<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------------
FORM 8-K/A
AMENDMENT NO. 1 TO CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): April 20, 1998
GREAT PLAINS SOFTWARE, INC.
------------------------------------------
(Exact name of registrant as specified in its charter)
Minnesota 000-22703 45-0374871
------------------------- -------------------- ------------------
(State or other jurisdiction (Commission file number) (I.R.S. Employer
of incorporation) Identification No.)
1701 S.W. 38th Street, Fargo, North Dakota 58103
-------------------------------------------------
(Address of principal executive offices)
Registrant's telephone number, including area code: (701) 281-0550
-------------------------
Not Applicable
----------------
(Former name or former address, if changes since last report)
<PAGE>
The undersigned registrant hereby amends its Current Report on Form 8-K dated
May 5, 1998 (the "Report"), to include the financial statements and pro forma
financial information required by Item 7(a) and 7(b), which were omitted from
the Report as initially filed in accordance with Item 7(a)(4) of Form 8-K.
Item 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
(a) FINANCIAL STATEMENTS OF BUSINESS ACQUIRED
Report of Independent Auditors' dated April 15, 1998 (April 20, 1998 as to Note
7).
Audited Balance Sheets of ICONtrol, Inc. as of January 30, 1998 and January 31,
1997.
Audited Statements of Operations of ICONtrol, Inc. for the years ended January
30, 1998, January 31, 1997 and January 26, 1996.
Audited Statements of Cash Flows of ICONtrol, Inc. for the years ended January
30, 1998, January 31, 1997 and January 26, 1996.
Notes to Financial Statements of ICONtrol, Inc. for the years ended January 30,
1998, January 31, 1997 and January 26, 1996.
(b) PRO FORMA FINANCIAL INFORMATION
Unaudited Pro Forma Combined Consolidated Condensed Balance Sheet as of February
28, 1998.
Unaudited Pro Forma Combined Consolidated Condensed Income Statement for the
nine months ended February 28, 1998 and the year ended May 31, 1997.
Notes to Unaudited Pro Forma Combined Consolidated Condensed Financial
Statements.
(c) EXHIBITS
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<C> <S>
*2.1 Asset Purchase Agreement, dated April 20, 1998, by and among
Great Plains Software, Inc., ICONtrol, Inc. and Holien, Inc.
23.1 Consent of Deloitte & Touche LLP
99.1 Independent Auditors' Report and Audited Financial Statements of
ICONtrol, Inc. as of January 30, 1998 and January 31, 1997 and
for each of the three years in the period ended January 30, 1998.
-2-
<PAGE>
99.2 Unaudited Pro Forma Combined Consolidated Condensed Financial
Statements of Great Plains Software, Inc. for the nine months
ended February 28, 1998 and the year ended May 31, 1997
reflecting the acquisition of ICONtrol, Inc.
</TABLE>
* Incorporated by reference to the Registrant's Current Report on Form
8-K, dated May 5, 1998.
-3-
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<C> <S>
*2.1 Asset Purchase Agreement, dated April 20, 1998, by and among
Great Plains Software, Inc., ICONtrol, Inc. and Holien, Inc.
23.1 Consent of Deloitte & Touche LLP
99.1 Independent Auditors' Report and Audited Financial Statements of
ICONtrol, Inc. as of January 30, 1998 and January 31, 1997 and
for each of the three years in the period ended January 30, 1998.
99.2 Unaudited Pro Forma Combined Consolidated Condensed Financial
Statements of Great Plains Software, Inc. for the nine months
ended February 28, 1998 and the year ended May 31, 1997
reflecting the acquisition of ICONtrol, Inc.
</TABLE>
* Incorporated by reference to the Registrant's Current Report on Form
8-K, dated May 5, 1998.
<PAGE>
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Great Plains Software, Inc.'s
(Great Plains) Registration Statement No. 333-30767 on Form S-8 of our report
dated April 15, 1998 (April 20, 1998 as to Note 7) (which expresses an
unqualified opinion and includes explanatory paragraphs (1) relating to the
preparation of the financial statements of ICONtrol, Inc. (ICONtrol) from the
separate records maintained by ICONtrol that may not necessarily be
indicative of the conditions that would have existed or the results of
operations if ICONtrol had been operated as an unaffiliated company and that
portions of certain income and expenses represent allocations made from
Holien, Inc., and (2) ICONtrol's sale of substantially all of its assets to
Great Plains for total consideration of approximately $7.5 million on April
20, 1998) on the ICONtrol financial statements as of January 30, 1998 and
January 31, 1997 and for each of the three years in the period ended January
30, 1998 appearing in this Current Report of Great Plains on Form 8-K/A.
