<PAGE>   1
 
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                UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
 
                             ---------------------
 
                                   FORM 10-Q
                                QUARTERLY REPORT
                        PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934
 
                        FOR QUARTER ENDED JUNE 30, 1998
 
                         COMMISSION FILE NUMBER 0-23117
 
                              BEST SOFTWARE, INC.
             (Exact Name of Registrant as Specified in its Charter)
 
<TABLE>
<S>                            <C>                            <C>
          VIRGINIA                         7372                        54-1222526
(State or other jurisdiction   (Primary Standard Industrial         (I.R.S. Employer
              of                Classification Code Number)        Identification No.)
      incorporation or
         organization)
</TABLE>
 
                           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)
 
                             ---------------------
 
     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  [ ]
 
     Indicate the number of shares outstanding of each of issuer's classes of
common stock as of the latest practicable date:
 
<TABLE>
<CAPTION>
                                                                NUMBER OF
                                                                  SHARES
                                                              OUTSTANDING ON
                       TITLE OF CLASS                         JULY 31, 1998
                       --------------                         --------------
<S>                                                           <C>
Common Stock, no par value..................................    11,602,966
</TABLE>
 
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<PAGE>   2
 
                              BEST SOFTWARE, INC.
 
                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
 
<TABLE>
<CAPTION>
                                                                PAGE
                                                                ----
  <S>                                                           <C>
  PART I  FINANCIAL INFORMATION
    ITEM 1.  CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
       (UNAUDITED)
    Consolidated Balance Sheets as of June 30, 1998 and
       December 31, 1997......................................   3
    Consolidated Statements of Operations for the three and
       six months ended June 30, 1998 and 1997................   4
    Consolidated Statements of Cash Flows for the six months
       ended June 30, 1998 and 1997...........................   5
    Notes to Consolidated Financial Statements................   6
    ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
       CONDITION AND RESULTS OF OPERATIONS....................   8
    ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
       MARKET RISK............................................   15
  PART II  OTHER INFORMATION
    ITEM 1.  LEGAL PROCEEDINGS................................   15
    ITEM 2.  CHANGES IN SECURITIES AND USE OF PROCEEDS........   15
    ITEM 3.  DEFAULTS UPON SENIOR SECURITIES..................   15
    ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY
       HOLDERS................................................   15
    ITEM 5.  OTHER INFORMATION................................   16
    ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K.................   16
    SIGNATURE.................................................   17
    EXHIBIT INDEX.............................................   18
</TABLE>
 
                                        2
<PAGE>   3
 
                                     PART I
 
ITEM 1.  FINANCIAL STATEMENTS
 
                              BEST SOFTWARE, INC.
 
                          CONSOLIDATED BALANCE SHEETS
                       (IN THOUSANDS, EXCEPT SHARE DATA)
 
<TABLE>
<CAPTION>
                                                               JUNE 30,     DECEMBER 31,
                                                                 1998           1997
                                                              -----------   ------------
                                                              (UNAUDITED)
<S>                                                           <C>           <C>
ASSETS
Current assets:
  Cash and cash equivalents.................................    $27,409       $33,164
  Short-term investments....................................     16,126        12,268
  Accounts receivable, net of allowance ($1,456 and $991
     respectively)..........................................      6,381         4,661
  Inventory.................................................        313           280
  Prepaid expenses and other current assets.................      2,680         1,419
  Deferred tax asset........................................      1,250           700
                                                                -------       -------
          Total.............................................     54,159        52,492
                                                                -------       -------
  Property and equipment, net...............................      2,918         2,182
  Deferred tax asset........................................      5,350         2,300
  Other assets..............................................      1,372            36
                                                                -------       -------
          Total.............................................    $63,799       $57,010
                                                                =======       =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
  Accounts payable and accrued expenses.....................    $12,313       $10,375
  Notes payable -- current..................................        414           650
  Deferred maintenance and services revenue.................     17,261        14,918
                                                                -------       -------
          Total.............................................     29,988        25,943
                                                                -------       -------
  Note payable -- noncurrent................................        116            --
  Deferred maintenance and services revenue.................        999         1,313
  Other noncurrent liabilities..............................        820            --
                                                                -------       -------
          Total liabilities.................................     31,923        27,256
                                                                =======       =======
Shareholders' equity:
  Preferred stock, $0.01 par value; 1,000,000 shares
     authorized, none issued................................         --            --
  Common stock, no par value; 40,000,000 shares authorized;
     11,601,266 and 10,913,385 shares issued and
     outstanding, respectively..............................     33,630        33,604
  Additional paid-in capital................................      5,066         1,000
  Deferred compensation.....................................       (109)         (124)
  Foreign currency translation adjustments, net.............         10            --
  Accumulated deficit.......................................     (6,721)       (4,726)
                                                                -------       -------
          Total shareholders' equity........................     31,876        29,754
                                                                -------       -------
          Total.............................................    $63,799       $57,010
                                                                =======       =======
</TABLE>
 
 The accompanying notes are an integral part of these consolidated statements.
 
                                        3
<PAGE>   4
 
                              BEST SOFTWARE, INC.
 
