DELTEK SYSTEMS CORP, 424B1, 1997-02-26

DELTEK SYSTEMS CORP
424B1, 1997-02-26
COMPUTER PROGRAMMING SERVICES

Previous: SPECIAL METALS CORP, 424B1, 1997-02-26

Next: GENERAL CIGAR HOLDINGS INC, S-1/A, 1997-02-26

<PAGE> 1

2,900,000 SHARES

LOGO

COMMON STOCK

Of the 2,900,000 shares of Common Stock offered hereby, 1,700,000 are being
sold by Deltek Systems, Inc. ("Deltek" or the "Company") and 1,200,000 are being
sold by the Selling Shareholders. See "Principal and Selling Shareholders." The
Company will not receive any of the proceeds from the sale of shares by the
Selling Shareholders.

Prior to this offering, there has been no public market for the Common
Stock of the Company. See "Underwriting" for a discussion of the factors
considered in determining the initial public offering price. The Common Stock
has been approved for quotation on the Nasdaq National Market under the symbol
"DLTK."

SEE "RISK FACTORS" COMMENCING ON PAGE 5 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED
HEREBY.
------------------------

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
================================================================================

<TABLE>
<CAPTION>
Proceeds to
Price to Underwriting Proceeds to Selling
Public Discount(1) Company(2) Shareholders(2)
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share...................... $11.00 $0.77 $10.23 $10.23
Total (3)...................... $31,900,000 $2,233,000 $17,391,000 $12,276,000
</TABLE>

================================================================================

(1) See "Underwriting" for information concerning indemnification of the
Underwriters and other matters.

(2) Before deducting expenses payable by the Company estimated at $800,000 and
expenses payable by the Selling Shareholders estimated at $25,000.

(3) Certain of the Selling Shareholders have granted to the Underwriters a
30-day option to purchase up to an aggregate of 435,000 additional shares of
Common Stock solely to cover over-allotments, if any. If the Underwriters
exercise this option in full, the Price to Public will total $36,685,000,
the Underwriting Discount will total $2,567,950 and the Proceeds to the
Selling Shareholders will total $16,726,050. See "Underwriting."

The shares of Common Stock are offered by the several Underwriters named
herein, subject to receipt and acceptance by them and to their right to reject
any order in whole or in part. It is expected that delivery of the certificates
representing such shares will be made against payment therefor at the office of
Montgomery Securities on or about March 3, 1997.

------------------------

MONTGOMERY SECURITIES WILLIAM BLAIR & COMPANY

February 25, 1997

<PAGE> 2

------------------------

Deltek, Costpoint and Allegro are registered trademarks of the Company, and
Electronic Timesheet and Web E.T. are trademarks of the Company. This Prospectus
also contains trade names and trademarks of other companies that are the
property of their respective holders.

------------------------

IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK AT
A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET, IN THE
OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.

2
<PAGE> 3

PROSPECTUS SUMMARY

The following summary is qualified in its entirety by the more detailed
information and financial statements, including the notes thereto, included
elsewhere in this Prospectus. Except as otherwise indicated, all information in
this Prospectus (i) gives effect to a three-for-one stock split of the Company's
Common Stock effected by means of a stock dividend in December 1996 and (ii)
assumes that the Underwriters' over-allotment option is not exercised. The
discussion in this Prospectus contains forward-looking statements which include
risks and uncertainties. The Company's actual results could differ materially
from those discussed in this Prospectus. Factors that could cause or contribute
to such differences include those discussed in the sections entitled "Risk
Factors," "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Business," as well as those discussed elsewhere in
this Prospectus.

THE COMPANY

Deltek designs, develops, sells and supports a family of integrated
software products that provide project-oriented businesses with tools to more
effectively manage, operate and grow their operations. Deltek's products address
the enterprise-level needs of project-oriented businesses and allow these
organizations to manage financial and project accounting, compute costs and
revenues on a project-by-project basis, submit accurate and detailed bills,
comply with complex industry-specific and regulatory requirements, administer
employee time collection, labor costing and payroll, automate materials
management functions, and empower their managers with timely and pertinent
information. Deltek also provides a full range of consulting and maintenance
services to assist its customers with system implementation and integration and
to provide training and ongoing support for the Company's software products.

The increasingly competitive business environment has created pressure for
business organizations to better utilize information technologies to improve
their efficiency, reduce their costs and provide their employees and management
with more timely and pertinent information. As a result, many organizations are
implementing a new generation of enterprise-level business systems, based on
open, client/server architectures, to automate their operations, including
finance, accounting, manufacturing and human resource management functions. Most
client/server enterprise-level business systems are general-purpose and fail to
address many of the specific requirements of businesses engaged primarily in
providing goods and services to customers under project-specific contracts and
engagements. These project-oriented businesses include a wide variety of
professional and technical service providers, including engineering and
environmental firms, research and development firms and contract service
organizations, as well as not-for-profit organizations, make-to-order
manufacturers and construction companies. Many of these project-oriented
businesses provide goods and services under government contracts.

Deltek's family of software products consists of Costpoint, the Company's
advanced client/server, enterprise-level business software system designed for
project-oriented organizations; System 1, a DOS-based accounting and management
system designed primarily for organizations providing goods and services under
contracts with the federal government; Electronic Timesheet, an employee
timekeeping system; and Allegro, a project and resource management tool. These
products include modules spanning financial accounting, project accounting and
management, human resources and payroll administration, time and labor
collection, materials management and reporting tools. Application modules within
each Deltek product are integrated and utilize a common user interface and
database structure, allowing project-oriented organizations to configure and
implement a fully-integrated system solution.

An integral part of Deltek's solution is to provide superior services and
support directly to its customers. The Company believes that its implementation
expertise, together with its focus on the unique requirements of
project-oriented organizations, result in a faster and more cost-effective
system implementation than is typically achieved by companies which choose to
adapt general-purpose business systems to the needs of their project-oriented
organizations. After a customer's implementation is completed, Deltek provides
ongoing support services to assist the customer in maintaining and updating its
system, training its employees and adding functionality as the customer's
business grows and its requirements change.

Deltek sells its products and services through its direct sales force.
Since its inception, the Company has installed more than 1,950 systems for a
wide range of project-oriented organizations of all sizes, predominantly in the
United States. Deltek's customers include Bell Atlantic Federal Integrated
Systems, Inc., Computer Sciences Corporation, Coopers & Lybrand, LLP, Lockheed
Martin Corp., Northrop Grumman Corporation and Raytheon Service Co., Inc.

Deltek's objective is to strengthen its position as a leading supplier of
enterprise-level software systems for project-oriented organizations. Deltek
intends to continue to differentiate itself from providers of general-purpose
business application software by focusing exclusively on providing
cost-effective solutions that meet the unique and changing demands of
project-oriented businesses. Key elements of Deltek's strategy include targeting
additional project-oriented markets and leveraging its large installed customer
base to generate additional licensing and consulting revenues as these companies
grow and their requirements change.

Deltek was incorporated in Virginia in 1983. Deltek's executive offices are
located at 8280 Greensboro Drive, McLean, Virginia 22102, and its telephone
number at that address is (703) 734-8606.

3
<PAGE> 4

THE OFFERING

<TABLE>
<S> <C>
Common Stock offered by:
The Company............................................ 1,700,000 shares
Selling Shareholders................................... 1,200,000 shares
Common Stock to be outstanding after the offering........ 16,867,250 shares(1)
Use of proceeds.......................................... For working capital and other general corporate
purposes, including potential acquisitions. See "Use
of Proceeds."
Nasdaq National Market symbol............................ DLTK
</TABLE>

SUMMARY FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------
1992 1993 1994 1995 1996
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues.......................................................... $17,794 $19,417 $21,356 $26,849 $34,780
Operating expenses before non-recurring charges................... 11,735 12,328 13,313 17,176 23,314
Non-recurring charges............................................. -- -- -- -- 1,261(2)
Income from operations............................................ 6,059 7,089 8,043 9,673 10,205
Income before state income taxes.................................. 6,299 7,331 8,300 10,066 10,587
Net income........................................................ 6,240 7,280 8,235 10,021 10,494
PRO FORMA STATEMENT OF OPERATIONS DATA(3):
Income tax provision.............................................. $ 2,395 $ 2,787 $ 3,156 $ 3,827 $ 4,131
Net income........................................................ 3,904 4,544 5,144 6,239 6,456
Net income per share(4)........................................... $ 0.25 $ 0.29 $ 0.33 $ 0.40 $ 0.41
Weighted average shares outstanding (4)........................... 15,485 15,424 15,368 15,552 15,560
</TABLE>

<TABLE>
<CAPTION>
DECEMBER 31, 1996
------------------------
PRO FORMA AS
ACTUAL ADJUSTED(5)
------- --------------
<S> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and marketable securities.......................................... $ 8,333 $ 24,924
Working capital........................................................................... 6,879 14,370
Total assets.............................................................................. 20,202 36,793
Short-term notes payable to shareholders.................................................. -- 4,000
Total shareholders' equity................................................................ 11,486 18,977
</TABLE>

- ---------------

(1) Excludes (i) 1,959,000 shares reserved for issuance under the Company's
stock option plans, of which 1,059,000 shares were subject to outstanding
options as of December 31, 1996, at a weighted average exercise price of
$2.71 per share, and 109,000 additional shares are subject to options
granted between January 1, 1997 and the date of this Prospectus, at an
exercise price of $11.00 per share; and (ii) 400,000 shares reserved for
issuance under the Company's 1996 Employee Stock Purchase Plan. See
"Management -- Stock Plans" and Note 7 of Notes to Financial Statements.

