-----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, TzqpH2hP/9SGgmZy8dnIkM9OJpXrM7/JIAbC1qzyE8RbPbuXx+KfsrqDwVS5udJs hPgDHIUVebTP4OFGfHVtYA== 0000950135-97-002442.txt : 19970515 0000950135-97-002442.hdr.sgml : 19970515 ACCESSION NUMBER: 0000950135-97-002442 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19970331 FILED AS OF DATE: 19970514 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: 1934 Act SEC FILE NUMBER: 000-23852 FILM NUMBER: 97605698 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 FORM 10-Q 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 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) 20 UNIVERSITY ROAD, CAMBRIDGE, MASSACHUSETTS 02138 (Address of principal executive offices, including zip code) (617) 661-1444 (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: 9,818,758 shares of common stock, $.01 par value per share, as of April 30, 1997. 1 2 PROJECT SOFTWARE & DEVELOPMENT, INC. 10-Q INDEX PAGE PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS PAGE Consolidated Balance Sheets as of March 31, 1997 3 (unaudited) and September 30, 1996. Consolidated Statements of Operations (unaudited) 4 for the three and six months ended March 31, 1997 and 1996. Consolidated Statements of Cash Flows (unaudited) 5 for the six months ended March 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 6. EXHIBITS AND REPORTS ON FORM 8-K 18 SIGNATURE 20
2 3 PROJECT SOFTWARE & DEVELOPMENT, INC. CONSOLIDATED BALANCE SHEETS
ASSETS MARCH 31, SEPTEMBER 30, 1997 1996 -------- ------- (IN THOUSANDS,EXCEPT SHARE DATA) (UNAUDITED) Cash and cash equivalents $ 16,336 $ 9,097 Marketable securities 37,120 36,798 Accounts receivable, trade, less allowance for doubtful accounts of $2,328 in 1997 and $1,954 in 1996 23,591 27,030 Prepaid expenses 1,468 1,410 Other assets 913 748 Deferred income taxes 1,049 892 -------- ------- Total current assets 80,477 75,975 -------- ------- Property and equipment, net 5,405 4,174 Computer software costs, net 486 787 Goodwill, net 1,664 1,832 Deferred income taxes 783 675 Other assets 48 33 -------- ------- Total assets $ 88,863 $83,476 ======== ======= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 8,996 $ 8,389 Accrued compensation 2,724 5,007 Income taxes payable 1,417 248 Deferred revenue 9,426 9,042 -------- ------- Total current liabilities 22,563 22,686 -------- ------- Deferred income taxes 47 168 Deferred rent 52 85 Deferred revenue 207 375 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; and outstanding 9,818,758 and 9,702,579 for 1997 and 1996, respectively 98 97 Additional paid-in capital 46,703 45,324 Retained earnings 19,603 14,538 Cumulative translation adjustment (407) 49 Net unrealized (loss)/gain on marketable securities (3) 154 -------- ------- Total stockholders' equity 65,994 60,162 -------- ------- Total liabilities and stockholders' equity $ 88,863 $83,476 ======== =======
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 Six Months Ended March 31, March 31, ------------------------------------------------------------------------ 1997 1996 1997 1996 ------------ ------------ ------------ ------------ (in thousands, except share and per share data) Revenues: Software $ 11,215 $ 9,046 $ 24,888 $ 18,809 Support and services 10,971 7,330 20,677 13,754 ------------ ------------ ------------ ------------ Total revenues 22,186 16,376 45,565 32,563 ------------ ------------ ------------ ------------ Cost of revenues: Software 618 452 1,251 1,600 Support and services 5,894 3,437 11,182 6,708 ------------ ------------ ------------ ------------ Total cost of revenues 6,512 3,889 12,433 8,308 ------------ ------------ ------------ ------------ Gross margin 15,674 12,487 33,132 24,255 Operating expenses: Sales and marketing 8,232 5,614 15,571 10,550 Product development 2,883 1,590 5,374 3,460 General and administrative 2,437 1,642 4,959 3,390 Merger expenses -- 965 -- 965 ------------ ------------ ------------ ------------ Total operating expenses 13,552 9,811 25,904 18,365 ------------ ------------ ------------ ------------ Income from operations 2,122 2,676 7,228 5,890 Interest income 487 416 948 856 Interest (expense) -- (14) (2) (30) Other income (expense), net (199) (85) (141) (89) ------------ ------------ ------------ ------------ Income before income taxes 2,410 2,993 8,033 6,627 Provision for income taxes 874 1,546 2,968 3,052 ------------ ------------ ------------ ------------ Net income $ 1,536 $ 1,447 $ 5,065 $ 3,575 ============ ============ ============ ============ Net income per share $ 0.15 $ 0.14 $ 0.50 $ 0.36 ------------ ------------ ------------ ------------ Weighted number of common and common equivalent shares 10,133,794 10,019,196 10,130,840 10,034,049 ------------ ------------ ------------ ------------
