independent affiliated stores was approximately $7.8 million and $7.5 million for the Company’s fiscal years ended September 30, 2003 and September 30, 2004, respectively. Accordingly, we expect that our future Automotive Services revenue will decline as a result of this decision. Notwithstanding its decision to replace the Company’s J-CON systems, this customer indicated that it intended to continue to use the Company’s warehouse system and electronic automotive parts catalog at its company-owned and independent affiliated stores.

Sale of Assets

On October 1, 2003, the Company sold certain non-core assets consisting of its Automotive Recycling Division. The total sales price was $6.7 million plus net working capital of $0.5 million, which resulted in a gain of $6.3 million. The total revenues generated by these assets for the fiscal years ended September 30, 2003 and 2002 were $8.2 million and $9.0 million, respectively.

On January 30, 2004, the Company sold certain lease receivables to its third-party lease financing provider for approximately $1.8 million. These lease receivables were direct financing leases due from the Company’s customers for the sale of software and hardware systems and other products. The Company has not originated any direct financing leases since 2001.

Subsequent Event

Effective October 7, 2004, the Company terminated the employment of Michael A. Aviles as President and Chief Executive Officer of the Company. In connection with the termination of Mr. Aviles, the Company terminated the Executive Employment Agreement, dated as of July 1, 2002, among Activant Solutions Inc. (the “Company”), Activant Solutions Holdings Inc. (“Holdings”), and Mr. Aviles (the “Employment Agreement”). The Employment Agreement provided for an initial base salary of $375,000, annual incentive bonuses with a target of at least $300,000 and severance in an amount equal to 18 months base salary and the target annual incentive bonus for the fiscal year in which the termination occurs, payable monthly in arrears over the 18 months following the effective date of termination, if Mr. Aviles is terminated without “good cause”. Pursuant to the Employment Agreement, Mr. Aviles will be entitled to receive the severance payments from the Company over an 18 month period following the effective date of his termination as described above.

On October 7, 2004 the Company elected A. Laurence Jones to replace Mr. Aviles as President and Chief Executive Officer of the Company. On December 15, and effective as of October 7, 2004, the Company entered a written employment agreement (the “Employment Agreement”) with Mr. Jones. The Employment Agreement provides for a signing bonus in the amount of

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$150,000, an initial base salary of $375,000 (subject to increases as determined by the Board of Directors), and eligibility to receive an annual bonus of 100% of his base salary (which such annual bonus may exceed 100% of his base salary if the Company exceeds certain revenue and other financial targets in the Company’s budget for the applicable fiscal year).. Mr. Jones will be entitled to a minimum annual bonus of 50% of base salary for the fiscal year ended September 30, 2005, provided Mr. Jones continues to be employed by the Company as of the end of such fiscal year.

Concurrently with the execution of the Employment Agreement, Holdings entered into a stock option agreement (the “Option Agreement”) with Mr. Jones pursuant to which Holdings granted to Mr. Jones options exercisable for an aggregate of 3,000,000 shares of Holdings’ Common Stock at an exercise price of $2.25 per share (the “Stock Options”). The Stock Options (i) vest in four (4) equal installments over four (4) years from October 7, 2004, (ii) become fully vested upon the occurrence of a change of control of the Company and (iii) provide that upon Mr. Jones’ voluntary termination of his employment or upon termination of his employment by the Company, Mr. Jones shall have 360 days following the date of such termination to exercise any vested but unexercised options. In addition, if Mr. Jones’ employment is terminated without Cause (as defined in his Employment Agreement) or if he resigns for Good Reason (as defined in his Employment Agreement), Mr. Jones will receive accelerated vesting of Stock Options covering the lesser of (i) 1,125,000 shares or (ii) all remaining unvested Stock Options. All other unvested Stock Options will be cancelled.

Key Components of Results of Operations

Revenues. The Company derives revenues primarily from two sources: systems revenues and services revenues. Systems revenues include the sale of software applications, implementation, training and third-party computer hardware equipment and associated peripherals. Systems revenues are generally non-recurring in nature. Services revenues generally consist of revenues associated with the software and hardware support and maintenance of the Company’s systems, as well as revenues from the sale of information databases, data warehouses, system connectivity services and business product sales. Services revenues are generally recurring in nature.

Cost of Revenues. Cost of systems revenues primarily include computer hardware and peripherals purchased from third parties, the labor and overhead associated with integrating, shipping, installing and training customers on the Company’s systems and the amortization of capitalized software costs. Cost of services revenues primarily include personnel costs associated with the software and hardware support and maintenance of the Company’s systems, personnel costs associated with data entry into the Company’s information databases, bad debt expense, the amortization of capitalized databases and telecommunications and facility costs.

Sales and Marketing Expense. Sales and marketing expense primarily consists of personnel costs associated with sales and marketing efforts, commissions and bad debt expense related to the Company’s accounts receivable. A portion of depreciation, amortization, telecommunications and facility costs are allocated to sales and marketing expense based on estimated usage. Sales and marketing expense also includes the lease loss provision related to the Company’s remaining historical lease portfolio. See Note 4 of “Notes to the Consolidated Financial Statements”.

Product Development Expense. Product development expense primarily consists of personnel costs and contract services associated with the development and maintenance of the Company’s software and databases. A portion of depreciation, amortization, telecommunications and facility costs are allocated to product development ex