                     CONSOLIDATED STATEMENTS OF OPERATIONS
                     (IN THOUSANDS, EXCEPT PER SHARE DATA)
 
<TABLE>
<CAPTION>
                                                    THREE MONTHS ENDED           SIX MONTHS ENDED
                                                         JUNE 30,                    JUNE 30,
                                                 -------------------------   -------------------------
                                                    1998          1997          1998          1997
                                                 -----------   -----------   -----------   -----------
                                                 (UNAUDITED)   (UNAUDITED)   (UNAUDITED)   (UNAUDITED)
<S>                                              <C>           <C>           <C>           <C>
Revenue:
  License fees and royalty.....................    $ 8,339       $ 5,358       $15,142       $10,348
  Services.....................................      7,914         5,288        14,809        10,464
                                                   -------       -------       -------       -------
          Total................................     16,253        10,646        29,951        20,812
                                                   -------       -------       -------       -------
Cost of revenue:
  License fees and royalty.....................        455           371           895         1,174
  Services.....................................      2,807         1,470         4,946         3,035
                                                   -------       -------       -------       -------
          Total................................      3,262         1,841         5,841         4,209
                                                   -------       -------       -------       -------
Gross margin...................................     12,991         8,805        24,110        16,603
                                                   -------       -------       -------       -------
Operating expenses:
  Sales and marketing..........................      5,847         4,305        10,551         7,849
  Research and development.....................      2,700         2,048         4,821         3,386
  General and administrative...................      2,096         1,585         3,806         2,977
Write-off of purchased research and
  development..................................         --            --         9,370            --
                                                   -------       -------       -------       -------
          Total................................     10,643         7,938        28,548        14,212
                                                   -------       -------       -------       -------
Operating income (loss)........................      2,348           867        (4,438)        2,391
Other income (expense), net....................        558          (293)        1,152          (168)
                                                   -------       -------       -------       -------
Income (loss) from operations before income
  taxes........................................      2,906           574        (3,286)        2,223
Income tax benefit (provision).................     (1,110)         (225)        1,290           230
                                                   -------       -------       -------       -------
Net income (loss)..............................    $ 1,796       $   349       $(1,996)      $ 2,453
                                                   =======       =======       =======       =======
Basic net income (loss) per share..............    $  0.16       $   .05       $ (0.18)      $  0.36
                                                   =======       =======       =======       =======
Diluted net income (loss) per share............    $  0.15       $   .04       $ (0.18)      $  0.29
                                                   =======       =======       =======       =======
Basic weighted average shares outstanding......     11,568         7,000        11,276         6,866
                                                   =======       =======       =======       =======
Diluted weighted average shares outstanding....     12,249         8,624        11,276         8,375
                                                   =======       =======       =======       =======
</TABLE>
 
 The accompanying notes are an integral part of these consolidated statements.
 
                                        4
<PAGE>   5
 
                              BEST SOFTWARE, INC.
 
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)
 
<TABLE>
<CAPTION>
                                                                    SIX MONTHS ENDED
                                                                        JUNE 30,
                                                                -------------------------
                                                                   1998          1997
                                                                -----------   -----------
                                                                (UNAUDITED)   (UNAUDITED)
  <S>                                                           <C>           <C>
  Net income (loss)...........................................   $ (1,996)      $ 2,453
  Adjustments to reconcile net income to net cash provided by
    operating activities:
    Depreciation and amortization.............................        815           630
    Compensation associated with stock options................         13            --
    Modification of warrants and amortization of debt
       discount...............................................         --           301
    Tax benefit from options exercised........................        426           538
    Write-off of purchased research and development...........      9,370            --
    Deferred taxes............................................     (3,600)       (1,098)
  (Increase) decrease in assets:
    Accounts receivable (net).................................       (340)          656
    Inventory.................................................        (23)           12
    Prepaid expenses and other assets.........................       (332)           23
  Increase (decrease) in liabilities:
    Accounts payable and accrued expenses.....................      1,660         1,935
  Deferred maintenance and services revenue...................      1,530           914
                                                                 --------       -------
    Net cash provided by operating activities.................      7,523         6,364
                                                                 --------       -------
  Cash flows from investing activities:
    Purchases of property and equipment.......................     (1,155)         (430)
    Purchases of short-term investments.......................    (21,037)           --
    Sales of short-term investments...........................     17,178            --
    Acquisition of HR Management Software GmbH................     (6,800)           --
                                                                 --------       -------
       Net cash used in investing activities..................    (11,814)         (430)
                                                                 --------       -------
  Cash flows from financing activities:
    Proceeds from exercise of stock options and warrants......        265           513
    Purchase and retirement of treasury stock.................       (355)       (1,089)
    Cash dividends paid to shareholders.......................         --       (11,121)
    Principal payments on notes payable or capital lease
       obligation.............................................     (1,391)          (39)
                                                                 --------       -------
       Net cash used in financing activities..................     (1,481)      (11,736)
                                                                 --------       -------
  Effect of exchange rate changes.............................         17            --
                                                                 --------       -------
  Net decrease in cash and cash equivalents...................     (5,755)       (5,802)
  Cash and cash equivalents, beginning of period..............     33,164        13,231
                                                                 --------       -------
  Cash and cash equivalents, end of period....................   $ 27,409       $ 7,429
                                                                 ========       =======
  SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
       Cash paid during the period for:
       Income taxes...........................................   $  1,669       $   235
       Interest...............................................   $     35       $   485
  SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING
    ACTIVITIES:
       240,000 Shares issued to HR Management Software GmbH...   $  3,630       $    --
</TABLE>
 
 The accompanying notes are an integral part of these consolidated statements.
 
                                        5
<PAGE>   6
 
                              BEST SOFTWARE, INC.
 
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        AS OF JUNE 30, 1998 (UNAUDITED)
 
1.  BASIS OF PRESENTATION
 
     The accompanying unaudited consolidated financial statements and notes
thereto have been prepared in accordance with generally accepted accounting
principles for interim financial information and should be read in conjunction
with the audited consolidated financial statements for the nine month transition
period ended December 31, 1997 included in the Company's Form 10-K. Certain
information and footnote disclosures normally included in annual financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted as permitted by rules and regulations of the
Securities and Exchange Commission. Interim results of operations for the six
month period ended June 30, 1998 are not necessarily indicative of operating
results for the full fiscal year.
 
     In the opinion of management, all adjustments (consisting of normal
recurring entries) necessary for the fair presentation of the consolidated
financial position, results of operations, and changes in cash flows for the
periods presented have been included. 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 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.
 
FOREIGN CURRENCY TRANSLATION
 
     In general, the functional currency of a foreign operation is deemed to be
the local country's currency. Consequently, assets and liabilities of operations
outside the United States are translated into United States dollars using the
exchange rate in effect at the balance sheet date. Revenue and expense accounts
for these operations are translated using the average exchange rate during the
period. The effects of foreign currency translation adjustments are included as
a separate component of shareholders' equity.
 
