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                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
 
                            ------------------------
 
                                   FORM 10-K
 
            [ ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                        SECURITIES EXCHANGE ACT OF 1934
 
                                       OR
 
          [X] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                        SECURITIES EXCHANGE ACT OF 1934
       FOR THE TRANSITION PERIOD FROM APRIL 1, 1997 TO DECEMBER 31, 1997
 
                         COMMISSION FILE NUMBER 0-23117
 
                              BEST SOFTWARE, INC.
             (Exact name of registrant as specified in its charter)
 
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<S>                                 <C>                              <C>
           VIRGINIA                            7372                      54-1222526
(State or other jurisdiction of     (Primary Standard Industrial       (IRS Employer
incorporation or organization)      Classification Code Number)      Identification No.)
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                           11413 ISAAC NEWTON SQUARE
                                RESTON, VA 20190
                                 (703) 709-5200
  (Address, including zip code, and telephone number, including area code, of
                   registrant's principal executive offices)
 
          SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
                                      NONE
 
          SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
                           COMMON STOCK, NO PAR VALUE
 
     Indicate by a 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 by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.     [X]
 
     As of March 2, 1998, there were 11,000,730 shares of the Registrant's
Common Stock, no par value, outstanding, which is the only outstanding class of
common or voting stock of the Registrant. As of that date, the aggregate market
value of the shares of Common Stock held by non-affiliates of the Registrant
(based on the closing price for the Common Stock as quoted by the Nasdaq
National Market on such date), was approximately $92,293,688.
 
                      DOCUMENTS INCORPORATED BY REFERENCE
 
     Portions of the Registrant's definitive Proxy Statement for its 1998 Annual
Meeting of Shareholders which will be filed with the Securities and Exchange
Commission within 120 days after the end of the Company's transition period
ended December 31, 1997, are incorporated by reference into Part III of this
report on Form 10-K.
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                   PERIOD ENDING DECEMBER 31, 1997 FORM 10-K
                              BEST SOFTWARE, INC.
 
                                     INDEX
 
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  ITEM                                                                        PAGE
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PART I
ITEM 1:         Business....................................................    1
ITEM 2:         Properties..................................................    8
ITEM 3:         Legal Proceedings...........................................    8
ITEM 4:         Submission of Matters to a Vote of Security Holders.........    8

PART II
ITEM 5:         Market for Registrant's Common Equity and Related
                Stockholder Matters.........................................    8
ITEM 6:         Selected Consolidated Financial Data........................   10
ITEM 7:         Management's Discussion and Analysis of Financial Condition
                and Results of Operations...................................   11
ITEM 7a:        Quantitative and Qualitative Disclosures About Market
                Risk........................................................   24
ITEM 8:         Financial Statements and Supplementary Data.................   24
ITEM 9:         Changes in and Disagreements with Accountants on Accounting
                and Financial Disclosure....................................   25

PART III
ITEM 10:        Directors and Executive Officers of the Registrant..........   25
ITEM 11:        Executive Compensation......................................   26
ITEM 12:        Security Ownership of Certain Beneficial Owners and
                Management..................................................   26
ITEM 13:        Certain Relationships and Related Transactions..............   26

PART IV
ITEM 14:        Exhibits, Financial Statement Schedules, and Reports on Form
                8-K.........................................................   27
Signatures..................................................................   29
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     Best Software, FAS, FAS Encore, FASTrack, FAS Report Writer, FAS Property
Tax, Abra Software, Abra Payroll, Abra Suite, Abra Attendance, Abra Applicant,
Abra Resume Scan, Abra People Manager, Abra Tax Pay and File, Best Internet
Recruiter and Best Imperativ are trademarks, SupportPlus and Abra SupportPlus
are service marks, BEST! (the Best logo), Abra, Abra HR and Abra Train are
registered trademarks, and FAS SupportPlus is a registered service mark of the
Company. All other trademarks and registered trademarks used in this Form 10-K
are the property of their respective owners. See "Intellectual Property Rights
and Licenses" for more details.
<PAGE>   3
 
                                     PART I
 
ITEM 1.  BUSINESS
 
OVERVIEW
 
     Best Software, Inc. is a leader in corporate resource management software,
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 December 31, 1997, the Company had over 42,000
licensed customer locations, representing approximately 125,000 licensed seats.
In addition to revenue from product licenses, the Company derives significant
recurring revenue from maintenance and support agreements. The Company reaches
its large customer base and target market through a multi-channel sales and
marketing strategy that includes its network of value-added resellers,
accounting firms and consultants ("Business Partners"), a direct-response
telesales operation, strategic marketing alliances and a direct sales
organization.
 
     Effective October 3, 1997, the Company sold 2,750,000 shares of common
stock at an offering price of $13.00 per share (the "Initial Public Offering").
This transaction generated approximately $32 million of net proceeds to the
Company. The Company's Common Stock trades on the Nasdaq National Market under
the symbol: BEST. In December 1997, the Company's Board of Directors announced a
change in the fiscal year end from March 31 to December 31 effective with the
current fiscal year. Consequently, the Company's most recently completed fiscal
period is a nine-month transition period ended December 31, 1997. Thereafter,
the Company's fiscal year will run from January 1 through December 31.
 
CAUTIONS ABOUT FORWARD-LOOKING STATEMENTS
 
     Certain of the statements contained in this Form 10-K which are not
statements of historical fact are forward-looking statements that involve risks
and uncertainties. Such forward-looking statements are made only as of the date
of this Form 10-K. The Company's actual results could differ materially from
those contained in the forward-looking statements. Factors that may cause such
differences include, but are not limited to, those discussed below under
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Certain Factors That May Affect Future Results" as well as those
discussed elsewhere in this Form 10-K.
 
CORPORATE BACKGROUND
 
     The Company was incorporated in Virginia in 1982. Unless the context
otherwise requires, "Best", or the "Company" refers to Best Software, Inc., a
Virginia corporation, and its wholly-owned subsidiaries. The Company's principal
executive offices are located at 11413 Isaac Newton Square, Reston, Virginia
20190. The Company's telephone number is (703) 709-5200.
 
                                    BUSINESS
 
PRODUCTS AND SERVICES
 
     The Company licenses software to organizations to help manage their
corporate resources -- people, assets, and budgets. The Company also provides
professional services relating to implementation, system setup, data conversion,
training and technical support.
 
FAS ASSET MANAGEMENT PRODUCTS
 
     The Company's FAS asset management products automate and streamline the
complex and tedious processes necessary to accurately and reliably track and
account for assets, including sophisticated deprecia-
 
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tion calculations; maintaining detailed historical data on, as well as tracking
the location of, assets across the enterprise; maintaining accurate audit
trails; and preparing management and tax reports and forms on demand. The
Company's FAS products are highly versatile and are designed to meet the
customer's specific asset management needs. These products can be integrated
with many core accounting systems and are offered separately or in integrated
suites. The Company supports its FAS products through the FAS SupportPlus
membership program, which provides customers with software updates and unlimited
telephone support by the Company's technical support staff.
 
     In the nine-month transition period ending December 31, 1997, the Company
derived approximately 57% of its total revenue from its FAS product line,
including software licenses and related maintenance and support agreements and
training services, for both the current Windows products and the previous
generation of DOS products. As of December 31, 1997, the Company had over 30,000
licensed FAS customer locations, and had over 23,000 active FAS SupportPlus
maintenance and support agreements.
 
     FAS for Windows and FAS Encore extend the functionality of core accounting
systems by enabling managers to monitor, in real-time, the acquisition,
transfer, depreciation and retirement of fixed assets, calculate depreciation
for book and tax purposes, and track assets for maintenance and insurance
purposes. FAS for Windows maintains a database of extensive information on each
asset and prepares comprehensive management reports and tax reports and forms.
FAS for Windows is designed to calculate asset depreciation using seven standard
depreciation methods without any customization and may easily be customized for
additional methodologies. FAS Encore is designed for businesses that require
more rigorous asset management. FAS Encore extends the functionality of FAS for
Windows with additional features such as automatic transfers and partial
disposals of assets; batch reporting of asset status and activity; password
security; and a built-in Crystal Reports-based report writer for creating
customized reports and presentation graphics. Certain of the features included
in FAS Encore are also available as add-on options for FAS for Windows.
 
     FASTrack is a comprehensive asset tracking solution that utilizes
third-party bar code scanning and imaging technologies that enable the Company's
customers to maintain complete and accurate physical inventories of assets
across the enterprise and to track the location of mobile assets, conduct and
reconcile physical inventories and automatically update all asset records
quickly and easily in order to prevent loss of assets and the inefficiencies
associated with inaccurate depreciation calculations based on obsolete
inventories. FASTrack can be used on a stand-alone basis or can be seamlessly
integrated with both FAS for Windows and FAS Encore.
 
     FAS Property Tax, released in February 1998, is a comprehensive property
tax software program that automates and simplifies the personal property tax
filing and compliance process. The program utilizes FAS asset data and, based on
each jurisdiction's requirements, completes various jurisdiction-specific
property tax forms. Best FAS Property Tax allows customers to review and adjust
valuations, calculate and compare estimated values with actual assessed values,
process tax bills and bill taxes back to various departments or external
customers.
 
     The Company's current FAS products are 32-bit Windows programs written in
C++ that are compatible with Windows 95 and Windows NT environments. These
products operate with an SQL-standard database. The Company also offers 16-bit
Windows programs that are compatible with Windows 3.x. FASTrack supports
multiple bar code readers, including those from Intermec Corporation and
ScanSource Inc., along with a wide range of bar code labels.
 
ABRA HUMAN RESOURCES AND PAYROLL MANAGEMENT PRODUCTS
 
     The Company's Abra human resources and payroll management products provide
a comprehensive solution for the management of human resources functions. The
Company's Abra human resources products integrate human resource, payroll,
recruitment and training data into a single database. As a result, the Company's
Abra products enable businesses to more quickly and easily access and update
employee data, current job and pay information, job and pay history, salary and
performance reviews, employee benefits data, workers' compensation information,
and education and training data. These products can be integrated with many core
accounting systems and are offered separately or in integrated suites. The
Company supports its
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Abra products through the Abra SupportPlus membership program, which provides
customers with software updates and unlimited telephone support by the Company's
technical support staff.
 
     In the nine-month transition period ending December 31, 1997, the Company
derived approximately 40% of its total revenue from its Abra product line,
including software products, maintenance and support agreements, and training
and consulting services, for both Windows and DOS customers. As of December 31,
1997, the Company had over 12,000 licensed Abra customer locations. In addition,
the Company had over 25,000 active Abra SupportPlus maintenance and support
agreements, which in certain cases reflect the purchase of multiple maintenance
and support agreements by single Abra customers.
 
     Abra HR for Windows automates the human resources function, enabling
businesses to more quickly and easily maintain and update employee and benefit
information, including employee profiles, current and historic compensation
information, education and employment history, skill set records, medical
benefits and savings plan enrollment eligibility data, and performance reviews.
Utilizing a variety of built-in reports, Abra HR for Windows also enables
businesses to instantaneously prepare cost analyses, summaries of employee
productivity and regulatory reports, including reports under affirmative action,
health and safety, workers' compensation and immigration regulations. In
addition, Abra HR for Windows can be easily customized to meet other unique
reporting requirements of a business.
 
     Abra Payroll for Windows is an in-house payroll solution that enables
businesses to meet their payroll needs more cost-effectively than by utilizing
third-party service providers. Abra Payroll also provides secure, real-time
access to payroll data and enables users to comply with Federal and state tax
and withholding requirements more easily and efficiently, including preparation
of Forms W-2, 1099 and 941. The product also includes direct deposit
capabilities and electronic tax filing capabilities and interfaces with many
popular general ledger programs.
 
     Abra Attendance for Windows tracks employee absences and leave accruals
with built-in features that enable businesses to define absence codes, handle
Family and Medical Leave Act compliance, and manage accruals and carryovers.
Abra Attendance for Windows enables businesses to create an array of attendance
plans for any employee using different seniority, accrual and carryover rules.
Abra Attendance for Windows integrates with Abra Payroll for Windows to provide
updates of vacation and other balances on employee pay stubs.
 
     Abra Recruiting Solution is an integrated resume scanning and applicant
tracking software product, consisting of Abra Resume Scan and Abra Applicant.
Using the Abra Recruiting Solution, businesses can easily scan, organize and
evaluate incoming resumes, as well as search and review stored resumes
electronically to find appropriate job candidates. Abra Applicant automates the
labor-intensive process of sorting resumes and selecting candidates and enables
businesses to more easily and efficiently match job applicants' key skills,
experience and educational background with their specific needs. In addition,
Abra Applicant maintains easy-to-access information relating to candidate
interview status and the interviewers' comments and includes numerous
easy-to-use forms of correspondence, including acknowledgment, invitation, offer
and rejection letters.
 
     Abra Train for Windows is a skill-based training management solution that
allows businesses to automate the tracking of employee training requirements and
history, the scheduling and management of courses and certifications and the
evaluation of the effectiveness of such initiatives.
 
     Abra People Manager is designed specifically for smaller organizations that
do not have a dedicated human resources staff. The program consolidates critical
personnel information into one database on a personal computer and offers the
option to review and generate reports on such information. Abra People Manager
utilizes a Microsoft Access database, giving it a high degree of integration
with the Microsoft Office suite of products.
 
     Abra Suite, which includes Abra HR, Abra Payroll, Abra Applicant, Abra
Resume Scan, Abra Train, Multi-Site Consolidation, Toolkit, Link, and Paylink is
a comprehensive, fully integrated, 32-bit software solution for human resource
and payroll professionals. Abra Suite adds new functionality and takes advantage
of capabilities inherent in the Windows 95 and Windows NT operating systems and
Microsoft Visual Studio.

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With the exception of Abra People Manager, which is written using Microsoft
Visual Basic, all of the Abra products are written using Microsoft Visual
FoxPro, an object-oriented environment and data management tool.
 
     Best Internet Recruiter, released in February 1998, is a recruiting service
that enables employers to quickly and conveniently place job listings on some of
the Internet's largest and most effective employment sites, then select and
analyze resumes through a single Web site. The product enables employers to
easily and cost-effectively manage all their on-line recruiting needs as well as
track job offers through acceptance or rejection.
 
                         PRODUCT DESIGN AND DEVELOPMENT
 
     The Company intends to continue to develop its products to meet identified
market needs for applications that complement core accounting software systems
and to address the evolving technology needs of its customers. The Company's
current product development efforts are focused primarily on (i) developing
enhanced client/server versions of its existing products, (ii) completing
development of a number of new products and (iii) creating links for certain of
the Company's products with additional third-party core accounting systems and
with other industry-specific applications.
 
     The Company intends to continue to identify market opportunities for new
product offerings that will complement its customers' core accounting systems.
For example, the Company is currently developing a software product designed to
automate the corporate budgeting process. Like the Company's current products,
this new budgeting product will be designed to function as a stand-alone system
or to integrate with core accounting systems.
 
     Best Imperativ HRMS is the Company's next-generation of integrated human
resource and payroll management software. The software leverages the Microsoft
BackOffice platform to provide organizations with a Web-based, three-tier
client-server system. Best Imperativ HRMS will offer employee self-service
modules that integrate with HR and Payroll and empower the workforce by allowing
employees and managers to update information on-line. Other powerful features
include full history and effective dating that allow changes to automatically
take effect on the appropriate date. The product also will allow multiple,
parallel organizational structures for various looks at the organization and
easy re-organizations. Best Imperativ HRMS will be available in the second
quarter of 1998.
 
     The Company's research and development staff combines tax, accounting and
asset, and human resources management expertise with programming skills. As of
December 31, 1997, the Company had 79 full-time software development personnel
(or 25% of the total employee base) with expertise in Windows, Windows NT,
client/server and/or Internet environments. Of these developers, six are
Certified Public Accountants and eight are Certified Payroll Professionals. In
fiscal 1996 and 1997 and the nine months ended December 31, 1997, the Company
incurred approximately $7.4 million, $6.1 million and $6.7 million,
respectively, in research and development expenses.
 
     The development and updating of asset, human resources and payroll
management software that incorporates complex regulations demands a rigorous
development cycle that is mandated by the ongoing adoption of new laws,
regulations and forms by federal, state and local governments and other
regulatory agencies, as well as the uncertain timing of these changes and
releases. The Company has a team of software developers who are experienced in
this development and updating process and the Company has created a set of
proprietary development tools that simplify the process of producing updates and
annual versions of the Company's products within required time frames.
 
                              SALES AND MARKETING
 
     The Company employs a multi-channel sales and marketing strategy utilizing
four primary channels: Business Partners, a direct-response telesales operation,
strategic marketing alliances and its direct sales organization. The Company
believes that this diverse sales and marketing strategy allows it to reach its
target markets in the most efficient and effective manner and reduces reliance
on any single distribution channel. The
 
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Company supports its multi-channel sales and marketing strategy through national
advertising in key financial and business publications, sponsorship of
promotional events for customers and Business Partners and participation in
trade shows and conferences. The Company also uses its Web sites to provide
information about Company products and to reinforce the Company's brand image,
as well as to support its sales channels. As of December 31, 1997, the Company
employed 102 persons in sales and marketing.
 
     Business Partners.  The Business Partner channel consists of (i) Big Six
and other accounting firms and accounting, human resources and payroll
management consultants and professionals ("professional referral partners") and
(ii) value-added resellers of core accounting and other business software
solutions ("VARs"). The Company believes that its Business Partners have
significant influence over product choices by customers and that its
relationships with its Business Partners are an essential element in its sales
and marketing efforts.
 
     The Company's professional referral partners recommend the Company's
solutions to assist their clients in addressing asset, human resources and
payroll management needs. Because they typically are closely involved with
middle market businesses on a day-to-day basis, the Company's professional
referral partners are well-positioned to understand customer requirements and
make appropriate product recommendations. The Company believes that product
recommendations from accounting firms that have licensed the Company's solutions
for their internal use are particularly effective. The Company has entered into
national licensing relationships with four of the Big Six accounting firms and
has sold local licenses to approximately 3,000 national, regional and local
accounting firm locations. Use of the Company's solutions by clients of these
firms creates efficiencies for both the clients and the accounting firms in the
transmission and processing of asset, human resources and payroll data and frees
the accounting firm to focus more on providing business management and other
higher value services.
 