/s/ DELOITTE & TOUCHE LLP
Minneapolis, Minnesota
July 2, 1998
<PAGE>
EXHIBIT 99.1
INDEPENDENT AUDITORS' REPORT
Board of Directors
ICONtrol, Inc.
We have audited the accompanying balance sheets of ICONtrol, Inc. (the
Company), an 83%-owned subsidiary of Holien, Inc., as of January 30, 1998 and
January 31, 1997 and the related statements of operations and cash flows for
each of the three years in the period ended January 30, 1998. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of ICONtrol, Inc. as of January 30, 1998 and
January 31, 1997, and the results of its operations and its cash flows for each
of the three years in the period ended January 30, 1998 in conformity with
generally accepted accounting principles.
The accompanying financial statements have been prepared from the separate
records maintained by ICONtrol, Inc. and may not necessarily be indicative of
the conditions that would have existed or the results of operations if the
Company had been operated as an unaffiliated company. Portions of certain
income and expenses represent allocations made from Holien, Inc. items
applicable to the Company as a whole.
As discussed in Note 7 to the financial statements, on April 20, 1998, the
Company sold substantially all of its assets to Great Plains Software, Inc. for
total consideration of approximately $7.5 million.
/s/DELOITTE & TOUCHE LLP
Minneapolis, Minnesota
April 15, 1998
(April 20, 1998 as to Note 7)
-4-
<PAGE>
ICONtrol, INC.
BALANCE SHEETS
JANUARY 30, 1998 AND JANUARY 31, 1997
<TABLE>
<CAPTION>
1998 1997
------------- -------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash $ 150 $ 150
Accounts receivable, less allowance for doubtful accounts
of $528,934 and $253,940 in 1998 and 1997, respectively 516,504 454,680
Due from affiliates 30,000
Prepaid expenses and other current assets 88,804 83,747
Deferred income taxes 288,808 73,905
------------ ------------
Total current assets 894,266 642,482
PROPERTY, PLANT, AND EQUIPMENT, net 373,865 657,511
DEFERRED INCOME TAXES 15,183 5,802
OTHER ASSETS 467 2,046
------------ ------------
$ 1,283,781 $ 1,307,841
------------ ------------
------------ ------------
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Checks issued in excess of available balances $ 58,642 $ 46,327
Accounts payable 58,541 230,713
Accrued payroll and benefits 333,498 639,370
Deferred revenue 321,187 194,188
Other accrued liabilities 50,000 96,716
Due to affiliates 8,630,937 6,273,364
------------ ------------
Total current liabilities 9,452,805 7,480,678
COMMITMENTS AND CONTINGENCIES (Note 6)
STOCKHOLDERS' DEFICIT:
Common stock, $10 par value; 300,000 shares authorized;
25,000 shares issued and outstanding 250,000 250,000
Accumulated deficit (8,419,024) (6,422,837)
------------ ------------
Total stockholders' deficit (8,169,024) (6,172,837)
------------ ------------
$ 1,283,781 $ 1,307,841
------------ ------------
------------ ------------
</TABLE>
See notes to financial statements.
-5-
<PAGE>
ICONtrol, INC.
STATEMENTS OF OPERATIONS
YEARS ENDED JANUARY 30, 1998, JANUARY 31, 1997, AND JANUARY 26, 1996
<TABLE>
<CAPTION>
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
NET REVENUE $ 3,036,988 $ 2,258,250 $ 1,660,165
OPERATING EXPENSES:
General and administrative 302,354 619,717 298,494
Selling 2,805,018 3,261,103 2,158,019
Research and development 2,608,358 3,399,661 2,093,442
------------ ------------ ------------
Total operating expenses 5,715,730 7,280,481 4,549,955
------------ ------------ ------------
LOSS FROM OPERATIONS (2,678,742) (5,022,231) (2,889,790)
OTHER EXPENSE (INCOME):
Management fee (income) (190,734) (345,158) (299,998)
Interest expense 528,584 387,031 210,743
Miscellaneous 7,934 106,232 (125,748)
------------ ------------ ------------
Net other expense (income) 345,784 148,105 (215,003)
------------ ------------ ------------
LOSS BEFORE INCOME TAX BENEFIT (3,024,526) (5,170,336) (2,674,787)
INCOME TAX BENEFIT (1,028,339) (1,746,589) (868,259)
------------ ------------ ------------
NET LOSS $ (1,996,187) $ (3,423,747) $ (1,806,528)
------------ ------------ ------------
------------ ------------ ------------
NET LOSS PER COMMON SHARE $ (79.85) $ (136.95) $ (72.26)
------------ ------------ ------------
------------ ------------ ------------
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 25,000 25,000 25,000
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
See notes to financial statements.