2.  NET INCOME PER SHARE
 
     In March 1997, the Financial Accounting Standards Board issued Statement of
Financial Account Standards ("SFAS") No. 128, "Earnings Per Share". SFAS No. 128
requires dual presentation of basic and diluted earnings per share. Basic
earnings per share includes no dilution and is computed by dividing net income
available to common shareholders by the weighted average number of common shares
outstanding for the period.
 
     In February 1998, the Securities and Exchange Commission released Staff
Accounting Bulletin (SAB) No. 98 on computation of earnings per share. SAB 98
replaces SAB 83 which previously required that all common stock, options and
warrants issued within one year of an Initial Public Offering be included in the
calculation of earnings per share as if outstanding for all periods presented.
Under SAB 98, only issuances of common stock, options and warrants issued for
nominal consideration in periods preceding an Initial Public Offering are
required to be included in the calculation of earnings per share as if they were
outstanding for all periods presented. In the periods preceding the Company's
Initial Public Offering, the Company had no issuances of common stock, options
or warrants for nominal consideration.
 
     Earnings per share for all 1997 periods presented has been restated to
comply with Statement of Financial Accounting Standards ("SFAS") No. 128 and SAB
No. 98.
 
                                        6
<PAGE>   7
                              BEST SOFTWARE, INC.
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
     The Company implemented SFAS No. 128, "Earnings Per Share." In accordance
with SFAS No. 128, basic net income per share and diluted net income per share
can be reconciled as indicated below (in thousands, except per share data)
(Unaudited):
 
<TABLE>
<CAPTION>
                                       THREE MONTHS ENDED            THREE MONTHS ENDED
                                          JUNE 30, 1998                 JUNE 30, 1997
                                   ---------------------------   ---------------------------
                                                     PER-SHARE                     PER-SHARE
                                   INCOME   SHARES    AMOUNT     INCOME   SHARES    AMOUNT
                                   ------   ------   ---------   ------   ------   ---------
<S>                                <C>      <C>      <C>         <C>      <C>      <C>
Basic net income (loss) per
  share:
  Income available to common
     shareholders................  $1,796   11,568     $0.16      $349    7,000      $0.05
Effect of dilutive securities
  Preferred stock................               --                          625
  Options and warrants...........              681                          999
                                   ------   ------                ----    -----
Diluted net income per share:
  Income available to common
     shareholders................  $1,796   12,249     $0.15      $349    8,624      $0.04
                                   ======   ======                ====    =====
</TABLE>
 
<TABLE>
<CAPTION>
                                       SIX MONTHS ENDED              SIX MONTHS ENDED
                                        JUNE 30, 1998                  JUNE 30, 1997
                                 ----------------------------   ---------------------------
                                                    PER-SHARE                     PER-SHARE
                                 INCOME    SHARES    AMOUNT     INCOME   SHARES    AMOUNT
                                 -------   ------   ---------   ------   ------   ---------
<S>                              <C>       <C>      <C>         <C>      <C>      <C>
Basic net income (loss) per
  share:
  Income (loss) available to
     common shareholders.......  ($1,996)  11,276    ($0.18)    $2,453    6,866     $0.36
Effect of dilutive securities
  Preferred stock..............                --                           625
  Options and warrants.........                --                           884
                                 -------   ------               ------   ------
Diluted net income per share:
  Income (loss) available to
     common shareholders.......  ($1,996)  11,276    ($0.18)    $2,453    8,375     $0.29
                                 =======   ======               ======   ======
</TABLE>
 
3.  RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
 
     The American Institute of Certified Public Accountants (the "AICPA") has
issued a Statement of Position (the "SOP") SOP 97-2, "Software Revenue
Recognition". The Company has adopted SOP 97-2 effective January 1, 1998. The
adoption of SOP 97-2 did not have a material impact on the Company.
 
     In 1997, the Financial Accounting Standards Board issued Statements of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income" and No.
131, "Disclosures about Segments of an Enterprise and Related Information". SFAS
No. 131 becomes effective for the Company's year-end 1998 financial statements.
The Company is evaluating this statement to determine the impact on its
reporting and disclosure requirements. The Company adopted SFAS No. 130 (see
Note 5) effective January 1, 1998 which requires companies to report
comprehensive income which is the total of net income plus all changes in equity
during a period except those resulting from investment by owners and
distribution to owners.
 
4.  ACQUISITION
 
     In March 1998, the Company acquired HR Management Software GmbH (HRS), a
leading provider of human resource software in the European marketplace. The
acquisition price was for approximately $10.4
 
                                        7
<PAGE>   8
                              BEST SOFTWARE, INC.
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
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. The preliminary allocation of 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
represents intangible assets related to the completed technology base and the
assembled workforce and will be amortized over the applicable useful lives. 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, 1997 (In thousands, except per share data):
 
<TABLE>
<CAPTION>
                                                               FOR THE SIX MONTHS ENDED
                                                               ------------------------
                                                               JUNE 30,       JUNE 30,
                                                                 1998           1997
                                                               ---------      ---------
                                                                     (UNAUDITED)
<S>                                                            <C>            <C>
Revenue..................................................       $31,403        $23,288
Income (loss) from operations before income taxes........        (3,270)         2,204
Net income (loss)........................................        (1,980)         2,442
Earnings (loss) per share................................       $ (0.18)       $  0.28
</TABLE>
 
5.  COMPREHENSIVE INCOME
 
     Comprehensive income is the total of net income and all other nonowner
changes in equity. The components of other comprehensive income include foreign
currency translation adjustments, unrealized holding gains/losses on securities
classified as available-for-sale, and minimum pension liability adjustments made
in the period. (In thousands)
 