The accompanying notes are an integral part of the consolidated financial statements. 4 5 PROJECT SOFTWARE & DEVELOPMENT, INC CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Six months ended Six months ended March 31, March 31, 1997 1996 -------- -------- (in thousands) Cash flows from operating activities: Net income $ 5,065 $ 3,575 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 1,680 1,463 Loss on sale and disposal of property and equipment 28 21 Amortization of discount on marketable securities 794 145 Deferred rent (34) (39) Deferred taxes (407) (173) Changes in operating assets and liabilities, net of effect of acquisitions: Accounts receivable 3,713 (3,498) Prepaid expenses (64) (404) Other assets (740) (1,517) Accounts payable 609 973 Accrued expenses (76) (673) Accrued compensation (2,330) (1,389) Income taxes payable 1,198 (683) Deferred revenue 306 1,946 -------- -------- Net cash provided by/(used in) operating activities 9,742 (253) -------- -------- Cash flows from investing activities: Acquisitions of businesses, net of cash -- 108 Acquisitions of property and equipment (2,345) (921) Additions to computer software costs (70) (888) Purchase of marketable securities (48,278) (85,935) Sale of marketable securities 47,006 86,126 -------- -------- Net cash used in investing activities (3,687) (1,510) -------- -------- Cash flows from financing activities: Payments on leased equipment -- (19) Payments on bank loan -- (450) Proceeds from exercise of stock options 1,380 256 including related tax benefit -------- -------- Net cash provided by/(used in) financing activities 1,380 (213) -------- -------- Effect of exchange rate changes on cash (196) 37 -------- -------- Net increase (decrease) in cash and cash equivalents 7,239 (1,939) Cash and cash equivalents, beginning of period 9,097 9,347 -------- -------- Cash and cash equivalents, end of period $ 16,336 $ 7,407 ======== ========
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 March 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, 1997, 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, 1996 included in the Company's Annual Report on Form 10-K filed with the Securities and Exchange Commission on December 30, 1996. The consolidated financial statements of the Company for all periods prior to March 31, 1996 included in this report include the results and balances of an acquisition accounted for as pooling-of-interests. 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 Income per share is computed for each period based upon the weighted average number of common shares outstanding and dilutive common stock equivalents (using the treasury stock method). For purposes of this calculation, stock options are considered common stock equivalents in the periods in which they have a dilutive 6 7 effect. Fully diluted and primary income per share data are the same for each period presented. C. ACCOUNTING STANDARDS Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based Compensation" is effective for fiscal years beginning after December 15, 1995. SFAS No. 123 prescribes accounting and reporting standards for all stock-based compensation plans, including employee stock options, restricted stock, and stock appreciation rights. SFAS No. 123 does not require companies to change their existing accounting for employee stock options under Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees" (the intrinsic value method) but requires pro forma disclosures of what net income and earnings per share would have been had the new fair value method been used. The Company has elected to continue following present accounting rules under APB Opinion No. 25 and will disclose all the required pro forma information in its Annual Report on Form 10-K for the fiscal year ended September 30, 1997. Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per Share" is effective for financial statements issued for periods ending after December 15, 1997. SFAS No. 128 replaces APB Opinion No. 15, Earnings Per Share. SFAS No. 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 will adopt SFAS No. 128 per the effective date for the periods ended after December 15, 1997. D. COMPUTER SOFTWARE COSTS There were no internally developed software costs capitalized for the three and six months ended March 31, 1997. Internally developed software costs capitalized for the three and six months ended March 31, 1996 were $380,000 and $634,000, respectively. Amortization expense was $127,000 and $22,000 for the three months ended March 31, 1997 and 1996, respectively, and $254,000 and $695,000 for the six months ended March 31, 1997 and 1996. For the three months ended December 31, 1995, the Company changed the estimated useful life of its internally developed software related to the client/server version of MAXIMO from three years to fifteen months. This change in estimate resulted in additional amortization expense of $565,000 in the three months ended December 31, 1995. E. ACQUISITIONS On December 27, 1995, the Company acquired the shares of its Swedish distributor, Planneringssystem och Datorer i Norden AB 7 8 for the sum of $517,000. In addition, the Company was obligated to pay the seller an earnout based on revenue target achievement for the fiscal year ended September 30, 1996. The total earnout was $257,000. The transaction was accounted for using the purchase method of accounting. The resulting goodwill is being amortized on a straight-line basis over 5 years. This