-6-
<PAGE>
ICONtrol, INC.
STATEMENTS OF CASH FLOWS
YEARS ENDED JANUARY 30, 1998, JANUARY 31, 1997 AND JANUARY 26, 1996
<TABLE>
<CAPTION>
1998 1997 1996
------------- ------------ -------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (1,996,187) $ (3,423,747) $ (1,806,528)
Adjustments to reconcile net loss to net cash used in
operating activities:
Loss on sale of equipment 36,281 60,949
Depreciation and amortization 278,875 300,884 195,630
Increase in deferred taxes (224,284) (52,019) (16,088)
Changes in operating assets and liabilities:
Accounts receivable (61,824) (75,360) (127,453)
Prepaid expenses, other current assets and
other assets (3,478) 53,279 (70,358)
Accounts payable (172,172) 87,218 11,305
Other current liabilities (225,589) 551,230 270,192
------------- ------------ -------------
Net cash used in operating activities (2,368,378) (2,497,566) (1,543,300)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property, plant, and equipment (31,510) (445,725) (458,365)
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in checks issued in excess of available
balances 12,315 46,327
Repayment of note payable - stockholder (380,586) (265,830)
Borrowings under long-term debt 310,000
Repayment of long-term debt (443,587) (43,542)
Increase in due to/from affiliates 2,387,573 3,707,617 1,977,415
------------- ------------ -------------
Net cash provided by financing activities 2,399,888 2,929,771 1,978,043
------------- ------------ -------------
NET DECREASE IN CASH (13,520) (23,622)
CASH AT BEGINNING OF YEAR 150 13,670 37,292
------------- ------------ -------------
CASH AT END OF YEAR $ 150 $ 150 $ 13,670
------------- ------------ -------------
------------- ------------ -------------
</TABLE>
See notes to financial statements.
-7-
<PAGE>
ICONtrol, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED JANUARY 30, 1998, JANUARY 31, 1997 AND JANUARY 26, 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS DESCRIPTION - ICONtrol, Inc. (the Company), an 83%-owned
subsidiary of Holien, Inc., is a South Dakota corporation incorporated in
October 1992. Holien, Inc. is a holding company and does not have any
operating activities. The Company is engaged in the development and
marketing of application software.
The Company currently has three products:
- ICONtrol, INC. MANUFACTURING is an enterprise-wide software package
for mid-size manufacturing companies.
- ICONtrol, INC. HUMAN RESOURCES gives companies the ability to store,
analyze, and integrate all employee information in one central location.
- ICONtrol, INC. DIRECT DEPOSIT enables companies to have payroll funds
automatically added to employees' bank accounts.
In addition to the Company's three principal software products identified
above, the Company also acts as an Internet service provider (ISP). The ISP
business accounts for less than 10% of the Company's operations.
BUSINESS RISKS - The nature of the Company's operations exposes the Company
to certain business risks. The markets for direct deposit, human resources, and
manufacturing computer software are highly competitive and subject to
technological change and evolving industry standards that may significantly
affect both the operations of the Company and its customers.
Other significant business risks faced by the Company include a dependence
on key employees and the risk of liability associated with unanticipated product
errors.
MANAGEMENT'S USE OF ESTIMATES - The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
FISCAL YEAR - The Company's fiscal year ends on the last Friday in January.
REVENUE RECOGNITION - The Company recognizes revenue in accordance with
Statement of Position (SOP) 91-1, SOFTWARE REVENUE RECOGNITION, as follows:
-8-
<PAGE>
SOFTWARE LICENSING AGREEMENTS - Revenue from software licensing agreements
is recognized once a signed, noncancelable license agreement has been received
from the customer, the product has been delivered, and any remaining obligations
under the license agreements are insignificant.
IMPLEMENTATION SERVICES - Revenue for implementation services are
recognized in the period the services are provided.
SUPPORT AND MAINTENANCE SERVICES - Revenues for support and maintenance
services are recognized ratably over the contract term. Deferred revenue on
support and maintenance contracts at January 30, 1998 and January 31, 1997 was
$321,187 and $194,188, respectively.
INTERNET SERVICE - Revenues for providing Internet service are recognized
ratably over the contract term.
