-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, GRe/yqqAEFiUbG8QqDU0OZoG0fbeRW58AlbpBMQESQ5LUJ2cbYu3DAoi6Z6Bex4e 4zKjzBTo4eOw1Jpjh4ZOrQ== 0000950135-98-000937.txt : 19980218 0000950135-98-000937.hdr.sgml : 19980218 ACCESSION NUMBER: 0000950135-98-000937 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980213 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: PROJECT SOFTWARE & DEVELOPMENT INC CENTRAL INDEX KEY: 0000920354 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-PREPACKAGED SOFTWARE [7372] IRS NUMBER: 042448516 STATE OF INCORPORATION: MA FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-23852 FILM NUMBER: 98538596 BUSINESS ADDRESS: STREET 1: 20 UNIVERSITY RD CITY: CAMBRIDGE STATE: MA ZIP: 02138 BUSINESS PHONE: 6176611444 MAIL ADDRESS: STREET 1: 20 UNIVERSITY RD CITY: CAMBRIDGE STATE: MA ZIP: 02138 10-Q 1 PROJECT SOFTWARE & DEVELOPEMENT, INC FORM 10-Q 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 1997 (mark one) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934 For the transition period from _______________ to __________________ Commission File Number 0-23852 PROJECT SOFTWARE & DEVELOPMENT, INC. (Exact name of registrant as specified in its charter) MASSACHUSETTS 04-2448516 (State or other jurisdiction (I.R.S employer incorporation or organization) identification number) 100 CROSBY DRIVE, BEDFORD MASSACHUSETTS 01730 (Address of principal executive offices, including zip code) (formerly at 20 University Road Cambridge, MA. 02138) (781) 280-2000 (Registrant's telephone number, including area code) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No Number of shares outstanding of the Registrant's common stock as of the latest practicable date: 9,883,231 shares of common stock, $.01 par value per share, as of January 31, 1998. 1 2 PROJECT SOFTWARE & DEVELOPMENT, INC. 10-Q INDEX PAGE - ---- PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS PAGE Consolidated Balance Sheets as of December 31, 1997 3 (unaudited) and September 30, 1997. Consolidated Statements of Operations (unaudited) 4 for the three months ended December 31, 1997 and 1996. Consolidated Statements of Cash Flows (unaudited) 5 for the three months ended December 31, 1997 and 1996. Notes to Consolidated Financial Statements. 6 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL 9 CONDITION AND RESULTS OF OPERATIONS PART II. OTHER INFORMATION ITEM 5. OTHER INFORMATION 17 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 18 SIGNATURE 20 2 3 PROJECT SOFTWARE & DEVELOPMENT, INC. CONSOLIDATED BALANCE SHEETS
ASSETS DECEMBER 31, SEPTEMBER 30, 1997 1997 ----------- ------------ (IN THOUSANDS,EXCEPT SHARE DATA) (UNAUDITED) Current assets: Cash and cash equivalents $ 24,776 $ 25,964 Marketable securities 38,581 38,299 Accounts receivable, trade, less allowance for doubtful accounts of $2,254 at December 31, 1997 and $2,286 at September 30, 1997, respectively 23,384 24,021 Prepaid expenses 3,052 1,877 Other assets 1,439 1,244 Deferred income taxes 1,806 1,806 -------- -------- Total current assets 93,038 93,211 -------- -------- Property and equipment, net 8,948 7,322 Computer software costs, net 653 -- Goodwill, net 1,354 1,447 Deferred income taxes 219 214 Other assets 52 45 -------- -------- Total assets $104,264 $102,239 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 8,494 $ 9,809 Accrued compensation 3,110 4,494 Income taxes payable 4,909 3,678 Deferred revenue 9,452 9,750 Deferred income taxes 268 394 -------- -------- Total current liabilities 26,233 28,125 -------- -------- Deferred income taxes 334 12 Deferred rent 21 12 Deferred revenue 97 120 Commitments and contingencies Preferred stock, $.01 par value;1,000,000 authorized, none issued and outstanding -- -- Common stock, $.01 par value;15,350,000 authorized; issued and outstanding 9,882,721 and 9,856,474 for December 31, 1997 and September 30, 1997, respectively 99 99 Additional paid-in capital 48,533 48,163 Retained earnings 29,613 26,108 Cumulative translation adjustment (685) (629) Net unrealized gain on marketable securities 19 229 -------- -------- Total stockholders' equity 77,579 73,970 -------- -------- Total liabilities and stockholders' equity $104,264 $102,239 ======== ========
The accompanying notes are an integral part of the consolidated financial statements. 3 4 PROJECT SOFTWARE & DEVELOPMENT, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