(2) Represents non-recurring, non-cash charges of $867,000 for stock option
compensation and $394,000 for purchased in-process research and development.
Exclusive of these charges, income from operations, net income, pro forma
net income and pro forma net income per share would have been $11.5 million,
$11.8 million, $7.2 million and $0.46, respectively. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
and Notes 2 and 7 of Notes to Financial Statements.

(3) For all periods indicated, the Company elected to be treated as an S
Corporation and was not subject to federal and certain state income taxes.
The pro forma statement of operations data reflects federal and state income
taxes based on applicable tax rates as if the Company had not elected S
Corporation status for the periods indicated. See "Prior S Corporation
Status" and Note 1 of Notes to Financial Statements.

(4) See Note 1 of Notes to Financial Statements for a description of the
computation of weighted average shares outstanding and pro forma net income
per share.

(5) Gives pro forma effect to (i) a distribution of $9.1 million to the
Company's current shareholders, representing the estimated undistributed
previously taxed S Corporation earnings as of December 31, 1996, $4.0
million of which is represented by short-term notes and $5.1 million of
which is reflected as accrued dividends payable; and (ii) the sale of the
1,700,000 shares of Common Stock offered by the Company hereby (after
deducting the underwriting discount and estimated offering expenses). The
deferred tax liability that would have been recorded if the Company had
terminated its S Corporation status at December 31, 1996 would not have been
material. See "Prior S Corporation Status" and "Capitalization."

4
<PAGE> 5

RISK FACTORS

In addition to the other information in this Prospectus, the following
factors should be considered carefully in evaluating an investment in the shares
of Common Stock offered hereby. This Prospectus contains forward-looking
statements, and actual results could differ materially from those projected in
the forward-looking statements as a result of numerous factors, including the
factors set forth below and elsewhere in this Prospectus.

FLUCTUATIONS IN QUARTERLY OPERATING RESULTS

The Company has experienced, and expects to continue to experience,
significant fluctuations in quarterly operating results. The Company's future
operating results will depend upon a number of factors, including the demand for
its products, the size and timing of specific sales, the delay or deferral of
customer implementations, the level of product and price competition that it
encounters, the length of its sales cycles, the successful expansion of its
direct sales force and customer support organization, the timing of new product
introductions and product enhancements by the Company and its competitors, the
mix of products and services sold, the activities of and acquisitions by its
competitors, the timing of new hires and its ability to develop and market new
products and control costs. The Company's operating results could also be
affected by general economic conditions. In addition, the decision to license
and implement an enterprise-level business software system is usually
discretionary, involves a significant commitment of customer resources and is
subject to delays, and to budget cycles and internal authorization procedures of
the Company's customers. The loss or delay of individual orders could have a
significant impact on the Company's operating results, particularly on a
quarterly basis. Furthermore, while the Company's revenue from license fees is
difficult to predict because of the length and variability of the Company's
sales cycles, the Company's operating expenses are based on anticipated revenue
trends. Because a high percentage of these expenses are relatively fixed, a
delay in the recognition of revenue from a limited number of sales could cause
significant variations in operating results from quarter to quarter. To the
extent such expenses precede, or are not subsequently followed by, anticipated
revenues, the Company's operating results could be materially and adversely
affected.

The Company typically grants its customers the right to return its software
products for a refund of the license fee during a refund period which is
generally 60 to 90 days from the date of the license agreement, although the
Company occasionally has provided, and may in the future provide, longer refund
periods for larger, more complex Costpoint installations. The Company recognizes
license fees from its System 1 and Electronic Timesheet products upon delivery,
whereas Costpoint license fees are recognized upon the expiration of the
applicable refund period and are recorded as deferred revenue until recognized.
Because of its customers' refund rights and the varying length of applicable
refund periods, deferred revenue at the end of a quarter does not necessarily
reflect revenue which the Company will recognize in the succeeding quarter.

The Company derives substantially greater profit margins from license fees
than from service revenues or from third-party equipment and software. The mix
of revenues among these three components can fluctuate materially from quarter
to quarter, and such fluctuations can have a significant effect on margins. Over
the past five years, the percentage of the Company's total revenues represented
by service revenues has increased, although such percentage has remained
relatively stable over the past three years. Should lower margin service
revenues or revenues from third-party equipment and software increase in the
future as a percentage of total revenues, the Company's margins and income from
operations could be adversely affected.

Over the last several years, the Company has experienced seasonal
variations in its operating results, partly due to customers' desire to have
their systems operational at the beginning of a calendar year. Accordingly,
these customers typically order their systems in the middle of the preceding
year in order to allow adequate time for implementation, resulting in a
seasonally high level of revenue being recognized in the fourth quarter upon the
expiration of refund periods.

As a result of these and other factors, the Company's operating results for
any quarter are subject to significant variation, and the Company believes that
period-to-period comparisons of its operating results are not necessarily
meaningful and should not be relied upon as indications of future performance.
It is likely that the Company's future quarterly operating results from time to
time will not meet the expectations of market

5
<PAGE> 6

analysts or investors. In such event, the price of the Company's Common Stock
would likely be materially and adversely affected. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations."

DEPENDENCE ON COSTPOINT PRODUCT LINE; PRODUCT MIGRATION

Prior to 1995, substantially all of the Company's revenues were derived
from licenses of its DOS-based System 1 business software products and from
services related to the implementation, support and maintenance of System 1. In
June 1995, the Company introduced its Costpoint client/server-based,
enterprise-level business software. In 1995, the Company derived 26.6% of its
total revenues from licenses of Costpoint software and services related to the
implementation, support and maintenance of Costpoint systems. In 1996,
Costpoint-related license fees and service revenue accounted for 45.2% of total
revenues. The Company expects its Costpoint product line to account for an
increasingly significant percentage of the Company's future revenues. In
addition, the Company is dependent upon the continued satisfaction of its
existing customers and the acceptance of Costpoint by future customers in order
to establish and maintain relationships that will result in ongoing revenue from
support and maintenance services and the licensing of additional products and
upgrades. Accordingly, factors adversely affecting the pricing of or the demand
for Costpoint, such as the success of competitive products or technological
change, or the Company's inability to continue to enhance the Costpoint product
line to meet the evolving needs of its customers, would have a material adverse
effect on the Company's business, operating results and financial condition.

An important element of the Company's strategy is to license Costpoint to
existing System 1 users as those customers reengineer their information systems
and migrate to new client/server business software solutions. As of December 31,
1996, approximately 40 of the Company's former System 1 customers, representing
approximately 3% of the installed base of System 1 users, had migrated to or
were in the process of migrating to Costpoint systems. There can be no assurance
that a significant percentage of current System 1 customers will migrate to
Costpoint. In particular, smaller System 1 customers are less likely to migrate
to Costpoint because the cost of migrating to a client/server environment is
high relative to their size and because in many cases System 1 adequately meets
their present needs. If a significant number of the Company's current System 1
customers elect not to migrate to Costpoint, or purchase competitive products or
encounter problems in implementing Costpoint systems, the Company's business,
operating results and financial condition would be materially and adversely
affected. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Business -- Industry Background," "-- Strategy" and
"-- Products."

COMPETITION

The business application software market, including the market for
client/server-based business software systems, is intensely competitive and
rapidly changing. The Company's products are targeted toward a wide range of
project-oriented organizations, and the competition that the Company encounters
varies depending upon the customer's size, industry and specific system
requirements. For larger Costpoint implementations, the Company's principal
competitors include Oracle Systems Corporation ("Oracle"), PeopleSoft, Inc.
("PeopleSoft") and SAP America, Inc. ("SAP"). For smaller and medium-size
Costpoint and System 1 implementations, the Company's principal competitors
include Great Plains Software, Inc., Harper and Shuman, Inc., Maxwell Business
Systems, Inc., Platinum Software Corporation, Solomon Software, State of the
Art, Inc. and Timberline Software Corporation, some of which offer
industry-specific products. Electronic Timesheet competes with electronic
timekeeping systems offered by vendors including TIMESLIPS Corporation and
Kronos, Inc. The Company also faces indirect competition from systems developed
by the internal MIS departments of large organizations.

6
<PAGE> 7

competitive advantage in selling its application products to its installed RDBMS
customer base. Furthermore, as the client/server computing market develops,
companies with significantly greater resources than the Company could attempt to
increase their presence in this market by acquiring or forming strategic
alliances with competitors of the Company. In addition, as the Company attempts
to penetrate other strategic vertical markets, it will likely encounter
competitors with substantially more experience in those markets.