CONCENTRATIONS OF CREDIT RISK - The Company had one customer that accounted
for 14% of net accounts receivable as of January 30, 1998. The Company had no
other customers that accounted for more than 10% of net accounts receivable as
of January 30, 1998 or January 31, 1997. No single customer accounted for more
than 10% of net revenue in fiscal 1998, 1997, or 1996.
The Company periodically reviews all customer accounts receivable for
collectibility. The Company manages credit risk by evaluating customer credit
worthiness regularly. Accounts receivable for which collectibility is not
assured are reserved for through an establishment of an allowance for doubtful
accounts. Customer accounts considered by management to be uncollectible are
written off. The Company also records an allowance for potential sales returns
when the related sales are recorded. No material export sales occurred in
fiscal 1998, 1997, or 1996.
COMPUTER SOFTWARE DEVELOPMENT COSTS - Under the criteria set forth in
Statement of Financial Accounting Standards (SFAS) No. 86, ACCOUNTING FOR THE
COSTS OF COMPUTER SOFTWARE TO BE SOLD, LEASED, OR OTHERWISE MARKETED,
capitalization of software development costs begins upon the establishment of
technological feasibility of the product. The establishment of technological
feasibility and the ongoing assessment of the recoverability of these costs
require considerable judgment by management with respect to certain external
factors, including, but not limited to, anticipated future gross product
revenues, estimated economic product lives, and changes of software and hardware
technology. In accordance with SFAS No. 86, management has determined that
technological feasibility commences when a working model is completed which
performs all the major functions planned for the product. For products which
have met technological feasibility to date, the amount of time and expenditures
incurred between the establishment of technological feasibility and the general
release of the product to customers has been minimal. Management believes that
the amount of any software development costs that could be capitalized is
immaterial. Accordingly, all software development costs have been expensed as
incurred.
RESEARCH AND DEVELOPMENT - Research and development costs are expensed in
the period incurred.
PROPERTY, PLANT, AND EQUIPMENT - Property, plant, and equipment are stated
at cost and are depreciated over the estimated useful lives of the assets.
Accelerated depreciation methods were used for both book and tax purposes for
assets acquired prior to August 1997. For assets acquired after July 1997,
depreciation is calculated on the straight-line basis. The effect of this
change on the fiscal 1998 financial statements is not significant.
-9-
<PAGE>
Additions and betterments are capitalized. Expenditures for repairs and
maintenance which do not improve efficiency or extend economic life are expensed
as incurred. Upon retirement of an asset, the cost and related accumulated
depreciation and amortization are removed from the accounts and the resulting
gain or loss is reflected in current operations. Management periodically
reviews the carrying value of the assets in relation to current and expected
operating results of the business in order to assess whether there has been a
permanent impairment of such amounts.
INCOME TAXES - The Company's taxable loss is included in the consolidated
federal income tax return of Holien, Inc. The Company provides for current and
deferred federal income taxes on a separate-return basis, however, the benefit
of net operating losses are recognized as such net operating losses are utilized
in the consolidated income tax return. The impact of current taxes are recorded
in the due to affiliates as if Holien, Inc. was the federal taxing authority.
The Company accounts for income taxes in accordance with SFAS No. 109,
ACCOUNTING FOR INCOME TAXES, which requires an asset and liability approach to
financial accounting and reporting for income taxes. Deferred income tax assets
and liabilities are computed annually for differences between the financial
statement and income tax bases of assets and liabilities that will result in
taxable or deductible amounts in the future based on enacted tax laws and rates
applicable to the periods in which the differences are expected to affect
taxable income. Valuation allowances are established when necessary to reduce
deferred tax assets to the amount expected to be realized. Income tax expense
is the tax payable or refundable for the period plus or minus the change during
the period in deferred tax assets and liabilities.
NET LOSS PER COMMON SHARE - The Company calculates net loss per common
share in accordance with SFAS No. 128, EARNINGS PER SHARE, which requires the
presentation of earnings per share on a basic and diluted basis. Basic net loss
per share is computed by dividing net loss available to common stockholders by
the weighted average number of shares outstanding during the year. Diluted
earnings per share reflects the potential dilution that could occur if
securities or other contracts to issue common stock were exercised or converted
into common stock or that resulted in the issuance of additional common stock
that then shared in the earnings of the entity. Diluted net loss per share is
equal to basic net loss per share as no potentially dilutive securities (such as
stock options or warrants) exist.