<TABLE>
<CAPTION>
                                                               FOR THE SIX MONTHS ENDED
                                                               ------------------------
                                                               JUNE 30,       JUNE 30,
                                                                 1998           1997
                                                               ---------      ---------
                                                                     (UNAUDITED)
<S>                                                            <C>            <C>
Net Income (loss)........................................       $(1,996)       $ 2,453
  Other comprehensive income, net of tax:
     Foreign currency translation adjustments............            10             --
     Unrealized holding gains............................            --             --
                                                                -------        -------
Comprehensive income (loss)..............................       $(1,986)       $ 2,453
                                                                =======        =======
</TABLE>
 
ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
 
     This Management's Discussion and Analysis of Financial Condition and
Results of Operations contains forward-looking statements that involve risk and
uncertainties. For this purpose, the following discussion of the financial
condition and results of operations of the Company should be read in conjunction
with the Form 10-K, the Consolidated Financial Statements and Notes thereto.
Statements contained herein that are not statements of historical fact may be
deemed to be forward-looking statements. Without limiting the foregoing, the
words "believes", "anticipates", "plans", "expects", and similar expressions are
intended to identify forward-looking statements. Important factors known to Best
Software, Inc. that could cause such material differences are discussed under
the caption "Certain Factors That May Affect Future Results" in Item 7 of
 
                                        8
<PAGE>   9
 
the Company's annual report on Form 10-K, which is incorporated herein by
reference. These and other important factors could cause the Company's actual
results to differ materially from those indicated by such forward-looking
statements. The Company undertakes no obligations to publicly update or revise
any forward-looking statements, whether as a result of new information, future
events or otherwise.
 
                                    OVERVIEW
 
     The Company is a leader in corporate resource management software and
services, helping organizations to better manage their people, assets and
budgeting processes. The Company's feature-rich, cost-effective solutions are
easy to implement and enhance productivity by automating management, compliance
and reporting functions in areas of specialized expertise that entail complex
and frequently changing laws and regulations. The Company's solutions have been
designed to complement core accounting systems and are scaleable from
stand-alone desktop applications running on personal computers to multi-user
work group and client/server programs designed for use on personal computer
local area networks. As of June 30, 1998, the Company had over 44,000 licensed
customer locations.
 
     Prior to fiscal 1994, substantially all of the Company's revenues from the
FAS and Abra product lines were derived from licenses of DOS-based versions of
these products. Since fiscal 1994, the Company has introduced Microsoft Windows
versions of these products and, since fiscal 1995, a significant number of the
Company's DOS customers have migrated to the Company's Windows-based products.
Additionally, since the introduction of multi-user versions of its products in
fiscal 1995 and fiscal 1996, the Company has sold an increased number of
multi-user licenses of its FAS and Abra products. Upon the introduction of a new
product or an enhanced version of an existing product, the Company has typically
derived significant license fee revenue from trade-ups by existing customers.
Typically, the license fees paid for trade-ups are lower than the license fees
for an initial license. In addition, the Windows-based products and the
multi-user products generally have higher average license fees and gross margins
than the DOS-based products.
 
     In April 1998, the Company released the newest fixed asset management
system, Best! Imperativ Asset Accounting, a client/server solution that delivers
control over fixed assets with accurate, timely reporting at a lower total cost
of ownership. The product utilizes the Microsoft BackOffice platform and allows
integration into a variety of financial accounting packages. Best! Imperativ
Asset Accounting provides scalability and compliance with changing Internal
Revenue Service (IRS) and Generally Accepted Accounting Principles (GAAP) rules.
 
     During the quarter ended June 30, 1998, the Company introduced a
customization tool for the comprehensive human resource software package. The
Abra Suite Custom Studio allows users to easily and cost-effectively customize
their requirements through two new tools, Abra Toolkit for end users and
Developer's Toolkit for Business Partners. The Abra Toolkits allow users to
create custom screens with more features and flexibility, as well as modify the
menus with the most efficient actions, processes, reports and rules for their
organizations.
 
     In addition to revenue from product licenses, the Company derives
significant recurring revenue from maintenance and support agreements. Under its
maintenance and support agreements, the Company provides technical support and
periodic software updates. In late fiscal 1997, the Company launched its
consulting services, which include installation, set-up and conversion services.
Training and consulting revenue are anticipated to have lower gross margins than
revenue from maintenance and support agreements. Maintenance and support
agreements are generally priced as a percentage of the initial license fee for
the underlying products.
 
     The Company recognizes revenue on license fees upon shipment of the
product, net of provisions for returns and allowances, provided that no
significant Company obligations remain and that collection of the resulting
account receivable is probable. For products with free trial periods, revenue is
recognized upon acceptance of the product by the customer. Revenue from the MYOB
License is recognized ratably within each year of the term of the license
agreement, based on specified annual royalty payments. Revenue from maintenance
and support agreements is recognized pro rata over the term of the agreements,
which is
 
                                        9
<PAGE>   10
 
generally one year. Revenue from other services, such as training and
consulting, is recognized as the services are provided.
 
