UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

FORM 10-Q

Commission File Number 333-49389

Activant Solutions Inc.

(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:

ACTIVANT SOLUTIONS INC.
INDEX

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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.

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PART 1. FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited)

ACTIVANT SOLUTIONS INC.

See accompanying notes

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ACTIVANT SOLUTIONS INC.

See accompanying notes

5

ACTIVANT SOLUTIONS INC.

See accompanying notes

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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):

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

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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.

3. DEBT

The Company’s long-term debt consists of the following (in thousands):

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

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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):

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.

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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):