There can be no assurance that the Company's products will continue to
compete favorably or that the Company will be successful in the face of
increasing competition from new products and enhancements introduced by existing
or new competitors. In addition, increased competition may result in price
reductions, reduced margins and loss of market share, any of which could have a
material adverse effect on the Company's business, operating results and
financial condition. See "Business -- Competition."

LENGTHY SALES CYCLES

The licensing and implementation of the Company's business software
products is often a decision with significant enterprise-wide implications
involving a substantial commitment of the customer's management attention and
resources. The period between initial customer contact and the customer's
purchase commitment typically ranges from 3 to 18 months. Accordingly, the
Company's sales process is subject to delays associated with a lengthy
evaluation and approval process that typically accompanies major initiatives or
capital expenditures, including delays over which the Company has little or no
control. The loss of individual orders due to the lengthy sales and evaluation
cycle, or delays in the sale of even a limited number of systems 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. See "Business -- Sales
and Marketing."

DEPENDENCE ON DIRECT SALES AND SUPPORT ORGANIZATIONS

To date, the Company has sold its products exclusively through its direct
sales force and has supported its customers with its internal staff of system
consultants and technical support and maintenance personnel. The Company intends
to continue to differentiate itself from its competitors by relying,
principally, on its direct sales and support model. The Company's ability to
achieve significant revenue growth in the future will, therefore, depend in
large part on its success in recruiting, training and retaining additional
direct sales, technical and support personnel. Although the Company is currently
investing, and plans to continue to invest, significant resources to expand its
direct sales force and its technical and customer support staff, the Company has
at times experienced difficulties in recruiting qualified personnel. There can
be no assurance that the Company will be successful in expanding its direct
sales and support organizations as needed to achieve future revenue growth, and
its failure to do so would have a material adverse effect on the Company's
business, operating results and financial condition. In the future, the Company
may seek to develop third-party distribution channels and use third-party
consultants to provide consulting and support services. There can be no
assurance that the Company would be successful in establishing such third party
arrangements, that any such expansion of the Company's sales and support
capabilities would result in increased revenues, or that the resulting reduction
in the Company's direct involvement with its customers would not adversely
affect its competitive position. See "Business -- Sales and Marketing" and
"-- Competition."

DEPENDENCE UPON ORGANIZATIONS WITH FEDERAL GOVERNMENT CONTRACTS

Most of the Company's current customers are organizations that provide a
portion of their goods and services under federal government contracts. The
Company believes that, at least in the near term, such organizations will
continue to represent a large percentage of its customers and account for a
large percentage of its revenues. While such organizations are subject to the
same general economic conditions as other businesses, demand for their products
and services also is dependent upon the availability of funds appropriated
therefor. Budget reductions or reallocations could result in such organizations
downsizing, consolidating or liquidating, which, in turn could result in lost
revenue from the Company's existing customers and adversely affect the Company's
ability to add new customers in this market.

7
<PAGE> 8

UNCERTAINTY OF EXPANSION INTO NEW MARKETS

As a part of its strategy, the Company is broadening its product and
marketing focus beyond its traditional base of customers providing goods and
services under government contracts. For example, the Company has targeted
professional and technical service providers, including engineering and
environmental firms, research and development firms and contract service
organizations, as well as not-for-profit organizations and make-to-order
manufacturers, and intends to target additional project-oriented markets such as
architectural and design firms, construction companies, governmental agencies
and organizations managing large internal projects. The Company believes that
its future success is dependent, in part, on its ability to successfully
penetrate new project-oriented markets. The Company's success in generating
sales in these markets will depend upon its ability to educate potential
customers about the benefits of the Company's project-oriented business
solutions. The Company's limited resources may restrict its ability to track
developments in these diverse markets and to effectively pursue marketing
activities in multiple markets simultaneously. There can be no assurance that
the Company's products will be widely accepted in these new markets. The
inability of the Company to successfully expand the markets for its products
could have a material adverse effect on its business, operating results and
financial condition. See "Business -- Strategy" and "-- Sales and Marketing."

LACK OF LONG-TERM SUPPORT AND MAINTENANCE AGREEMENTS

The Company derives a substantial portion of its revenues from ongoing
support and maintenance services, particularly from its System 1 customers.
These services are billed in advance on a quarterly basis. Historically, a high
percentage of the Company's customers have chosen to renew their support and
maintenance program by continuing to pay for such services from quarter to
quarter. However, there can be no assurance that any customer will continue to
pay its quarterly support and maintenance fees, and the failure of a significant
number of customers to do so would have a material adverse affect on the
Company's business, operating results and financial condition. See
"Business -- Customer Service and Support."

DIFFICULTY IN FORECASTING DEMAND FOR CONSULTING SERVICES

The Company also derives a substantial portion of its revenues from
consulting services. Initial consulting services are typically performed in
connection with a customer's implementation of a new Deltek system. Ongoing
consulting services are performed, on a project-by-project basis, as the
Company's customers grow and their requirements change. The nature, extent and
duration of consulting services required in connection with system
implementations and the amount of customers' post-implementation consulting
needs vary widely from customer to customer and are difficult to predict.
Furthermore, none of these services are provided under long-term contracts. As a
result, it is difficult for the Company to forecast accurately the demands for
its consulting services in order to have available an appropriate number of
qualified and trained personnel. The Company's failure to hire and train an
adequate number of consulting personnel could result in customer dissatisfaction
and the loss of potential revenues. On the other hand, excess staffing could
result in disproportionately high personnel expenses which could have a material
adverse affect on the Company's business, operating results and financial
condition. See "Business -- Customer Service and Support."

RAPID TECHNOLOGICAL CHANGE; RISKS ASSOCIATED WITH NEW PRODUCT DEVELOPMENT

The business application software market is characterized by rapidly
changing technologies, evolving industry standards, frequent new product
introductions and short product life cycles. The Company's future success will
depend to a substantial degree upon its ability to enhance its existing products
and to develop and introduce, on a timely and cost-effective basis, new products
and features that meet changing customer requirements and emerging and evolving
industry standards. The Company introduced Costpoint in June 1995, and Costpoint
currently represents more than half of the Company's license fee revenues.
Despite the recent growth in license fees and service revenues from the
Costpoint product line, there can be no assurance that the market for
client/server-based software will not be adversely affected by changing
technologies. The Company allocates resources for research and development
projects based on planned product introductions and enhancements; however,
actual expenditures may significantly differ from amounts

8
<PAGE> 9

allocated. Inherent in the product development process are a number of risks.
The development of new, technologically advanced software products is a complex
and uncertain process requiring high levels of innovation, as well as the
accurate anticipation of technological and market trends. The introduction of
new or enhanced products also requires the Company to manage the transition from
older products in order to minimize disruption in customer ordering patterns and
to ensure that new products can be delivered to meet customer demand. There can
be no assurance that the Company will successfully develop, introduce or manage
the transition to new products. The Company has experienced, and may in the
future experience, delays in the introduction of its products, due to factors
internal and external to the Company. Any future delays in the introduction or
shipment of new or enhanced products, the inability of such products to gain
market acceptance or problems associated with new product transitions could
adversely affect the Company's business, operating results and financial
condition. See "Business -- Product Development."

PRODUCT AND SERVICE ERRORS; POTENTIAL LIABILITY

Software products as complex 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. Accordingly, 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, in turn,
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 by the Company entails the risk of such claims. In addition, the
failure to perform services to a client's expectations may result in the Company
not being paid for services rendered, may damage the Company's reputation and
may result in a claim being brought against the Company. The Company maintains
errors and omissions insurance; however, 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.

DEPENDENCE ON KEY EMPLOYEES

The Company's success will depend in part on the continued services of its
key employees, particularly its senior management personnel. The Company does
not have employment agreements with any of its key employees and does not
maintain any key person life insurance. The loss of Kenneth E. deLaski, the
Company's President and Chief Executive Officer, Eric F. Brown, its Executive
Vice President, Technical Operations, or Dien Hoang Do, its Vice President,
Technology, could have a material adverse effect on the Company's business,
operating results or financial condition. The loss of several other key
employees simultaneously or within a relatively short period of time also could
have such an effect. In addition, if one or more key employees were to join a
competitor or form a competing company, any resulting loss of existing or
potential business to any such competitor could have a material adverse effect
on the Company's business, operating results and financial condition. In the
event of the loss of any such employee(s), there can be no assurance that the
Company would be able to prevent the unauthorized disclosure or use of the
Company's or its customers' technical knowledge, practices or procedures by such
employee(s), or that such disclosure or use would not have a material adverse
effect on the Company's business, operating results and financial condition. See
"Management."

MANAGEMENT OF GROWTH

The Company is currently experiencing growth and expansion, which has
placed, and will continue to place, a strain on its administrative, operational
and financial resources and increased demands on its systems and controls. This
growth has resulted in a continuing increase in the level of responsibility for
the Company's management personnel. The Company anticipates that its continued
growth will require it to recruit, hire, train and retain a substantial number
of new engineering, managerial, sales and marketing personnel. The Company's
ability to manage its growth successfully will also require the Company to
continue to expand and improve its operational, management and financial systems
and controls on a timely basis. If the Company's

9
<PAGE> 10

management is unable to manage growth effectively, the Company's business,
operating results and financial condition will be materially and adversely
affected. See "Management."