                               OPERATING RESULTS
 
     The following table sets forth for the periods indicated certain
consolidated statement of operations data expressed as a percentage of total
revenue:
<TABLE>
<CAPTION>
                                           THREE MONTHS ENDED           SIX MONTHS ENDED
                                                JUNE 30,                    JUNE 30,
                                        -------------------------   -------------------------
                                           1998          1997          1998          1997
                                        -----------   -----------   -----------   -----------
                                        (UNAUDITED)   (UNAUDITED)   (UNAUDITED)   (UNAUDITED)
<S>                                     <C>           <C>           <C>           <C>
Revenue:
  License fees and royalty............      51.3%         50.3%         50.6%         49.7%
  Services............................      48.7          49.7          49.4          50.3
                                           -----         -----         -----         -----
          Total.......................     100.0         100.0         100.0         100.0
                                           -----         -----         -----         -----
Cost of revenue:
  License fees and royalty............       2.8           3.5           3.0           5.6
  Services............................      17.3          13.8          16.5          14.6
                                           -----         -----         -----         -----
          Total.......................      20.1          17.3          19.5          20.2
                                           -----         -----         -----         -----
Gross margin..........................      79.9          82.7          80.5          79.8
                                           -----         -----         -----         -----
Operating expenses:
  Sales and marketing.................      36.0          40.4          35.2          37.7
  Research and development............      16.6          19.2          16.1          16.3
  General and administrative..........      12.9          14.9          12.7          14.3
  Write-off of purchased research and
     development......................       0.0           0.0          31.3           0.0
                                           -----         -----         -----         -----
          Total.......................      65.5          74.5          95.3          68.3
                                           -----         -----         -----         -----
  Operating income (loss).............      14.4           8.2         (14.8)         11.5
  Other income, net...................       3.5          (2.8)          3.8          (0.8)
                                           -----         -----         -----         -----
  Income (loss) from operations before
     income taxes.....................      17.9           5.4         (11.0)         10.7
  Income tax benefit (provision)......      (6.8)         (2.1)          4.3           1.1
                                           -----         -----         -----         -----
Net income (loss).....................      11.1%          3.3%         (6.7)%        11.8%
                                           =====         =====         =====         =====
</TABLE>
 
THREE MONTHS ENDED JUNE 30, 1998 AND 1997
 
     License Fees and Royalty Revenue.  License fees and royalty revenue
consists of fees from software licenses and royalties. License fees and royalty
revenue increased from $5.4 million for the three months ended June 30, 1997 to
$8.3 million for the three months ended June 30, 1998, representing an increase
of 55.5%. As a percentage of total revenue, license fees and royalty revenue was
50.3% for the three months ended June 30, 1997 and 51.3% for the three months
ended June 30, 1998, respectively. The dollar increase in license fees and
royalty revenue was due to increases in both the FAS and Abra product lines
primarily from increased sales of higher priced Windows-based and multi-user
products. The acquisition of HRS on March 31, 1998 also contributed to the
increased license fee and royalty revenue in the three months ended June 30,
1998 compared to the three months ended June 30, 1997. Royalties from the MYOB
License increased from $221,250 during the three months ended June 30, 1997 to
$413,250 for the three months ended June 30, 1998. The royalty is based on the
total revenue of the licensee attributable to this product line, with the
royalty rate escalating over the four-year license period. The Company does not
anticipate generating any additional revenue from this product line upon
termination of the license agreement in June 2000.
 
                                       10
<PAGE>   11
 
     Services Revenue.  Services revenue includes revenue from maintenance and
support agreements and training and consulting services. Services revenue
increased from $5.3 million for the three months ended June 30, 1997 to $7.9
million for the three months ended June 30, 1998, representing an increase of
49.8%. As a percentage of total revenue, services revenue decreased from 49.7%
for the three months ended June 30, 1997 to 48.7% for the three months ended
June 30, 1998. The dollar increase in services revenue was primarily due to an
increase in the number of maintenance and support agreements, which resulted
from a larger installed base of customers, and a higher average contract value
resulting from increased sales of higher priced license products. To a lesser
extent, the increase in services revenue was due to the Company's increased
focus on offering training and other consulting services, which include
installation, set-up and data conversion activities. The acquisition of HRS also
contributed to the increased services revenue in the three months ended June 30,
1998 compared to the corresponding period of 1997.
 
     Cost of License Fees and Royalty Revenue.  Cost of license fees and royalty
revenue consists primarily of the costs of media, product manuals, shipping and
fulfillment, and royalties paid to third parties. Cost of license fees and
royalty revenue increased from $371,000 for the three months ended June 30, 1997
to $455,000 for the three months ended June 30, 1998, representing an increase
of 22.5%. However, as a percentage of total revenue, cost of license fees and
royalty revenue decreased from 3.5% to 2.8% for the three-month periods ended
June 30, 1997 and 1998, respectively. As a percentage of license fees and
royalty revenue, cost of license fees and royalty revenue decreased from 6.9% to
5.5% for the three months ended June 30, 1997 and 1998, respectively. The
decrease was primarily due to increased sales of higher margin Windows-based and
multi-user products and cost improvements on the license media and fulfillment
operations. To a lesser extent, the decrease was due to royalty revenue received
under the MYOB License, for which the associated costs are nominal.
 
     Cost of Services Revenue.  Cost of services revenue consists primarily of
personnel costs, telephone charges and other costs related to providing
telephone support, training and consulting services. Cost of services revenue
increased from $1.5 million for the three months ended June 30, 1997 to $2.8
million for the three month period ended June 30, 1998, representing a 90.9%
increase. As a percentage of total revenue, cost of services revenue increased
from 13.8% to 17.3% for the three-month periods ended June 30, 1997 and 1998,
respectively. As a percentage of service revenue, cost of services revenue
increased from 27.8% to 35.5% for the three months ended June 30, 1997 and 1998,
respectively. The increase was primarily due to ramping up professional
services.
 
     Sales and Marketing.  Sales and marketing expenses consist primarily of
direct mail programs, advertising, and other marketing programs, personnel
costs, commissions, travel and operating costs. Sales and marketing expenses
increased from $4.3 million for the three months ended June 30, 1997, to $5.8
million for the three months ended June 30, 1998, representing an increase of
35.8%. As a percentage of total revenue, sales and marketing expenses decreased
from 40.4% to 36.0% for the three-month periods ended June 30, 1997 and 1998,
respectively. The dollar increase was primarily due to marketing activities
related to new product releases, increased website activities, and general
product awareness.
 
     Research and Development.  Research and development expenses consist
primarily of personnel costs and fees paid to outside consultants. Research and
development expenses increased from $2.0 million for the three months ended June
30, 1997 to $2.7 million for the three months ended June 30, 1998, representing
an increase of 31.8%. As a percentage of total revenue, research and development
expenses decreased from 19.2% to 16.6% for the three-month periods ended June
30, 1997 and 1998, respectively. The increase in research and development
expenses was primarily the result of increased expenses relating to the
development of a new budgeting product and the Best! Imperativ products
discussed above.
 