acquisition was deemed to be immaterial for presentation of pro forma information purposes. On March 1, 1996, the Company acquired certain assets and assumed specific liabilities of the IHS department of debis Systemhaus Standard Software - Produkte GmbH for the sum of $646,000. In addition, the Company will pay an earnout based on revenue target achievement for the twelve months ended December 31, 1996. The earnout is estimated to be $260,000. The transaction was accounted for using the purchase method of accounting. The resulting goodwill is being amortized on a straight-line basis over 5 years. This acquisition was deemed to be immaterial for presentation of pro forma information purposes. On March 1, 1996, the Company acquired the outstanding common stock of Maintenance Automation Corporation ("MAC"), a developer of PC-based maintenance management software, in exchange for the issuance of 368,946 shares of common stock. The transaction has been accounted for as a pooling-of-interests. Costs of the acquisition were $965,000. The Company's consolidated financial statements for all years prior to the acquisition have been restated to include MAC. MAC's fiscal year for financial reporting purposes was changed from December 31 to September 30 for the period ended September 30, 1995. The following information shows revenue and net income of the separate companies during the periods preceding the combination that are included in this report. Adjustments recorded to conform the accounting policies of the companies were not material to the consolidated financial statements.
(in thousands) REVENUE: Three months ended 12/31/95 -------------- PSDI $ 14,215 MAC $ 1,972 Combined $ 16,187 NET INCOME: PSDI $ 2,402 MAC $ (275) Combined $ 2,127
8 9 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS General. The Company develops, markets and supports applications software used by business, 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. Prior to 1991, the Company's revenues were derived primarily from licenses of its project management software (consisting of character-based software designed to run on mainframe, minicomputers and personal computers), and, to a lesser extent, from sales of computer hardware. 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. The Company released MAXIMO, its first client/server product, in 1991, and released P/X, its second client/server product, in 1992. In fiscal year ended September 30, 1996, revenues from client/server software accounted for 89% of software revenues, of which 93% was attributable to the client/server versions of MAXIMO. 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 Windows95, Windows 95B, all windows 3.x systems, and NT 3.5.1 and NT 4.0 clients. The product acquired as a result of the acquisition of MAC on March 1, 1996, MAXIMO ADvantage, is intended for the lower-end 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 9 10 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. The first significant version of MAXIMO ADvantage released since the acquisition, version 3.4, was released in March 1997. The Company also restructured the tele-sales operation employed by MAC to improve the fluidity of the sales distribution channel. A new tele-sales operation was opened in Atlanta in March 1997. Further adversely 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. These continued delays have resulted in the MAXIMO ADvantage business being dilutive to earnings per share since its acquisition. 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. Revenues from licenses of P/X have declined sharply, dropping to 2% of total license revenues in the fiscal year ended 1996. The Company no longer actively markets its P/X product as a stand alone solution. Revenues from licenses of mainframe and other project management software have also declined sharply, dropping to 1% of total license revenues in the fiscal year ended 1996. 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. The Company's revenues attributable to its operations outside the United States are a significant portion of revenues. The Company expects that international revenues will continue to be a significant percentage of total revenues. If 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 Dutch guilder, 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 10 11 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 accrued 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 loss of $184,000 and $153,000 for the six months ended March 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 may not adversely affect the Company's financial results in the future. Business Combinations. On December 27, 1995, the Company acquired the shares of its Swedish distributor, Planneringssystem och Datorer i Norden AB for the sum of $517,000. In addition, the Company was obligated to pay the seller an earnout based on revenue target achievement for the fiscal year ended September 30, 1996. The total earnout paid was $257,000. On March 1, 1996, the Company acquired certain assets and assumed specific liabilities of the IHS department of debis