RELIANCE ON THIRD-PARTY SOFTWARE

The Company licenses from third parties certain software development tools
that the Company utilizes in the development of its products and certain
application software that the Company incorporates into its products. Third
parties also license to the Company or its customers certain relational database
software used in conjunction with the Company's products. Accordingly, the
Company is dependent upon such third parties' abilities to deliver quality
products, to correct errors, to support their current products, to develop new
and enhanced products on a timely and cost-effective basis and to respond to
emerging industry standards and other technological changes. Should these
third-party development tools or software products become unavailable, or should
their developers fail to adequately support or enhance them, the Company would
be required to rewrite its products using different development tools or replace
the functionality provided by the third-party software currently used in and
licensed with its products. Although the Company believes that other development
tools and application and database software with comparable functionality are
currently available from other third parties, there can be no assurance that
replacement products could be obtained when needed. In addition, there can be no
assurance that the Company could successfully rewrite its products using
different development tools or that it would not encounter substantial delays in
doing so. The inability to rewrite its products using different development
tools on a timely and cost-effective basis or the loss of, or any significant
delay in the replacement of, the functionality provided by the third-party
software could have a material adverse effect on the Company's business,
operating results and financial condition. See "Business -- Products,"
"-- Proprietary Rights and Licenses" and "-- Product Development."

PROPRIETARY RIGHTS, RISKS OF INFRINGEMENT

The Company's success and ability to compete is dependent in part upon its
proprietary software. The Company relies on a combination of copyright and
trademark laws, trade secrets, confidentiality procedures and contractual
provisions to establish and protect its rights in its software. Despite the
Company's efforts to protect its proprietary rights, unauthorized parties may
attempt to copy, design around or reverse engineer aspects of the Company's
products or to obtain and use information that the Company regards as
proprietary. Furthermore, the Company has no patents, and existing copyright law
affords only limited protection. In addition, the laws of some countries do not
protect the Company's proprietary rights to the same extent as do the laws of
the United States. Accordingly, there can be no assurance that the Company will
be able to protect its proprietary software against unauthorized third party
copying or use, which could adversely affect the Company's competitive position.

There are currently no claims pending against the Company relating to the
infringement of any proprietary rights of third parties. There can be no
assurance, however, that third parties will not claim infringement by the
Company of their intellectual property rights. The Company expects that software
product developers will increasingly be subject to infringement claims as the
number of products and competitors in the Company's industry segment grows and
the functionality of products in different industry segments overlaps. Any such
claims, with or without merit, could be time-consuming to defend, result in
costly litigation, divert management's attention and resources or cause delays
in the delivery or implementation of the Company's products. In addition, such
claims could require the Company to discontinue the use of certain software
codes or processes, cease the manufacture, use and sale of infringing products,
and develop non-infringing technology or to obtain licenses to the alleged
infringing technology. There can be no assurance that the Company would be able
to develop alternative technologies or to obtain such licenses or, if a license
were obtainable, that the terms would be commercially acceptable to the Company.
In the event of a successful claim of product infringement against the Company
and failure or inability of the Company to license the infringed or similar
technology, the Company's business, operating results and financial condition
could be materially and adversely affected. See "Business -- Proprietary Rights
and Licenses."

10
<PAGE> 11

CONTROL BY PRINCIPAL SHAREHOLDERS, OFFICERS AND DIRECTORS

Upon completion of this offering, the Company's principal shareholders,
Kenneth E. deLaski, its President and Chief Executive Officer, and Donald
deLaski, its Chairman, will, in the aggregate, beneficially own approximately
59.2% of the Company's outstanding shares of Common Stock (55.3% if the
Underwriters' overallotment option is exercised in full). As a result, these
shareholders, acting together, would be able to control substantially all
matters requiring approval by the shareholders of the Company including the
election of the Board of Directors and significant corporate transactions. The
control by such shareholders could delay or prevent a change in control of the
Company, impede a merger, consolidation, takeover or other business combination
involving the Company, or discourage a potential acquiror from making a tender
offer or otherwise attempting to obtain control of the Company. See "Principal
and Selling Shareholders."

BROAD MANAGEMENT DISCRETION IN ALLOCATION OF NET PROCEEDS

The primary purposes of this offering are to establish a public market for
the Company's Common Stock, to facilitate the Company's future access to public
equity markets and to obtain additional working capital. The Company intends to
use the net proceeds of this offering for general corporate purposes, including
product development and working capital. The Company may use a portion of the
net proceeds of the offering to acquire or invest in businesses, technologies or
products complementary to the Company's business. As of the date of this
Prospectus, the Company has no other specific plans to use the net proceeds of
this offering. Accordingly, the Company will retain broad discretion to allocate
the net proceeds of this offering. Pending any such uses, the Company plans to
invest the net proceeds in investment-grade, interest-bearing securities. See
"Use of Proceeds."

S CORPORATION NOTES AND S CORPORATION DISTRIBUTION

In connection with the January 1997 distribution of estimated undistributed
taxable S Corporation earnings, the Company issued short-term promissory notes
in the aggregate principal amount of $4.0 million to its current shareholders.
Such notes are payable on or before December 31, 1997. In February 1997, the
Company declared a further dividend to its current shareholders in the amount of
the Company's undistributed taxable earnings at the time of the termination of
the Company's S Corporation status on February 25, 1997, which the Company
currently estimates to be approximately $2.9 million, approximately $1.0 million
of which remains to be distributed. Such amounts will be payable only out of
cash flow from operations, and none of the proceeds of this offering will be
used to pay such short-term notes or such dividend. Nevertheless, the payment of
such amounts to the current shareholders of the Company will reduce the amount
of cash that would otherwise be available to the Company for other corporate
purposes. The actual amount of such undistributed taxable S Corporation earnings
will depend upon a number of factors, including actual cash receipts prior to
the termination of the Company's S Corporation status. Any increase in such
undistributed taxable S Corporation earnings over the amount currently estimated
will increase the amount of the distribution to the Company's current
shareholders. See "Prior S Corporation Status."

NO PRIOR PUBLIC MARKET; POSSIBLE VOLATILITY OF STOCK PRICE

Prior to this offering, there has been no public market for the Company's
Common Stock, and there can be no assurance that an active trading market will
develop or be sustained after this offering. The initial public offering price
has been determined through negotiations among the Company, the Selling
Shareholders and the Representatives of the Underwriters and may not be
indicative of the market price of the Common Stock after this offering. The
trading price of the 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 stocks of
technology companies. These broad market fluctuations, as well as shortfalls in
sales or earnings as compared with public market analysts' expectations, changes
in such

11
<PAGE> 12

analysts' recommendations or projections and general economic and market
conditions, may materially and adversely affect the market price of the
Company's Common Stock. See "Underwriting."

IMMEDIATE AND SUBSTANTIAL DILUTION TO NEW INVESTORS

Purchasers of the Common Stock offered hereby will incur immediate,
substantial dilution in net tangible book value of $9.88 per share. To the
extent outstanding options to purchase the Company's Common Stock are exercised,
there will be further dilution to the new public investors. See "Dilution."

POTENTIAL ISSUANCE OF PREFERRED STOCK; ANTI-TAKEOVER PROVISIONS

The Board of Directors has the authority, without further action by the
shareholders, to issue up to 2,000,000 shares of Preferred Stock and to fix the
rights, preferences, privileges and restrictions, including voting rights, of
such shares. The rights of the holders of the Common Stock will be subject to,
and may be adversely affected by, the rights of the holders of any Preferred
Stock that may be issued in the future. The issuance of the Preferred Stock
could have the effect of making it more difficult for a third party to acquire a
majority of the outstanding voting stock of the Company, thereby delaying,
deferring or preventing a change in control of the Company. Furthermore, such
Preferred Stock may have other rights, including economic rights, senior to the
Common Stock, and as a result, the issuance of such stock could have a material
adverse effect on the market value of the Common Stock. The Company has no
present plans to issue shares of Preferred Stock. The Company may in the future
adopt other measures that may have the effect of delaying, deferring or
preventing a change in control of the Company. Certain of such measures may be
adopted without any further vote or action by the shareholders, although the
Company has no present plans to adopt any such measures. The Company is also
afforded the protections of certain provisions of the Virginia Stock Corporation
Act, which could delay or prevent a change in control of the Company, impede a
merger, consolidation or other business combination involving the Company or
discourage a potential acquiror from making a tender offer or otherwise
attempting to obtain control of the Company. See "Description of Capital
Stock -- Preferred Stock" and "Description of Capital Stock -- Anti-Takeover
Effects of Virginia Law and Articles of Incorporation."