THREE MONTHS ENDED DECEMBER 31, ---------------------------- 1997 1996 ---- ---- (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) Revenues: Software $ 11,143 $ 13,673 Support and services 13,967 9,706 ----------- ----------- Total revenues 25,110 23,379 ----------- ----------- Cost of revenues: Software 604 633 Support and services 6,586 5,288 ----------- ----------- Total cost of revenues 7,190 5,921 ----------- ----------- Gross margin 17,920 17,458 Operating expenses: Sales and marketing 8,081 7,339 Product development 2,684 2,492 General and administrative 2,340 2,521 ----------- ----------- Total operating expenses 13,105 12,352 ----------- ----------- Income from operations 4,815 5,106 Interest income (expense), net 734 459 Other income (expense), net 15 58 ----------- ----------- Income before income taxes 5,564 5,623 Provision for income taxes 2,059 2,094 ----------- ----------- Net income $ 3,505 $ 3,529 =========== =========== Net income per share, basic $ 0.36 $ 0.36 ----------- ----------- Net income per share, diluted $ 0.35 $ 0.35 ----------- ----------- Shares used to calculate net income per share Basic 9,864,535 9,708,322 Diluted 10,042,325 10,127,886
The accompanying notes are an integral part of the consolidated financial statements. 4 5 PROJECT SOFTWARE & DEVELOPMENT, INC CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
THREE MONTHS ENDED THREE MONTHS ENDED DECEMBER 31, DECEMBER 31, 1997 1996 ----------------- ------------------ (IN THOUSANDS) Cash flows from operating activities: Net income $ 3,505 $ 3,529 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 849 761 Loss on sale and disposal of property and equipment 29 19 Amortization of discount on marketable securities 379 Deferred rent 9 (17) Deferred taxes 190 (357) Changes in operating assets and liabilities Accounts receivable 299 675 Prepaid expenses (1,182) 130 Other assets (211) (337) Accounts payable (1,256) (1,147) Accrued compensation (1,349) (2,369) Income taxes payable 1,245 2,315 Deferred revenue (246) (1,163) -------- -------- Net cash provided by operating activities 1,882 2,418 -------- -------- Cash flows from investing activities: Acquisitions of property and equipment (2,381) (1,406) Additions to computer software costs (679) (37) Purchase of marketable securities (36,164) (18,739) Sale of marketable securities 35,673 18,551 -------- -------- Net cash used in investing activities (3,551) (1,631) -------- -------- Cash flows from financing activities: Payments on leased equipment -- 2 Proceeds from exercise of stock options including related tax benefit 370 231 -------- -------- Net cash provided by financing activities 370 233 -------- -------- Effect of exchange rate changes on cash 111 (34) -------- -------- Net (decrease) increase in cash and cash equivalents (1,188) 986 Cash and cash equivalents, beginning of period 25,964 9,097 -------- -------- Cash and cash equivalents, end of period $ 24,776 $ 10,083 ======== ========
The accompanying notes are an integral part of the consolidated financial statements. 5 6 PROJECT SOFTWARE & DEVELOPMENT, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) A. BASIS OF PRESENTATION The accompanying unaudited consolidated financial statements include the accounts of Project Software & Development, Inc. (PSDI) and its majority-owned subsidiaries (collectively, the "Company"), as of December 31, 1997 and have been prepared by the Company in accordance with generally accepted accounting principles for interim reporting and with the instructions to Form 10-Q and Article 10 of Regulation S-X. All intercompany accounts and transactions have been eliminated. In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments, consisting only of those of a normal recurring nature, necessary for a fair presentation of the Company's financial position, results of operations and cash flows at the dates and for the periods indicated. The results of operations for the periods presented herein are not necessarily indicative of the results of operations to be expected for the entire fiscal year, which ends on September 30, 1998, or for any other future period. These consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto for the year ended September 30, 1997 included in the Company's Annual Report on Form 10-K filed with the Securities and Exchange Commission on December 29, 1997. 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. B. INCOME PER SHARE Basic earnings per share is computed by dividing income available to common shareholders by the weighted average number of common shares outstanding. Diluted earnings per share is computed by dividing income available to common shareholders by the weighted average common shares outstanding plus additional common shares that would have been outstanding if dilutive potential common shares had been issued. For purposes of this calculation, stock options are considered common stock equivalents in periods in which they have a dilutive effect. 6 7 Basic and diluted earnings per share are calculated as follows:
Three months ended Three months ended Basic EPS December 31, 1997 December 31, 1996 - ---------------------------------------------------------------------------------------------- Net income $3,504,810 $3,528,827 Weighted average common shares outstanding 9,864,535 9,708,322 Basic income per share $ 0.36 $ 0.36 Three months ended Three months ended Diluted EPS December 31, 1997 December 31, 1996 - ---------------------------------------------------------------------------------------------- Net income $ 3,504,810 $ 3,528,827 Weighted average common shares outstanding 9,864,535 9,708,322 Common stock equivalents 177,790 419,564 ----------- ----------- Total diluted shares 10,042,325 10,127,886 Diluted income per share $ 0.35 $ 0.35
C. ACCOUNTING STANDARDS Statement of Financial Accounting Standards No. 128, "Earnings Per Share" (SFAS 128) is effective for financial statements issued for periods ending after December 15, 1997. SFAS 128 replaces APB Opinion No. 15, Earnings Per Share. SFAS 128 simplifies the computation of EPS by replacing the presentation of primary EPS with a presentation of basic EPS. It requires dual presentation of basic and diluted EPS by entities with complex capital structures. The Company adopted SFAS 128 per the effective date for the periods ended after December 15, 1997. Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income" (SFAS 130) is effective for fiscal years beginning after December 15, 1997. SFAS 130 requires that changes in comprehensive income be shown in a financial statement that is displayed with the same prominence as other financial statements. The Company will adopt SFAS 130 in fiscal year ended September 30, 1999. Statement of Financial Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and Related Information" (SFAS 131) is effective for financial statements for periods beginning after December 15, 1997. This statement will change the way companies report annual financial statements and requires them to report selected segment information in their quarterly reports issued to shareholders. It also requires entity-wide disclosures about the products and services an entity provides, the material countries in which it holds assets and reports revenues, and its major customers. The Company will adopt SFAS 131 in the fiscal year ended September 30, 1998. 7 8 D. COMPUTER SOFTWARE COSTS Internally developed software costs capitalized were $675,000 for the three months ended December 31, 1997. There were no software costs capitalized in the three months ended December 31, 1996. Amortization expense was $22,000 and $127,000 for the three months ended December 31, 1997 and 1996, respectively. Software costs are amortized on a straight-line basis over the estimated useful or market life of the software (generally, one to two years). E. SUBSEQUENT EVENTS On February 6, 1998, the Company acquired the stock of A.R.M. Group Inc., Ontario, Canada for the sum of $9.5 million in cash, stock and assumed liabilities. A.R.M. Group Inc. was a privately-held organization that had built an electronic commerce network focused on reducing the transaction costs of Maintenance Repair Operations products for buyers, distributors and manufacturers. The acquisition will be accounted for as a purchase. Also, in connection with the acquisition, the Company will expense approximately $9 million for in-process research and development charges, which will be expensed in the second quarter of its fiscal year. 8 9 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW The Company develops, markets and supports applications software used by businesses, government and other organizations to improve the productivity of facilities, plants and production equipment. The Company's revenues are derived primarily from two sources: software licenses and fees for services, including support contracts and training and consulting services. The Company has experienced a significant shift in the sources of its revenues as a result of its decision to concentrate its resources on the development and marketing of enterprise-wide asset maintenance management systems operating in a client/server environment. The Company released MAXIMO, its first client/server product, in 1991, and released P/X, its second client/server product, in 1992. In the fiscal year ended September 30, 1997, revenues from client/server software accounted for 95% of software revenues, of which 99% was attributable to the client/server versions of MAXIMO. The Company acquired Maintenance Automation Corporation ("MAC") on March 1, 1996. MAC is a developer of maintenance management software for the single-user, PC LAN segment. In fiscal 1996, the Company introduced