Systemhaus Standard - Software - Produkte GmbH for the sum of $646,000. In addition, the Company will pay an earnout based on revenue target achievement for the twelve months ended December 31, 1996. The earnout is estimated to be $260,000. On March 1, 1996, the Company acquired MAC in exchange for the issuance of 368,946 shares of the Company's common stock. MAC provided the Company an existing, although immature, tele-sales channel which has been restructured and can target entities and industries supplemental to those previously targeted by the Company's direct sales channel, such as real estate management, hotels and small education and medical facilities. MAC's product, CHIEF ADvantage has been renamed MAXIMO ADvantage and has been enhanced since the acquisition. RESULTS OF OPERATIONS Revenues. Total revenues increased 35% to $22,186,000 from $16,376,000 for the three months ended March 31, 1997 and 1996, respectively, and 40% to $45,565,000 from $32,563,000 for the six months ended March 31, 1997 and 1996, respectively. The 11 12 growth in revenues is generated from the Company's client/server versions of 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 generated outside the United States increased 24% to $9,204,000 or 41% of total revenues in the three months ended March 31, 1997 from $7,393,000 or 45% of total revenues in the three months ended March 31, 1996 and increased 43% to $19,486,000 or 43% of total revenues in the six months ended March 31, 1997 from $13,629,000 or 42% of total revenues in the six months ended March 31, 1996. The Company's software revenues increased 24% to $11,215,000 from $9,046,000 for the three months ended March 31, 1997 and 1996, respectively, and increased 32% to $24,888,000 from $18,809,000 for the six months ended March 31, 1997 and 1996, respectively. The Company's MAXIMO software revenues increased 25% to $11,122,000 from $8,913,000 for the three months ended March 31, 1997 and 1996, respectively, and increased 35% to $24,580,000 from $18,162,000 for the six months ended March 31, 1997 and 1996, respectively. The Company's P/X software revenues increased 922% to $92,000 from $9,000 for the three months ended March 31, 1997 and 1996, respectively, and decreased 20% to $278,000 from $348,000 for the six months ended March 31, 1997 and 1996, respectively. The increases in total software revenues for the three and six months ended March 31, 1997 can be attributed to increases in the average selling price of MAXIMO client/server software licenses. Software revenues as a percentage of total revenues decreased to 51% from 55% for the three months ended March 31, 1997 and 1996, respectively, and decreased to 55% from 58% for the six months ended March 31, 1997 and 1996, respectively. The decreases for the three and six months ended March 31, 1997 are largely attributable to a decline in MAXIMO client/server software license revenue in Europe, where software revenues for the quarter declined 11% over the comparable quarter. The decline in software revenues in Europe can be attributed to a large percentage of the salesforce being hired within the past year. The Company is undertaking training programs to ensure that this new salesforce is better equipped to communicate and understand the competitive environment with respect to both large suite players and local competition. Also contributing to the decreases as a percentage of total software revenues for the three and six months ended March 31, 1997 is a shortfall in MAXIMO ADvantage revenues. Partially offsetting the software decline in Europe is an increase in European services revenue. European MAXIMO services revenues have increased 71% and 68% for the three and six months ended March 31, 1997, respectively. The change in the components of revenues also contributed to the decrease in expected earnings for the quarter, as revenue generated by services are at a lower gross margin than revenue generated by software licenses. Revenues from licenses of MAXIMO and from related support and services increased 45% to $21,456,000 from $14,777,000 or 97% and 90% of total revenues for the three months of March 31, 1997 12 13 and 1996, respectively, and increased 50% to $43,732,000 from $29,083,000 or 96% and 89% of total revenues for the six months of March 31, 1997 and 1996, respectively. Revenues from licenses and related support and services of P/X decreased 50% to $508,000 from $1,014,000 or 2% and 6% of total revenues for the three months ended March 31, 1997 and 1996, respectively, and decreased 45% to $1,320,000 from $2,419,000 or 3% and 7% of total revenues for the six months ended March 31, 1997 and 1996, respectively. The Company no longer actively markets its P/X product as a stand alone solution. Revenues from the Company's mainframe and other project management software and related support and services decreased 62% to $221,000 from $584,000 for the three months ended March 31, 1997 and 1996, respectively, and decreased 52% to $513,000 from $1,061,000 for the six months ended March 31, 1997 and 1996, respectively. The Company no longer actively markets its mainframe and