SHARES ELIGIBLE FOR FUTURE SALE

Sales of substantial amounts of the Company's Common Stock in the public
market after this offering could adversely affect prevailing market prices for
the Common Stock. Upon completion of this offering, the Company will have
outstanding 16,867,250 shares of Common Stock. Of these shares, the 2,900,000
shares offered hereby will be freely tradeable without restriction in the public
market. Taking into account restrictions
imposed by the Securities Act of 1933, as amended (the "Securities Act"), rules
promulgated by the Securities and Exchange Commission thereunder and "lock-up"
agreements between certain shareholders and the Underwriters, (i) approximately
170,250 additional shares will be eligible for immediate sale as of the date of
this Prospectus, (ii) approximately 93,000 additional shares will be eligible
for sale beginning 90 days after the date of this Prospectus, and (iii)
approximately 13,279,500 additional shares will be eligible for sale beginning
180 days after the date of this Prospectus. Montgomery Securities may, in its
sole discretion and at any time without notice, release all or any portion of
the shares subject to such lock-up agreements. In addition, the Company intends
to file registration statements on Form S-8 under the Securities Act
approximately 90 days after the date of this Prospectus to register an aggregate
of 1,300,000 shares of Common Stock issued or reserved for issuance under its
1996 Stock Option Plan and its 1996 Employee Stock Purchase Plan. See "Shares
Eligible for Future Sale."

12
<PAGE> 13

PRIOR S CORPORATION STATUS

Since 1987, the Company has elected to be treated for federal and certain
state income tax purposes as an S Corporation under Subchapter S of the Internal
Revenue Code of 1986 (the "Code"). As a result, the Company's earnings for prior
tax years and through February 24, 1996 have been taxed, with certain
exceptions, for federal and certain state income tax purposes directly to the
Company's shareholders, rather than to the Company. On February 25, 1997 (the
"Termination Date"), the Company terminated its S Corporation status. The
Company and the current shareholders have entered into an agreement which
provides for income taxes attributable to periods prior to the Termination Date
to be borne by the current shareholders and for income taxes attributable to
periods beginning on and after the Termination Date to be borne by the Company.
See "Certain Transactions."

Shareholder Distributions. Since its election to be treated as an S
Corporation, the Company has made quarterly cash distributions to its
shareholders. During 1994, 1995 and 1996, the Company declared cash dividends
totalling $7.2 million, $8.0 million and $9.3 million, respectively. In January
1997, the Company declared a dividend of $10.0 million, of which $6.0 million
was paid in cash and $4.0 million was paid by the issuance of short-term notes
(the "S Corporation Notes"). The S Corporation Notes bear interest at the rate
of 5.63% per annum and are payable on or before December 31, 1997 out of cash
flow from operations. To the extent that such cash flow is not adequate to fund
such payment, any remaining balance shall be payable thereafter as and when cash
flow from operations permits. In February 1997, the Company declared a further
dividend payable to its current shareholders in the amount of all undistributed
taxable S Corporation earnings accruing through the Termination Date (the "S
Corporation Distribution"). At December 31, 1996, undistributed previously taxed
S Corporation earnings were estimated at $9.1 million, all of which was
distributed as a part of the January 1997 dividend. The Company currently
estimates that additional taxable S Corporation earnings accruing between
January 1, 1997 and the Termination Date totalled approximately $2.9 million, of
which $900,000 was covered by the January dividend and an additional $1.0
million was paid in cash prior to the date of this Prospectus, leaving a balance
of approximately $1.0 million to be distributed in the S Corporation
Distribution, which will be paid out of cash flow from operations. The actual
amount of such undistributed taxable S Corporation earnings will depend upon a
number of factors, including actual cash receipts and payments prior to the
Termination Date. Any increase in such undistributed taxable S Corporation
earnings over the amount currently estimated will increase the amount of the S
Corporation Distribution. None of the proceeds from this offering will be used
to pay the S Corporation Notes or the S Corporation Distribution. See "Certain
Transactions."

Accounting Effect. The termination of the Company's S Corporation status on
the Termination Date resulted in a deferred tax liability which will be recorded
as a non-recurring charge. Had the Company terminated its S Corporation status
as of December 31, 1996, the deferred tax liability and related charge would not
have been material. The amount of the actual deferred tax liability and related
charge will depend upon a number of factors, including factors affecting
revenues and related accounts receivable and the amounts and timing of payments
of various operating expenses. There can be no assurance that the actual amount
of the deferred tax liability charge will not be material or that the related
charge will not have a material adverse effect on the Company's net income for
the first quarter of 1997 or for the full year. See "Use of Proceeds" and Note 1
of Notes to Financial Statements.

13
<PAGE> 14

USE OF PROCEEDS

The net proceeds to the Company from the sale of the 1,700,000 shares of
Common Stock offered by the Company hereby are estimated to be approximately
$16.6 million (after deducting the underwriting discount and estimated offering
expenses). The principal purposes of this offering are to establish a public
market for the Company's Common Stock, to facilitate future access by the
Company to public equity markets and to obtain additional working capital. The
Company will not receive any proceeds from the sale of the shares by the Selling
Shareholders.

The Company intends to use the net proceeds for general corporate purposes,
including product development and working capital. The Company may use a portion
of the net proceeds to acquire or invest in businesses, technologies or products
complementary to the Company's business. The Company has no present
understandings, commitments or agreements with respect to any such transaction
nor is it currently engaged in any discussions or negotiations with respect to
any such transaction. Pending such uses, the Company intends to invest the net
proceeds from the offering in investment-grade, interest-bearing securities.

DIVIDEND POLICY

As an S Corporation, the Company has historically made substantial cash
distributions to its shareholders and intends to make additional distributions
to its current shareholders in connection with the termination of the Company's
S Corporation status. Following the termination of the Company's S Corporation
status, the Company intends to repay the S Corporation Notes, in the aggregate
principal amount of $4.0 million, and to pay the balance of the S Corporation
Distribution, in the aggregate amount of approximately $1.0 million,
representing undistributed taxable earnings accruing through the Termination
Date. See "Prior S Corporation Status." Thereafter, the Company intends to
retain future earnings, if any, to finance the development and expansion of its
business and, therefore, does not anticipate paying any further cash dividends
on its Common Stock in the foreseeable future. The decision whether to pay
dividends will be made by the Board of Directors of the Company, from time to
time, in light of conditions then existing, including, among other things, the
Company's results of operations, financial condition and requirements, business
conditions and such other factors as the Board of Directors deems relevant.

14
<PAGE> 15

CAPITALIZATION

The following table sets forth, as of December 31, 1996, the short-term
debt and capitalization of the Company on an actual and pro forma basis.

<TABLE>
<CAPTION>
DECEMBER 31, 1996
--------------------------
PRO FORMA
ACTUAL AS ADJUSTED(1)
------- --------------
(IN THOUSANDS,
EXCEPT SHARE DATA)
<S> <C> <C>
Short-term notes payable to shareholders............................ $ -- $ 4,000
====== ======
Shareholders' equity:

Preferred Stock, $0.001 par value per share; 2,000,000 shares
authorized, none issued and outstanding, actual and pro forma
as adjusted.................................................... $ -- $ --
Common Stock, $0.001 par value per share; 45,000,000 shares
authorized, 15,167,250 shares issued and outstanding, actual;
45,000,000 shares authorized, 16,867,250 shares issued and
outstanding, pro forma
as adjusted(2)................................................. 15 17
Paid-in capital................................................... 2,226 18,815
Retained earnings................................................. 9,965 865
Less unearned compensation(3)..................................... 720 720
------ ------
Total shareholders' equity..................................... 11,486 18,977
------ ------
Total capitalization...................................... $11,486 $ 18,977
====== ======
</TABLE>

- ---------------

(1) Gives pro forma effect to (i) a distribution of $9.1 million to the
Company's current shareholders, representing the estimated undistributed
previously taxed S Corporation earnings as of December 31, 1996, $4.0
million of which is represented by short-term notes and $5.1 million of
which is reflected as accrued dividends payable, and (ii) the sale of the
1,700,000 shares of Common Stock offered by the Company hereby (after
deducting the underwriting discount and estimated offering expenses). The
deferred tax liability that would have been recorded if the Company had
terminated its S Corporation status at December 31, 1996 would not have been
material. See "Prior S Corporation Status" and Note 1 of Notes to Financial
Statements.

(2) Excludes (i) 1,959,000 shares reserved for issuance under the Company's
stock option plans, of which 1,059,000 shares were subject to outstanding
options as of December 31, 1996, at a weighted average exercise price of
$2.71 per share, and 109,000 additional shares are subject to options
granted between January 1, 1997 and the date of this Prospectus, at an
exercise price of $11.00 per share; and (ii) 400,000 shares reserved for
issuance under the Company's 1996 Employee Stock Purchase Plan. See
"Management -- Stock Plans" and Note 7 of Notes to Financial Statements.

(3) Represents the difference between the exercise price of certain outstanding
unvested options and the appraised market value of the underlying stock,
which will be recorded as compensation charges, as such options vest through
December 31, 1998.