     VARs are independent sales organizations that market and resell the
Company's products and often offer training and local installation,
implementation and customization services. VARs typically have specialized
experience in financial or human resources areas, and in many cases focus on
selling to middle market businesses. VARs market the Company's solutions through
their own contacts and to sales leads supplied by the Company. The Company
requires VARs to undergo prescribed training and certification procedures before
being authorized to sell and implement certain of the Company's software
solutions. As of December 31, 1997, the Company was affiliated with
approximately 200 certified VARs.
 
     Direct-Response Telesales.  The Company solicits new customers for its
products through periodic targeted mailings to its prospects. Utilizing its
proprietary database of more than 300,000 potential new customer business names
and other available mailing lists, the Company distributed over 2.8 million
pieces of direct mail relating to its product lines in fiscal 1997 and 1.4
million pieces for the nine months ended December 31, 1997. Such mailings, as
well as targeted advertising, generate interest from potential customers by
stressing the cost-effectiveness and functionality of the Company's products,
ongoing changes in government regulations and the support and service provided
by the Company. Responses from potential customers are entered into the
Company's automated lead-tracking system. Once the information or a trial
product has been delivered to the potential customer, follow-up calls are made
until the customer decides whether or not to license the product.
 
     Strategic Marketing Alliances.  The Company currently has formal and
informal strategic marketing alliances with over 20 of the leading core
accounting and other industry-specific software vendors. These alliances permit
these software vendors to incorporate the Company's products as specialized
integrated applications or add-on modules to enhance their product offerings.
These alliances benefit the Company by creating an additional sales channel and
by providing a strong recommendation of its products by leading software
vendors. The Company's strategic marketing alliance partners currently include
Great Plains Software, Inc., Platinum Software Corporation, Scala North America,
Inc., and State of the Art, Inc.
 
     Direct Sales.  The Company has a direct sales force that currently markets
the Company's products to larger middle market customers and national accounts.
As of December 31, 1997, the Company's direct sales force consisted of 12
persons, located at the Company's offices in Reston, Virginia and St.
Petersburg, Florida and other locations. In addition to marketing the Company's
products to new customers, this channel
 
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leverages the Company's broad installed customer base to sell additional
products to divisions or branches of existing customers.
 
                                  COMPETITION
 
     The market for the Company's products is highly competitive. Although the
Company is not aware of any competitor which competes with it across all of its
product lines, a variety of companies currently offer products that compete with
one or more of the Company's product lines. In addition, as the Company targets
new markets and introduces new product lines, it expects to encounter
competition from additional competitors. The Company's products compete
primarily on the basis of product features and functions, product quality and
reliability, timeliness of product release and updating, ease of use, brand
recognition, quality of customer support, price and product line breadth. The
Company believes that its products generally compete effectively with respect to
these factors.
 
     The Company faces different competitors for each of its product lines. The
Company's asset management products compete principally with products offered by
the Bureau of National Affairs, Inc. in the single-user and work group
environments, and the Company anticipates that its enhanced client/server
products, when introduced, will compete with products offered by PeopleSoft,
Inc., Oracle Corporation and others. The Company's human resources and payroll
management products compete primarily with Spectrum Human Resources Corporation,
Human Resources Microsystems and Ceridian Corporation (FLX) in the single-user
and work group environment, and the Company anticipates that its enhanced
client/server human resources and payroll products, when introduced, will
compete with products offered by PeopleSoft, Inc., Ultimate Software Group, Inc.
and SAP AG in the client/server environment. The Company's human resources and
payroll management products also compete with payroll service bureaus, such as
ADP, Inc. and Paychex, Inc., and with in-house management information systems
staffs. Several of the Company's competitors or potential competitors have
significantly greater financial, technical and marketing resources than the
Company. There can be no assurance that the Company will continue to compete
successfully with its existing competitors or will be able to compete
successfully with new competitors. In addition, there can be no assurance that
competitors will not develop products that are superior to the Company's
products or achieve greater market acceptance. Competitive pressures in the form
of aggressive price competition could also have a material adverse effect on the
Company's business, operating results and financial condition. The Company's
future success will depend significantly upon its ability to increase its share
of its target markets, to maintain and increase its renewal revenues from
existing customers and to sell additional products, product enhancements,
maintenance and support agreements and training and consulting services to
existing customers and new customers. There can be no assurance that the Company
will continue to compete favorably or that competition will not have a material
adverse effect on the Company's business, operating results or financial
condition.
 
                         TECHNICAL SUPPORT AND SERVICE
 
     The Company believes that offering quality service and support is strategic
to its overall business objectives and provides the Company with a significant
opportunity to differentiate itself from competitors. The Company offers its
customers maintenance and technical support through its SupportPlus membership
programs, and also offers training and consulting services. The Company derives
a significant portion of its revenue from maintenance and support services. As
of December 31, 1997, the Company employed 71 persons in technical support and
services functions. In the nine months ended December 31, 1997, almost 50% of
the Company's revenue or $18.2 million were for support, training and other
professional services, which compares to 49% or $19.3 million for the fiscal
year 1997 and 42.2% or $16.6 million for the fiscal year 1996.
 
     The Company's SupportPlus membership programs provide customers expert
telephone support for FAS and Abra products, software updates to reflect tax law
and government regulatory changes, feature enhancements, newsletter
subscriptions, unlimited access to the Company's support center on the Web and
special discounts on new products and services. In the nine months ended
December 31, 1997 approximately 90% of the Company's customers purchased
maintenance and support agreements in connection with their

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initial licenses of Company products and approximately 85% in both fiscal 1997
and fiscal 1996. During each of these periods, the Company achieved
approximately 80% annual renewal rates for its maintenance and support
agreements, which typically have a one-year term. The Company's telephone
support organization provides extensive product support to customers, including
assistance in connection with implementation, systems operation and regulatory
compliance.
 
     In addition to technical support, the Company offers its customers the
option to attend training seminars covering the use of the Company's solutions
as well as a comprehensive nationwide seminar series featuring basic through
advanced interactive product training. Many of these seminars offer professional
education credits. The Company also offers on-site training at client
facilities. In certain circumstances, the Company's Business Partners provide
training and implementation services directly to customers.
 
     The Company is in the process of expanding its consulting services
operation, which provides installation, training, data conversion,
implementation and other consulting services. The Company believes this
consulting services operation will become increasingly important as it
introduces its enhanced client/server products in the future.
 
                   INTELLECTUAL PROPERTY RIGHTS AND LICENSES
 
     The Company generally does not execute licenses with its customers but
instead seeks to protect its software and other intellectual property through a
combination of trade secret, copyright and trademark law, confidentiality
agreements and contractual restrictions on copying and disclosure contained in
its "shrink wrap" licenses and nondisclosure agreements with its employees and
contractors. The Company provides its products to customers on a "right-to-use"
basis under non-exclusive shrink wrap licenses, which generally are
nontransferable and have a perpetual term. The license agreements generally
provide that the software is provided "as is" without warranty of any kind.
 
     Despite the Company's efforts to protect its proprietary rights,
unauthorized parties may attempt to copy aspects of the Company's products or to
obtain and use information that the Company regards as proprietary. Policing
unauthorized use of the Company's products is difficult and, while the Company
is unable to determine the extent to which piracy of its software products
exists, software piracy can be expected to be a persistent problem, particularly
in international markets and as a result of the growing use of the Internet.
Licensees do not sign the Company's shrink wrap licenses and, therefore, it is
possible that such licenses may be unenforceable under the laws of certain
jurisdictions. In addition, the laws of some foreign countries do not protect
the Company's proprietary rights to the same extent as do the laws of the United
States. There can be no assurance that the steps taken by the Company to protect
its proprietary rights will be adequate or that the Company's competitors will
not independently develop technologies that are substantially equivalent or
superior to the Company's products and technologies.
 
     The Company is not aware that any of its products, trademarks or other
proprietary rights infringe the proprietary rights of third parties. However,
there can be no assurance that third parties will not assert infringement claims
against the Company in the future with respect to current or future products. As
the number of software products in the industry increases and the functionality
of these products further overlap, the Company believes that software developers
may become increasingly subject to infringement claims. Any such claims, with or
without merit, can be time-consuming and expensive to defend, cause product
shipment delays or require the Company to enter into royalty or licensing
agreements. Such royalty agreements, if required, may not be available on terms
acceptable to the Company, or at all, which could have a material adverse effect
on the Company's business, operating results and financial condition.
 
                                   EMPLOYEES
 
     As of December 31, 1997, the Company had 314 full-time employees, including
79 employees primarily engaged in research and development, 71 in technical
support and services, 102 in sales and marketing, and 62 in operations, finance
and administration. The Company believes current employee relations are good.
 
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ITEM 2.  PROPERTIES
 
     The Company's corporate headquarters, including its principal
administrative, product development, product management, technical support, and
sales and marketing operations, are located in 39,000 square feet of office
space in a building located in Reston, Virginia. The Company occupies the space
under leases expiring on February 28, 2002, subject to the Company's right to
extend the term by two years for part of the space, and by two or five years for
the remainder of the space. The Company's Abra Software, Inc. subsidiary leases
26,000 square feet of office space in St. Petersburg, Florida, under a lease
that expires in December 1998. The Company also leases space in McLean, Virginia
and Burlington, Ontario, Canada. The Company leased space in Palo Alto,
California pursuant to a lease that expired in February 1998. Total rent expense
for the Company's facilities was approximately $865,000 for the nine months
ended December 31, 1997 and approximately $1.0 million for each of fiscal year
1997 and fiscal year 1996. The Company believes that its existing facilities are
suitable and adequate for its present needs and that suitable additional space
will be available as needed to accommodate any expansion of operations.
 
ITEM 3.  LEGAL PROCEEDINGS
 
     From time to time, the Company is involved in litigation relating to claims
arising out of its operation in the normal course of business. The Company is
not currently a party to any legal proceedings. An unfavorable outcome in any
future litigation could have a material adverse effect on the Company's
business, operating results, and financial condition. In addition, any
litigation, regardless of outcome, can have a material adverse impact on the
Company because of defense costs, diversion of management resources and other
factors.
 
ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
 
     No matters were submitted for vote of security holders in the quarter ended
December 31, 1997.
 
                                    PART II
 
ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
 
     The Company's Common Stock began trading on the Nasdaq National Market
under the symbol "BEST" on September 30, 1997. The initial offering price was
$13.00 per share and during the period from the initial offering to December 31,
1997 the high closing price was $14.625 per share and the low closing price was
$8.625 per share. The closing price on December 31, 1997 was $9.25 per share. On
February 27, 1998 the closing price was $15.438 per share.
 
Shareholders
 
     On March 2, 1998 the Company had approximately 104 holders of record.
 
Dividends
 
     The Company paid a dividend of $0.455 per share of Common Stock to
shareholders of record on February 20, 1997 and a dividend of $0.915 per share
of Common Stock to shareholders of record on June 27, 1997. All of the Board
members (or their affiliates) except for Mr. Richard A. Lefebvre were
shareholders as of the record date for payment of the first dividend and all of
the Board members (or their affiliates) were shareholders as of the record date
for payment of the second dividend. In connection with the two dividends, Mr.
James F. Petersen received $2,876,903; Mr. Timothy A. Davenport received
$137,100; Edison, an affiliate of Mr. John H. Martinson, received $5,527,292;
Ms. Dorothy T. Webb, who was then a director of the Company, received
$1,027,586; Dr. Herbert R. Brinberg received $20,550; Mr. Lefebvre received
$3,294; and PNC Capital Corp. ("PNC"), a shareholder of the Company and an
affiliate of Mr. Peter V. Del Presto, who was then a director of the Company,
received the payments described in the following paragraph.
 
     The Loan and Warrant Purchase Agreement by and between PNC and the Company
dated as of March 2, 1993, prohibits the Company from issuing cash dividends to
its shareholders until the closing of an

                                        8
<PAGE>   11
 
initial public offering. In consideration for PNC's waiver of this restriction
in connection with the two dividend issuances described above, the Company
agreed, with regard to the first dividend, to reduce the per share exercise
price of the PNC Warrant by the dividend amount (i.e., from $2.667 to $2.213 per
share), and, with regard to the second dividend, to pay PNC a dividend
equivalent payment of $432,338 ($0.915 multiplied by the 472,500 shares
underlying the PNC Warrant) and to amend the PNC Warrant to reduce the then
current per share exercise price thereunder by 20% of the dividend value (i.e.,
from $2.213 to $2.029 per share). PNC is a beneficial shareholder of the Company
and Mr. Del Presto, a former director of the Company, is a Vice President of
PNC.
 
     In connection with the above described dividends, all employees holding
nonstatutory stock options were given the opportunity to elect to pay some or
all of their withholding tax obligations resulting from exercise of their
options in the form of a secured promissory note, bearing interest at the rate
of 5.66% and 6.06% per annum for the first and second dividend, respectively,
and due and payable to the Company, in cash or stock of the Company (valued at
the then current fair market value), no later than ten business days after the
date upon which the cash dividend was paid. The Company received a number of
such promissory notes from employees, including a note in the amount of $763,890
from Mr. Petersen, Chairman of the Board and a director, and a note in the
amount of $702,578 from Ms. Webb, a former director. Both Mr. Petersen and Ms.
Webb delivered Common Stock to the Company to pay off the loan (199,429 and
183,282 shares, respectively).
 
     The Company has adopted a policy that any future transactions between the
Company and its executive officers, directors and affiliates must (i) be on
terms no less favorable to the Company than could be obtained from unaffiliated
third parties and (ii) be approved by a majority of the members of the Company's
Board of Directors and by a majority of the disinterested members of the
Company's Board of Directors.
 
     The Company paid a dividend of $3,556,264 in the aggregate ($0.455 per
share of Common Stock) to shareholders of record on February 20, 1997 and a
dividend of $7,565,114 in the aggregate ($0.915 per share of Common Stock) to
shareholders of record on June 27, 1997. Other than these dividends, the Company
has never paid cash dividends on its Common Stock. The Company currently intends
to retain any future earnings to fund the development and growth of its
business, and does not anticipate paying any cash dividends for the foreseeable
future.
 
Stock Buyback
 
     On December 1, 1997, the Company announced that its Board of Directors had
approved the repurchase by the Company of up to an aggregate of 200,000 shares
of its Common Stock. The Company intends to issue any such repurchased shares
pursuant to its stock plans. As of December 31, 1997, the Company had purchased
approximately 10,000 shares under the repurchase program.
 
Use of Proceeds
 
     The net proceeds of the initial public offering remain temporarily invested
and available for future product development, working capital, acquiring or
investing in businesses, technologies or products complimentary to the Company's
business or other general corporate purposes. The registration statement
(Registration No. 333-33275) for the Initial Public Offering was filed on Form
S-1 with the Securities and Exchange Commission on September 29, 1997. The
Initial Public Offering completed on October 3, 1997, in which the Company sold
2,750,000 shares of common stock at an offering price of $13.00 per share,
generated approximately $32 million of net proceeds to the Company. The Company
incurred approximately $1.0 million in expenses related to the Initial Public
Offering. The Underwriters of the offering were Hambrecht & Quist LLC and
William Blair & Company, LLC.
 
Subsequent Event
 
     In March 1998, the Company announced the signing of a definitive agreement
to acquire HR Management Software GmbH (HRS), a leading provider of human
resource software in the European marketplace. The acquisition is for
approximately $10.0 million, consisting of cash and Common Stock. The
acquisition will be accounted for as a purchase and the Company expects to write
off in the first quarter of 1998 a substantial portion of the purchase to
in-process research and development.
 