FAIR VALUE OF FINANCIAL INSTRUMENTS - The book value of accounts
receivable; due from affiliates; accounts payable; accrued payroll and benefits;
deferred revenue; other accrued liabilities and due to affiliates approximates
fair value due to the short-term nature of these balances.
-10-
<PAGE>
2. SELECTED FINANCIAL STATEMENT INFORMATION
The following provides additional information concerning balance sheet
accounts:
<TABLE>
<CAPTION>
1998 1997
------------- -------------
<S> <C> <C>
Property, plant, and equipment, net:
Furniture, fixtures, and equipment $ 1,295,257 $ 1,301,880
Less accumulated depreciation 921,392 644,369
------------ -----------
$ 373,865 $ 657,511
------------ -----------
------------ -----------
</TABLE>
The following provides additional information concerning revenue
for the years ended January:
<TABLE>
<CAPTION>
1998 1997 1996
------------- ------------ -------------
<S> <C> <C> <C>
Net revenue:
Software licensing agreements $ 1,806,627 $ 1,925,404 $ 1,689,081
Implementation services 487,801 396,990 28,935
Support and maintenance services 569,230 180,168 191,803
Internet service 278,914 6,516
------------ ------------ ------------
3,142,572 2,509,078 1,909,819
Less sales returns and allowances 105,584 250,828 249,654
------------ ------------ ------------
$ 3,036,988 $ 2,258,250 $ 1,660,165
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
3. TRANSACTIONS WITH AFFILIATES
DUE TO AFFILIATES - The Company obtains financing for its working capital
needs from other subsidiaries of Holien, Inc. Funds are advanced to the Company
as needed and repayments are made by the Company when cash is received. As of
January 30, 1998 and January 31, 1997, the Company had net amounts due to
subsidiaries of Holien, Inc. of $8,630,937 and $6,243,364, respectively.
Although there is no formal agreement documenting this financing
arrangement, interest was charged on the outstanding balance at a rate of
approximately 7% in fiscal 1998, 1997, and 1996. Interest expense on amounts
due to affiliates during fiscal 1998, 1997, and 1996 totaled $528,584, $338,079,
and $135,363, respectively. All interest expense on amounts due to affiliates
increased the total amount due to affiliates.
MANAGEMENT FEE (INCOME) - Certain executives of Holien, Inc. and
subsidiaries receive bonuses based on the profitability of the Company and
other Holien, Inc. subsidiaries. In addition, a subsidiary of Holien, Inc.
charged the Company a management fee for certain accounting and management
services during fiscal 1998, 1997, and 1996. Due to the net losses of the
Company during fiscal 1998, 1997, and 1996, the Company received a bonus
credit of $319,221, $535,482, and $328,664, respectively. Management fees
during fiscal 1998, 1997, and 1996 totaled $128,487, $190,324, and $28,666,
respectively. The following table provides a reconciliation of the net
management fee (income) appearing in the statements of operations:
-11-
<PAGE>
<TABLE>
<CAPTION>
1998 1997 1996
------------- ------------- -------------
<S> <C> <C> <C>
Management fee $ 128,487 $ 190,324 $ 28,666
Bonus credit (319,221) (535,482) (328,664)
------------ ------------ -----------
Net management fee (income) $ (190,734) $ (345,158) $ (299,998)
------------ ------------ -----------
------------ ------------ -----------
</TABLE>
INSURANCE EXPENSE - Insurance expense, including general liability,
workers compensation, health insurance, and other insurance is allocated to
the Company by a Holien, Inc. subsidiary based on head count and payroll
costs. Allocated insurance expense, consisting largely of claims paid and
administrative fees, was $159,058, $178,715, and $58,328 during fiscal 1998,
1997, and 1996, respectively.