a new suite of MAXIMO products: MAXIMO Enterprise, MAXIMO Workgroup and MAXIMO ADvantage. MAXIMO Enterprise, a new version of which was released in March 1996, is a client/server product, which runs on Oracle7 and SYBASE platforms and is intended for the high function, high usage segment of the maintenance management market. MAXIMO Workgroup, released in July 1996, is also a client/server product and runs on SQLBase and Oracle Workgroup and is intended for the mid-range segment of the maintenance management market. In March 1997, the Company released a new SQL Server version of MAXIMO Enterprise and MAXIMO Workgroup for the Microsoft SQL Server database. The new SQL Server version is available for Windows NT servers, including NT 3.5.1 and NT 4.0, supporting Windows 95, Windows 95B, all Windows 3.x systems, and NT 3.5.1 and NT 4.0 clients. In August 1997, the Company released MAXIMO Analyzer, a new business intelligence tool. MAXIMO Analyzer provides detailed information allowing users to rapidly pose multiple questions and assess responding data to make critical business decisions. In September 1997, the Company released the MAXIMO Mobile Application Suite, a mobile and paperless work management system. MAXIMO Mobile Application Suite is a set of new integrated MAXIMO modules which install directly onto hand-held computers and utilize bar coding technology to ensure compliance with 9 10 procedures and automation of routine and preventive practices for maintenance engineers. The product acquired as a result of the acquisition of MAC on March 1, 1996, MAXIMO ADvantage, is intended for the lowerend maintenance market. MAXIMO ADvantage supports Microsoft Access for the single user, PC LAN segment. The Company incurred significant additional and unexpected costs in developing a new release of MAXIMO ADvantage due to a delay in excess of six months in completing the new release of this product. The delay was necessary to meet both the quality expectations and functionality demanded by the Company. Further affecting MAXIMO ADvantage sales was the delay in availability of a CD-Rom based multi-media evaluation kit. This evaluation kit generally became available in December 1996. In March 1997, the Company released the first significant version of MAXIMO ADvantage since the acquisition of Maintenance Automation Corporation. The Company has not realized any significant revenues from this new release despite opening a new tele-sales operation in Atlanta in March 1997. Accordingly, expenses related to this product have been reduced to a level commensurate with the lower revenue expectations. The unexpected costs and shortfalls in expected revenues resulted in net operating losses of $1,420,000, and $1,203,000 for MAC for fiscal 1997 and 1996, respectively. The sources of the Company's revenues from support and services have also shifted since the introduction of the Company's new generation of client/server products. Revenues from support and services relating to the Company's MAXIMO products have increased, while those relating to the Company's P/X and mainframe and other project management software have declined. The Company experienced an increase in the average selling price of its MAXIMO client/server software licenses during fiscal 1997. The Company attributes this increase in part to licenses of a version of MAXIMO for use with the ORACLE and SYBASE database management systems. These client/server versions of MAXIMO have a higher entry price and are typically implemented in configurations involving a larger number of users, for whom additional license fees are paid. Larger software license contracts, if any, may have a significant impact on revenues for any quarter and could therefore result in significant fluctuations in quarterly revenues and operating results. Revenues from licenses of P/X have declined sharply, dropping to $551,000 of total license revenues in the fiscal year ended 1997. The Company no longer actively markets the P/X product as a stand alone solution. Revenues from licenses of mainframe and other project management software have also declined sharply, dropping to less than 1% of total license revenues in the fiscal year ended 1997. The Company no longer actively markets its mainframe and other project management software products, although it provides technical support and other services to their installed customer base. 10 11 The Company's revenues attributable to its operations outside the United States are a significant portion of total revenues. The Company expects that international revenues will continue to be a significant percentage of total revenues. As the percentage of the Company's total revenues which are derived from