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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q/A
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
FOR QUARTER ENDED MARCH 31, 1998
COMMISSION FILE NUMBER 0-23117
BEST SOFTWARE, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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<S> <C> <C>
VIRGINIA 7372 54-1222526
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
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11413 ISAAC NEWTON SQUARE
RESTON, VA 20190
(703) 709-5200
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
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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
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Indicate the number of shares outstanding of each of issuer's classes of common
stock as of the latest practicable date:
NUMBER OF SHARES OUTSTANDING ON
TITLE OF CLASS APRIL 30, 1998
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Common Stock, no par value 11,261,278
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4. ACQUISITION
In March 1998, the Company acquired HR Management Software GmbH (HRS), a
provider of human resource software in the European marketplace. The
acquisition price was for approximately $10.4 million consisting of $6.4 million
in cash, 240,000 shares of Common Stock, and out-of-pocket acquisition costs of
approximately $400,000. The closing occurred on March 31, 1998; therefore the
results of operations of HRS are included beginning April 1, 1998. The
acquisition was accounted for as a purchase and the Company recorded a charge of
approximately $9.4 million in the first quarter of 1998 to in-process research
and development.
Prior to discussions with the Company, HRS had undertaken and made substantial
progress of a completely new HR solution (code named "Generation X") for which
the Version 1 release is scheduled for the latter half of 1999. The successful
introduction of the initial version and subsequent planned products is critical
in order to realize both revenue growth and profitability in the future. HRS
has incurred losses in two of the three prior years and minimal profit in the
third year. Its existing products are rapidly approaching obsolescence. As
such, HRS is attempting to develop a truly global, state-of-the-art HR
solution. In conjunction with the major Generation X development efforts, HRS
management had identified a promising opportunity to cooperate with a U.S. or
multinational enterprise solution firm (such as the Company). HRS management
has performed extensive research on the current applications in today's market,
and found most consisted of "patchwork" solutions that lacked complete
globalization and localization functionality. While still in its early stages
of development, HRS had made impressive achievements and innovations in the
design, planning, architectural layout and early development of the Generation
X offering. In its planning phase, HRS identified in detail the unique system
and user needs, including the general architectural layout and methodologies,
for the provision of a state-of-the-art, global HR solution. The progress and
accomplishments achieved to date in HRS' research and development projects and
the economic potential for these development stage products and technologies
(if successfully completed) were the major consideration in the Company's
purchase decision. Not withstanding HRS impressive progress to date, a
significant amount of HR related research, code, integration, test, and
optimization efforts were, and still are, necessary to successfully bring the
new product line and technologies to market.
These projects are time consuming and difficult to complete. If the research
and development projects are not completed as planned, they will neither
satisfy the technical requirements of a changing market nor be cost effective.
Further, if the research and development fails, the value associated with HRS'
acquisition could not be realized. Because these projects have not yet reached
technological feasibility and have no alternative future uses, there can be no
guarantee as to the achievability of the projects or the ascribed values.
Accordingly, these costs were expensed as of the acquisition date.
Based on HRS' development roadmap, which was confirmed by development
specialists at the Company, the first release of Generation X products are
expected to be completed and reach the market in the latter half of 1999.
Beyond the initial release of Generation X products in 1999, HRS had also
outlined its planned release of additional versions and modules of these
discreet products as well as the use of the developmental stage of
globalization and localization technologies outside of HRS' product suite. In
order to meet its product release expectations, HRS management has developed a
medium-term Generation X product development roadmap which extends into 2000
and includes at least two significant upgrades to the original Generation X
offering. Expenditures to complete these projects are expected to total
approximately $4.3 million, or $730 thousand for the remaining 9 months of
1998, $1.9 million in 1999, and $1.7 million in 2000. These estimates are
subject to change, given the uncertainties of the development process, and no
assurance can be given that deviations from these estimates will not occur.
Even if successfully completed, the projects will require maintenance research
and development after they have reached a state of technological and commercial
feasibility. In addition to usage of HRS internal cash flows, the Company will
likely provide a substantial amount of funding to complete the HRS research and
development. If the HRS research and development is not successfully
completed, the sales and profitability of the combined company may be adversely
affected in future periods. The purchase price allocation represents the
estimated fair market value based on risk-adjusted cash flows related to the
incomplete products.
The remaining purchase price resulted in an excess of the purchase price over
the fair value of the net assets of approximately $1.0 million. This amount is
comprised of legacy technology and longer-lived goodwill intangibles such as the
HRS work force and customer relationships. The realization of the value
ascribed to the existing technology, customer relationships, and work force is
highly correlated with the HRS research and development efforts. If the
research and development efforts fail, the Company will have very little
ability to exploit the non-R&D intangibles (e.g., aging technology and European
HR system users). Furthermore, the Company believes that the current HRS
product suite will be effectively obsolete and unsaleable in material
quantities beyond the year 2000. While the customer relationships and
assembled work force values are also inextricably linked to the research and
development, a longer life of 5 to 7 years was applied to these assets based on
historical attrition rates, general survival distributions and the Company's
experience. The Company also acquired tangible assets of approximately $2.7
million consisting primarily of accounts receivable and fixed assets. The
Company also assumed liabilities of $2.7 million.
The following consolidated proforma information assumes the HRS acquisition
occurred on January 1, 1998 (In thousands, except per share data):
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<CAPTION>
For the three months ended
Proforma results of operations: March 31, 1998
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(unaudited)
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Revenue $ 15,150
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Income (loss) from operations before income taxes (6,176)
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Net income (loss) (3,776)
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Earnings (loss) per share $ (0.34)
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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.
BEST SOFTWARE, INC.
Date: September 22, 1998 By: /s/ David N. Bosserman
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David N. Bosserman
Executive Vice President,
Chief Financial Officer and Treasurer
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