4. INCOME TAXES
The income tax benefits recognized for fiscal 1998, 1997, and 1996 are
as follows:
<TABLE>
<CAPTION>
1998 1997 1996
------------- ------------- --------------
<S> <C> <C> <C>
Current $ (804,055) $ (1,694,570) $ (852,171)
Deferred (224,284) (52,019) (16,088)
------------ ------------ ------------
$ (1,028,339) $ (1,746,589) $ (868,259)
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
The following are reconciliations of the federal income tax benefit
calculated at the statutory rate of 35% to the actual income tax benefits
recognized for fiscal 1998, 1997, and 1996:
<TABLE>
<CAPTION>
1998 1997 1996
------------- ------------- --------------
<S> <C> <C> <C>
Computed expected federal income tax benefit $ (1,058,584) $ (1,831,416) $ (896,878)
Effect of graduated rates 30,245 52,326 25,625
Other 32,501 2,994
------------ ------------ ------------
$ (1,028,339) $ (1,746,589) $ (868,259)
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
Temporary differences comprising deferred tax assets as of January 30,
1998 and January 31, 1997 are summarized as follows:
<TABLE>
<CAPTION>
1998 1997
------------------------------------ ------------------------------------
Current Noncurrent Total Current Noncurrent Total
<S> <C> <C> <C> <C> <C> <C>
Accounts receivable reserves $ 145,512 $ 145,512 24,956 $ 24,956
Accrued vacation 28,993 28,993 41,347 41,347
Deferred revenue 109,203 109,203
Other 5,100 $ 15,183 20,283 7,602 $ 5,802 13,404
---------- ---------- ---------- ---------- ---------- ----------
$ 288,808 $ 15,183 $ 303,991 $ 73,905 $ 5,802 $ 79,707
---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ----------
</TABLE>
-12-
<PAGE>
5. EMPLOYEE BENEFIT PLAN
Holien, Inc. maintains a defined contribution plan covering substantially
all full-time employees of Holien, Inc. and subsidiaries (including the
Company's) which is intended to qualify under Section 401(k) of the Internal
Revenue Code. Participation in the plan is voluntary, and all company matching
contributions are discretionary and determined on an annual basis. Employer
contributions made to the plan for the Company's employees for fiscal 1998,
1997, and 1996 totaled $12,084, $18,210, and $10,226, respectively.
6. COMMITMENTS AND CONTINGENCIES
Minority Interest Repurchase - The Company is obligated to repurchase the
shares of common stock held by minority stockholders at fair market value, upon
request, death, disability, or upon termination of the employee/stockholder.
Fair market value represents the value determined by stockholders of the Company
prior to any repurchase transaction.
LEASE COMMITMENTS - The Company leases certain buildings under
noncancelable operating leases expiring in fiscal 1999. In addition to the
minimum lease payments, the leases require payment of real estate taxes,
insurance, and building operating expenses. Costs incurred under these
operating leases are recorded as rent expense and aggregated $124,995, $155,802,
and $73,005 in fiscal 1998, 1997, and 1996, respectively. Future minimum lease
payments under these leases total $148,800 for the year ending January 29, 1999.
OTHER - In the ordinary course of business, the Company is a party to
several claims and disputes and threatened litigation. While the outcome of
these matters cannot be predicted with certainty, management presently believes
the disposition of these matters will not have a material effect on the
financial position or results of operations of the Company.
7. SUBSEQUENT EVENT
On April 20, 1998, the Company sold substantially all of its assets to
Great Plains Software, Inc. (Great Plains) for total consideration of
approximately $7.5 million. In connection with this transaction, Great Plains
assumed certain liabilities consisting of deferred revenue for support and
maintenance services and other liabilities. Following the sale, management
believes that the Company's principal operation will be as an Internet service
provider.
-13-
<PAGE>
EXHIBIT 99.2
GREAT PLAINS SOFTWARE, INC
PRO FORMA COMBINED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
The following unaudited pro forma combined consolidated condensed
balance sheet as of February 28, 1998 and the unaudited pro forma combined
consolidated condensed income statements for the nine months ended February
28, 1998 and for the year ended May 31, 1997 give effect to the acquisition
of ICONtrol Inc. as if it had occurred on February 28, 1998 for the purposes
of the balance sheets and as of June 1, 1997 and June 1, 1996, respectively
for purposes of the income statement. The unaudited pro forma information is
based on the historical financial statements of Great Plains Software, Inc.
(the "Company") and ICONtrol giving effect to the transaction under the
purchase method of accounting and the assumptions and adjustments in the
accompanying notes to the pro forma financials.
The Company has a fiscal year end of May 31 while ICONtrol has a fiscal
year end of the last Friday in January. As a result, ICONtrol's unaudited
financial statements for the nine months ended February 28, 1998 combined
ICONtrol's financial statements for the eight months ended January 30, 1998
and the one month ended February 28,1998. For the year ended May 31, 1997,
ICONtrol's unaudited financial statements combined the eight months ended
January 31, 1997 and the four months ended May 31, 1997.
An after tax charge of $3.4 million resulting from purchased in process
research and development costs has been reflected in stockholders equity in the
pro forma combined consolidated condensed balance sheet at February 28, 1998.
This same charge has been excluded from the pro forma combined consolidated
condensed income statement for the nine months ended February 28, 1998 and the
year ended May 31, 1997, consistent with Rule 11-02 of Regulation SX.