15
<PAGE> 16

DILUTION

The net tangible book value of the Company as of December 31, 1996 was
$11.4 million, or $0.75 per share of Common Stock. Net tangible book value per
share (total tangible assets less total liabilities) is determined by dividing
the net tangible book value of the Company by the number of shares of Common
Stock outstanding at that date. After giving pro forma effect to (i) the sale of
the 1,700,000 shares of Common Stock offered by the Company hereby (after
deducting the underwriting discount and estimated offering expenses) and (ii)
the distribution of $9.1 million to the Company's current shareholders
(representing the estimated undistributed previously taxed S Corporation
earnings as of December 31, 1996), the pro forma net tangible book value of the
Company as of December 31, 1996 would have been $18.9 million, or $1.12 per
share, representing an immediate increase in such net tangible book value of
$0.97 per share to existing shareholders and an immediate dilution of $9.88 per
share to the new public investors. The following table illustrates this per
share dilution:

<TABLE>
<S> <C> <C>
Initial public offering price per share............................... $11.00
Net tangible book value per share as of December 31, 1996........... $0.75
Decrease attributable to distribution of previously taxed S
Corporation earnings............................................. (0.60)
Increase in net tangible book value attributable to new public
investors........................................................ 0.97
-----
Pro forma net tangible book value per share after the offering........ 1.12
------
Dilution per share to new public investors............................ $ 9.88
------
</TABLE>

The following table summarizes, on a pro forma basis as of December 31,
1996, the differences between the number of shares of Common Stock purchased
from the Company, the total consideration paid and the average price per share
paid by existing shareholders and by the new public investors purchasing shares
of Common Stock in this offering (before deducting the underwriting discount and
estimated offering expenses):

<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
-------------------- --------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing shareholders(1)......... 15,167,250 89.9% $ 97,000 0.5% $ 0.01
New investors(1)................. 1,700,000 10.1 18,700,000 99.5 11.00
---------- ----- ----------- ---
Total.................. 16,867,250 100.0% $18,797,000 100.0%
========== ===== =========== ===
</TABLE>

- ---------------

(1) Sales by the Selling Shareholders in this offering will reduce the number of
shares held by existing shareholders to 13,967,250 or 82.8% of the total
number of shares of Common Stock to be outstanding after this offering, and
will increase the number of shares to be purchased by the new public
investors to 2,900,000 or 17.2% of the total number of shares of Common
Stock to be outstanding after the offering. See "Principal and Selling
Shareholders."

The foregoing tables assume no exercise of stock options after December 31,
1996. As of December 31, 1996, there were outstanding options to purchase an
aggregate of 1,059,000 shares of Common Stock under the Company's stock option
plans, at a weighted average exercise price of $2.71 per share. Options to
purchase an additional 109,000 shares of Common Stock, at an exercise price of
$11.00 per share, were granted between January 1, 1997 and the date of this
Prospectus. To the extent these options are exercised, there will be further
dilution to the new public investors. See "Capitalization," "Management -- Stock
Plans" and Note 7 of Notes to Financial Statements.

16
<PAGE> 17

SELECTED FINANCIAL DATA

The following selected financial data should be read in conjunction with
the financial statements and the notes thereto included elsewhere herein. The
statement of operations data set forth below with respect to the years ended
December 31, 1994, 1995 and 1996 and the balance sheet data as of December 31,
1995 and 1996 are derived from, and are qualified by reference to, the audited
financial statements of the Company included elsewhere in this Prospectus. The
statement of operations data set forth below with respect to the years ended
December 31, 1992 and 1993 and the balance sheet data as of December 31, 1992,
1993 and 1994 are derived from audited financial statements not included in this
Prospectus. The pro forma statement of operations data set forth below do not
purport to be indicative of the results of operations that would have occurred
had the termination of the Company's S Corporation status occurred at December
31, 1991. See "Prior S Corporation Status."

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------
1992 1993 1994 1995 1996(1)
------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
License fees.......................................................... $ 7,176 $ 7,551 $ 7,360 $ 9,720 $12,545
Services.............................................................. 8,820 10,093 12,545 15,154 20,362
Third-party equipment and software.................................... 1,798 1,773 1,451 1,975 1,873
------- ------- ------- ------- -------
Total revenues.................................................. 17,794 19,417 21,356 26,849 34,780
------- ------- ------- ------- -------
Operating Expenses:
Cost of software...................................................... 660 665 766 893 1,318
Cost of services...................................................... 3,579 3,611 4,171 5,151 8,043
Cost of third-party equipment and software............................ 1,341 1,298 1,054 1,580 1,536
Software development.................................................. 3,344 3,931 3,877 4,934 6,674
Sales and marketing................................................... 1,518 1,538 1,852 2,743 3,460
General and administrative............................................ 1,293 1,285 1,593 1,875 2,283
Stock option compensation............................................. -- -- -- -- 867
Purchased in-process research and development......................... -- -- -- -- 394
------- ------- ------- ------- -------
Total operating expenses........................................ 11,735 12,328 13,313 17,176 24,575
------- ------- ------- ------- -------
Income from operations.................................................. 6,059 7,089 8,043 9,673 10,205
Interest income......................................................... 240 242 257 393 382
------- ------- ------- ------- -------
Income before state income taxes........................................ 6,299 7,331 8,300 10,066 10,587
Provision for state income taxes........................................ 59 51 65 45 93
------- ------- ------- ------- -------
Net income.............................................................. $ 6,240 $ 7,280 $ 8,235 $10,021 $10,494
======= ======= ======= ======= =======
PRO FORMA STATEMENT OF OPERATIONS DATA (UNAUDITED)(2):
Income tax provision.................................................... $ 2,395 $ 2,787 $ 3,156 $ 3,827 $ 4,131
Net income.............................................................. 3,904 4,544 5,144 6,239 6,456
Net income per share(3)................................................. $ 0.25 $ 0.29 $ 0.33 $ 0.40 $ 0.41
Weighted average shares outstanding(3).................................. 15,485 15,424 15,368 15,552 15,560
</TABLE>

<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------------
1992 1993 1994 1995 1996
------ ------ ------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and marketable securities.......................... $4,250 $3,364 $ 3,915 $ 7,521 $ 8,333
Working capital........................................................... 4,672 4,115 4,024 5,003 6,879
Total assets.............................................................. 8,321 8,483 11,506 18,083 20,202
Total shareholders' equity................................................ 6,017 5,765 6,803 8,849 11,486
Cash dividends declared................................................... 6,033 6,647 7,186 8,011 9,265
</TABLE>

- ---------------

(1) Exclusive of the non-recurring, non-cash charges for stock option
compensation and purchased in-process research and development, income from
operations, net income, pro forma net income and pro forma net income per
share would have been $11.5 million, $11.8 million, $7.2 million and $0.46,
respectively. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and Notes 2 and 7 of Notes to Financial
Statements.

(2) For all periods indicated, the Company elected to be treated as an S
Corporation and was not subject to federal and certain state income taxes.
The pro forma statement of operations data reflects federal and state income
taxes based on applicable tax rates as if the Company had not elected S
Corporation status for the periods indicated. See "Prior S Corporation
Status" and Note 1 of Notes to Financial Statements.

(3) See Note 1 of Notes to Financial Statements for a description of the
computation of weighted average shares outstanding and pro forma income per
share.

17
<PAGE> 18

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

The following Management's Discussion and Analysis of Financial Condition
and Results of Operations includes forward-looking statements with respect to
the Company's future financial performance. These forward-looking statements are
subject to various risks and uncertainties, including the factors described
under "Risk Factors" and elsewhere in this Prospectus, that could cause actual
results to differ materially from historical results or those currently
anticipated.

OVERVIEW

Deltek designs, develops, sells and supports a family of integrated
software products that provide project-oriented businesses with tools to more
effectively manage, operate and grow their operations. From 1985 through 1994,
substantially all of the Company's revenues were derived from licenses of its
DOS-based System 1 business software, designed specifically for use by
organizations having contracts with the federal government, and services related
to the implementation, support and maintenance of System 1. As of December 31,
1996, approximately 1,500 project-oriented organizations were using System 1 as
their primary accounting system. In 1992, the Company began development of its
current flagship product, Costpoint, which was commercially released in June
1995. Costpoint is a client/server-based, enterprise-level business software
system, consisting of over 25 integrated module applications which span
financial accounting, project accounting, human resource and payroll
administration, materials management and reporting. Through December 31, 1996,
the Company had licensed approximately 220 Costpoint systems that had been
implemented or were in the process of being implemented. Deltek also provides a
full range of consulting and maintenance services to assist its customers with
system implementation and integration and to provide training and ongoing
support for the Company's software products.