                                        9
<PAGE>   12
 
ITEM 6.  SELECTED CONSOLIDATED FINANCIAL DATA
 
     To better understand the following financial information, investors should
also read the "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and the Consolidated Financial Statements and Notes
thereto. In December 1997, the Company announced a change in its fiscal year end
to December 31 from March 31. Consequently, the Company's most recently
completed fiscal period is a nine-month transition period ended December 31,
1997. The following selected financial data is in thousands, except per share
data:
 
<TABLE>
<CAPTION>
                                                                                            NINE MONTHS ENDED
                                                        YEAR ENDED MARCH 31,                   DECEMBER 31,
                                              -----------------------------------------   ----------------------
                                                1994       1995       1996       1997        1996         1997
                                              --------   --------   --------   --------   -----------   --------
                                                                                          (UNAUDITED)
<S>                                           <C>        <C>        <C>        <C>        <C>           <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
  Revenue:
    License fees and royalty................  $19,339    $20,346    $22,677    $20,161      $15,171     $18,384
    Services................................    8,202     14,677     16,552     19,323       14,147      18,157
                                              -------    -------    -------    -------      -------     -------
         Total..............................   27,541     35,023     39,229     39,484       29,318      36,541
                                              -------    -------    -------    -------      -------     -------
  Cost of revenue:
    License fees and royalty................    2,807      3,806      4,501      2,251        1,448       1,443
    Services................................    2,355      4,357      5,306      5,675        4,110       4,537
                                              -------    -------    -------    -------      -------     -------
         Total..............................    5,162      8,163      9,807      7,926        5,558       5,980
                                              -------    -------    -------    -------      -------     -------
  Gross margin..............................   22,379     26,860     29,422     31,558       23,760      30,561
                                              -------    -------    -------    -------      -------     -------
  Operating expenses:
    Sales and marketing.....................    9,482     11,354     12,812     14,355       10,811      13,247
    Research and development................    2,173      5,707      7,389      6,089        4,751       6,650
    General and administrative..............    5,797      4,284      5,789      5,554        4,162       4,808
    Amortization of acquired intangibles....    1,984      3,177      1,435         --           --          --
                                              -------    -------    -------    -------      -------     -------
         Total..............................   19,436     24,522     27,425     25,998       19,724      24,705
                                              -------    -------    -------    -------      -------     -------
  Operating income (loss)...................    2,943      2,338      1,997      5,560        4,036       5,856
                                              -------    -------    -------    -------      -------     -------
  Other income (expense), net:
    Interest income (expense), net..........     (424)      (176)      (145)       351          226         263
    Gain on sale of product lines...........       --         --        750         --           --          --
                                              -------    -------    -------    -------      -------     -------
         Total..............................     (424)      (176)       605        351          226         263
                                              -------    -------    -------    -------      -------     -------
  Income from continuing operations before
    income taxes............................    2,519      2,162      2,602      5,911        4,262       6,119
  Income tax benefit (provision)............     (400)      (550)       925     (1,475)      (1,930)     (2,350)
                                              -------    -------    -------    -------      -------     -------
  Income from continuing operations.........    2,119      1,612      3,527      4,436        2,332       3,769
  Gain on disposal of discontinued
    business................................       --      1,903         --         --           --          --
  Loss from operations of discontinued
    business................................   (8,990)        --         --         --           --          --
                                              -------    -------    -------    -------      -------     -------
  Net income (loss).........................  $(6,871)   $ 3,515    $ 3,527    $ 4,436      $ 2,332     $ 3,769
                                              =======    =======    =======    =======      =======     =======
  Basic net income per share from continuing
    operations..............................  $  0.33    $  0.25    $  0.54    $  0.67      $  0.36     $  0.44
                                              =======    =======    =======    =======      =======     =======
  Diluted net income per share from
    continuing operations...................  $  0.26    $  0.19    $  0.44    $  0.54      $  0.28     $  0.38
                                              =======    =======    =======    =======      =======     =======
  Basic net income (loss) per share.........  $ (1.06)   $  0.54    $  0.54    $  0.67      $  0.36     $  0.45
                                              =======    =======    =======    =======      =======     =======
  Diluted net income (loss) per share.......  $  (.85)   $  0.42    $  0.44    $  0.54      $  0.28     $  0.38
                                              =======    =======    =======    =======      =======     =======
  Basic weighted average shares
    outstanding.............................    6,496      6,499      6,528      6,581        6,532       8,445
                                              =======    =======    =======    =======      =======     =======
  Diluted weighted average shares
    outstanding.............................    8,118      8,397      8,030      8,263        8,231       9,809
                                              =======    =======    =======    =======      =======     =======
</TABLE>
 
<TABLE>
<CAPTION>
                                                              MARCH 31,
                                              -----------------------------------------        DECEMBER 31,
                                                1994       1995       1996       1997              1997
                                              --------   --------   --------   --------        ------------
<S>                                           <C>        <C>        <C>        <C>        <C>           <C>
CONSOLIDATED BALANCE SHEET DATA:
  Cash cash equivalents and short-term
    investments.............................  $ 2,070    $ 3,534    $ 8,105    $13,365                   $45,432
  Working capital (deficit).................  (12,888)    (5,169)      (583)      (912)                   26,549
  Total assets..............................   19,633     13,794     17,625     21,160                    57,010
  Deferred maintenance and service
    revenue.................................    7,987      8,814      9,398     12,288                    16,231
  Long-term debt............................    5,119      2,954      2,133        650                        --
  Redeemable convertible preferred stock....      500        500        500        500                        --
  Redeemable common stock warrants..........      206        206        296        642                        --
  Shareholders' equity (deficit)............   (7,763)    (4,202)      (698)      (144)                   29,754
</TABLE>
 
                                       10
<PAGE>   13
 
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS
 
                                  INTRODUCTION
 
CAUTIONS ABOUT FORWARD-LOOKING STATEMENTS
 
     The following discussion of the financial condition and results of
operations of the Company should be read in conjunction with the Consolidated
Financial Statements and Notes thereto included elsewhere in this Form 10-K.
Certain of the statements contained in this Form 10-K which are not statements
of historical fact are forward-looking statements that involve risks and
uncertainties. Such forward-looking statements are made only as of the date of
this Form 10-K. The Company's actual results could differ materially from those
contained in the forward-looking statements. Factors that may cause such
differences include, but are not limited to, those discussed below under
"Certain Factors That May Affect Future Results" as well as those discussed
elsewhere in this Form 10-K. References to the Company's "fiscal" year mean the
twelve months ended on March 31 of that calendar year until December 1997, when
the Company announced a change in its fiscal year end to December 31 from March
31. Consequently, the Company's most recently completed fiscal period is a
nine-month transition period ended December 31, 1997. Thereafter, the Company's
fiscal year will run from January 1 through December 31.
 
OVERVIEW
 
     The Company is a leader in corporate resource management software, 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 December 31, 1997, the Company had over 42,000 licensed customer
locations, representing approximately 125,000 licensed seats.
 
     The Company launched its FAS fixed asset management product line in 1983
and a professional tax preparation software product line in 1985. In 1991, the
Company acquired the Abra human resources and payroll management product line.
Between 1992 and 1994, the Company purchased a write-up product line for
accountants, a small business accounting software product line (the "MYOB
product line") and a service bureau payroll product line for accountants. The
Company thereafter decided to focus primarily on serving middle market
businesses, and sold its professional tax preparation software business in April
1994 and its service bureau payroll and write-up product lines for accountants
in August 1995 (together, the "Divested Product Lines"). In May 1996, the
Company licensed its MYOB product line to a third party. Under such license (the
"MYOB License"), the Company is to receive royalties over the four-year license
term, which ends in June 2000. The royalty rate escalates over each of the four
years in the license period and is based on the total revenue of the licensee
attributable to the MYOB product line.
 
     The Company currently derives substantially all of its revenue from its FAS
and Abra product lines and related services and from the MYOB License
(collectively, the "Ongoing Business"). The Company's historical consolidated
financial statements include results of operations relating to the Divested
Product Lines and the MYOB product line. Accordingly, certain of the Company's
historical consolidated financial statements are not indicative of operating
results attributable to the Ongoing Business. For fiscal 1996 and 1997, total
revenue from the Ongoing Business was $30.8 million and $38.4 million
respectively; gross margin for the Ongoing Business was $23.8 million and $30.9
million respectively; and operating income from the Ongoing Business was $2.0
million and $5.6 million respectively. Beginning with the nine month transition
period ended December 31, 1997 the Ongoing Business is the same as the
information presented.
 
     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 Windows versions
of these products and, since fiscal 1995, a significant number of the Company's
 
                                       11
<PAGE>   14
 
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 addition to revenue from product licenses, the Company derives
significant recurring revenue from maintenance and support agreements. In the
nine months ended December 31, 1997 approximately 90% of the Company's customers
purchased maintenance and support agreements in connection with their initial
licenses of Company products and approximately 85% in both fiscal 1997 and
fiscal 1996. Additionally, during each of these periods, the Company has
achieved average annual renewal rates for its maintenance and support agreements
of approximately 80%. 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. In the
nine months ended December 31, 1997 and in fiscal 1997, approximately 50% of
total revenue were attributable to services, of which a substantial portion was
derived 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 generally one year. Revenue from other services, such as training and
consulting, is recognized as the services are provided.
 
     The Company employs a multi-channel sales and marketing strategy utilizing
four primary channels: Business Partners, a direct-response telesales operation,
strategic marketing alliances and a direct sales organization. In 1995, the
Company began to develop its national account organization and has invested and
expects to continue to invest in the development of this channel. The Company
expects that sales through direct channels will generally have higher gross
margins than sales through indirect channels, although these higher margins may
be offset in whole or in part by increased sales and marketing expenses. In
addition, in October 1996, the Company established a wholly owned subsidiary in
Ontario, Canada to localize and market the Company's FAS and Abra products in
the Canadian market.
 
     The Company has made, and intends to continue to make, significant
investments in research and development to develop new products and enhanced
client/server versions of its existing products. In addition, the Company
releases periodic updates of its products to incorporate regulatory changes. As
of December 31, 1997, the Company had 79 full-time software development
personnel with expertise in Windows, Windows NT, client/server and/or Internet
environments. Of these developers, six are Certified Public Accountants and
eight are Certified Payroll Professionals.
 
     The Company accounts for software development costs in accordance with
Statement of Financial Accounting Standard No. 86 "Accounting For The Costs Of
Computer Software To Be Sold, Leased Or Otherwise Marketed." Costs incurred
prior to establishment of technological feasibility are expensed as incurred and
reflected as research and development costs. There were no software development
costs capitalized in fiscal 1996 or fiscal 1997 or in the nine-month period
ended December 31, 1997. During these periods, the time between the
establishment of technological feasibility and general release was very short.
Costs otherwise capitalizable after technological feasibility were insignificant
and, therefore, were expensed as incurred.
 
                                       12
<PAGE>   15
 
     Effective October 3, 1997 the Company sold 2,750,000 shares of common stock
at an offering price of $13.00 per share (the "Initial Public Offering"). This
transaction generated approximately $32 million of net proceeds to the Company
after deduction of all related expenses. As part of the Initial Public Offering,
all of the Company's outstanding preferred stock automatically converted into
shares of its common stock, and certain warrant redemption rights expired. A
partial exercise of a warrant occurred immediately prior to the close of the
offering. During the Initial Public Offering through December 31, 1997, the
holder of the warrant to purchase 472,500 shares of Common Stock elected to
partially exercise the warrant of 119,204 shares of Common Stock in a cashless
exercise transaction. As a result of this transaction, the holder of the warrant
received 100,599 shares of Common Stock and 353,296 warrants remain exercisable.
 
     In fiscal 1994, the Company established a valuation allowance for certain
deferred tax assets. The valuation allowance was subsequently reduced as a
result of the Company's analysis of then current levels of earnings and
anticipated operating results. As a result, the Company's effective tax rate has
been significantly lower than the applicable statutory rates. The Company
expects that the effective tax rate in future periods will more closely reflect
statutory rates.
 
                             RESULTS OF OPERATIONS
 
     The following table sets forth for the periods indicated certain
consolidated statement of operations data expressed in thousands of dollars. The
Company's historical financial statements (presented below) include operating
results relating to the Divested Product Lines and the MYOB product line and,
therefore, are not indicative of the results of operations attributable to the
Ongoing Business.
 
<TABLE>
<CAPTION>
                                                             FISCAL YEAR          NINE MONTHS
                                                           ENDED MARCH 31,    ENDED DECEMBER 31,
                                                          -----------------   -------------------
                                                           1996      1997       1996       1997
                                                          -------   -------   --------   --------
                                                                             (UNAUDITED)
<S>                                                       <C>       <C>       <C>        <C>
Revenue:
     License fees and royalty...........................  $22,677   $20,161   $15,171    $18,384
     Services...........................................   16,552    19,323    14,147     18,157
                                                          -------   -------   -------    -------
          Total.........................................   39,229    39,484    29,318     36,541
                                                          -------   -------   -------    -------
Cost of revenue:
     License fees and royalty...........................    4,501     2,251     1,448      1,443
     Services...........................................    5,306     5,675     4,110      4,537
                                                          -------   -------   -------    -------
          Total.........................................    9,807     7,926     5,558      5,980
                                                          -------   -------   -------    -------
Gross margin............................................   29,422    31,558    23,760     30,561
                                                          -------   -------   -------    -------
Operating expenses:
     Sales and marketing................................   12,812    14,355    10,811     13,247
     Research and development...........................    7,389     6,089     4,751      6,650
     General and administrative.........................    5,789     5,554     4,162      4,808
     Amortization of acquired intangibles...............    1,435        --        --         --
                                                          -------   -------   -------    -------
          Total.........................................   27,425    25,998    19,724     24,705
                                                          -------   -------   -------    -------
Operating income........................................    1,997     5,560     4,036      5,856
Other income, net.......................................      605       351       226        263
                                                          -------   -------   -------    -------
Income before income taxes..............................    2,602     5,911     4,262      6,119
Income tax benefit (provision)..........................      925    (1,475)   (1,930)    (2,350)
                                                          -------   -------   -------    -------
Net income..............................................  $ 3,527   $ 4,436   $ 2,332    $ 3,769
                                                          =======   =======   =======    =======
Gross Margins:
     Gross margin on license fees and royalty revenue...  $18,176   $17,910   $13,723    $16,941
     Gross margin on services revenue...................  $11,246   $13,648   $10,037    $13,620
</TABLE>
 
                                       13
<PAGE>   16
 
     The following table sets forth for the periods indicated certain
consolidated statement of operations data expressed as a percentage of total
revenue. The Company's historical financial statements include operating results
relating to the Divested Product Lines and the MYOB product line and, therefore,
are not indicative of the results of operations attributable to the Ongoing
Business.
 
<TABLE>
<CAPTION>
                                                               FISCAL YEAR
                                                                  ENDED              NINE MONTHS
                                                                MARCH 31,        ENDED DECEMBER 31,
                                                              -------------      -------------------
                                                              1996    1997          1996       1997
                                                              -----   -----      -----------   -----
                                                                                 (UNAUDITED)
<S>                                                           <C>     <C>        <C>           <C>
Revenue:
     License fees and royalty...........................       57.8%   51.1%         51.7%      50.3%
     Services...........................................       42.2    48.9          48.3       49.7
                                                              -----   -----         -----      -----
          Total.........................................      100.0   100.0         100.0      100.0
                                                              -----   -----         -----      -----
Cost of revenue:
     License fees and royalty...........................       11.5     5.7           4.9        4.0
     Services...........................................       13.5    14.4          14.0       12.4
                                                              -----   -----         -----      -----
          Total.........................................       25.0    20.1          18.9       16.4
                                                              -----   -----         -----      -----
Gross margin............................................       75.0    79.9          81.1       83.6
                                                              -----   -----         -----      -----
Operating expenses:
     Sales and marketing................................       32.7    36.4          36.9       36.2
     Research and development...........................       18.8    15.4          16.2       18.2
     General and administrative.........................       14.7    14.0          14.2       13.2
     Amortization of acquired intangibles...............        3.7      --            --         --
                                                              -----   -----         -----      -----
          Total.........................................       69.9    65.8          67.3       67.6
                                                              -----   -----         -----      -----
Operating income........................................        5.1    14.1          13.8       16.0
Other income, net.......................................        1.5     0.9           0.8        0.7
                                                              -----   -----         -----      -----
Income before income taxes..............................        6.6    15.0          14.6       16.7
Income tax benefit (provision)..........................        2.4   (3.8)         (6.6)      (6.4)
                                                              -----   -----         -----      -----
Net income..............................................        9.0%   11.2%          8.0%      10.3%
                                                              =====   =====         =====      =====
Gross Margins:
     Gross margin on license fees and royalty revenue...       80.2%   88.8%         90.5%      92.2%
     Gross margin on services revenue...................       67.9%   70.6%         70.9%      75.0%
</TABLE>
 
RESULTS FOR NINE MONTHS ENDED DECEMBER 31, 1996 AND 1997
 
     License Fees and Royalty Revenue.  License fees and royalty revenue
consists of fees from software licenses and royalties from the MYOB License.
License fees and royalty revenue increased from $15.2 million in the nine months
ended December 31, 1996 to $18.4 million for the same period in 1997,
representing an increase of 21.2%. As a percentage of total revenue, license
fees and royalty revenue decreased from 51.7% in the nine months ended December
31, 1996 to 50.3% in the nine months ended December 31, 1997. The dollar
increase from the nine months ended December 31, 1996 to the nine months ended
December 31, 1997 was the result of 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 decrease as a percentage of
total revenue from the nine months ended December 31, 1996 to the nine months
ended December 31, 1997 was the result of the elimination of license fees from
the MYOB product line, which generated higher license fees as a percentage of
total revenue than the FAS and Abra product lines. Additionally, during the nine
months ended December 31, 1997, the Company recorded royalty revenue of $1
million from the MYOB License, up from $443,000 for the same period in 1996.
 
     Services Revenue.  Services revenue includes revenue from maintenance and
support agreements, training, and consulting services. Services revenue
increased from $14.1 million in the nine months ended
 
                                       14
<PAGE>   17
 
December 31, 1996 to $18.2 million in the nine months ended December 31, 1997,
representing an increase of 28.3%. As a percentage of total revenue, services
revenue increased from 48.3% in the nine months ended December 31, 1996 to 49.7%
for the same period in 1997. The dollar increase in services revenue was
primarily due to the increase in maintenance and support agreements, which
resulted from an increased renewal rate and a larger installed base of
customers, and 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.
 
     Cost of License Fees and Royalty Revenue.  Cost of license fees and royalty
revenue consists primarily of costs of media, product manuals, shipping and
fulfillment, and royalties paid to third parties. Cost of license fees and
royalty revenue remained constant at $1.4 million for the nine months ended
December 31, 1996 and the nine months ended December 31, 1997. However, as a
percentage of license fees and royalty revenue, cost of license fees and royalty
revenue decreased from 9.5% to 7.8% for the comparable periods. The decrease in
cost of license fees and royalty revenue as a percentage of license fees and
royalty revenue was primarily due to increased sales of higher margin
Windows-based and multi-user products and the elimination of license fees
attributable to the lower margin MYOB product line. 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 $4.1 million in the nine months ended December 31, 1996 to $4.5
million in the nine months ended December 31, 1997, representing an increase of
10.4%. As a percentage of services revenue, cost of services revenue decreased
from 29.1% to 25.0% for the comparable periods. The dollar increases in cost of
services revenue were attributable primarily to increased service revenue. The
decrease in cost of services revenue as a percentage of services revenue in the
nine months ended December 31, 1997 was primarily due to the effect of services
revenue growing at a faster rate than expenses.
 
     Sales and Marketing.  Sales and marketing expenses consist primarily of
direct mail programs, advertising, other marketing programs, personnel costs,
commissions, travel and operating costs. Sales and marketing expense increased
from $10.8 million in the nine months ended December 31, 1996 to $13.2 million
in the nine months ended December 31, 1997, representing an increase of 22.5%.
As a percentage of total revenue, sales and marketing expenses decreased
slightly from 36.9% to 36.2% for the comparable periods. The increases in sales
and marketing expenses in the nine months ended December 31, 1997 were primarily
due to the hiring of additional sales and marketing personnel for the Company's
national accounts group and Canadian operations and, to a lesser extent, website
activities, increased lead generation, advertising and corporate brand awareness
activities.
 