international operations and are conducted in foreign currencies grows, changes in the values of these foreign currencies relative to the United States dollar will affect the Company's results of operations, and may contribute to fluctuations in the Company's results of operations. The functional currencies of the Company's international subsidiaries include the pound sterling, the French franc, the German deutschemark, the Thai baht, the Dutch guilder, the Indian rupee, the Japanese yen, the Swedish krona, and the Australian and Canadian dollars, each of which has fluctuated significantly in relation to the United States dollar. In addition, the Company is exposed to potential losses as a result of transactions giving rise to accounts receivable in currencies other than the United States dollar or the functional currencies of its international subsidiaries. When the value of a foreign currency in which the accounts receivable of the Company are denominated changes between the date the account receivable is recorded and the date on which it is settled, the resulting gain or loss is recorded as a foreign currency transaction adjustment. The Company recorded a foreign currency transaction gain of $1,400 and $57,000 for the three months ended December 31, 1997 and 1996, respectively. The Company may in the future undertake currency hedging, although there can be no assurance that hedging transactions, if entered into, would materially reduce the effects of fluctuations in foreign currency exchange rates on the Company's results of operations. To date, inflation has not had a material impact on the Company's financial results. There can be no assurance, however, that inflation will not adversely affect the Company's financial results in the future. 11 12 RESULTS OF OPERATIONS THREE MONTHS ENDED DECEMBER 31, 1997 COMPARED TO THREE MONTHS ENDED DECEMBER 31, 1996 REVENUES
Three Months CHANGE % Three Months (in thousands) Ended 12/31/97 Ended 12/31/96 - ------------------------------------------------------------------------------------ Software licenses $11,143 (18.5)% $13,673 Percentage of total revenues 44.4% 58.5% Support and services $13,967 43.9 % $ 9,706 Percentage of total revenues 55.6% 41.5% Total revenues $25,110 7.4 % $23,379
The growth in total revenues is generated from the Company's MAXIMO software and related support and services. A significant portion of the Company's total revenues are derived from operations outside the United States. Revenues from sales outside the United States increased 6.8% to $11.0 million or 43.8% of total revenues for the three months ended December 31, 1997, compared to $10.3 million or 44.0% of total revenues for the three months ended December 31, 1996. Revenues from licenses of MAXIMO and from related support and services increased 9.9% to $24.5 million or 97.6% of total revenues for the three months ended December 31, 1997 compared to $22.3 million or 95.3% of total revenues for the three months ended December 31, 1996. Revenues from licenses of P/X and from related support and services decreased 37.9% to $504 thousand or 2.0% of total revenues for the three months ended December 31, 1997 compared to $811 thousand or 3.5% of total revenues for the three months ended December 31, 1996. The decline in P/X revenues is attributable to the Company's declining focus on selling and marketing this product. The decrease in software license revenues is attributable to the lengthening of the sales cycle experienced by the Company with respect to its Enterprise product. The Company believes that the expansion or lengthening of the sales cycle can be attributed to a number of factors, including but not limited to, the timing of new product releases by the Company and its competitors, which has resulted in more demonstrations and competitive analysis by potential customers and the linkage by customers of the selection of a maintenance management system with the selection of an ERP system. Another factor that may have contributed to the decrease 12 13 in software license revenues is that the Company has not been adequately focused on the lower, mid-price segment of the client/server market. The Company believes that this will be addressed with the release of MAXIMO 4.0 in March 1998 and the subsequent development of an appropriate distribution channel targeted at this segment of the market. Lastly, the Company believes that a 13(d) filed by one of the directors of the Company concerning the potential sale of the Company may have also adversely affected sales for the quarter. The Company implemented a Stockholder Rights Plan on February 2, 1998 to address this issue. (See Item 6. Exhibits and Reports on Form 8-K.) The increase in support and services revenues is attributable to increases in both MAXIMO support contracts and consulting services. Consulting services continue to be a larger percentage of total revenues due to additional service demands in connection with large scale implementations of the Company's MAXIMO product. COST OF REVENUES