other project management software products. Revenues from support and services increased 50% to $10,971,000 from $7,330,000 for the three months ended March 31, 1997 and 1996, respectively, and increased 50% to $20,677,000 from $13,754,000 for the six months ended March 31, 1997 and 1996, respectively. The increases are due primarily to consulting and training services generated by the Company's MAXIMO client/server product. Also contributing to the increases are sales of support contracts in connection with licenses of the Company's MAXIMO software, partially offset by declines in sales of support contracts relating to the Company's mainframe and other project management software. Support and services revenues as a percentage of total revenues increased to 49% from 45% for the three months ended March 31, 1997 and 1996, respectively, and 45% and 42% for the six months ended March 31, 1997 and 1996, respectively. Cost of Revenues. The total cost of revenues increased 67% to $6,512,000 from $3,889,000 for the three months ended March 31, 1997 and 1996, respectively, and increased 50% to $12,433,000 from $8,308,000 for the six months ended March 31, 1997 and 1996, respectively. The total cost of revenues as a percentage of total revenues was 29% and 24% for the three months ended March 31, 1997 and 1996, respectively, and 27% and 26% for the six months ended March 31, 1997 and 1996, respectively. The increases in total cost of revenues as a percentage of total revenues can be attributed to an increase in lower margin services revenue as a percentage of total revenues. The costs of services revenues have also increased due to the extensive use of higher cost third party consultants in Europe. Cost of software revenues increased 37% to $618,000 from $452,000 for the three months ended March 31, 1997 and 1996, respectively, and decreased 22% to $1,251,000 from $1,600,000 for 13 14 the six months ended March 31, 1997 and 1996, respectively. The cost of software revenues increased as a percentage of software revenues to 6% from 5% for the three months ended March 31, 1997 and 1996, respectively, and decreased to 5% from 9% for the six months ended March 31, 1997 and 1996. The increase as a percentage of software revenues for the three months ended March 31, 1997 is attributable to an increase in amortization expense of internally developed software. The decrease as a percentage of software revenues for the six months ended March 31, 1997 is primarily attributable to a decrease in amortization expense of internally developed software as compared to the prior period and an increase in the revenue base for the six months ended March 31, 1997. In the three months ended December 31, 1995, the Company changed the estimated useful life of its MAXIMO Enterprise product from three years to fifteen months to accurately reflect the lifecycles for major new releases of this product. This change resulted in a one-time charge of an additional amortization expense of $565,000 for this three month period. Cost of support and services consists primarily of personnel costs for employees and the related costs of benefits and facilities. Cost of support and services revenues increased by 71% to $5,894,000 from $3,437,000 for the three months ended March 31, 1997 and 1996, respectively, and increased by 67% to $11,182,000 from $6,708,000 for the six months ended March 31, 1997 and 1996, respectively. Cost of support and services as a percentage of support and services revenues increased to 54% from 47% for the three months ended March 31, 1997 and 1996, respectively, and 54% from 49% for the six months ended March 31, 1997 and 1996, respectively. The increases are attributable to costs for third party consultants, most significantly in Europe, whose effective hourly rate is higher than that of employees performing similar services. Third party consultants are utilized to perform services when the Company does not have adequate internal resources to complete services within acceptable time frames. Sales and Marketing Expenses. Sales and marketing expenses increased 47% to $8,232,000 from $5,614,000 for the three months ended March 31, 1997 and 1996, respectively, and increased 48% to $15,571,000 from $10,550,000 for the six months ended March 31, 1997 and 1996, respectively. The increases are primarily due to increases in the number of sales personnel, sales commissions, travel and lodging expenses attributable to growth and expansion, and an increase in advertising costs. Sales and marketing expenses as a percentage of total revenues were 37% and 34% for the three months ended March 31, 1997 and 1996, and 34% from 33% for the six months ended March 31, 1997 and 1996, respectively. The increases as a percentage of revenues are due primarily to increased sales and 14 15 marketing staffs, advertising costs and the expense levels that were established to achieve a high level of revenues. Product Development Expenses. Product development expenses increased 81% to $2,883,000 from $1,590,000 for the three months ended March 31, 1997 and 1996, respectively, and increased 55% to $5,374,000 from $3,460,000 for the six months ended March 31, 1997 and 1996, respectively. Product development expenses increased to 13% from 10% of total revenues for the three months ended March 31, 1997 and 1996, respectively, and increased to 12% from 11% of total revenues for the six months ended March 31, 1997 and 1996, respectively. The Company spends all of its development dollars on the MAXIMO product line. The increases are attributable to costs for third party consultants and additional employees to work on upgrades of the MAXIMO product with respect to future technology, as well as, costs to develop a new version of MAXIMO Advantage. The increases as a percentage of revenues are also attributable to the capitalization of internal software developments costs in the prior period compared to no capitalization of expenses in the current period. General and Administrative Expenses. General and administrative expenses include the cost of the Company's finance, human resources, information services and administrative operations. General and administrative expenses increased 48% to $2,437,000 from $1,642,000 for the three months ended March 31, 1997 and 1996, respectively, and increased 46% to $4,959,000 from $3,390,000 for the six months ended March 31, 1997 and 1996, respectively. The increases are attributable to increases in personnel to support the increase needed to achieve a higher level of revenues as well as, increases in the provision for bad debt expenses, professional fees related to growth and expansion and goodwill amortization. General and administrative expenses as a percentage of total revenues increased to 11% from 10% in the three months ended March 31, 1997 and 1996, respectively, and to 11% from 10% in the six months ended March 31, 1997 and 1996, respectively. Other Income/Expense. Interest income for the three months ended March 31, 1997 and 1996 was $487,000 and $416,000, respectively, and $948,000 and $856,000 for the six months ended March 31, 1997 and 1996. The increases are due to interest earned on certain cash equivalents and marketable securities. 15 16 Provision for Income Taxes. The Company's effective tax rate was 36% and 52% for the three months ended March 31, 1997 and 1996, respectively and 37% and 46% for the six months ended March 31, 1997 and 1996, respectively. The decreases are attributable to utilization of a Foreign Sales Corporation, tax-exempt income and research and development credits. Also, in the three months ended March 31, 1996, the effective rate was high due to merger expenses of $965,000, which are not deductible for income tax purposes. LIQUIDITY AND CAPITAL RESOURCES As of March 31, 1997, the Company had cash and cash equivalents of approximately $16,336,000 and working capital of $57,914,000. Cash provided by operations for the three months ended March 31, 1997 was $9,742,000 generated by income earned for the period, depreciation and amortization, and receivables collected for the period due to increased collection success, offset by the payout of fiscal 1996 employee bonuses. Cash used in investing activities totaled $3,687,000 and was primarily used for the purchase of computer equipment, office furniture and leasehold improvements. Cash provided by financing activities was $1,380,000 and is attributable to exercises of employee stock options. The Company's principal commitments as of March 31, 1997 consisted primarily of an office lease for its headquarters. The Company leases its facilities under non-cancelable operating lease agreements which expire at various dates through February 2007. The Company intends to move its corporate headquarters at the end of the year. Costs will be incurred to relocate personnel, equipment, furniture and for renovations. The Company elected not to renew its $5,000,000 unsecured line of credit with Chase Manhattan Bank, N.A., which expired on March 31, 1997. The Company believes that its current liquidity and cash flows expected to be generated by operations will be sufficient to meet its cash needs for working capital, capital expenditures and marketing expansion through at least March 31, 1998. FLUCTUATIONS IN QUARTERLY OPERATING RESULTS;SEASONALITY The Company generally ships its products 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 16 17 large orders, the timing of product shipments and the timing of marketing and product development expenditures. Large 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. 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. FACTORS OF FUTURE PERFORMANCE Further information on factors that could affect the Company's business and financial results are included in the Company's Annual Report on Form 10-K filed with the Securities and Exchange Commission on December 30, 1996. 17 18 Part II. OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders. The Company's Annual Meeting of Stockholders was held on February 11, 1997. At the Annual Meeting the stockholders of the Company voted to approve the following actions by the following votes: 1. To elect Robert L. Daniels as a Class I Director of the Company for a term of three years.