     Research and Development.  Research and development expenses consist
primarily of personnel costs and fees paid to outside consultants. Research and
development expenses increased from $4.8 million in the nine months ended
December 31, 1996 to $6.7 million in the nine months ended December 31, 1997,
representing an increase of 40.0%. As a percentage of total revenue, research
and development expenses increased from 16.2% to 18.2% for the comparable
periods. The increase in research and development expenses from the nine months
ended December 31, 1996 to the nine months ended December 31, 1997, was
primarily due to increased expenses relating to the development of a new
budgeting product, the development of 32 bit versions of certain existing
products, and to a lesser extent the expenses incurred to localize the Company's
FAS and Abra product lines for Canada.
 
     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
$4.2 million in the nine months ended December 31, 1996 to $4.8 million in the
nine months ended December 31, 1997, representing an increase of 15.5%. As a
percentage of total revenue, general and administrative expenses decreased from
14.2% to 13.2% for the comparable periods. The increase in general and
administrative expenses in the nine months ended December 31, 1997 was related
to the
 
                                       15
<PAGE>   18
 
Company's continued development of its management infrastructure, including the
addition of personnel to support growth in the Company's operations.
 
     Other Income, Net.  Other income consists primarily of earnings from
investments, net of any interest expense. Other income, net was $226,000 for the
nine months ended December 31, 1996 and $263,000 for the nine months ended
December 31, 1997. The slight increase was due to increased interest income
through investing the proceeds of the Initial Public Offering, offset against
interest expense attributable to a reduction in the exercise price of a warrant.
 
     (Provision) Benefit for Income Taxes.  The provision for income taxes was
$1.9 million and $2.4 million for the nine months ended December 31, 1996 and
1997 respectively, representing 45.3% and 38.4% of income before taxes,
respectively. For the nine months ended December 31, 1996, the Company's
effective tax rate was higher due to valuation reserves for certain deferred tax
assets.
 
RESULTS FOR FISCAL YEARS ENDED MARCH 31, 1996 AND 1997
 
     License Fees and Royalty Revenue.  License fees and royalty revenue
decreased from $22.7 million in fiscal 1996 to $20.2 million in fiscal 1997,
representing a decrease of 11.1%. As a percentage of total revenue, license fees
and royalty revenue decreased from 57.8% for fiscal 1996 to 51.1% for fiscal
1997. The dollar decrease from fiscal 1996 to fiscal 1997 was the result of the
elimination of license fees from the MYOB product line, which more than offset
an increase in license fee revenue for FAS and Abra products. The decrease as a
percentage of total revenue from fiscal 1996 to fiscal 1997 was the result of
the elimination of license fees from the MYOB product line, which generated
higher license fees as a percentage of total revenue than the FAS and Abra
product lines. During fiscal 1997, the Company recorded royalty revenue of
$663,750 from the MYOB License.
 
     Services Revenue.  Services revenue increased from $16.6 million in fiscal
1996 to $19.3 million in fiscal 1997, representing an increase of 16.7%. As a
percentage of total revenue, services revenue increased from 42.2% to 48.9% for
1996 and 1997, respectively. The dollar increase in services revenue was
primarily due to the increase in maintenance and support agreements, which
resulted from an increased renewal rate and a larger installed base of
customers, and higher average contract value. To a lesser extent, the increase
in services revenue was due to the Company's increased focus on providing
training services and other consulting services. The increase in services
revenue as a percentage of total revenue from fiscal 1996 to fiscal 1997 was
primarily attributable to increased renewal rates and the elimination of revenue
attributable to the MYOB product line, whose customers purchased proportionately
fewer services.
 
     Cost of License Fees and Royalty Revenue.  Cost of license fees and royalty
revenue decreased from $4.5 million in fiscal 1996 to $2.3 million in fiscal
1997, representing a decrease 50.0%. As a percentage of license fees and royalty
revenue, cost of license fees and royalty revenue changed from 19.8% to 11.2%
for fiscal 1996 and 1997, respectively.
 
     The decrease in cost of license fees and royalty revenue from fiscal 1996
to fiscal 1997 was primarily due to the elimination of costs associated with the
MYOB product line, the elimination of $1.2 million of amortization of
capitalized software development costs recorded in fiscal 1996 and, to a lesser
extent, a change in the media on which the Company's products were delivered
from diskettes to lower cost CD-ROMs. The decrease as a percentage of license
fees and royalty revenue from fiscal 1996 to fiscal 1997 was primarily due to
the elimination of the MYOB product line, which had a lower margin than the
Company's FAS and Abra products, to $663,750 of royalty revenue from the MYOB
License in fiscal 1997, for which the associated costs are nominal, and to the
change to CD-ROM media.
 
     Cost of Services Revenue.  Cost of services revenue increased from $5.3
million in fiscal 1996 to $5.7 million in fiscal 1997, representing an increase
of 7.0%. As a percentage of services revenue, cost of services revenue changed
from 32.1% to 29.4% for fiscal 1996 and 1997, respectively. The dollar increases
in cost of services revenue were attributable primarily to costs associated with
additional personnel to meet the demands of the increased number of maintenance
and support customers and, to a lesser extent, to costs associated with
enhancing customer support systems, offset in part in fiscal 1997 by the
elimination of costs
 
                                       16
<PAGE>   19
 
associated with providing services for the MYOB product line. The decrease in
cost of services revenue as a percentage of services revenue in fiscal 1997 was
due to the elimination of services related to the MYOB product line, which
historically had higher cost of services as a percentage of services revenue
than the Company's FAS and Abra product lines.
 
     Sales and Marketing.  Sales and marketing expense increased from $12.8
million in fiscal 1996 to $14.4 million in fiscal 1997, representing an increase
of 12.0%. As a percentage of total revenue, sales and marketing expenses
increased from 32.7% and to 36.4% for fiscal 1996 and 1997, respectively. The
increases in sales and marketing expenses in each period were primarily due to
the hiring of additional sales and marketing personnel and, to a lesser extent,
increased lead generation, advertising and corporate brand awareness activities.
 
     Research and Development.  Research and development expenses decreased from
$7.4 million in fiscal 1996 to $6.1 million in fiscal 1997, representing a
decrease of 17.6%. As a percentage of total revenue, research and development
expenses decreased from 18.8% to 15.4% for fiscal 1996 and 1997, respectively.
The decrease from fiscal 1996 to fiscal 1997, were primarily due to expenses in
fiscal 1996 relating to the updating of product lines to include Windows-based
versions and enhanced multi-user versions and nonrecurring development expenses
associated with the MYOB product line.
 
     General and Administrative.  General and administrative expenses decreased
from $5.8 million in fiscal 1996 to $5.6 million in fiscal 1997, representing a
decrease of 4.1%. As a percentage of total revenue, general and administrative
expenses decreased from 14.7% to 14.0% for fiscal 1996 and 1997, respectively.
The decrease in general and administrative expenses for fiscal 1997 was due
primarily to the reduction in general and administrative expenses associated
with the MYOB product line.
 
     Amortization of Acquired Intangibles.  Amortization of acquired intangibles
relates to costs capitalized as a result of various acquisitions. Amortization
of acquired intangibles was $1.4 million in fiscal 1996. Capitalized costs for
intellectual property rights and other intangibles were fully amortized as of
the end of fiscal 1996.
 
     Other Income (Net).  Other income, net was $605,000 for fiscal 1996 and
$351,000 for fiscal 1997. Other income in fiscal 1996 was the result of a
one-time gain on the sale of its service bureau payroll and write-up product
lines. Other income in fiscal 1997 was primarily due to $215,000 of interest
expense attributable to a reduction in the exercise price of a warrant in
connection with the February 1997 dividend to shareholders, as well as increased
interest income.
 
     (Provision) Benefit for Income Taxes.  The (provision) benefit for income
taxes was $925,000 and $(1.5 million) for fiscal 1996 and 1997 respectively,
representing 35.5% and (25.0)% of income before taxes respectively. For fiscal
1996 and 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 of $2.0 million and $1.2 million in 1996 and 1997,
respectively, based on management's analysis of current levels of earnings and
anticipated operating results. The Company expects that the income tax provision
in future periods will more closely reflect the statutory tax rates. See Note 6
of Notes to Consolidated Financial Statements.
 
                                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 are Year 2000
compatible. For the FAS Windows-based products, 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. Certain DOS
versions of FAS
                                       17
<PAGE>   20
 
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 compliant
programs.
 
     All costs of the above measures are being funded out of current operations.
 
     Additionally, the Company has performed an assessment of its internal
principal management information system software to determine if they are Year
2000 compliant. Management's assessment is that minimal modifications will be
necessary to the Company's existing internal principal management information
system software to achieve Year 2000 compliance. The Company expects its
internal principal management information systems to be fully Year 2000
compliant by 1999.
 
                        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 $45.4 million
at December 31, 1997.
 
     For the nine months ended December 31, 1997, fiscal 1997 and fiscal 1996,
net cash provided by operating activities was $10.2 million, $12.3 million and
$4.9 million, respectively. In the nine months ended December 31, 1997 and
fiscal 1997, net cash from operating activities was primarily provided by net
income and deferred maintenance and services revenue.
 
     Net cash used in investing activities for the nine months ended December
31, 1997 and for fiscal 1997 was $13.8 million and $1.1 million respectively,
while net cash provided from investing activities for fiscal 1996 was $386,000.
The increase for the nine months ended December 31, 1997 is due to purchases of
short-term investments with the proceeds from the Initial Public Offering. In
the nine months ended December 31, 1997 and fiscal 1997, cash used in investing
activities for the purchase of property and equipment was $1.5 million and $1.3
million 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 provided by financing activities was $23.4 million in the nine
months ended December 31, 1997, primarily due to net proceeds of the Initial
Public Offering. During the nine months ended December 31, 1997, the principal
use of cash was the payment of dividends totaling $7.6 million. Net cash used in
financing activities for fiscal 1996 and fiscal 1997 was $735,000 and $5.9
million respectively. The increase in fiscal 1997 over fiscal 1996 was due to
the payment of a dividend and the repayment of a note.
 
     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.
 
                   RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
 
     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".
These statements become effective for the Company's 1998 financial statements.
The Company is evaluating these statements to determine the impact on its
reporting and disclosure requirements.
 
     The American Institute of Certified Public Accountants (the "AICPA") has
issued a Statement of Position (the "SOP") SOP 97-2, "Software Revenue
Recognition," that is effective for fiscal years beginning after December 15,
1997. The Company believes that the changes will not have an impact on the
Company.
 
                                       18
<PAGE>   21
 
                 CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS
 
     Significant Fluctuations in Quarterly Operating Results.  The Company has
experienced, and expects to continue to experience, significant fluctuations in
its quarterly operating results. There can be no assurance that the Company will
be profitable in any particular quarter. The Company's future quarterly
operating results will depend upon a number of factors, including the demand for
its products, the type and level of services purchased by its customers, the mix
of sales through direct and indirect sales channels, the level of product and
price competition that it encounters, the length of its sales cycles, the timing
of larger customer implementations, the timing and success of sales and
marketing programs, particularly direct mail campaigns, the timing and
acceptance of new product introductions and product enhancements by the Company
and its competitors, the timing and amount of the Company's product development
programs, the mix of products and services sold, the timing of new hires, market
acceptance of new products, competitive conditions in the industry and general
economic conditions. The Company's expense levels are based, in significant
part, on anticipated revenue trends. Because a high percentage of these expenses
are relatively fixed in the short term, if revenue levels fall below
expectations, the Company's operating results are likely to be materially and
adversely affected. Historically, the Company's revenues and earnings for the
first calendar quarter have been lower than those for the preceding quarter
because a disproportionate number of customers purchase the Company's products
in the fourth calendar quarter in anticipation of the close of their own fiscal
years and the ensuing tax season. In addition, margins in the first calendar
quarter have historically been lower due to the shipment by the Company of large
numbers of annual software updates in that quarter reflecting regulatory
changes. The Company anticipates that the sales cycle for its enhanced
client/server products, upon their introduction, will generally be longer than
that associated with its current products. Any significant lengthening of the
Company's sales cycle could have a material adverse effect on the Company's
business, operating results and financial condition and, in particular, could
contribute to significant fluctuations in operating results on a quarterly
basis. As a result of these and other factors, the Company's quarterly operating
results are subject to variation, and the Company believes that
quarter-to-quarter comparisons of its operating results are not necessarily
meaningful and should not be relied upon as an indication of future performance.
In addition, due to all the foregoing factors, the Company's operating results
in future periods may be below the expectations of securities analysts and
investors. In that event, the market price of the Company's Common Stock would
likely be materially adversely affected.
 
     Product Concentration; Discontinued Product Lines.  The Company currently
derives substantially all of its revenue from its FAS and Abra product lines and
related services. These product lines are expected to continue to account for a
substantial portion of the Company's revenues for the foreseeable future.
Accordingly, the Company's future operating results will depend, in part, on
maintaining and increasing acceptance of these products and related services.
Any factors adversely affecting the pricing of or demand for these products and
services or an increase in competition for such products and services could have
a material adverse effect on the Company's business, operating results and
financial condition. The Company's historical consolidated financial statements
for the applicable periods include results of operations relating to certain
product lines subsequently sold or licensed by the Company. Accordingly, the
Company's historical consolidated financial statements are not indicative of
operating results attributable to the Ongoing Business. In addition, the Company
derives revenue from the exclusive license of its MYOB product line to a third
party (the "MYOB License"), which will expire in June 2000.
 
     New Products and Rapid Technological Change.  The market for business
application software is characterized by rapid technological advancements,
changes in customer requirements, frequent new product introductions and
enhancements and changing industry standards. The life cycles of the Company's
products are difficult to estimate and the Company's current market position
could be undermined by rapid technological changes and the introduction of new
products and enhancements by new or existing competitors. The Company's growth
and future success will depend, in part, upon its ability to enhance its current
products and introduce new products in order to keep pace with products offered
by the Company's competitors, adapt to technological advancements and changing
industry standards and produce additional functionality to address the
increasingly sophisticated requirements of its customers. The Company currently
has a number of new product development efforts underway, including the
development of enhanced client/server versions of
 
                                       19
<PAGE>   22
 
its FAS and Abra products and the development of a new budgeting software
product. The Company's product development efforts are expected to require
substantial additional investment by the Company. There can be no assurance that
the Company will have sufficient resources to make the necessary investment or
that it will not experience difficulties that could delay or prevent the
successful development, introduction or marketing of new products or
enhancements. In addition, there can be no assurance that such products or
enhancements will meet the requirements of the marketplace or achieve market
acceptance or that the Company's customers will migrate to client/server
environments at the rate expected by the Company. If the market for the
Company's products shifts rapidly towards the client/server environment, the
absence of enhanced client/server versions of its FAS and Abra products, or any
delay in the commercial availability or market acceptance of such products,
could have a material adverse effect on the Company's business, operating
results and financial condition. In addition, the Company's enhanced
client/server products are being developed to operate on corporate Intranets,
among other applications, and the success of these products will depend upon
growth in the number of middle market businesses implementing corporate
Intranets. If businesses do not adopt and deploy corporate Intranets at the rate
anticipated by the Company, the Company's business, operating results and
financial condition may be materially and adversely affected. Any failure by the
Company to anticipate or respond adequately to technological advancements,
customer requirements and changing industry standards, or any significant delays
in the development, introduction or availability of new products or
enhancements, could have a material adverse effect on the Company's business,
operating results and financial condition. See "Business -- Product Design and
Development."
 
     Product Migration.  Prior to fiscal 1994, substantially all of the
Company's revenue from its FAS and Abra products was derived from DOS-based
versions of those products. Since fiscal 1994, when the Company introduced
Windows-based versions of its FAS and Abra products, a significant number of the
Company's DOS installed base of customers for these product lines has migrated
to the Company's Windows-based products. However, there can be no assurance that
in the future a significant percentage of the Company's remaining installed base
of DOS customers will migrate to the Company's Windows-based products. In
particular, the Company believes that smaller customers are less likely to
migrate to the Company's Windows-based products because the cost of migrating is
high relative to their size and because, in many cases, the DOS-based products
adequately meet their needs. If a significant number of the Company's remaining
DOS customers elect not to migrate to the Company's Windows-based products,
purchase competitive products or encounter problems in implementing the
Company's Windows-based products, the Company's business, operating results and
financial condition could be materially and adversely affected.
 
     Risks Associated with Sales Channels.  To date, the Company has sold its
products and services primarily through a network of value-added resellers,
accounting firms and consultants (together, "Business Partners"), a
direct-response telesales operation, strategic marketing alliances and a direct
sales force focusing on national accounts. The Company's ability to achieve
significant revenue growth in the future will depend, in large part, upon its
ability to establish and maintain relationships with its Business Partners,
strategic alliance partners and national accounts and upon the success of its
direct mail campaigns and telesales efforts. The Company's ability to
successfully market its products, including its enhanced client/server products
under development, will depend on its ability to adapt its sales channels to
address the evolving markets for such products. Failure to do so could have a
material and adverse effect on the Company's business, operating results and
financial condition. See "Business -- Sales and Marketing."
 
     The Company's ability to achieve significant revenue growth in the future
will depend, in part, on its success in recruiting and training sufficient
direct sales personnel and expanding its Business Partner network. Although the
Company is currently investing, and plans to continue to invest, significant
resources to develop and expand its direct sales force and Business Partner
network, the Company has at times experienced and may continue to experience
difficulty in recruiting qualified personnel for its direct sales force and
identifying, certifying, and/or maintaining qualified Business Partners. There
can be no assurance that the Company will be able to maintain or successfully
expand its direct sales force or Business Partner network or that any such
expansion will result in an increase in revenue. Further, there can be no
assurance that a sufficient number of direct sales personnel or Business
Partners will be able to successfully address the client/server market. Any
failure by the Company to expand its direct sales force or its Business Partner
network could have a material
 
                                       20
<PAGE>   23
 
adverse effect on the Company's business, operating results and financial
condition. In addition, if the Company is successful in expanding its direct
sales force, there can be no assurance that its direct sales personnel will be
successful in increasing the Company's revenue to a sufficient extent to cover
the increased expenses associated with such expansion. The Company's agreements
with its Business Partners generally are nonexclusive and may be terminated by
either party at any time without cause. The Company's Business Partners are not
within the control of the Company, are not obligated to purchase products from
the Company and may also represent or refer product lines of its competitors.
Business Partners' sales tend to fluctuate based on their implementation
schedules and internal resources, which are beyond the control of the Company.
There can be no assurance that these Business Partners will continue their
current relationships with the Company or that they will not give higher
priority to the sale or referral of other products, which could include products
of competitors. A reduction in sales efforts or discontinuance of sales or
referrals of the Company's products by its Business Partners could lead to
reduced sales and could materially adversely affect the Company's business,
operating results and financial condition. The Company expects that any material
increase in the Company's indirect sales as a percentage of total revenue will
materially and adversely affect the Company's average selling prices and gross
margins due to the lower unit prices that the Company receives through indirect
channels.
 