The unaudited pro forma statements have been prepared by the Company's
management based upon the financial information of the Company and ICONtrol.
The pro forma information is presented for illustrative purposes only and is not
necessarily indicative of the financial position or results of operations which
would actually have been reported had the acquisition been in effect during
these periods or which may be reported in the future. These unaudited pro forma
financial statements should be read in conjunction with the separate notes to
the unaudited financial statements and related notes thereto of the Company and
ICONtrol.
-14-
<PAGE>
GREAT PLAINS SOFTWARE, INC.
PRO FORMA COMBINED CONSOLIDATED CONDENSED BALANCE SHEETS
FEBRUARY 28, 1998
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Great Plains Pro Forma Pro Forma
Software, Inc. ICONtrol, Inc (a) Adjustment Combined
<S> <C> <C> <C> <C>
Assets
Current Assets
Cash and cash equivalents $ 16,923 $ (7,490) (b) $ 9,433
Investments 54,899 54,899
Accounts receivable,net 7,038 $ 532 (103) (c) 7,467
Deferred income taxes 3,718 304 (304) (c) 3,718
Other current assets 3,569 45 (23) (c) 3,591
--------- -------- -------- --------
Total current assets 86,147 881 (7,920) 79,108
Property and equipment, net 7,528 356 (141) (c) 7,743
Goodwill and other intangilbes, net 351 1,890 (b) 2,241
Deferred tax assets 2,073 (b) 2,073
Other assets 2,612 2,612
--------- -------- -------- --------
Total assets $ 96,638 $ 1,237 $ (4,098) $ 93,777
--------- -------- -------- --------
--------- -------- -------- --------
Liabilities and stockholders' equity (deficit)
Current liabilites
Accounts payable $ 2,979 $ 93 $ (93) (c) $ 2,979
Accrued expenses 8,488 349 (164) (c) 8,673
Deferred revenue 13,162 333 4 (c) 13,499
Intercompany debt 8,807 (8,807) (c)
--------- -------- -------- --------
Total current liabilities 24,629 9,582 (9,060) 25,151
Long-term liabilities
Deferred tax liability 838 838
--------- -------- -------- --------
Total liabilities 25,467 9,582 (9,060) 25,989
Stockholders' equity (deficit)
Common stock 137 250 (250) (c) 137
Additional paid-in capital 67,698 67,698
Retained earnings (deficit) 3,336 (8,595) 5,212 (b)(c) (47)
--------- -------- -------- --------
Total stockholders's equity (deficit) 71,171 (8,345) 4,962 67,788
--------- -------- -------- --------
Total liabilities and stockholders' equity (deficit) $ 96,638 $ 1,237 $ (4,098) $ 93,777
--------- -------- -------- --------
--------- -------- -------- --------
</TABLE>
See Notes to Unaudited Pro Forma Combined Consolidated Condensed Financial
Statements.
-15-
<PAGE>
GREAT PLAINS SOFTWARE, INC.
PRO FORMA COMBINED CONSOLIDATED CONDENSED INCOME STATEMENT
FOR NINE MONTHS ENDING FEBRUARY 28, 1998
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
Great Plains Pro Forma Pro Forma
Software, Inc. ICONtrol, Inc (a) Adjustment (i) Combined
<S> <C> <C> <C> <C>
Revenues:
License $36,433 $1,172 $ (44) (d) $37,561
Service 22,993 977 (28) (d) 23,942
-------- ------- ----- -------
Total revenues 59,426 2,149 (72) 61,503
Cost of Revenues:
License 7,855 166 (44) (d) 7,977
Service 7,483 763 (28) (d) 8,218
-------- ------- ----- -------
Total cost of revenues 15,338 929 (72) 16,195
-------- ------- ----- -------
Gross margin 44,088 1,220 0 45,308
Operating expenses:
Sales and marketing 22,325 1,385 23,710
Research and development 8,718 1,410 284 (f) 10,412
General and administrative 5,641 145 5,786
-------- ------- ----- -------
Total operating expenses 36,684 2,940 284 39,908
-------- ------- ----- -------
Operating income (loss) 7,404 (1,720) (284) 5,400
Other income (expense), net 2,681 (259) 116 (g) 2,538
-------- ------- ----- -------
Income (loss) before taxes 10,085 (1,979) (168) 7,938
Income tax provision (benefit) 4,035 (673) (67) (h) 3,295
-------- ------- ----- -------
Net income (loss) $ 6,050 $(1,306) $(101) $ 4,643
-------- ------- ----- -------
-------- ------- ----- -------
Basic net income (loss) per share $0.46 $(52.24) $0.35
Shares used in computing basic
net income (loss) per share 13,269,032 25,000 13,269,032
Diluted net income (loss) per share $0.43 $(52.24) $0.33
Shares used in computing diluted
net income (loss) per share 13,963,303 25,000 13,963,303
</TABLE>
See Notes to Unaudited Pro Forma Combined Consolidated Condensed Financial
Statements.