No. of Shares ------------- For 8,953,552 Against 30,892 Abstain 0 No Vote 0
2. To approve the proposal to ratify the selection by the Board of Directors of Coopers & Lybrand L.L.P. as the Company's independent public accountants for the current fiscal year.
No. of Shares ------------- For 8,983,470 Against 530 Abstain 444 No Vote 0
Item 5. Other Information On May 7, 1997, Dean F. Goodermote resigned as a director of the Company. 18 19 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits 3. Instruments Defining the Rights of Security-Holders 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 (included as Exhibit 3.2 to the Company's Annual Report on Form 10-K for the year ended September 30, 1996, File No. 0-23852, and incorporated herein by reference) 10. Material Contracts 10.1 Offer letter to David M. Sample (included as Exhibit 10.1 to the Company's current report on Form 8-K dated January 30, 1997, File No. 0-23852, and incorporated herein by reference) 11.1 Statement re computation of per share earnings 27. Financial Data Schedule (b) Reports filed on Form 8-K (1) The Company filed a current report on Form 8-K on January 30, 1997. Item 5. Other Events - Information concerning the appointment of David Sample as Chairman of the Board of Directors, President and Chief Executive Officer of the Company. 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: May 13, 1997 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 (included as Exhibit 3.2 to the Company's Annual Report on Form 10-K for the year ended September 30, 1996, File No. 0-23852, and incorporated herein by reference) 10.1 Offer letter to David M. Sample (included as Exhibit 10.1 to the Company's current report on Form 8-K dated January 30, 1997, File No. 0-23852, and incorporated herein by reference) 11.1 Statement re computation of per share earnings 27 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
Three months Three months Six months Six months PRIMARY: ended ended ended ended 03/31/97 03/31/96 03/31/97 03/31/96 -------- -------- -------- -------- Weighted average common shares outstanding .................. 9,767,352 9,574,503 9,737,837 9,571,130 Common stock equivalents ..... 366,442 444,693 393,003 462,919 ----------- ----------- ----------- ----------- 10,133,794 10,019,196 10,130,840 10,034,049 ----------- ----------- ----------- ----------- Net income ................... $ 1,535,729 $ 1,447,287 $ 5,064,556 $ 3,574,739 Net income per share ......... $ 0.15 $ 0.14 $ 0.50 $ 0.36 FULLY DILUTED: Weighted average common shares outstanding .................. 9,767,352 9,574,503 9,737,837 9,571,130 Common stock equivalents ..... 366,593 471,253 411,131 495,052 ----------- ----------- ----------- ----------- 10,133,945 10,045,756 10,148,968 10,066,182 ----------- ----------- ----------- ----------- Net income ................... $ 1,535,729 $ 1,447,287 $ 5,064,556 $ 3,574,739 Net income per share ......... $ 0.15 $ 0.14 $ 0.50 $ 0.36
EX-27 3 FINANCIAL DATA SCHEDULE WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
5 0000920354 1,000 U.S. DOLLARS 6-MOS SEP-30-1997 OCT-01-1996 MAR-31-1997 1 16,336 37,120 25,919 2,328 0 80,477 16,124 10,719 88,863 22,563 0 0 0 98 65,896 88,863 24,888 45,565 1,251 12,433 25,904 549 2 8,033 2,968 7,228 0 0 0 5,065 .50 .50
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