Momentum Business Applications Inc, the company spun out by PeopleSoft Inc to conduct its R&D operation, is paying a heavy price for… a lack of momentum. The creation of Momentum in November 1998 was a cunning ploy by PeopleSoft to give its profit and loss accounts a rosier look by eliminating that huge R&D spend which, alas, software companies need to stay in business (CI No 3,540). With the aid of $300m of PeopleSoft’s cash, Momentum would carry this burden.
In its first quarterly accounts, Momentum reveals it has made a $427,800 provision for taxes. This liability arose because Momentum could not get its development projects underway quickly enough. So while $3.9m of interest rolled in during the four months since its establishment from all that PeopleSoft cash in the bank, Momentum could only spend $2.9m, leaving it with the embarrassment of $931,202 of income – and a tax liability.