     The Company's strategy of marketing its products directly to end users and
indirectly through its Business Partners may result in distribution channel
conflicts. The Company's direct sales efforts may compete with those of its
indirect channels and, to the extent more than one Business Partner targets the
same customer, such Business Partners may come into conflict with each other.
There can be no assurance that channel conflict will not adversely affect the
Company's relationships with its customers or Business Partners or its ability
to attract other Business Partners. See "Business -- Sales and Marketing."
 
     Competition.  The market for the Company's products is intensely
competitive and rapidly changing. The Company faces different competitors for
each of its product lines. The Company's asset management products compete
principally with products offered by the Bureau of National Affairs, Inc. in the
single-user and work group environments, and the Company anticipates that its
enhanced client/server asset management products, when introduced, will compete
with products offered by PeopleSoft, Inc., Oracle Corporation and others. The
Company's human resources and payroll management products compete primarily with
products offered by Spectrum Human Resources Corporation, Human Resources
Microsystems and Ceridian Corporation (FLX) in the single-user and work group
environment, and the Company anticipates that its enhanced client/server human
resources and payroll products, when introduced, will compete with products
offered by PeopleSoft, Inc., Ultimate Software Group, Inc. and SAP AG in the
client/server environment. The Company's human resource and payroll management
products also compete with payroll service bureaus, such as ADP, Inc. and
PayChex, Inc., and with in-house management information systems staffs. Some of
the Company's existing competitors, as well as a number of potential new
competitors, have larger technical staffs, more established and larger sales and
marketing organizations and greater financial resources than the Company. There
can be no assurance that the Company will continue to compete successfully with
its existing competitors or will be able to compete successfully with new
competitors. In addition, there can be no assurance that competitors will not
develop products that are superior to the Company's products or achieve greater
market acceptance. Competitive pressures in the form of aggressive price
competition could also have a material adverse effect on the Company's business,
operating results and financial condition. The Company's future success will
depend significantly upon its ability to increase its share of its target
markets, to maintain and increase its renewal revenues from existing customers
and to sell additional products, product enhancements, maintenance and support
agreements and training and consulting services to existing customers and new
customers. There can be no assurance that the Company will continue to compete
favorably or that competition will not have a material adverse effect on the
Company's business, operating results or financial condition.
 
     Timely Release of Periodic Updates to Reflect Tax Law and Other Regulatory
Changes.  The Company's asset, human resources and payroll management software
products are affected by changes in laws and regulations and generally must be
updated annually or periodically to maintain their accuracy and competitiveness.
There can be no assurance that the Company will be able to release these annual
or periodic updates
 
                                       21
<PAGE>   24
 
on a timely basis in the future. Failure to do so could have a material adverse
effect on market acceptance of the Company's products, which could have a
material adverse effect on the Company's business, operating results and
financial condition. In addition, significant changes in tax laws and
regulations or other regulatory provisions applicable to the Company's products
could require the Company to make a significant investment in product
modifications, which could have a material adverse effect on the Company's
business, operating results and financial condition. See "Business -- Products
and Services" and "Business -- Product Design and Development."
 
     Product Errors; Product Liability.  Software products such as those offered
by the Company typically contain undetected errors or failures when first
introduced or as new versions are released. Testing of the Company's products is
particularly challenging because it is difficult to simulate the wide variety of
computing environments in which the Company's customers may deploy these
products. Despite extensive testing, the Company from time to time has
discovered defects or errors in its products. Accordingly, there can be no
assurance that such defects, errors or difficulties will not cause delays in
product introductions and shipments, result in increased costs and diversion of
development resources, require design modifications or decrease market
acceptance or customer satisfaction with the Company's products. In addition,
there can be no assurance that, despite testing by the Company and by current
and potential customers, errors will not be found after commencement of
commercial shipments, resulting in loss of or delay in market acceptance, which
could have a material adverse effect upon the Company's business, operating
results and financial condition.
 
     Although the Company has not experienced any material product liability
claims to date, the sale and support of software products and the performance of
related services by the Company entails the risk of such claims. Many of the
Company's products and services are used by or performed for customers in
connection with the preparation and filing of tax returns and other regulatory
reports. If any of the Company's products contain errors that produce inaccurate
results upon which users rely, or cause users to misfile or fail to file
required information, the Company could be subject to liability claims from
users which could, in turn, materially adversely affect the Company's business,
operating results and financial condition. The Company attempts to limit its
product liability exposure to users through contractual limitations on
liability, including appropriate disclaimers in its "shrink wrap" license
agreement with end users. The Company's software license agreements generally
provide that the software is provided "as is" without warranty of any kind.
There can be no assurance, however, that the contractual limitations used by the
Company will be enforceable or will provide the Company with adequate protection
against product liability claims. The Company also maintains errors and
omissions insurance. There can be no assurance, however, that such coverage will
be sufficient to cover any claims made in the future, will continue to be
available on reasonable terms, or that the insurer will not disclaim coverage as
to any future claim. A successful claim for product or service liability brought
against the Company could have a material adverse effect upon the Company's
business, operating results and financial condition.
 
     Acquisitions.  The Company may, from time to time, pursue acquisitions of
businesses, customer bases, products or technologies that complement or expand
its existing business. The Company evaluates potential acquisition opportunities
from time to time, including those that could be material in size and scope.
Acquisitions involve a number of risks, including the diversion of management's
attention from day-to-day operations to the assimilation of the operations and
personnel of the acquired companies and the incorporation of acquired
operations, customer bases, products or technologies. Such acquisitions could
also have adverse short-term effects on the Company's operating results, and
could result in dilutive issuances of equity securities, the incurrence of debt
and the loss of key employees. In addition, many business acquisitions must be
accounted for as purchases and, because most software-related acquisitions
involve the purchase of significant intangible assets, these acquisitions
typically result in substantial amortization charges and charges for acquired
research and development projects, which could have a material adverse effect on
the Company's operating results. There can be no assurance that any such
acquisitions will occur or that, if such acquisitions do occur, the acquired
businesses, customer bases, products or technologies will generate sufficient
revenue to offset the associated costs or effects.
 
                                       22
<PAGE>   25
 
     Protection of Intellectual Property; Risks of Infringement.  The Company's
success is heavily dependent upon its proprietary technology. The Company
regards its software as proprietary, and relies primarily on a combination of
trade secret, copyright and trademark law, trade secret, confidentiality
agreements and contractual provisions to protect its proprietary rights. The
Company has no patents or patent applications pending, and existing trade secret
and copyright laws afford only limited protection. Despite the Company's efforts
to protect its proprietary rights, unauthorized parties may attempt to copy
aspects of the Company's products or to obtain and use information that the
Company regards as proprietary. Policing unauthorized use of the Company's
products is difficult and, while the Company is unable to determine the extent
to which piracy of its software products exists, software piracy can be expected
to be a persistent problem, particularly in international markets and as a
result of the growing use of the Internet. In selling its products, the Company
relies primarily on "shrink wrap" licenses that are not signed by licensees and,
therefore, it is possible that such licenses may be unenforceable under the laws
of certain jurisdictions. In addition, the laws of some foreign countries do not
protect the Company's proprietary rights to the same extent as do the laws of
the United States. There can be no assurance that the steps taken by the Company
to protect its proprietary rights will be adequate or that the Company's
competitors will not independently develop products or technologies that are
substantially equivalent or superior to the Company's products or technologies.
 
     The Company is not aware that any of its products, trademarks or other
proprietary rights infringe the proprietary rights of third parties. However,
there can be no assurance that third parties will not assert infringement claims
against the Company in the future with respect to current or future products. As
the number of software products in the industry increases and the functionality
of these products further overlap, the Company believes that software developers
may become increasingly subject to infringement claims. Any such claims, with or
without merit, can be time-consuming and expensive to defend, cause product
shipment delays or require the Company to enter into royalty or licensing
agreements. Such royalty agreements, if required, may not be available on terms
acceptable to the Company, or at all, which could have a material adverse effect
on the Company's business, operating results and financial condition. See
"Business -- Intellectual Property Rights and Licenses."
 
     International Operations.  Although the Company's revenue from
international sales has historically been insignificant, the Company recently
opened an office in Canada and intends to increase its sales and marketing
efforts in other international markets. The Company anticipates that its
international operations will require the Company to recruit and hire a number
of new consulting, sales and marketing and support personnel in Canada and other
countries in which the Company establishes operations. In addition, the Company
has only limited experience in developing localized versions of its products and
in marketing and distributing its products internationally. Moreover, the
Company does not currently have relationships with any Business Partners that
target international markets. The Company's international sales and marketing
efforts will require significant investment by the Company in advance of
anticipated future revenue. There can be no assurance that the Company's
international sales and marketing efforts will be successful or will generate
significant revenue. There are a number of other risks inherent in international
business activities, including costs and risks of localizing products for
foreign countries, unexpected changes in regulatory requirements, tariffs and
other trade barriers, longer accounts receivable payment cycles, difficulties in
managing international operations, potentially adverse tax consequences,
currency fluctuations, difficulties in the repatriation of earnings, the burdens
of complying with a wide variety of foreign laws and exposures to gains and
losses on foreign currency transactions. There can be no assurance that such
factors will not have a material adverse effect on the Company's business,
operating results or financial condition.
 
     Reliance on Microsoft Technologies.  The Company's software products are
designed primarily to operate with Microsoft technologies, including Windows NT,
Windows 95, Windows 3.x, SQL Server, Visual FoxPro, Visual Basic and Back
Office. The Company's strategy requires that its products and technology be
compatible with new developments in Microsoft technology. A decreasing portion
of the Company's products are also designed to operate with Microsoft DOS.
Although the Company believes that Microsoft technologies are currently widely
utilized by businesses of all sizes, there can be no assurance that businesses
will continue to adopt such technologies as anticipated, will migrate from older
Microsoft technologies (such as DOS or earlier versions of Windows) to newer
Microsoft technologies or will not adopt alternative technologies that
 
                                       23
<PAGE>   26
 
the Company does not support. If businesses do not migrate from older
technologies and adopt the Microsoft technologies with which the Company's
products are compatible, the Company's business, operating results and financial
condition will be materially and adversely affected.
 
     Dependence on Key Personnel.  The Company's success depends, in significant
part, upon the continued services of its key technical, marketing, sales and
management personnel and on its ability to continue to attract, motivate and
retain highly qualified employees. The loss of key personnel could have a
material adverse effect on the Company's business, operating results and
financial conditions. The Company does not maintain key person life insurance on
any of its employees. Although the Company has employment agreements with
certain key employees, these employees, like all other employees, may
voluntarily terminate their employment with the Company at any time. Competition
for technical, marketing, sales and management employees is intense and the
process of locating personnel with the combination of skills and attributes
required to execute the Company's strategy can be difficult, time-consuming and
expensive. There can be no assurance that the Company will be successful in
attracting or retaining highly skilled technical, management, sales and
marketing personnel and the failure to attract, hire, assimilate or retain such
personnel could have a material adverse effect on the Company's business,
operating results and financial condition.
 
     Significant Influence by Principal Shareholders, Officers and
Directors.  The present directors, executive officers and principal shareholders
of the Company and their affiliates own approximately 46% of the outstanding
Common Stock. As a result, these shareholders will be able to exercise
significant influence over all matters requiring shareholder approval, including
the election of directors and approval of significant corporate transactions.
This concentration of ownership may have the effect of delaying or preventing a
change in control of the Company.
 
     Possible Volatility of Stock Price.  The trading price of the Company's
Common Stock is likely to be highly volatile and may be significantly affected
by factors such as actual or anticipated fluctuations in the Company's operating
results, announcements of technological innovations, new products or new
contracts by the Company or its competitors, developments with respect to
patents, copyrights or proprietary rights, conditions and trends in the software
industry, changes in financial estimates by securities analysts, general market
conditions and other factors. In addition, the public equity markets have from
time to time experienced significant price and volume fluctuations that have
particularly affected the market prices for the stock of technology companies.
These broad market fluctuations, as well as shortfalls in sales or earnings as
compared with securities analysts' expectations, changes in such analysts'
recommendations or projections and general economic and market conditions, may
materially and adversely affect the market price of the Company's Common Stock.
 
     Anti-takeover Effect of Certain Charter, By-Law and Statutory Provisions;
Possible Issuance of Preferred Stock.  The Company's Amended and Restated
Articles of Incorporation and Amended and Restated By-Laws, as well as Virginia
corporate law, contain certain provisions that could have the effect of making
it more difficult for a third party to acquire, or of discouraging a third party
from attempting to acquire, control of the Company. These provisions could limit
the price that certain investors might be willing to pay in the future for
shares of the Company's Common Stock. Certain of these provisions allow the
Company to issue without shareholder approval preferred stock having rights
senior to those of the Common Stock. Other provisions impose various procedural
and other requirements that could make it more difficult for shareholders to
effect certain corporate actions. In addition, the Company's Board of Directors
is divided into three classes, each of which will serve for a staggered
three-year term, which may make it more difficult for a third party to gain
control of the Company's Board of Directors.
 
ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 
     Not applicable.
 
ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
 
     Pursuant to a resolution adopted by the Board of Directors, the Company
announced on December 22, 1997 that it would change the date for the end of its
fiscal year from March 31 to December 31 effective with

                                       24
<PAGE>   27
 
the current fiscal year. The Board made its decision so that the Company's
financial reporting would be more consistent with that of other publicly traded
companies and to simplify communications with investors and shareholders.
 
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
        FINANCIAL DISCLOSURE
 
     Not applicable.
 
                                    PART III
 
ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
 
     Executive officers and directors of the Company, and their ages as of
December 31, 1997, are as follows:
 
<TABLE>
<CAPTION>
                NAME                  AGE                      POSITION
                ----                  ---                      --------
<S>                                   <C>   <C>
James F. Petersen (1)...............  53    Chairman of the Board of Directors
Timothy A. Davenport................  41    President, Chief Executive Officer and Director
David N. Bosserman..................  41    Executive Vice President, Chief Financial
                                            Officer and Treasurer
James F. Foster.....................  45    President, Abra Software, Inc.
David L.G. Horn.....................  40    Vice President, Technical Support
Elaine Kelly........................  34    Vice President, Marketing
Robert H. Skinner...................  46    Senior Vice President, Sales
Herbert R. Brinberg (3).............  71    Director
Richard A. Lefebvre (1)(2)..........  50    Director
John H. Martinson (1)(2)(3).........  49    Director
</TABLE>
 
     --------------------
     (1) Member of the Compensation Committee
 
     (2) Member of the Option Subcommittee of the Compensation Committee
 
     (3) Member of the Audit Committee
 
     James F. Petersen co-founded the Company in 1982 and has served as the
Company's Chairman of the Board since its inception. He served as President and
Chief Executive Officer of the Company from 1982 to June 1995. Before founding
the Company, Mr. Petersen was Vice President and Treasurer of Aspen Systems
Corporation, an electronic information and publishing company.
 
     Timothy A. Davenport was appointed President, Chief Executive Officer and a
director of the Company in June 1995. From March 1987 to June 1995, Mr.
Davenport served as Vice President, Developer Tools Group, and Vice President,
Graphics Division, for Lotus Development Corporation ("Lotus"), a computer
software company that markets and develops productivity and work group
applications. Prior to joining Lotus, Mr. Davenport was employed from March 1985
to March 1987 as Vice President of Product Marketing for Decision Resources, a
division of Ashton-Tate Corporation, a company that developed business graphics
applications.
 
     David N. Bosserman has served as the Company's Executive Vice President,
Chief Financial Officer and Treasurer since October 1996. Previously, he served
as the Company's Vice President, Corporate Finance from June 1993 to September
1996, and Director, Finance and Operations from May 1992 to May 1993. From
January 1985 to May 1992, Mr. Bosserman served in various positions, leading to
Senior Manager, at Deloitte & Touche.
 
     James F. Foster became President of Abra Software, Inc., a wholly owned
subsidiary of the Company ("Abra Software"), in April 1993. From September 1992
until April 1993, Mr. Foster served as Chief Operating Officer of Abra Software.
Prior to joining Abra Software, Mr. Foster was employed from July 1984 to
September 1992 by Dun & Bradstreet Software Services, Inc., a business
application software provider,
 
                                       25
<PAGE>   28
 
where he held a number of positions in the human resources software area, most
recently as Director of Sales and Marketing for the personal computer human
resources division.
 
     David L.G. Horn has served as the Company's Vice President, Technical
Support since December 1997. Previously, he served as the Company's Vice
President, FAS Products Group since joining the Company in October 1995. From
February 1984 to October 1995, Mr. Horn was employed by Hewlett-Packard Co., a
manufacturer of electronic products, in various capacities, most recently as
Future Products Manager for its office products division.
 
     Elaine Kelly has served as Vice President, Marketing since September 1996.
From October 1993 to September 1996, Ms. Kelly served as a Director of
Marketing. From October 1990 until October 1993, Ms. Kelley served as Marketing
Manager of the Company. From July 1988 to September 1990, Ms. Kelly served as
Manager of Marketing Services for Netron Inc., a Canadian software company.
 
     Robert H. Skinner has served as Senior Vice President, Sales since April
1996. Previously, he served as the Company's Vice President of Sales and
Marketing for FAS from April 1995 to April 1996, and as Director of Sales from
June 1992 to April 1995. From December 1982 to June 1992, Mr. Skinner served as
Vice President of Sales and Marketing for Trinet, Inc., a business information
marketing company.
 