     General and Administrative.  General and administrative expenses include
the costs of corporate operations, finance and accounting, human resources and
other general operations. General and administrative expenses increased from
$1.6 million for the three months ended June 30, 1997 to $2.1 million for the
three months ended June 30, 1998, representing an increase of 32.2%. As a
percentage of total revenue, general and administrative expenses decreased from
14.9% to 12.9% for the three-month periods ended June 30, 1997 and
 
                                       11
<PAGE>   12
 
1998, respectively. The dollar increase in general and administrative expenses
was the result of increased staffing and related expenses necessary to manage
and support the expansion of the Company's operations.
 
     Other Income (Expense) Net.  Other income (expense) consists primarily of
earnings from cash, cash equivalents and short-term investments, net of any
interest expense. Other income (expense), net was ($293,000) for the three
months ended June 30, 1997 and $558,000 for the three months ended June 30,
1998. The significant dollar increase was due to increased interest income
through investing the proceeds of the Initial Public Offering. Other expense for
the three months ended June 30, 1997 was primarily due to $432,000 of interest
expense attributable to a reduction in the exercise price of a warrant in
connection with the June 1997 dividend to shareholders, offset in part by
interest income.
 
     Provision for Income Taxes.  The provision for income taxes was $225,000
and $1.1 million for the three months ended June 30, 1997 and 1998 respectively,
representing 39.2% and 38.2% of income before taxes respectively.
 
SIX MONTHS ENDED JUNE 30, 1998 AND 1997
 
     License Fees and Royalty Revenue.  License fees and royalty revenue
consists of fees from software licenses and royalties. License fees and royalty
revenue increased from $10.3 million for the six months ended June 30, 1997 to
$15.1 million for the six months ended June 30, 1998, representing an increase
of 46.3%. As a percentage of total revenue, license fees and royalty revenue was
49.7% for the six months ended June 30, 1997 and 50.6% for the six months ended
June 30, 1998, respectively. The dollar increase in license fees and royalty
revenue was due to an increase in license fee revenue from FAS and Abra
products, which resulted primarily from increased sales of higher priced
Windows-based and multi-user products. The three months of revenue included
since the acquisition of HRS also contributed to the increased license fee and
royalty revenue in the six months ended June 30, 1998 compared to the
corresponding period of 1997. Royalties from the MYOB License increased from
$442,500 during the six months ended June 30, 1997 to $826,500 for the six
months ended June 30, 1998. The royalty is based on the total revenue of the
licensee attributable to this product line, with the royalty rate escalating
over the four-year license period. The Company does not anticipate generating
any additional revenue from this product line upon termination of the license
agreement in June 2000.
 
     Services Revenue.  Services revenue includes revenue from maintenance and
support agreements and training and consulting services. Services revenue
increased from $10.5 million for the six months ended June 30, 1997 to $14.8
million for the six months ended June 30, 1998, representing an increase of
41.5%. As a percentage of total revenue, services revenue decreased from 50.3%
for the six months ended June 30, 1997 to 49.4% for the six months ended June
30, 1998. The dollar increase in services revenue was primarily due to an
increase in the number of maintenance and support agreements, which resulted
from a larger installed base of customers, and a higher average contract value
resulting from increased sales of higher priced license products. To a lesser
extent, the increase in services revenue was due to the Company's increased
focus on offering training and other consulting services, which include
installation, set-up and data conversion activities. The three months of revenue
included since the acquisition of HRS also contributed to the increased services
revenue in the six months ended June 30, 1998 compared to the six months ended
June 30, 1997 .
 
     Cost of License Fees and Royalty Revenue.  Cost of license fees and royalty
revenue consists primarily of the costs of media, product manuals, shipping and
fulfillment, and royalties paid to third parties. Cost of license fees and
royalty revenue decreased from $1.2 million for the six months ended June 30,
1997 to $895,000 for the six months ended June 30, 1998, representing a decrease
of 23.8%. As a percentage of total revenue, cost of license fees and royalty
revenue decreased from 5.6% to 3.0% for the six-month periods ended June 30,
1997 and 1998, respectively. As a percentage of license fees and royalty
revenue, cost of license fees and royalty revenue decreased from 11.3% to 5.9%
for the six months ended June 30, 1997 and 1998, respectively. The decrease was
primarily due to increased sales of higher margin Windows-based and multi-user
products and cost improvements on the license media and fulfillment operations.
To a lesser extent, the decrease was due to royalty revenue received under the
MYOB License, for which the associated costs are nominal.
 
                                       12
<PAGE>   13
 
     Cost of Services Revenue.  Cost of services revenue consists primarily of
personnel costs, telephone charges and other costs related to providing
telephone support, training and consulting services. Cost of services revenue
increased from $3.0 million for the six months ended June 30, 1997 to $4.9
million for the six month period ended June 30, 1998, representing a 62.9%
increase. As a percentage of total revenue, cost of services revenue increased
from 14.6% to 16.5% for the six-month periods ended June 30, 1997 and 1998,
respectively. As a percentage of service revenue, cost of services revenue
increased from 29.0% to 33.4% for the six months ended June 30, 1997 and 1998,
respectively. The increase was primarily due to ramping up professional
services.
 
     Sales and Marketing.  Sales and marketing expenses consist primarily of
direct mail programs, advertising, and other marketing programs, personnel
costs, commissions, travel and operating costs. Sales and marketing expenses
increased from $7.8 million for the six months ended June 30, 1997, to $10.6
million for the six months ended June 30, 1998, representing an increase of
34.4%. As a percentage of total revenue, sales and marketing expenses decreased
from 37.7% to 35.2% for the six-month periods ended June 30, 1997 and 1998,
respectively. The dollar increase was primarily due to new product releases,
increased website activities and general product awareness.
 