-16-
<PAGE>
GREAT PLAINS SOFTWARE, INC.
PROFORMA COMBINED CONSOLIDATED CONDENSED INCOME STATEMENT
FOR THE YEAR ENDED MAY 31, 1997
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
Great Plains Pro Forma Pro Forma
Software, Inc. ICONtrol, Inc (a) Adjustment (i) Combined
<S> <C> <C> <C> <C>
Revenues:
License $ 35,919 $ 1,802 $ (165) (d) $ 37,556
Service 21,201 746 (98) (d) 21,849
----------- ---------- -------- ----------
Total revenues 57,120 2,548 (263) 59,405
Cost of Revenues:
License 6,362 259 (165) (d) 6,456
Service 8,260 1,575 (98) (d) 9,737
----------- ---------- -------- ----------
Total cost of revenues 14,622 1,834 (263) 16,193
----------- ---------- -------- ----------
Gross margin 42,498 714 0 43,212
Operating expenses:
Sales and marketing 21,935 2,621 24,556
Research and development 9,678 2,559 378 (e) 12,615
General and administrative 5,592 684 6,276
----------- ---------- -------- ----------
Total operating expenses 37,205 5,864 378 43,447
----------- ---------- -------- ----------
Operating income (loss) 5,293 (5,150) (378) (235)
Other income (expense), net 558 (148) 48 (g) 458
----------- ---------- -------- ----------
Income (loss) before taxes 5,851 (5,298) (330) 223
Income tax provision (benefit) 2,207 (1,801) (321) (h) 85
----------- ---------- -------- ----------
Net income (loss) $ 3,644 $ (3,497) $ (9) $ 138
----------- ---------- -------- ----------
----------- ---------- -------- ----------
Basic net income (loss) per share $ (1.78) $ (139.86) $ (2.24)
Shares used in computing basic
net income (loss) per share 7,629,460 25,000 7,629,460
Diluted net income (loss) per share $ 0.36 $ (139.86) $ 0.01
Shares used in computing diluted
net income (loss) per share 10,003,349 25,000 10,003,349
</TABLE>
See Notes to Unaudited Pro Forma Combined Consolidated Condensed Financial
Statements.
-17-
<PAGE>
GREAT PLAINS SOFTWARE INC.
NOTES TO UNAUDITED PRO FORMA COMBINED CONSOLIDATED
CONDENSED FINANCIAL STATEMENTS
(a) Certain reclassifications were made to conform to the Company's
headings.
(b) Adjustments to reflect the net assets acquired from ICONtrol acquired
by payment of $7.5 million of cash. Such adjustments include a $3.4
million reduction in equity to reflect the after tax charge of
purchased in process research and development, creation of a deferred
tax asset of $2.1 million, and intangible assets of $1.9 million.
(c) Adjustment to reflect certain assets that were not acquired and
certain liabilities that were not assumed as part of the purchase.
(d) Elimination of revenues and cost of revenues between the Company and
ICONtrol.
(e) Additional amortization of purchased intangible assets resulting from
the acquisition of ICONtrol assuming it had taken place on June 1,
1996. Amortization of intangibles is calculated on a straightline
basis with an estimated life of 5 years.
(f) Additional amortization of purchased intangible assets resulting from
the acquisition of ICONtrol assuming it had taken place on June 1,
1997. Amortization of intangibles is calculated on a straightline
basis with an estimated life of 5 years.
(g) Elimination of interest expense associated with the outstanding debt
that was not assumed as part of the transaction as well as the
reduction of interest income as a result of the cash outlay for the
purchase.
(h) Income tax effect relating to amortization of intangible assets and
interest expense/income adjustments as well as adjustments to
reflect the overall tax rate on the combined income (loss) before
taxes.
(i) The income statement presentation excludes the effect of the $3.4
million after tax charge to operations taken at the time of
acquisition for purchased in process research and development costs.
-18-
<PAGE>
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 hereunto duly authorized.
Date: July 2, 1998 GREAT PLAINS SOFTWARE, INC.
/s/ Terri F. Zimmerman
------------------------------
Terri F. Zimmerman
Chief Financial Officer