     Herbert R. Brinberg has served as a director of the Company since 1990.
Since 1990, Dr. Brinberg has served as the President of Parnassus Associates
International, a company that assists organizations with information and
technology management. From 1978 to 1990, Dr. Brinberg was President and Chief
Executive Officer of Wolters Kluwer U.S. Corporation, an international
publishing company. Dr. Brinberg also serves as a director of K&F Industries,
Inc., a manufacturer of airplane parts and supplies.
 
     Richard A. Lefebvre became a director of the Company in February 1996. He
currently serves as Chairman of Axent Technologies, Inc. ("Axent"), a provider
of enterprise-wide information security solutions, a position he has held since
January 1989. From January 1989 through July 1997, he also served as President
and Chief Executive Officer of Axent. Prior to joining Axent, Mr. Lefebvre was
Chief Operating Officer at Sage Software, Inc. (now InterSolv Inc.), a computer
software company, from May 1987 to December 1988. He currently serves on the
boards of Axent and Sylvon Software, Inc., a software, consulting and training
firm.
 
     John H. Martinson has served as a director of the Company since 1988. Since
1986, Mr. Martinson has been a general partner of Edison Partners, L.P., which
is the general partner of Edison Venture Fund, L.P. ("Edison"), a venture
capital partnership and a shareholder of the Company. Mr. Martinson is a
director of Dendrite International Inc. and Nobel Education Dynamics, Inc. He is
a director of the National Venture Capital Association and Chairman of the New
Jersey Technology Council.
 
     Officers of the Company serve at the pleasure of the Board of Directors.
 
ITEM 11.  EXECUTIVE COMPENSATION
 
     The information that is required by this Item is incorporated by reference
to the Company's Proxy Statement for the 1998 Annual Meeting of Shareholders
which will be filed with the Securities and Exchange Commission within 120 days
after the end of the Company's transition period ended December 31, 1997.
 
ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
 
     The information that is required by this Item is incorporated by reference
to the Company's Proxy Statement for the 1998 Annual Meeting of Shareholders
which will be filed with the Securities and Exchange Commission within 120 days
after the end of the Company's transition period ended December 31, 1997.
 
ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
 
     The information that is required by this Item is incorporated by reference
to the Company's Proxy Statement for the 1998 Annual Meeting of Shareholders
which will be filed with the Securities and Exchange Commission within 120 days
after the end of the Company's transition period ended December 31, 1997.

                                       26
<PAGE>   29
 
                                    PART IV
 
ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
 
     (a) The following documents are filed as part of this Report:
 
     1. Consolidated Financial Statements.  The following consolidated financial
statements of Best Software, Inc. are filed as part of this report.
 
                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
 
<TABLE>
<CAPTION>
                                                                PAGE
                                                                ----
  <S>                                                           <C>
  Report of Independent Public Accountants....................   F-1
  Consolidated Balance Sheets as of December 31, 1997 and
    March 31, 1997............................................   F-2
  Consolidated Statements of Operations for the nine months
    ended December 31, 1997 and the years ended March 31, 1997
    and 1996..................................................   F-3
  Consolidated Statements of Shareholders' Equity for the nine
    months ended December 31, 1997 and the years ended March
    31, 1997 and 1996.........................................   F-4
  Consolidated Statements of Cash Flows for the nine months
    ended December 31, 1997 and the years ended March 31, 1997
    and 1996..................................................   F-5
  Notes to Consolidated Financial Statements..................   F-6
</TABLE>
 
     2.  Consolidated Financial Statements Schedules.
 
                     INDEX TO FINANCIAL STATEMENT SCHEDULES
 
     The following financial statement schedule is filed as part of this report
and should be read in conjunction with the Consolidated Financial Statements:
 
<TABLE>
  <S>                                                           <C>
  Schedule II  Valuation and Qualifying Accounts for the years
    ended March 31, 1996 and 1997 and the nine months ended
    December 31, 1997.........................................  F-17
</TABLE>
 
     3.  Exhibits.
 
                               INDEX TO EXHIBITS
 
<TABLE>
<CAPTION>
EXHIBIT
NUMBER                        DESCRIPTION OF EXHIBIT
-------                       ----------------------
<S>        <C>
   3.1     Second Amended and Restated Articles of Incorporation of the
           Company.
   3.2     Amended and Restated By-Laws of the Company.
   4.1     Specimen certificate for shares of the Company's Common
           Stock. (Incorporated by reference to Exhibit 4.1 of Form
           S-1) (Registration Statement #333-33275 -- "Form S-1")
  10.1     Employee Incentive Stock Option Plan of the Company, as
           amended. (Incorporated by reference to Exhibit 10.1 of Form
           S-1)
  10.2     Amended and Restated 1992 Stock Option Plan of the Company.
           (Incorporated by reference to Exhibit 10.2 of Form S-1)
  10.3     1997 Employee Stock Purchase Plan of the Company.
           (Incorporated by reference to Exhibit 10.3 of Form S-1)
  10.4     1997 Stock Incentive Plan of the Company. (Incorporated by
           reference to Exhibit 10.4 of Form S-1)
  10.5     1997 Director Stock Option Plan of the Company.
           (Incorporated by reference to Exhibit 10.5 of Form S-1)
</TABLE>
 
                                       27
<PAGE>   30
 
<TABLE>
<CAPTION>
EXHIBIT
NUMBER                        DESCRIPTION OF EXHIBIT
-------                       ----------------------
<S>        <C>
  10.6     Loan and Warrant Purchase Agreement dated March 2, 1993 by
           and between PNC Capital Corp. and the Company. (Incorporated
           by reference to Exhibit 10.6 of Form S-1)
  10.6A    Amendment No. 1 to the Loan and Warrant Purchase Agreement.
           (Incorporated by reference to Exhibit 10.6A of Form S-1)
  10.7     Amended and Restated Common Stock Purchase Warrant dated
           March 24, 1993 held by PNC Capital Corp. (Incorporated by
           reference to Exhibit 10.7 of Form S-1)
  10.8     Lease dated March 11, 1993, by and between HEM Corporation
           and the Company, as amended. (Incorporated by reference to
           Exhibit 10.8 of Form S-1)
  10.9     Lease Agreement dated October 28, 1991, by and between
           Reston Investment Properties Associates Limited Partnership
           and the Company, as amended. (Incorporated by reference to
           Exhibit 10.9 of Form S-1)
  10.10    Lease dated November 17, 1992 by and between Koger
           Management, Inc. and Abra Cadabra Software, Inc., as
           amended. (Incorporated by reference to Exhibit 10.10 of Form
           S-1)
  10.11    Form of Shareholder Warrant. (Incorporated by reference to
           Exhibit 10.11 of Form S-1)
  10.12    Consolidating Registration Rights Agreement. (Incorporated
           by reference to Exhibit 10.12 of Form S-1)
  10.12A   Form of Letter Agreement between the Company and James F.
           Petersen. (Incorporated by reference to Exhibit 10.12A of
           Form S-1)
  10.13    License Agreement dated May 28, 1996 between Best!Ware, Inc.
           and Data-Tech Software Pty. Ltd. (Incorporated by reference
           to Exhibit 10.13 of Form S-1)
  10.14    Asset Purchase and Transition Agreement dated May 28, 1996
           among Best!Ware, Inc. (NJ), Best!Ware, Inc. (VA) and the
           Company. (Incorporated by reference to Exhibit 10.14 of Form
           S-1)
  10.15    Employment Agreement dated May 17, 1995 between the Company
           and James F. Petersen. (Incorporated by reference to Exhibit
           10.15 of Form S-1)
  10.16    Letter dated May 4, 1995, from the Company to Timothy A.
           Davenport. (Incorporated by reference to Exhibit 10.16 of
           Form S-1)
  10.17    Amendments to Warrant by and among PNC Capital Corp and the
           Company. (Incorporated by reference to Exhibit 10.17 of Form
           S-1)
  10.18    Shareholders Voting Agreement. (Incorporated by reference to
           Exhibit 10.18 of Form S-1)
  11       Computation of Earnings Per Share.
  21       Subsidiaries of the Company. (Incorporated by reference to
           Exhibit 21 of Form S-1)
  23       Consent of Arthur Andersen LLP.
  27       Financial Data Schedule.
</TABLE>
 
     (b) Reports on Form 8-K
 
     On December 1, 1997 the Company filed a report on Form 8-K to report under
Item 5 the repurchase of up to 200,000 shares of its Common Stock to fund the
requirements of its stock plans.
 
     On December 23, 1997 the Company filed a report on Form 8-K to report under
Item 8 its change in fiscal year end to December 31.
 
                                       28
<PAGE>   31
 
                                   SIGNATURES
 
     Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
 
                                          BEST SOFTWARE, INC.
 
Dated: March 23, 1998
                                          By:   /s/ TIMOTHY A. DAVENPORT
                                            ------------------------------------
                                                   Timothy A. Davenport,
                                               President and Chief Executive
                                                           Officer
 
                                   SIGNATURES
 
     Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the Company and in
the capacities and on the dates indicated.
 
<TABLE>
<CAPTION>
                   SIGNATURE                                        TITLE                         DATE
                   ---------                                        -----                         ----
<S>                                                   <C>                                    <C>
 
             /s/ JAMES F. PETERSEN                        Chairman of the Board and          March 23, 1998
------------------------------------------------                   Director
               JAMES F. PETERSEN
 
            /s/ TIMOTHY A. DAVENPORT                    President and Chief Executive        March 23, 1998
------------------------------------------------        Officer and Director (Principal
              TIMOTHY A. DAVENPORT                            Executive Officer)
 
             /s/ DAVID N. BOSSERMAN                    Executive Vice President, Chief       March 23, 1998
------------------------------------------------        Financial Officer and Treasurer
               DAVID N. BOSSERMAN                          (Principal Financial and
                                                              Accounting Officer)
 
            /s/ HERBERT R. BRINBERG                               Director                   March 23, 1998
------------------------------------------------
              HERBERT R. BRINBERG
 
             /s/ JOHN H. MARTINSON                                Director                   March 23, 1998
------------------------------------------------
               JOHN H. MARTINSON
 
              /s/ RICHARD LEFEBVRE                                Director                   March 23, 1998
------------------------------------------------
                RICHARD LEFEBVRE
</TABLE>
 
                                       29
<PAGE>   32
 
                      [This Page Intentionally Left Blank]
<PAGE>   33
 
                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
 
To Best Software, Inc.:
 
     We have audited the accompanying consolidated balance sheets of Best
Software, Inc. and subsidiaries as of December 31, 1997 and March 31, 1997, and
the related consolidated statements of operations, shareholders' equity and cash
flows for the nine month period ended December 31, 1997 and the years ended
March 31, 1997 and 1996. 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 an 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, the financial statements referred to above present fairly,
in all material respects, the financial position of Best Software, Inc. and
subsidiaries as of December 31, 1997 and March 31, 1997, and the results of
their operations and their cash flows for the nine month period ended December
31, 1997 and the years ended March 31, 1997 and 1996 in conformity with
generally accepted accounting principles.
 
                                                   ARTHUR ANDERSEN LLP
 
Washington, D.C.
January 19, 1998 (except with respect
to the matter described
in Note 12, as to which
the date is March 19, 1998)
 
                                       F-1
<PAGE>   34
 
                              BEST SOFTWARE, INC.
                          CONSOLIDATED BALANCE SHEETS
                (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
 
<TABLE>
<CAPTION>
                                                              DECEMBER 31,   MARCH 31,
                                                                  1997         1997
                                                              ------------   ---------
<S>                                                           <C>            <C>
                                        ASSETS
Current assets:
     Cash and cash equivalents..............................    $33,164       $13,365
     Short-term investments.................................     12,268            --
     Accounts receivable, net of allowance ($991 and $832,
      respectively).........................................      4,661         2,124
     Inventory..............................................        280           183
     Prepaid expenses and other current assets..............      1,419           895
     Deferred tax asset.....................................        700           350
                                                                -------       -------
          Total.............................................     52,492        16,917
                                                                -------       -------
     Property and equipment, net............................      2,182         1,774
     Deferred tax asset.....................................      2,300         2,450
     Other assets...........................................         36            19
                                                                -------       -------
          Total.............................................    $57,010       $21,160
                                                                =======       =======
 
            LIABILITIES AND SHAREHOLDERS' (DEFICIT) EQUITY
Current liabilities:
     Accounts payable.......................................    $ 4,118       $ 1,949
     Accrued expenses.......................................      6,257         4,571
     Notes payable..........................................        650           650
     Deferred maintenance and service revenue...............     14,918        10,605
     Obligations under capital leases.......................         --            54
                                                                -------       -------
          Total.............................................     25,943        17,829
                                                                -------       -------
     Notes payable, net of current portion..................         --           650
     Deferred maintenance and service revenue...............      1,313         1,683
                                                                -------       -------
          Total liabilities.................................     27,256        20,162
                                                                -------       -------
Commitments and contingencies (Notes 7, 8 and 9)
Redeemable convertible preferred stock:
     Class A preferred stock, $0.01 par value; 41,667 shares
      authorized, issued and outstanding at March 31, 1997
      converted into 625,005 shares of common stock upon the
      closing of the initial public offering (at liquidation
      value)................................................         --           500
     Redeemable common stock warrants.......................         --           642
Shareholders' (deficit) equity:
     Preferred stock, $0.01 par value; 1,000,000 shares
      authorized, none issued...............................         --            --
     Common stock, no par value; 40,000,000 shares
      authorized; 10,913,385 and 6,979,483 issued and
      outstanding, respectively.............................     33,604           455
     Additional paid-in capital.............................      1,000           228
     Deferred compensation..................................       (124)           --
     Accumulated deficit....................................     (4,726)         (827)
                                                                -------       -------
          Total shareholders' (deficit) equity..............     29,754          (144)
                                                                -------       -------
          Total.............................................    $57,010       $21,160
                                                                =======       =======
</TABLE>
 
 The accompanying notes are an integral part of these consolidated statements.
 
                                       F-2
<PAGE>   35
 
                              BEST SOFTWARE, INC.
                     CONSOLIDATED STATEMENTS OF OPERATIONS
                     (IN THOUSANDS, EXCEPT PER SHARE DATA)
 
<TABLE>
<CAPTION>
                                                              NINE MONTHS       YEARS ENDED
                                                                 ENDED           MARCH 31,
                                                              DECEMBER 31,   -----------------
                                                                  1997        1997      1996
                                                              ------------   -------   -------
<S>                                                           <C>            <C>       <C>
Revenue:
     License fees and royalty...............................    $18,384      $20,161   $22,677
     Services...............................................     18,157       19,323    16,552
                                                                -------      -------   -------
          Total.............................................     36,541       39,484    39,229
                                                                -------      -------   -------
Cost of revenue:
     License fees and royalty...............................      1,443        2,251     4,501
     Services...............................................      4,537        5,675     5,306
                                                                -------      -------   -------
          Total.............................................      5,980        7,926     9,807
                                                                -------      -------   -------
Gross margin................................................     30,561       31,558    29,422
                                                                -------      -------   -------
Operating expenses:
     Sales and marketing....................................     13,247       14,355    12,812
     Research and development...............................      6,650        6,089     7,389
     General and administrative.............................      4,808        5,554     5,789
     Amortization of acquired intangibles...................         --           --     1,435
                                                                -------      -------   -------
          Total.............................................     24,705       25,998    27,425
                                                                -------      -------   -------
Operating income............................................      5,856        5,560     1,997
     Other income (expense):
     Interest income (expense), net.........................        263          351      (145)
     Gain on sale of product lines..........................         --           --       750
                                                                -------      -------   -------
          Total.............................................        263          351       605
Net income before income taxes..............................      6,119        5,911     2,602
Income tax benefit (provision)..............................     (2,350)      (1,475)      925
                                                                -------      -------   -------
Net income..................................................    $ 3,769      $ 4,436   $ 3,527
                                                                =======      =======   =======
Basic net income per share..................................    $  0.45      $  0.67   $  0.54
                                                                =======      =======   =======
Diluted net income per share................................    $  0.38      $  0.54   $  0.44
                                                                =======      =======   =======
Basic weighted average shares outstanding...................      8,445        6,581     6,528
                                                                =======      =======   =======
Diluted weighted average shares outstanding.................      9,809        8,263     8,030
                                                                =======      =======   =======
</TABLE>
 
The accompanying notes are an integral part of these consolidated statements.
 