The Company's revenues consist of fees derived from the licensing of its
software products, service revenues from consulting and support services, and
revenue from the resale of third-party equipment and the sublicensing of
third-party software. The Company typically grants its customers the right to
return its software products for a refund of the license fee during a refund
period which is generally 60 to 90 days from the date of the license agreement,
although the Company occasionally has provided, and may in the future provide,
longer refund periods for larger, more complex Costpoint installations. The
Company recognizes license fees from its System 1 and Electronic Timesheet
products upon delivery, whereas Costpoint license fees are recognized upon the
expiration of the applicable refund period and are recorded as deferred revenue
until recognized. Because of its customers' refund rights and the varying length
of applicable refund periods, deferred revenue at the end of a quarter does not
necessarily reflect revenue which the Company will recognize in the succeeding
quarter. Licensing of the Company's software results in revenues from related
consulting services and ongoing support. Implementation and other consulting
services are provided on a time and materials basis, billed monthly or
semi-monthly and recognized as the services are performed. Telephone support and
periodic enhancements and updates are provided for maintenance fees that are
payable quarterly and initially represent between 15% and 20% of the related
software license fee on an annual basis. Revenue from quarterly maintenance and
support service is recognized over the term of the support. Revenue from
third-party equipment and software is derived from the resale and sublicensing
of third-party hardware and software products in connection with the license and
installation of the Company's systems and is generally recognized on delivery.
The Company derives substantially greater profit margins from license fees than
from service revenues or from third-party equipment and software. The mix of
revenues among the three components can fluctuate materially from quarter to
quarter, and such fluctuations can have a significant effect on margins. Over
the past five years, the percentage of the Company's total revenues represented
by service revenues has increased, although such percentage has remained
relatively stable over the past three years. Should lower margin service
revenues or revenues from third-party equipment and software increase in the
future as a percentage of total revenues, the Company's margins and income from
operations could be adversely affected.

During 1994 and 1995, the Company capitalized a greater amount of its
software development expenses than it had in previous years due to the
development of Costpoint. Upon the commercial release of Costpoint

18
<PAGE> 19

in June, 1995, the Company ceased capitalizing costs related to the development
of core Costpoint modules and began amortizing previously capitalized costs
related to such development. Since June, 1995, the Company has only capitalized
software development costs related to the development of new Costpoint modules
and Web E.T.

In June 1996, the Company amended its 1987 Employee Stock Option Plan to
change the exercise price of future options to be granted thereunder from a
formula price based on book value to the fair market value of the underlying
Common Stock. As a result, the Company recorded a non-recurring, non-cash charge
to operations in the amount of $867,000, representing the aggregate difference
between the exercise price of outstanding vested options and the appraised
market value of the underlying Common Stock at June 30, 1996. Additional
compensation charges of $113,000 were recorded during the six months ended
December 31, 1996, and up to an additional $468,000 of such charges will be
recorded through December 31, 1998, as outstanding options continue to vest
under this plan. See Note 7 of Notes to Financial Statements.

In September 1996, the Company acquired substantially all of the assets of
The Allegro Group, Inc. in exchange for 102,000 shares of the Company's Common
Stock. A portion of the acquired assets represented research and development
that was in process at the time of the acquisition. The Company is performing
additional development work to integrate the Allegro product with the Costpoint
product line. The Company allocated $394,000 to this in-process research and
development, resulting in a non-recurring, non-cash charge to operations in the
third quarter of 1996. See Note 2 of Notes to Financial Statements.

Since 1987, the Company has elected to be treated for federal and certain
state income tax purposes as an S Corporation under Subchapter S of the Code. As
a result, the Company's earnings for prior tax years and through February 24,
1997 have been taxed, with certain exceptions, for federal and certain state
income tax purposes directly to the Company's shareholders rather than to the
Company. The Company and the current shareholders have entered into an agreement
which provides for income taxes attributable to periods prior to the Termination
Date to be borne by the current shareholders and for income taxes attributable
to periods beginning on and after the Termination Date to be borne by the
Company. See "Certain Transactions." In connection with the distribution of
previously taxed S Corporation earnings, the Company will pay the balance of the
S Corporation Distribution in an aggregate amount of approximately $1.0 million
and pay the S Corporation Notes in the aggregate principal amounts of $4.0
million. The S Corporation Distribution and the S Corporation Notes will be
payable only out of cash flow from operations. None of the proceeds of this
offering will be used to pay the S Corporation Distribution or the S Corporation
Notes. The termination of the Company's S Corporation status on the Termination
Date resulted in a deferred tax liability which will be recorded as a
non-recurring charge. Had the Company terminated its S Corporation status as of
December 31, 1996, the deferred tax liability and related charge would not have
been material. The amount of the actual deferred tax liability and related
charge will depend upon a number of factors, including factors affecting
revenues and related accounts receivable and the amounts and timing of payments
of various operating expenses. There can be no assurance that such charge will
not be material or that the related charge will not have a material adverse
affect on the Company's net income for the first quarter of 1997 or for the full
year. See "Prior S Corporation Status."

19
<PAGE> 20

RESULTS OF OPERATIONS

The following table sets forth certain historical and pro forma statements
of operations data as a percentage of total revenues for the periods indicated:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1994 1995 1996(1)
----- ----- -----
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
License fees...................................................... 34.5% 36.2% 36.1%
Services.......................................................... 58.7 56.4 58.5
Third-party equipment and software................................ 6.8 7.4 5.4
----- ----- -----
Total revenues............................................ 100.0 100.0 100.0
----- ----- -----
Operating Expenses:
Cost of software.................................................. 3.6 3.3 3.8
Cost of services.................................................. 19.5 19.2 23.1
Cost of third-party equipment and software........................ 4.9 5.9 4.4
Software development.............................................. 18.2 18.4 19.2
Sales and marketing............................................... 8.7 10.2 9.9
General and administrative........................................ 7.4 7.0 6.7
Stock option compensation......................................... -- -- 2.5
Purchased in-process research and development..................... -- -- 1.1
----- ----- -----
Total operating expenses.................................. 62.3 64.0 70.7
----- ----- -----
Income from operations.............................................. 37.7 36.0 29.3
Interest income..................................................... 1.2 1.5 1.1
----- ----- -----
Income before state income taxes.................................... 38.9 37.5 30.4
Provision for state income taxes.................................... 0.3 0.2 0.3
----- ----- -----
Net income.......................................................... 38.6% 37.3% 30.1%
===== ===== =====
PRO FORMA STATEMENT OF OPERATIONS DATA:
Income tax provision................................................ 14.8% 14.3% 11.8%
Net income.......................................................... 24.1 23.2 18.6
</TABLE>

- ---------------

(1) Exclusive of the non-recurring charges for stock option compensation and
purchased in-process research and development, income from operations, net
income and pro forma net income would have been 33.0%, 33.8% and 20.8%,
respectively, of total revenues.

YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995

License Fees. License fees for 1996 increased by 29.1% to $12.5 million
from $9.7 million for 1995. License fees comprised 36.1% of the Company's total
revenues for 1996, compared to 36.2% for 1995. The increase in license fees was
principally attributable to Costpoint which was commercially released in June
1995. Costpoint license fees increased by 86.4% to $7.7 million for 1996 from
$4.1 million for 1995, reflecting increases in the number of modules licensed
and the average size of new system installations, offset somewhat by discounts
granted to System 1 users migrating to Costpoint systems. The increase in
Costpoint license fees was partially offset by a 21.5% decrease in license fees
for System 1 products to $3.8 million from $4.8 million in 1995, as both the
number of systems licensed and the average system size declined. License fees
for Electronic Timesheet increased by 21.5% to $1.0 million from $833,000 in
1995.

Services. Service revenues for 1996 increased by 34.4% to $20.4 million
from $15.2 million for 1995. Service revenues comprised 58.5% of the Company's
total revenues in 1996, compared to 56.4% for 1995. The increase in service
revenues was principally attributable to increased consulting services related
to new implementations of Costpoint systems. Consulting service revenues
increased by 82.3% to $5.7 million for 1996 from $3.1 million for 1995.
Maintenance, support and other service revenues increased by 21.2% to

20
<PAGE> 21

$14.7 million from $12.1 million, principally as a result of the addition of new
customers and the sale of additional software products to existing customers
and, to a lesser extent, increases in service rates.

Third-Party Equipment and Software. Revenue from third-party equipment and
software for 1996 decreased by 5.2% to $1.9 million from $2.0 million for 1995.
Revenue from third-party equipment and software comprised 5.4% of the Company's
total revenues in 1996, compared to 7.4% in 1995. This decline was due to the
increases in license fees and service revenues in 1996.

Cost of Software. Cost of software is comprised primarily of royalties and
maintenance payments to third parties, amortization of software development
costs, and the cost of production and distribution of software and user manuals.
Cost of software for 1996 increased by 45.6% to $1.3 million from $893,000 for
1995. This increase was attributable to increased amortization and to increased
sales of Costpoint resulting in higher royalty and maintenance payments to third
parties. Amortization of software development for 1996, increased to $579,000
from $276,000 for 1995. This increase reflects 12 full months of amortization of
Costpoint software development costs during 1996, compared to four months in
1995.