     Research and Development.  Research and development expenses consist
primarily of personnel costs and fees paid to outside consultants. Research and
development expenses increased from $3.4 million for the six months ended June
30, 1997 to $4.8 million for the six months ended June 30, 1998, representing an
increase of 42.3%. As a percentage of total revenue, research and development
expenses decreased from 16.3% to 16.1% for the six-month periods ended June 30,
1997 and 1998, respectively. The increase in research and development expenses
was primarily the result of increased expenses relating to the development of a
new budgeting product and the Best! Imperativ products.
 
     General and Administrative.  General and administrative expenses include
the costs of corporate operations, finance and accounting, human resources and
other general operations. General and administrative expenses increased from
$3.0 million for the six months ended June 30, 1997 to $3.8 million for the six
months ended June 30, 1998, representing an increase of 27.8%. As a percentage
of total revenue, general and administrative expenses decreased from 14.3% to
12.7% for the six-month periods ended June 30, 1997 and 1998, respectively. The
dollar increase in general and administrative expenses was the result of
increased staffing and related expenses necessary to manage and support the
expansion of the Company's operations.
 
     Write-off of purchased research and development.  The write-off is the
result of the purchased research and development associated with the Company's
acquisition of HRS described in note 4 of the financial statements. The one time
charge of approximately $9.4 million represents 31.3% of total revenue for the
six months ended June 30, 1998.
 
     Other Income (Expense) Net.  Other income (expense) consists primarily of
earnings from cash, cash equivalents and short-term investments, net of any
interest expense. Other income (expense), net was ($168,000) for the six months
ended June 30, 1997 and $1.2 million for the six months ended June 30, 1998. The
significant dollar increase was due to increased interest income through
investing the proceeds of the Initial Public Offering. Other expense for the six
months ended June 30, 1997 was primarily due to $432,000 of interest expense
attributable to a reduction in the exercise price of a warrant in connection
with the June 1997 dividend to shareholders, offset in part by interest income.
 
     Benefit for Income Taxes.  The benefit for income taxes was $230,000 and
$1.3 million for the six months ended June 30, 1997 and 1998 respectively,
representing 10.4% and 39.3% of income (loss) before taxes respectively. For the
six months ended June 30, 1997, the difference between the expected tax
provision based on Federal statutory rates and the effective tax rate resulted
principally from tax benefits relating to a reduction of the valuation allowance
against the Company's deferred tax asset based on management's analysis of
current levels of earnings and anticipated operating results. The increase in
the benefit for the six months ended June 30, 1998 is primarily due to the
write-off of the purchased research and development from the acquisition of HRS,
which will be deductible on future tax returns.
 
                                       13
<PAGE>   14
 
                        LIQUIDITY AND CAPITAL RESOURCES
 
     The Company funds its operations through cash provided by operations. The
Company had cash, cash equivalents and short-term investments of $43.5 million
at June 30, 1998. The Company's short-term investments include securities of
U.S. Government agencies, municipalities and corporations.
 
     For the six months ended June 30, 1998 and 1997, net cash provided by
operating activities was $7.5 million and $6.4 million, respectively. The
increase in cash provided by operating activities was primarily a result of the
net effect of the one-time charge against earnings for purchased research and
development from the acquisition of HRS.
 
     Net cash used in investing activities for the six months ended June 30,
1998 and 1997 was $11.8 million and $430,000, respectively. The increase in cash
used in investing activities was related to the purchases of short-term
investments with the proceeds from the Initial Public Offering and the
acquisition of HRS. In the six months ended June 30, 1998 and 1997, cash was
used for the purchase of property and equipment of $1.2 million and $430,000
respectively. Although the Company does not currently have any material
identifiable commitments for capital expenditures, the Company expects to
continue to invest in the acquisition of property and equipment in the ordinary
course of its business. The Company does not have any material commitments
related to its royalty obligations arising from licenses of certain products and
technologies used in the Company's products.
 
     Net cash used in financing activities for the six months ended June 30,
1998 and 1997 was $1.5 million and $11.7 million, respectively. During the six
months ended June 30, 1997, the principal use of cash was the payment of a
dividends and the repurchase of treasury shares. During the six months ended
June 30, 1998, the principal use of cash was the payment of notes payable
assumed in the acquisition of HRS.
 
     The Company believes that the net proceeds from the offering and cash
generated from operations will be sufficient to fund its operations for at least
the next 12 months.
 
                                YEAR 2000 ISSUES
 
     Certain computer programs were written using two digits rather than four to
define the applicable calendar year. Such programs may recognize a date using
"00" as the year 1900 rather than the year 2000. This is referred to as the
"Year 2000 Issue."
 
     The Company's products accept and store 4-digit date formats. The Company's
Windows-based Abra Human Resources and Payroll Management products and the Best!
Imperativ HRMS product are Year 2000 compatible. For the FAS Windows 95 and
NT-based products and the Best! Imperativ Asset Accounting product the only
significant date-related restriction of which the Company is currently aware, is
that the "placed in service date" field will not allow new assets to be entered
in years beyond the year 2019. By definition, this restriction will not
negatively impact a user for approximately 20 years. The Company believes that
this restriction will be corrected prior to it becoming a significant concern.
Notwithstanding the above, there can be no assurances that the Company's current
products, or third-party products used with or in the Company's products, do not
contain undetected errors or defects associated with Year 2000 date functions
that may materially and/or adversely affect the Company. The DOS versions and
certain Windows 3.1 and 3.11-based products of FAS, and some DOS versions of the
Abra product lines, are not Year 2000 compatible. The existing customers of the
versions that are not Year 2000 compatible either have been informed or are in
the process of being informed of the programs' limitations and that the Company
will not support the product beyond 1999. The Company is conducting campaigns to
convert these customers to its compatible programs.
 
     Some analysts have stated that a significant amount of litigation will
arise out of Year 2000 compliance issues, and the Company is aware of an
increasing number of lawsuits against other software vendors. Although no
lawsuits have been filed against the Company the effect to the Company is
undeterminable at the present time because of the unique nature of such
potential litigation.
 