                                       F-3
<PAGE>   36
 
                              BEST SOFTWARE, INC.
                CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
                                 (IN THOUSANDS)
 
<TABLE>
<CAPTION>
                                               REDEEMABLE                   SHAREHOLDERS' (DEFICIT) EQUITY
                                                 COMMON     --------------------------------------------------------------
                                  REDEEMABLE     STOCK      NUMBER OF             ADDITIONAL
                                  PREFERRED     PURCHASE     COMMON     COMMON     PAID-IN       DEFERRED      ACCUMULATED
                                    STOCK       WARRANTS     SHARES      STOCK     CAPITAL     COMPENSATION      DEFICIT
                                  ----------   ----------   ---------   -------   ----------   -------------   -----------
<S>                               <C>          <C>          <C>         <C>       <C>          <C>             <C>
Balance, April 1, 1995..........     $500        $ 206         6,503    $  184     $   740         $(117)        $(5,008)
  Exercise of stock options
    including tax benefit.......       --           --            26        16          10            --              --
  Compensation associated with
    stock options...............       --           --            --        --          --            39              --
  Cancellation of stock
    options.....................       --           --            --        --          (1)            1              --
  Redemption value of warrants
    in excess of carrying
    value.......................       --           89            --        --          --            --             (89)
    Net income..................       --           --            --        --          --            --           3,527
                                     ----        -----       -------    -------    -------         -----         -------
Balance, March 31, 1996.........      500          295         6,529       200         749           (77)         (1,570)
  Exercise of stock options
    including tax benefit.......       --           --           758       512         560            --              --
  Compensation associated with
    stock options...............       --           --            --        --          --             7              --
  Purchase and retirement of
    treasury stock..............       --           --          (311)     (270)     (1,011)           --              --
  Exercise of common stock
    purchase warrants...........       --           (5)            3        13          --            --              --
    Cancellation of stock
      options...................       --           --            --        --         (70)           70              --
  Payment of dividend...........       --           --            --        --          --            --          (3,556)
  Redemption value of warrants
    in excess of carrying
    value.......................       --          137            --        --          --            --            (137)
  Modification of warrants......       --          215            --        --          --            --              --
    Net income..................       --           --            --        --          --            --           4,436
                                     ----        -----       -------    -------    -------         -----         -------
Balance, March 31, 1997.........      500          642         6,979       455         228            --            (827)
  Exercise of stock options
    including tax benefit.......       --           --           681       358         773            --              --
  Purchase and retirement of
    treasury stock..............       --           --          (235)     (186)       (784)           --             (35)
  Payment of dividend...........       --           --            --        --          --            --          (7,565)
  Issuance of shares of common
    stock in an initial public
    offering                           --           --         2,750    32,247          --            --              --
  Issuance of shares of common
    stock for conversion of
    preferred stock.............     (500)          --           625       500          --            --              --
  Exercise of common stock
    purchase warrants...........       --         (796)          104       160         645            --              --
  Redemption value of warrants
    in excess of carrying
    value.......................       --           68            --        --          --            --             (68)
  Compensation associated with
    stock options...............       --           --            --        --         138          (138)             --
  Amortization of deferred
    compensation................       --           --            --        --          --            14              --
  Modification of warrant.......       --           86            --        --          --            --              --
  Issuance of stock under
    Employee Stock Purchase
    Plan........................       --           --             9        70          --            --              --
    Net income..................       --           --            --        --          --            --           3,769
                                     ----        -----       -------    -------    -------         -----         -------
Balance, December 31, 1997......     $ --        $  --        10,913    $33,604    $ 1,000         $(124)        $(4,726)
                                     ====        =====       =======    =======    =======         =====         =======
</TABLE>
 
 The accompanying notes are an integral part of these consolidated statements.
                                       F-4
<PAGE>   37
 
                              BEST SOFTWARE, INC.
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)
 
<TABLE>
<CAPTION>
                                                              NINE MONTHS        YEARS ENDED
                                                                 ENDED            MARCH 31,
                                                              DECEMBER 31,   -------------------
                                                                  1997         1997       1996
                                                              ------------   --------   --------
<S>                                                           <C>            <C>        <C>
Net income..................................................    $  3,769     $ 4,436    $ 3,527
Adjustments to reconcile net income to net cash provided by
  operating activities:
     Gain on sale of product lines..........................          --          --       (750)
     Depreciation and amortization..........................       1,091       1,288      3,780
     Compensation associated with stock options.............          14           7         39
     Modification of warrants and amortization of debt
       discount.............................................          86         215         --
     Tax benefit from option exercises......................         773         560         11
     Deferred tax asset.....................................        (200)       (500)    (2,300)
     (Increase) decrease in assets:
          Accounts receivable...............................      (2,536)      1,912         95
          Inventory.........................................         (97)        381        (43)
          Prepaid expenses and other assets.................        (541)       (245)      (359)
     Increase in liabilities:
          Accounts payable..................................       2,169         137         89
          Accrued expenses..................................       1,686       1,192        247
          Deferred maintenance and service revenue..........       3,943       2,891        584
                                                                --------     -------    -------
               Net cash provided by operating activities....      10,157      12,274      4,920
                                                                --------     -------    -------
Cash flows from investing activities:
     Net proceeds from sale of product lines................          --          --      1,609
     Net proceeds from sale of property and equipment.......          --         185         --
     Purchases of property and equipment....................      (1,499)     (1,296)      (793)
     Purchase of short-term investments.....................     (12,268)         --         --
     Buyout of product rights...............................          --          --       (430)
                                                                --------     -------    -------
               Net cash (used in) provided by investing
                 activities.................................     (13,767)     (1,111)       386
                                                                --------     -------    -------
Cash flows from financing activities:
     Net proceeds from initial public offering..............      32,247          --         --
     Repayment of notes payable.............................        (650)     (1,500)      (675)
     Cash dividends paid to shareholders....................      (7,565)     (3,556)        --
     Proceeds from exercise of stock options and warrants...         436         520         16
     Purchase and retirement of treasury stock..............      (1,005)     (1,282)        --
     Principal payments under capital lease obligations.....         (54)        (85)       (76)
                                                                --------     -------    -------
               Net cash provided by (used in) financing
                 activities.................................      23,409      (5,903)      (735)
                                                                --------     -------    -------
Net increase in cash and cash equivalents...................      19,799       5,260      4,571
Cash and cash equivalents, beginning of period..............      13,365       8,105      3,534
                                                                --------     -------    -------
Cash and cash equivalents, end of period....................    $ 33,164     $13,365    $ 8,105
                                                                ========     =======    =======
------------------------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
     Cash paid during the period for:
     Income taxes...........................................    $  1,675     $ 1,800    $ 1,250
     Interest...............................................    $    500     $   160    $   250
     Non-cash financing activities:
     Conversion of 625,005 shares of Preferred Stock into
       Common Stock.........................................    $    500     $    --    $    --
     Receipt of Common Stock to repay Notes Receivable......    $    900     $    --    $    --
</TABLE>
 
The accompanying notes are an integral part of these consolidated statements.

                                       F-5
<PAGE>   38
 
                              BEST SOFTWARE, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                      AS OF DECEMBER 31 AND MARCH 31, 1997
 
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
     Best Software, Inc. is a leader in corporate resource management software,
helping organizations to better manage their people, assets, and budgeting
processes.
 
     The market for business application software is competitive and
characterized by ongoing technological advances. The success of the Best
Software, Inc.'s future results of operations is dependent upon, among other
things, its ability to adapt to technological developments and changing industry
standards.
 
     Effective October 3, 1997 Best Software, Inc. sold 2,750,000 shares of
common stock at an offering price of $13.00 per share (the "Initial Public
Offering"). This transaction generated approximately $32 million of net
proceeds.
 
     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.
 
     PRINCIPLES OF CONSOLIDATION -- The financial statements include the
accounts of Best Software, Inc. and its wholly owned subsidiaries. Best
Software, Inc. and its wholly owned subsidiaries are referred to as the
"Company". Intercompany accounts and transactions have been eliminated in
consolidation.
 
     REVENUE RECOGNITION -- Revenue from software product licenses is recognized
upon shipment of the product, net of provisions for returns and allowances,
provided that no significant vendor obligations remain and that collection of
the resulting receivable is probable.
 
     For products with free trial periods, revenue is recognized upon acceptance
of the product by the customer. Revenue from software support agreements is
recognized on a pro rata basis over the term of the agreement, which is
generally one year. Revenue from services, such as training and consulting, is
recognized as the services are provided. Revenue from the Company's royalty
license is recognized ratably within each year of the term of the license
agreement, based on specified annual royalty payments.
 
     The American Institute of Certified Public Accountants (the "AICPA") has
issued a Statement of Position (the "SOP") SOP 97-2, "Software Revenue
Recognition," and is effective for fiscal years beginning after December 15,
1997. The Company believes that the changes will not have an impact on the
Company.
 
     COST OF REVENUE -- Direct product costs, royalties paid by the Company
based on contractual agreements, and amortization of capitalized software
development costs (approximately $1.2 million for the year ended March 31, 1996)
are included in cost of license fees and royalty revenue. Cost of services
revenue includes direct product, costs of updates, employee compensation and
benefits, telephone charges and other costs related to providing such services.
 
     CASH AND CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS -- Cash and cash
equivalents include highly liquid investments with original maturity dates of
three months or less and are stated at amounts which approximate fair value,
based on quoted market prices. The Company accounts for its cash equivalents and
short-term investments under Statement of Financial Standards (SFAS) No. 115,
"Accounting for Certain Investments in Debt and Equity Securities." Management
determines the appropriate classification at the time of purchase and
reevaluates such designations as of each balance sheet date. Both cash
equivalents and short-term investments are considered to be held-to-maturity
securities and are carried at cost. Short-term investments include securities of
U.S. Government agencies, municipalities and corporations.
 
     INVENTORY -- Inventory, consisting of software media, manuals and related
packaging materials, is stated at the lower of cost, determined on the first-in,
first-out ("FIFO") basis, or market.
 
                                       F-6
<PAGE>   39
                              BEST SOFTWARE, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
              AS OF DECEMBER 31 AND MARCH 31, 1997 -- (CONTINUED)
 
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
     PROPERTY AND EQUIPMENT -- Property and equipment are depreciated using the
straight-line method over the estimated useful lives of the assets, which range
from three to five years. Leasehold improvements are amortized over the shorter
of the useful life of the asset or the lease term.
 
     INTELLECTUAL PROPERTY RIGHTS AND INTANGIBLES -- For the year ended March
31, 1996, amortization of intellectual property rights and intangibles was
approximately $1.4 million. Intellectual property rights and intangibles were
fully amortized as of March 31, 1996.
 
     SOFTWARE DEVELOPMENT COSTS -- The Company accounts for software development
costs in accordance with Statement of Financial Accounting Standards ("SFAS")
No. 86, "Accounting for the Costs of Computer Software to be Sold, Leased, or
Otherwise Marketed." Costs incurred prior to the establishment of technological
feasibility are expensed as incurred and reflected as research and development
costs in the accompanying statements of operations. All capitalized software
development costs were fully amortized as of March 31, 1996.
 
     There were no software development costs capitalized in the fiscal years
ended March 31, 1996 or 1997, or in the nine month period ended December 31,
1997. During these periods, the time between the establishment of technological
feasibility and general release was very short. Consequently, costs otherwise
capitalizable after technological feasibility were expensed as they were
insignificant.
 
     INCOME TAXES -- The Company accounts for income taxes using the liability
method as prescribed by SFAS No. 109, "Accounting for Income Taxes."
 
     CREDIT RISK -- Accounts receivable consist of geographically dispersed
customers and include allowances to record receivables at their estimated net
realizable value. The Company maintains its cash, cash equivalents and
short-term investments with high quality financial institutions. Cash
equivalents consist principally of U.S. government securities, commercial paper
and money market funds that invest in government securities.
 
     BASIC AND DILUTED NET INCOME PER SHARE -- In March 1997, the Financial
Accounting Standards Board issued SFAS No. 128, "Earnings Per Share". SFAS No.
128 is effective for financial statements issued after December 15, 1997, and
requires dual presentation of basic and diluted earnings per share and
restatement of all previously reported earnings per share data. 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. Diluted income per share includes the potential
dilution that could occur if the options or warrants were exercised or converted
into common stock. Basic and diluted net income per share reflects the
expiration of the warrant redemption rights.
 
     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 periods presented has been restated to comply
with SFAS No. 128 and SAB No. 98.
 
     FISCAL YEAR END CHANGE -- In December of 1997, the Company changed its
fiscal year end from March 31 to a December 31 year-end. The nine-month period
ended December 31, 1997 is the transition period from the Company's old and new
fiscal year ends. Thereafter, the Company's fiscal year will run from
                                       F-7
<PAGE>   40
                              BEST SOFTWARE, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
              AS OF DECEMBER 31 AND MARCH 31, 1997 -- (CONTINUED)
 
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
January 1 through December 31. Selected results for the corresponding nine-month
period in 1996 are as follows (in thousands):
 
<TABLE>
<CAPTION>
                                                                DECEMBER 31,
                                                                    1996
                                                                ------------
                                                                (UNAUDITED)
<S>                                                             <C>
Revenue.....................................................      $ 29,318
Gross margin................................................        23,760
Operating expenses..........................................        19,724
Operating income............................................         4,036
Net income before income taxes..............................         4,262
Income tax provision........................................        (1,930)
Net income..................................................         2,332
</TABLE>
 
     IMPAIRMENT OF LONG-LIVED ASSETS -- The Company complies with SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of." The Company reviews its long-lived assets, which consist
primarily of property and equipment, for impairment whenever events or changes
in circumstances indicate that the carrying amount of the assets may not be
fully recoverable. To determine recoverability of its long-lived assets, the
Company evaluates the probability that future undiscounted net cash flows,
without interest charges, will be less than the carrying amount of the assets.
Impairment is measured at fair value.
 
     FAIR VALUE OF FINANCIAL INSTRUMENTS -- The carrying amounts of current
assets, current liabilities and notes payable in the accompanying financial
statements approximate fair value.
 
     STOCK SPLIT AND INCREASE IN AUTHORIZED SHARES -- In August 1997, the Board
of Directors approved a three-for-two stock split and, subject to shareholders'
approval increased the authorized capital stock of the Company to consist of
40,000,000 shares of common stock, no par value, and 1,000,000 shares of
preferred stock, $0.01 par value per share. All share and per-share amounts in
the accompanying financial statements have been restated to reflect the stock
split and the increase in authorized shares.
 
     On September 11, 1997, the shareholders approved the increase in authorized
shares.
 
2. SALE OF BUSINESS AND ASSETS
 
     On April 6, 1994, in accordance with a plan established during fiscal year
1993, the Company sold its tax preparation software business for a cash payment
of $6.5 million. The Company recorded a pre-tax gain of approximately $2.5
million after transaction expenses, or approximately $1.9 million after tax, in
the year ended March 31, 1995.
 
     In August 1995, the Company sold substantially all of the assets related to
its service bureau payroll and write-up product lines for $1,609,000. A pre-tax
gain of $750,000 was recorded on this transaction, in the year ended March 31,
1996.
 
     Effective May 29, 1996, the Company licensed its small business accounting
product line in return for royalties, payable over a four-year license period.
Royalty income of approximately $664,000 and $1,048,000 was recognized from this
agreement and is reflected as license fees and royalty in the accompanying
statement of operations during the year ended March 31, 1997 and the nine months
ended December 31, 1997, respectively. The Company does not anticipate
generating any additional revenue from this product line upon termination of the
license agreement in June 2000. 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.
 
                                       F-8
<PAGE>   41
                              BEST SOFTWARE, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
              AS OF DECEMBER 31 AND MARCH 31, 1997 -- (CONTINUED)
 
3. PROPERTY AND EQUIPMENT
 
     Property and equipment consist of the following (in thousands):
 
<TABLE>
<CAPTION>
                                                              DECEMBER 31,   MARCH 31,
                                                                  1997         1997
                                                              ------------   ---------
<S>                                                           <C>            <C>
Equipment and computer software.............................    $ 4,665       $ 5,059
Furniture and fixtures......................................        989         1,222
Leasehold improvements......................................        767           521
Accumulated depreciation and amortization...................     (4,239)       (5,028)
                                                                -------       -------
     Total..................................................    $ 2,182       $ 1,774
                                                                =======       =======
</TABLE>
 
4. ACCRUED EXPENSES
 
     Accrued expenses consist of the following (in thousands):
 
<TABLE>
<CAPTION>
                                                              DECEMBER 31,   MARCH 31,
                                                                  1997         1997
                                                              ------------   ---------
<S>                                                           <C>            <C>
Compensation and benefits...................................     $4,221       $3,131
Taxes, other than income....................................        465          314
Royalties payable...........................................        299          156
Other.......................................................      1,272          970
                                                                 ------       ------
                                                                 $6,257       $4,571
                                                                 ======       ======
</TABLE>
 
5. NOTES PAYABLE
 
     The Company had a term loan outstanding of $1.5 million with interest of
9.25% at March 31, 1996. The note was paid in full and canceled in July 1996.
 
     In connection with an acquisition in 1992, the Company issued an unsecured
subordinated promissory note for $1,300,000. The note requires a principal
payment of $650,000 on July 1, 1998. Interest accrues at 6.5% per annum and is
payable quarterly.
 
                                       F-9
<PAGE>   42
                              BEST SOFTWARE, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
              AS OF DECEMBER 31 AND MARCH 31, 1997 -- (CONTINUED)
 
6. INCOME TAXES
 
     The benefit (provision) for income taxes is summarized as follows (in
thousands):
 
<TABLE>
<CAPTION>
                                                     NINE MONTHS
                                                        ENDED          YEAR ENDED MARCH 31,
                                                     DECEMBER 31,      ---------------------
                                                         1997           1997          1996
                                                     ------------      -------       -------
<S>                                                  <C>               <C>           <C>
Current:
  Federal..........................................    $(1,870)        $(1,745)      $(1,225)
  State............................................       (280)           (230)         (150)
                                                       -------         -------       -------
                                                        (2,150)         (1,975)       (1,375)
                                                       -------         -------       -------
Deferred:
  Federal..........................................       (400)           (620)          305
  State............................................       (100)            (80)           40
                                                       -------         -------       -------
                                                          (500)           (700)          345
                                                       -------         -------       -------
Decrease in valuation allowance....................        300           1,200         1,955
                                                       -------         -------       -------
                                                       $(2,350)        $(1,475)      $   925
                                                       =======         =======       =======
</TABLE>
 
     Significant components of the Company's deferred tax assets consist of the
following (in thousands):
 
<TABLE>
<CAPTION>
                                                              DECEMBER 31,   MARCH 31,
                                                                  1997         1997
                                                              ------------   ---------
<S>                                                           <C>            <C>
Tax credit carryovers.......................................     $   --       $   175
Foreign net operating loss carryforwards....................        500           280
Intangible assets...........................................      2,400         2,600
Depreciable assets..........................................        330           300
Other.......................................................        670           645
                                                                 ------       -------
     Total deferred tax assets..............................      3,900         4,000
     Valuation allowance....................................       (900)       (1,200)
                                                                 ------       -------
          Net deferred tax asset............................     $3,000       $ 2,800
                                                                 ======       =======
</TABLE>
 
     During the nine months ended December 31, 1997 and fiscal year ended March
31, 1997 and 1996 the valuation allowance for deferred tax assets decreased by
approximately $300,000, $1.2 million, $2.0 million, respectively. This was the
result of the Company's reevaluation of its future forecasted taxable income.
The remaining valuation allowance relates to reversals of temporary differences,
primarily relating to the Company's intangible assets, expected to reverse in
future years as to which the Company is unable to make a judgement about the
likelihood of realization and the realization of certain foreign net operating
loss carryforwards. The Company believes it is more likely than not that all of
the recorded net deferred tax asset will be realized.
 