Three Months CHANGE % Three Months (in thousands) Ended 12/31/97 Ended 12/31/96 - ------------------------------------------------------------------------------------ Software licenses $ 604 (4.6)% $ 633 Percentage of software licenses 5.4% 4.6% Support and services $6,586 24.5% $5,288 Percentage of support and services 47.2% 54.5% Total cost of revenues $7,190 21.4% $5,921 Percentage of total revenues 28.6% 25.3%
Cost of software revenues consists of the amortization of capitalized software, royalties paid to vendors of third party software, the cost of software product packaging and media, and certain employee costs related to software duplication, packaging and shipping. The decrease in the cost of software revenues is due primarily to lower amortization expense for capitalized development costs offset by royalties paid to third party vendors for software. Cost of support and services consists primarily of personnel costs for employees and the related costs of benefits and facilities. The increase in the cost of support and services and the decrease in the margins is attributable to extensive use of third-party consultants contracted to perform services for the Company and the timing of hiring permanent employees. The Company utilizes the services of third party consultants in order to meet the backlog of services, when necessary. 13 14 OPERATING EXPENSES
Three Months CHANGE % Three Months (in thousands) Ended 12/31/97 Ended 12/31/96 - ------------------------------------------------------------------------------------ Sales and marketing $8,081 10.1% $7,339 Percentage of total revenues 32.2% 31.4% Product development $2,684 7.7% $2,492 Percentage of total revenues 10.7% 10.7% General and administrative $2,340 (7.2)% $2,521 Percentage of total revenues 9.3% 10.8%
The increase in sales and marketing expenses in the three months ended December 31, 1997 is primarily due to increases in the number of sales personnel and travel and lodging expenses. The increase as a percentage of revenues for the three months ended December 31, 1997 is attributable to an increase in sales and marketing personnel without the commensurate increase in sales of software licenses. The increase in product development expenses in the three months ended December 31, 1997 is primarily due to the engagement of additional employees and third party consultants who worked on the new client/server releases of MAXIMO. Beta versions of the Company's new release of MAXIMO 4.0 were shipped to approximately 25 customers participating in the beta program during the quarter. Capitalization of software costs were $675 thousand for the three months ended December 31, 1997. There were no internal software costs capitalized in the three months ended December 31, 1996. The increase as a percentage of revenues for the three months ended December 31, 1997 is attributable to the investment in both new releases of the current version of MAXIMO and the research for a new MAXIMO-architected application. The decrease in general and administrative expenses for the three months ended December 31, 1997 is primarily due to a decrease in bad debt expenses, as there was no bad debt recorded in the three months ended December 31, 1997. Partially offsetting the reduction of bad debt expenses in the three months ended December 31, 1997 was an increase in legal fees. 14 15 NON-OPERATING EXPENSES
Three Months CHANGE % Three Months (in thousands) Ended 12/31/97 Ended 12/31/96 - ------------------------------------------------------------------------------------ Interest income(expense),net $734 60.0 % $459 Other income (expense),net $15 (74.1)% $ 58
The increase in interest income for the three months ended December 31, 1997 is attributable to interest earned on increased cash equivalents from cash flow generated from operations and accounts receivable collections. The days sales outstanding were greatly improved from 105 days at December 31, 1996 to 84 days at December 31, 1997. PROVISION FOR INCOME TAXES The Company's effective tax rates were 37.0% and 37.2% for the three months ended December 31, 1997 and 1996, respectively. LIQUIDITY AND CAPITAL RESOURCES As of December 31, 1997, the Company had cash and cash equivalents and marketable securities of approximately $63.4 million and working capital of $66.8 million. Cash provided by operations for the three months ended December 31, 1997 was $1.9 million, generated primarily by income earned for the period and depreciation, and cash generated by accounts receivable collections, offset by prepaid royalties paid to third party software vendors. Cash used in investing activities totaled $3.6 million, primarily for improvements related to the relocation of the Company's corporate headquarters in December 1997. Cash provided by financing activities was $370 thousand, generated by proceeds from exercises of employee stock options. As of December 31, 1997, the Company's principal commitments consisted primarily of an office lease for its headquarters. The Company leases its facilities and certain equipment under non-cancelable operating lease agreements that expire at various dates through November 2003. The Company relocated its corporate headquarters in December 1997. The Company's expenditures for construction and leasehold improvements in connection with the relocation were $2.2 million. It also spent $1.3 million on furniture, fixtures and equipment, most of which was capitalized in fiscal 1997. On February 6, 1998, the Company used a portion of its cash to acquire the assets and liabilities of A.R.M. Group Inc. for the sum of $7 million dollars. Additional costs of this purchase combination, including the assumption of the liabilities of A.R.M. Group Inc., will equal approximately $2.5 million dollars. 15 16 The Company believes that its current cash balances combined with cash flow from operations will be sufficient to meet its working capital and capital expenditure requirements through at least December 31, 1998. FLUCTUATIONS IN QUARTERLY OPERATING RESULTS; SEASONALITY The Company generally ships its product upon receipt of orders and maintains no significant backlog. As a result, revenues from license fees in any quarter are substantially dependent on orders booked and shipped in that quarter. A delay in or loss of orders can cause significant variations in quarterly operating results. In addition, the Company's revenues and operating results have fluctuated historically, due to the number and timing of product introductions and enhancements, the budgeting and purchasing cycles of customers and the timing of large orders, the timing of product shipments and the timing of marketing and product development expenditures. Large software license contracts may have a significant impact on revenues for any quarter and could therefore result in significant fluctuations in quarterly revenues and operating results. The Company's revenues and income from operations typically grow at a lower rate or decline in the first quarter of each fiscal year. In addition, revenues are typically higher in the fourth quarter than in other quarters of the year, reflecting the Company's fiscal year end and a sales commission policy that bases rewards on achievement of annual quotas. As a result of these factors, the Company has experienced, and may in the future experience, significant period-to-period fluctuations in revenues and operating results. Forward-looking statements of the Company are subject to the risk that assumptions made by management of the Company concerning future general economic conditions such as recession, inflation, interest rates, tax rates, consumer spending and credit and other future condition having an impact on software markets and the Company's business may prove to be incorrect. Adverse changes in such future economic conditions could have an adverse effect on the Company's business. FACTORS AFFECTING FUTURE PERFORMANCE Further information on factors that could affect the Company's business and financial results are included in the exhibits to the Company's Annual Report on Form 10-K filed with the Securities and Exchange Commission on December 29, 1997. 16 17 Part II. OTHER INFORMATION ITEM 5. OTHER INFORMATION On February 6, 1998, the Company acquired the assets and liabilities of the A.R.M. Group Inc.(See Liquidity and Capital Resources) 17 18 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits 3.1 Amended and Restated Articles of Organization of the Company (included as Exhibit 3.3 to the Company's Registration Statement on Form S-1, Registration No. 33-76420, and incorporated herein by reference) 3.2 Restated By-Laws of the Company, as amended (included as Exhibit 3.2 to the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 1996, File No. 0-23852, and incorporated herein by reference) 4. Instruments Defining the Rights of Security-Holders 4.1 Specimen certificate for the Common Stock of the Company (included as Exhibit 4.1 to the Company's Registration Statement on Form S-1, Registration No. 33-76420, and incorporated herein by reference) 4.2 Article 4B of the Amended