     Additionally, the Company has performed an assessment of its principal
internal management information systems software to determine if they are Year
2000 compliant. Management's assessment is that minimal
                                       14
<PAGE>   15
 
modifications will be necessary to the Company's existing principal internal
management information system software to achieve Year 2000 compliance.
Management's assessment of the critical internal management information systems
will be further inspected by a third party, to determine what, if any,
modifications are required. The Company expects its principal internal
management information systems to be fully Year 2000 compliant by 1999. The
Company also faces risks and uncertainties to the extent that third party
suppliers of products, services and systems purchased by the Company and others
with whom the Company transacts business on a worldwide basis do not have
business systems or products that comply with the Year 2000 requirements.
Although the Company is currently analyzing the impact, if any, of the Year 2000
issue surrounding such third party interactions, failure of any critical
technology components to operate properly in the Year 2000 and beyond may have
an adverse impact on business operations or require the Company to incur
unanticipated expenses to remedy any problems.
 
     All costs of all of the above measures are being funded out of current
operations.
 
ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 
     Not applicable.
 
                                    PART II
 
ITEM 1.  LEGAL PROCEEDINGS
 
     On July 6, 1998 Spectrum Human Resource Systems Corporation (Spectrum)
filed suit against Best Software, Inc., HR Management Software GmbH (HRMS), a
wholly owned subsidiary of the Company, and the former owners of HRMS, in the
United States District Court for the District of Colorado alleging, among other
things, trademark infringement, trade secret misappropriation and interference
with contract in connection with the Company's acquisition of HRMS. Spectrum
claims that HRMS fraudulently induced it to enter into an agreement terminating
the relationship between HRMS and Spectrum prior to Best Software Inc.'s
acquisition of HRMS. Spectrum is currently seeking a preliminary injunction to
prohibit the Company from using Spectrum's trademarks and confidential
information and, in the underlying lawsuit, is seeking unspecified damages. The
Company has denied Spectrum's allegations and is vigorously defending against
them. Management believes these allegations are without merit and that the
ultimate disposition of these matters will not have a material adverse effect on
the Company's overall financial position or results of operations.
 
ITEM 2.  CHANGES IN SECURITIES AND USE OF PROCEEDS
 
     None
 
ITEM 3.  DEFAULTS UPON SENIOR SECURITIES
 
     None
 
ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
 
     The Annual Meeting of Shareholders of the Company was held on April 23,
1998. The following is a brief description of each matter voted upon at the
meeting and the number of affirmative votes and the number of negative votes
cast with respect to each matter.
 
          (a) The shareholders elected Richard A. Lefebvre as Class III Director
     of the Company whose term will expire upon the 2001 Annual Meeting of
     Shareholders.
 
          (b) The shareholders approved the continuation of the 1997 Stock
     Incentive Plan.
 
          (c) The shareholders ratified the appointment of Arthur Andersen LLP
     as the Company's independent auditors for the fiscal year ending December
     31, 1998.
 
                                       15
<PAGE>   16
 
     The votes for and against (withheld) each matter were as follows:
 
<TABLE>
<CAPTION>
                   MATTER                      VOTES FOR   VOTES WITHHELD   VOTES ABSTAINED
                   ------                      ---------   --------------   ---------------
<S>                                            <C>         <C>              <C>
Election of Richard A. Lefebvre..............  9,787,549         6,600               0
Continuation of 1997 Stock Incentive Plan....  6,777,906     1,344,650           9,861
Appointment of Arthur Andersen LLP...........  9,784,774         6,175           3,200
</TABLE>
 
ITEM 5.  OTHER INFORMATION
 
     In July 1998 the Board of Directors appointed Dr. W. Frank King as a new
director for the Company. Dr. King is currently the President and Chief
Executive Officer of PSW Technologies, Inc. (formerly a division of Pencom,
Inc.), a provider of software related engineering, development, and support
services. From 1988 to 1992, Dr. King served as Senior Vice President of
Development for Lotus Development Corporation, and from 1969 to 1988, Dr. King
was employed by IBM where his final position was as the Vice President of
Development, Entry System Division. Dr. King also serves as a director of
Natural Microsystems, Inc., Excaliber Technologies Corporation, Auspex Systems,
Inc, Systemsoft Corporation and PSW Technologies.
 
     In July 1998 the Board of Directors approved a change to the Employee Stock
Purchase Plan reducing the period of employment for eligibility from six months
to three months. This change is effective October 1, 1998 for all regular
employees who work 20 hours per week.
 
ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K
 
     (a) Exhibits:
 
<TABLE>
<S>      <C>  <C>
27       --   Financial Data Schedule, which is submitted electronically
              to the Securities and Exchange Commission for information
              only and not filed.
</TABLE>
 
     (b) Reports on Form 8-K:
 
          None
 
                                       16
<PAGE>   17
 
                                   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.
 
                                          By:    /s/ DAVID N. BOSSERMAN
                                            ------------------------------------
                                                     David N. Bosserman
                                                 Executive Vice President,
                                                Chief Financial Officer and
                                                          Treasurer
 
Date: August 14, 1998
 
                                       17
<PAGE>   18
 
                                 EXHIBIT INDEX
 
<TABLE>
<CAPTION>
EXHIBIT NO.
-----------
<S>          <C>  <C>
    3.1      --   Second Amended and Restated Articles of Incorporation of the
                  Company. (Incorporated by reference to Exhibit 3.1 of the
                  Company's Form 10-K) (Registration Statement #0-23117 --
                  "Form 10-K")
    3.2      --   Amended and Restated By-Laws of the Company.
                  (Incorporated by reference to Exhibit 3.2 of the Company's
                  Form 10-K)
    27       --   Financial Data Schedule*
</TABLE>
 
---------------
 
* Submitted only with the electronic filing of this document with the Commission
pursuant to Regulation S-T under the Securities Act of 1933, as amended.