                                      F-10
<PAGE>   43
                              BEST SOFTWARE, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
              AS OF DECEMBER 31 AND MARCH 31, 1997 -- (CONTINUED)
 
6. INCOME TAXES -- (CONTINUED)

     The differences between the expected tax provision based on the federal
income statutory rate and the actual provision for the nine months ended
December 31, 1997 and the years ended March 31, 1997 and 1996 are as follows:
 
<TABLE>
<CAPTION>
                                                     NINE MONTHS
                                                        ENDED           YEAR ENDED MARCH 31,
                                                     DECEMBER 31,       ---------------------
                                                         1997            1997           1996
                                                     ------------       ------         ------
<S>                                                  <C>                <C>            <C>
Federal statutory rate.............................      34.0%           34.0%          34.0%
State income taxes.................................       6.0             5.0            6.4
Change in valuation allowance......................      (5.0)          (22.9)         (80.1)
Foreign operating losses not deductible in U.S. ...        --             5.0             --
Utilization of NOL carryforwards...................        --              --             --
Other nondeductible items..........................       3.0             3.9            4.2
                                                         ----           -----          -----
                                                         38.0%           25.0%         (35.5)%
                                                         ====           =====          =====
</TABLE>
 
7. STOCK OPTION AND PURCHASE PLANS
 
     The Company has a nonqualified stock option plan for key employees. As of
December 31 and March 31, 1997, a total of 135,500 and 725,338 shares of common
stock, respectively, have been reserved for issuance under this plan. Options
are exercisable for a period of one to ten years from the date of grant.
 
     In November 1992, the Company adopted a second stock option plan. A maximum
of 1,875,000 shares of common stock may be granted as either incentive stock
options or nonqualified options. As of December 31 and March 31, 1997, a total
of 859,153 and 807,300 shares of common stock, respectively, have been reserved
for issuance under this plan. Options are exercisable for a period of one to ten
years from the date of grant.
 
     In August 1997, the Board of Directors adopted the 1997 Stock Incentive
Plan (the "1997 Incentive Plan"). The Company has reserved 1,500,000 shares of
common stock for issuance under the 1997 Incentive Plan. The 1997 Incentive Plan
provides that a variety of awards, including stock options, stock appreciation
rights and restricted and unrestricted stock grants, may be made to the
Company's employees, officers, consultants and advisors who are expected to
contribute to the Company's future growth and success. As of December 31, 1997,
237,200 options have been granted under this Plan.
 
     In August 1997, the Board of Directors adopted the Company's 1997 Director
Stock Option Plan (the "Director Plan") to provide for the grant of
non-statutory stock options to outside directors. All options granted under the
Director Plan will have an exercise price equal to the fair market value of the
common stock on the date of grant. The Company has reserved 150,000 shares for
issuance under the Director Plan. As of December 31, 1997, 22,500 options have
been granted under the Director Plan.
 
     Any difference between the fair market value of the stock and the option
price at the date of grant is recorded as compensation expense over the vesting
period, which is generally 60 months. For options granted prior to June 30,
1997, fair value was determined by independent appraisal. In July 1997, the
Company granted options to purchase 114,150 shares of common stock at an
exercise price of $8.00 per share. In connection with these grants, the Company
recorded deferred compensation of approximately $138,000 in the quarter ended
September 30, 1997, which is being amortized ratably over the option vesting
period of
 
                                      F-11
<PAGE>   44
                              BEST SOFTWARE, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
              AS OF DECEMBER 31 AND MARCH 31, 1997 -- (CONTINUED)
 
7. STOCK OPTION AND PURCHASE PLANS -- (CONTINUED)

five years. As of December 31 and March 31, 1997, aggregate options available
for future grant under the combined plans were 2,154,035 and 907,440,
respectively. Option activity is summarized as follows:
 
<TABLE>
<CAPTION>
                                                                                  WEIGHTED
                                                        OPTION                    AVERAGE
                                                       PRICE PER     EXPIRATION   EXERCISE
                                          OPTIONS        SHARE          DATE       PRICE
                                         ---------   -------------   ----------   --------
<S>                                      <C>         <C>             <C>          <C>
Options outstanding at April 1, 1995...  1,636,650   $  0.07-$3.33   1998-2004     $ 0.65
  Granted..............................    541,500       2.67-3.33                   2.71
  Canceled.............................    (31,725)      1.13-3.33                   2.30
  Exercised............................    (26,250)      0.57-3.33                   0.63
                                         ---------
Options outstanding at March 31,
  1996.................................  2,120,175       0.07-3.33   1999-2005       1.15
  Granted..............................    301,425       3.50-3.83                   3.67
  Canceled.............................   (130,890)      2.00-3.83                   2.91
  Exercised............................   (758,072)      0.07-3.33                   0.67
                                         ---------
Options outstanding at March 31,
  1997.................................  1,532,638       0.07-3.83   1999-2006       1.74
  Granted..............................    427,105     3.83-13.125                  10.23
  Canceled.............................    (23,700)      3.50-8.00                   4.67
  Exercised............................   (681,690)      0.07-3.50                   0.52
                                         ---------
Options outstanding at December 31,
  1997.................................  1,254,353   $0.33-$13.125   1999-2007     $ 5.24
                                         =========
</TABLE>
 
     As of December 31 and March 31, 1997, options to purchase 357,680 and
788,563 shares of common stock were exercisable with a weighted average exercise
price of $2.09 and $0.52, respectively. The weighted-average remaining
contractual life of options outstanding at December 31 and March 31, 1997, was
6.78 and 4.76 years, respectively.
 
     The Company's 1997 Employee Stock Purchase Plan (the "Purchase Plan") was
adopted by the Company's Board of Directors in August 1997. A total of 250,000
shares of common stock have been reserved for issuance under the Purchase Plan.
The Purchase Plan permits eligible employees to purchase common stock through
payroll deductions at a price equal to 85 percent of the lower of the fair
market value of the common stock on the first day of the offering period or the
last day of the offering period. As of December 31, 1997, 8,881 shares of common
stock were issued under the Purchase Plan.
 
     The Company adopted the disclosure requirements of SFAS No. 123,
"Accounting for Stock-Based Compensation", effective for the Company's March 31,
1997 financial statements. The Company applies Accounting Principles Boards
("APB") Opinion No. 25, "Accounting for Stock Issued to Employees," and related
interpretations in accounting for its plans. Accordingly, compensation cost has
been recognized for its stock plans based on the intrinsic value of the stock
option at the date of the grant (i.e. the difference between the exercise price
and the fair value of the Company's stock). Had compensation cost for the
Company's stock-based compensation plans been determined based on the fair value
at the grant dates for awards under
 
                                      F-12
<PAGE>   45
                              BEST SOFTWARE, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
              AS OF DECEMBER 31 AND MARCH 31, 1997 -- (CONTINUED)
 
7. STOCK OPTION AND PURCHASE PLANS -- (CONTINUED)
those plans consistent with the method of SFAS No. 123, the Company's net income
would have been reduced to the pro forma amounts indicated below (in thousands,
except per share data):
 
<TABLE>
<CAPTION>
                                                                   YEAR ENDED
                                             NINE MONTHS ENDED      MARCH 31,
                                               DECEMBER 31,      ---------------
                                                   1997           1997     1996
                                             -----------------   ------   ------
<S>                                          <C>                 <C>      <C>
Net income as reported.....................       $3,769         $4,436   $3,527
Pro-forma..................................       $3,369         $4,304   $3,454
Basic earnings per share as reported.......         0.45           0.67     0.54
Pro-forma..................................         0.40           0.65     0.53
Diluted earnings per share as reported.....         0.38           0.54     0.44
Pro-forma..................................         0.34           0.52     0.43
</TABLE>
 
     The fair value of each option is estimated on the date of grant using the
Black-Scholes method with no dividend yield and the following assumptions:
 
<TABLE>
<CAPTION>
                                                                   YEAR ENDED
                                            NINE MONTHS ENDED       MARCH 31,
                                              DECEMBER 31,      -----------------
                                                  1997          1997        1996
                                            -----------------   -----       -----
<S>                                         <C>                 <C>         <C>
Expected life (in years)..................           6             6           6
Expected volatility.......................          50%         0.00%       0.00%
Risk free interest rate...................        6.00%         6.00%       6.00%
</TABLE>
 
     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):
 
<TABLE>
<CAPTION>
                                    NINE MONTHS ENDED                YEAR ENDED                    YEAR ENDED
                                    DECEMBER 31, 1997              MARCH 31, 1997                MARCH 31, 1996
                               ---------------------------   ---------------------------   ---------------------------
                                                 PER-SHARE                     PER-SHARE                     PER-SHARE
                               INCOME   SHARES    AMOUNT     INCOME   SHARES    AMOUNT     INCOME   SHARES    AMOUNT
                               ------   ------   ---------   ------   ------   ---------   ------   ------   ---------
<S>                            <C>      <C>      <C>         <C>      <C>      <C>         <C>      <C>      <C>
Basic net income per share:
    Income available to
      common shareholders....  $3,769   8,445      $0.45     $4,436   6,581      $0.67     $3,527   6,528      $0.54
Effect of dilutive securities
    Preferred stock..........             416                           625                           625
    Options and warrants.....             948                         1,057                           877
                               ------   -----                ------   -----                ------   -----
Diluted net income per share:
    Income available to
      common shareholders....  $3,769   9,809      $0.38     $4,436   8,263      $0.54     $3,527   8,030      $0.44
                               ======   =====                ======   =====                ======   =====
</TABLE>
 
     Options to purchase 259,700 shares of common stock at $10.25 and above per
share were outstanding during the second half of 1997, but were not included in
the computation of Diluted net income per share, because the options' exercise
price was greater than the market price of the common shares at December 31,
1997. The options, which expire in 2007, were still outstanding at December 31,
1997.
 
                                      F-13
<PAGE>   46
                              BEST SOFTWARE, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
              AS OF DECEMBER 31 AND MARCH 31, 1997 -- (CONTINUED)
 
8. REDEEMABLE SECURITIES
 
REDEEMABLE CONVERTIBLE CLASS A PREFERRED STOCK
 
     Upon the closing of the Company's Initial Public Offering of common stock,
the preferred stock automatically converted to common stock.
 
REDEEMABLE COMMON STOCK WARRANTS
 
     In connection with a subordinated debt financing, the Company issued a
warrant to purchase 472,500 common shares at $2.67 per share. The warrant
provides for adjustment of the warrant exercise price and/or the number of
shares issuable upon the exercise of the warrant in the event of dilutive
issuances of equity securities and have certain registration rights with respect
to shares issued in connection with the exercise or conversion of the warrants.
In addition, had the Company not consummated its Initial Public Offering, the
warrant holder also would have had the right, after March 1998 (or upon a merger
or sale of a substantial portion of the Company's assets), to require the
Company to purchase all or a portion of the common stock issuable upon the
exercise of the warrant or actually issued pursuant to the warrant (the "put
right"). The put right expired upon the consummation of the Company's Initial
Public Offering. The purchase price, or put value, would have been the value of
the common stock at the time of redemption or, in the case of a redemption of
the warrant, the value of the common stock less the warrant exercise price. The
estimated redemption value of the warrant was being accreted over the period to
the redemption date (March 1998). During the nine months ended December 31, 1997
and the year ended March 31, 1997, the exercise price of the warrant was reduced
to $2.03 and $2.21, respectively, in exchange for the waiver of certain
compliance provisions. The value of the reduction in the exercise of the warrant
price of $86,000 during the nine months ended December 31, 1997 and $215,000 in
the year ended March 31, 1997, was recorded as interest expense. During the
Initial Public Offering through December 31, 1997, the holder elected to
partially exercise the warrant of 119,204 shares of Common Stock in a cashless
exercise transaction. As a result of this transaction, the holder of the warrant
received 100,599 shares of Common Stock and 353,296 warrants remain exercisable.
 
     During 1994, the Company issued warrants to purchase 8,415 shares of common
stock at $0.07 per share. The warrants were redeemable at $2.05 per share of
Common Stock subject to the warrants and have been recorded at their redemption
price. During the nine months ended December 31, 1997 and the fiscal year ended
March 31, 1997 warrants to purchase, 2,910 and 2,625 shares of Common Stock
warrants were redeemed, respectively. The warrants and put right expired upon
the Initial Public Offering.
 
DIVIDENDS
 
     The Company paid dividends of $3,556,264 and $7,565,114 ($0.455 and $0.915
per share) on February 28, 1997 and June 27, 1997, for shareholders of record as
of February 20, 1997 and June 27, 1997, respectively.
 
9. COMMITMENTS
 
     The Company leases office space and office equipment under noncancelable
operating leases expiring through February 2002. Total rent expense for the nine
months ended December 31, 1997 and the years ending March 31, 1997 and 1996 was
approximately $945,000, $1,290,000, and $1,310,000, respectively.
 
                                      F-14
<PAGE>   47
                              BEST SOFTWARE, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
              AS OF DECEMBER 31 AND MARCH 31, 1997 -- (CONTINUED)
 
9. COMMITMENTS -- (CONTINUED)

     Future minimum lease payments as of December 31, due under these leases are
as follows (in thousands):
 
<TABLE>
<CAPTION>
                                                     OPERATING
                                                      LEASES
                                                     ---------
<S>                                                  <C>
1998...............................................   $  697
1999...............................................      687
2000...............................................      701
2001...............................................      669
2002...............................................      112
                                                      ------
                                                      $2,866
                                                      ======
</TABLE>
 
     The Company does not have any material commitments related to its royalty
obligations.
 
10. EMPLOYEE BENEFIT PLANS
 
     The Company has a 401(k) Retirement Savings Plan (the "Plan") for the
benefit of all employees who meet certain eligibility requirements. The Company
will make a matching contribution in an amount equal to $0.50 for each $1.00
contributed by an employee up to a maximum of 2% of the participant's
compensation as defined in the Plan. Company contributions made to the Plan for
the nine months ended December 31, 1997 and the years ended March 31, 1997 and
1996, and, were approximately $164,000, $159,000, and $141,000, respectively.
 
11. SUPPLEMENTAL QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
 
     Summarized quarterly supplemental consolidated financial information for
the fiscal year ended March 31, 1997 and the nine months ended December 31, 1997
are as follows (in thousands, except per share data):
 
QUARTERS ENDING THROUGH MARCH 31, 1997
 
<TABLE>
<CAPTION>
                                            JUNE 30,   SEPTEMBER 30,   DECEMBER 31,   MARCH 31,
                                              1996         1996            1996         1997
                                            --------   -------------   ------------   ---------
<S>                                         <C>        <C>             <C>            <C>
Revenue...................................   $9,499       $9,291         $10,528       $10,166
Operating income..........................      114        1,975           1,947         1,524
Net income................................       80        1,122           1,130         2,104
Net income per share......................   $  .01       $  .14         $   .14       $   .25
Shares used in per share computation......    8,232        8,257           8,314         8,356
</TABLE>
 
QUARTERS ENDING THROUGH DECEMBER 31, 1997
 
<TABLE>
<CAPTION>
                                           JUNE 30,   SEPTEMBER 30,   DECEMBER 31,
                                             1997         1997            1997
                                           --------   -------------   ------------
<S>                                        <C>        <C>             <C>            
Revenue..................................  $10,646       $11,825        $14,070
Operating income.........................      867         1,698          3,291
Net income...............................      349         1,095          2,325
Net income per share.....................  $   .04       $   .12        $   .20
Shares used in per share computation.....    8,624         8,848         11,751
</TABLE>
 
                                      F-15
<PAGE>   48
                              BEST SOFTWARE, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
              AS OF DECEMBER 31 AND MARCH 31, 1997 -- (CONTINUED)
 
12. SUBSEQUENT EVENT
 
     In March 1998, the Company announced the signing of a definitive agreement
to acquire HR Management Software GmbH (HRS), a leading provider of human
resource software in the European marketplace. The acquisition is for
approximately $10.0 million consisting of cash and Common Stock. The acquisition
will be accounted for as a purchase and the Company expects to write off in the
first quarter of 1998 a substantial portion of the purchase to in-process
research and development.
 
                                      F-16
<PAGE>   49
 
                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
 
To Best Software, Inc.:
 
     We have audited in accordance with generally accepted auditing standards
the financial statements of Best Software, Inc. included in this Form 10-K and
have issued our report thereon dated January 19, 1998 (except with respect to
the matter discussed in Note 12, as to which the date is March 19, 1998). Our
audit was made for the purpose of forming an opinion on the basic financial
statements taken as a whole. The schedule listed in the index is the
responsibility of the Company's management and is presented for the purposes of
complying with the Securities and Exchange Commission's rules and is not a part
of the basic financial statements. This schedule has been subjected to the
auditing procedures applied in the audits of the basic financial statements and,
in our opinion, fairly states, in all material respects, the financial data
required to be set forth therein in relation to the basic financial statements
taken as a whole.
 
                                          ARTHUR ANDERSEN LLP
 
Washington, D.C.
January 19, 1998
 
                                      F-17
<PAGE>   50
 
                                  SCHEDULE II
 
                              BEST SOFTWARE, INC.
 
                       VALUATION AND QUALIFYING ACCOUNTS
                  FOR THE YEARS ENDED MARCH 31, 1996 AND 1997
                  AND THE NINE MONTHS ENDED DECEMBER 31, 1997
                                 (IN THOUSANDS)
 
<TABLE>
<CAPTION>
                                                                                  CHARGED TO
                                                                                   REVENUE
                                                      BEGINNING                      AND       ENDING
                                                       BALANCE    DEDUCTIONS(1)    EXPENSE     BALANCE
                                                      ---------   -------------   ----------   -------
<S>                                                   <C>         <C>             <C>          <C>
March 31, 1996
     Allowance for accounts receivable..............   $1,083         $(314)         $738      $1,507
March 31, 1997
     Allowance for accounts receivable..............   $1,507         $(866)         $191      $  832
December 31, 1997
     Allowance for accounts receivable..............   $  832         $(456)         $615      $  991
</TABLE>
 
---------------
(1) Represents product returns, refunds, trade receivables written off, and
credits applied.
 
                                      F-18
<PAGE>   51
 
                                                                       1674-AR98