and Restated Articles of Organization of the Company (included as Exhibit 4.1 to the Company's Registration Statement on Form S-1, Registration No. 33-76420, and incorporated herein by reference) 4.3 Rights Agreement dated as of January 27, 1998, between Project Software & Development, Inc. and BankBoston, N.A. as Rights Agent (included as Exhibit 4(a) to the Company's Current Report on Form 8-K dated February 2, 1998, File No. 0-23852, and incorporated herein by reference) 4.4 Form of Certificate of Designation of Series A Junior Participating Preferred Stock of Project Software & Development, Inc. (included as Exhibit 4(b) to the Company's Current Report on Form 8-K dated February 2, 1998, File No. 0-23852, and incorporated herein by reference) 4.5 Form of Rights Certificate (included as Exhibit 4(c) to the Company's Current Report on Form 8-K dated February 2, 1998, File No. 0-23852, and incorporated herein by reference) 11.1 Statement re computation of per share earnings 18 19 27. Financial Data Schedule (b) Reports filed on Form 8-K The Company filed a current report on Form 8-K on February 2, 1998 with respect to the adoption of a stockholder rights plan. 19 20 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. PROJECT SOFTWARE & DEVELOPMENT, INC. Date: FEBRUARY 13, 1998 By: /s/ Paul D. Birch ------------------------------------ Paul D. Birch Authorized Officer Executive Vice President Finance & Administration, Chief Financial Officer and Treasurer (Principal Financial Officer) 20 21 EXHIBIT INDEX EXHIBIT NO. DESCRIPTION PAGE - --- -------------------------------------------------------------- ---- 3.1 Amended and Restated Articles of Organization of the Company (included as Exhibit 3.3 to the Company's Registration Statement on Form S-1, Registration No. 33 -76420, and incorporated herein by reference) 3.2 Restated By-Laws of the Company, as amended(included as Exhibit 3.2 to the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 1996, commission File No. 0-23852) and incorporated herein by reference) 4.1 Specimen certificate for the Common Stock of the Company (included as Exhibit 4.1 to the Company's Registration Statement on Form S-1, Registration No. 33-76420, and incorporated herein by reference) 4.2 Article 4B of the Amended and Restated Articles of Organization of the Company (included as Exhibit 4.1 to the Company's Registration Statement on Form S-1, Registration No. 33-76420, and incorporated herein by reference) 4.3 Rights Agreement dated as of January 27, 1998, between Project Software & Development, Inc. and BankBoston, N.A. as Rights Agent (included as Exhibit 4(a) to the Company's Current Report on Form 8-K dated February 2, 1998, File No. 0-23852,and incorporated herein by reference) 4.4 Form of Certificate of Designation of Series A Junior Participating Preferred Stock of Project Software & Development, Inc. (included as Exhibit 4(b) to the Company's Current Report on Form 8-K dated February 2, 1998, File No. 0-23852,and incorporated herein by reference) 4.5 Form of Rights Certificate (included as Exhibit 4(c) to the Company's Current Report on Form 8-K dated February 2, 1998, File No. 0-23852,and incorporated herein by reference) 11.1 Statement re computation of per share earnings 27.1 Financial Data Schedule EX-11.1 2 STATEMENT RE COMPUTATION OF EARNINGS PER SHARE 1 EXHIBIT 11.1 PROJECT SOFTWARE & DEVELOPMENT, INC. STATEMENT RE COMPUTATION OF EARNINGS PER SHARE
Type of Security ---------------- Basic Diluted ----- ------- COMPANY, FOR THE THREE MONTHS ENDED DECEMBER 31, 1997: Weighted average common shares outstanding........................... 9,864,535 9,864,535 Common stock equivalents ............................................ n/a 177,790 ---------- ----------- 9,864,535 10,042,325 Net income............................................................. $3,504,810 $ 3,504,810 Net income per share................................................... $ 0.36 $ 0.35 COMPANY, FOR THE THREE MONTHS ENDED DECEMBER 31, 1996: Weighted average common shares outstanding........................... 9,708,322 9,708,322 Common stock equivalents ............................................ n/a 419,564 ---------- ----------- 9,708,322 10,127,886 Historical net income ................................................. $3,528,827 $ 3,528,827 Historical net income per share ....................................... $ 0.36 $ 0.35
EX-27 3 FINANCIAL DATA SCHEDULE
5 1,000 U.S. DOLLARS 3-MOS SEP-30-1998 OCT-01-1997 DEC-31-1997 1 24,776 38,581 25,638 2,254 0 93,038 20,160 11,212 104,264 26,233 0 0 0 99 104,165 104,264 11,143 25,110 604 7,190 13,105 0 2 5,564 2,059 4,815 0 0 0 3,505 0.36 0.35
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