Cost of Services. Cost of services is comprised primarily of personnel
costs for implementation and consulting services, user training and ongoing
maintenance and support. Cost of services for 1996 increased by 56.1% to $8.0
million from $5.2 million for 1995. The increase in cost of services was
primarily due to increases in personnel costs to support the Costpoint product
line. In addition, reimbursed travel expenses increased by $609,000 from the
prior year due primarily to consulting activity related to Costpoint
implementations. Costs for 1996 also included $283,000 related to the Company's
national user conference in April 1996. Cost of services represented 39.5% and
34.0% of service revenues for 1996 and 1995, respectively. The increase in cost
of services as a percentage of service revenues reflected the Company's
investment in the initial implementations of Costpoint systems by providing
consulting services to a number of customers at reduced fees or no charge and
also reflected the increased reimbursed travel expenses which were billed with
no mark-up and the national user conference for which customer billings
approximated cost.

Cost of Third-Party Equipment and Software. Cost of third-party equipment
and software consists of the purchased costs of computer and peripheral
equipment and license fees and royalties for third-party software. Costs of
third-party equipment and software for 1996 decreased by 2.8% to $1.5 million
from $1.6 million for 1995. Cost of third-party equipment and software products
represented 82.0% and 80.0% of revenue from third-party equipment and software
for 1996 and 1995, respectively. The increase in these costs as a percentage of
related revenue was the result of several large sales of third-party equipment
at volume discounts in connection with complex Costpoint implementations
performed in early 1996.

Software Development. Software development costs consist primarily of the
personnel costs of analysts and programmers to research, develop, support and
maintain the Company's existing software product lines, enhance existing
products and develop new products. Software development costs for 1996 increased
by 35.3% to $6.7 million from $4.9 million for 1995. This increase was due
primarily to increased personnel costs and related benefits and facilities
costs, and a decline in capitalized software production costs, which occurred
after the commercial release of Costpoint in June 1995. Software development
costs represented 18.4% and 19.2% of total revenues for 1995 and 1996,
respectively.

Sales and Marketing. Sales and marketing expenses consist primarily of the
personnel costs of the Company's sales and marketing organizations as well as
the costs of advertising, direct mail and other sales and marketing activities.
Sales and marketing expenses for 1996 increased by 26.1% to $3.5 million from
$2.7 million for 1995. This increase was due primarily to increased personnel,
advertising and trade show expenses. Sales and marketing expenses represented
9.9% of the Company's total revenues for 1996, compared to 10.2% for 1995.

General and Administrative. General and administrative expenses consist
primarily of the personnel costs of the Company's management, administrative and
finance staffs as well as the costs of insurance programs, bad debt expenses,
professional fees and other infrastructure costs. General and administrative
expenses for 1996 increased by 21.8% to $2.3 million from $1.9 million for 1995.
This increase was due primarily to a $245,000 increase in bad debt expense as a
result of the insolvency of a new customer. General and administrative expenses
represented 6.7% of the Company's total revenues for 1996, compared to 7.0% for
1995.

21
<PAGE> 22

Stock Option Compensation. In June 1996, the Company recorded a
non-recurring charge to operations in the amount of $867,000 relating to stock
option compensation. See "-- Overview."

Purchased In-Process Research and Development. In September 1996, the
Company recorded a non-recurring charge of $394,000 representing the value of
in-process research and development acquired in connection with its acquisition
of The Allegro Group, Inc. See "-- Overview."

Interest Income. Interest income results from investments and, to a lesser
extent, from installment financing. Interest income for 1996 decreased by 2.8%
to $382,000 from $393,000 for 1995. The reduction was due to lower average cash
balances related to the timing and amount of S Corporation dividend
distributions.

Pro Forma Income Tax Provision. The Company's pro forma effective tax rate
for 1996 was 39.0%, compared to 38.0% for 1995.

YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994

License Fees. License fees for 1995 increased by 32.1% to $9.7 million from
$7.4 million for 1994. License fees comprised 36.2% of the Company's total
revenues for 1995, compared to 34.5% for 1994. The increase in license fees was
principally attributable to Costpoint, which was commercially released in June
1995 and accounted for license fees of $4.1 million in 1995. The increase
attributable to Costpoint license fees was partially offset by a 30.2% decrease
in license fees for System 1 products to $4.8 million from $6.9 million.

Services. Service revenues for 1995 increased by 20.8% to $15.2 million
from $12.5 million for 1994. Service revenues comprised 56.4% of the Company's
total revenues in 1995, compared to 58.7% for 1994. The increase in service
revenues was principally attributable to increased consulting services related
to new implementations of Costpoint systems. Consulting service revenues
increased by 89.9% to $3.1 million for 1995 from $1.6 million for 1994.
Maintenance, support and other service revenues increased by 10.1% to $12.1
million from $10.9 million principally as a result of the addition of new
customers and the sale of additional software products to existing customers
and, to a lesser extent, increases in service rates.

Third-Party Equipment and Software. Revenue from third-party equipment and
software for 1995 increased by 36.1% to $2.0 million from $1.5 million for 1994.
Revenue from third-party equipment and software comprised 7.4% of the Company's
total revenues in 1995, compared to 6.8% in 1994.

Cost of Software. Cost of software for 1995 increased by 16.6% to $893,000
from $766,000 for 1994. This increase was attributable to sales of Costpoint,
which was commercially released in June 1995 and resulted in higher royalty and
maintenance payments to third parties, and was partially offset by a decrease in
amortization of software development to $276,000 from $406,000 in 1994. Due to
the decline in sales of the System 1 product line, the Company accelerated the
amortization of all remaining System 1 software development costs in 1994.
Amortization of Costpoint software development costs did not begin until after
the commercial release of Costpoint in June 1995.

Cost of Services. Cost of services for 1995 increased by 23.5% to $5.2
million from $4.2 million in 1994. The increase in cost of services was
primarily due to increases in personnel costs to support the Costpoint product
line. In addition, reimbursed travel expenses increased by $242,000 from 1994
due primarily to consulting activity related to Costpoint implementations. These
increases were offset in part by $236,000 in costs related to the Company's
national user conference in September 1994. Cost of services represented 34.0%
and 33.2% of service revenues for 1995 and 1994, respectively.

Cost of Third-Party Equipment and Software. Cost of third-party equipment
and software for 1995 increased by 49.9% to $1.6 million from $1.1 million for
1994. Cost of third-party equipment and software products represented 80.0% and
72.6% of revenue from third-party equipment and software for 1995 and 1994,
respectively. The increase in these costs as a percentage of related revenue was
the result of several large sales of third-party equipment at volume discounts
in connection with complex Costpoint installations.

Software Development. Software development costs for 1995 increased by
27.3% to $4.9 million from $3.9 million for 1994. This increase was due
primarily to increased personnel costs and related benefits and facilities
costs, and a decline in capitalized software production costs, which occurred
after the commercial

22
<PAGE> 23

release of Costpoint in June 1995. Software development costs represented 18.4%
and 18.2% of the Company's total revenues in 1995 and 1994, respectively.

Sales and Marketing. Sales and marketing expenses for 1995 increased by
48.1% to $2.7 million from $1.9 million in 1994. This increase was due primarily
to increased personnel, advertising and marketing expenses related to the
introduction of Costpoint. Sales and marketing expenses represented 10.2% of the
Company's total revenues for 1995, compared to 8.7% for 1994.

General and Administrative. General and administrative expenses for 1995
increased by 17.7% to $1.9 million from $1.6 million for 1994. General and
administrative expenses represented 7.0% of the Company's total revenues for
1995, compared to 7.4% for 1994, as the Company was able to leverage its fixed
expenses over increased revenues.

Interest Income. Interest income for 1995 increased by 52.9% to $393,000
from $257,000 for 1994. The increase was due primarily to larger average cash
balances attributable to increased profits and the timing and amount of S
Corporation dividend distributions.

Pro Forma Income Tax Provision. The Company's pro forma effective tax rate
was 38.0% for both 1995 and 1994.

QUARTERLY RESULTS OF OPERATIONS

The following tables set forth certain unaudited historical and pro forma
statement of operations data for the eight quarters ended December 31, 1996, and
such data expressed as a percentage of total revenues for such quarters. This
data has been derived from the Company's unaudited quarterly financial
statements. In management's opinion these quarterly financial statements have
been prepared on a basis consistent with the audited financial statement
contained elsewhere herein, and include all adjustments, consisting only of
normal recurring adjustments, which the Company considers necessary for a fair
presentation of the information presented, when read in conjunction with the
Company's audited financial statements and notes thereto appearing elsewhere in
the Prospectus.

<TABLE>
<CAPTION>
QUARTER ENDED
---------------------------------------------------------------------------------------
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31,
1995 1995 1995 1995 1996 1996 1996 1996
-------- -------- --------- -------- -------- -------- --------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
License fees.......................... $1,582 $1,749 $ 2,733 $3,656 $2,880 $2,325 $ 3,217 $ 4,123
Services.............................. 3,531 3,648 3,684 4,291 4,363 4,951 5,234 5,814
Third-party equipment and software.... 695 344 552 384 358 291 752 472
------ ------ ------ ------ ------ ------ ------ -------
Total revenues.................. 5,808 5,741 6,969 8,331 7,601 7,567 9,203 10,409
------ ------ ------ ------ ------ ------ ------ -------
Operating Expenses:
Cost of software...................... 112 180 292 309 364 347 336 271
Cost of services...................... 1,170 1,144 1,156 1,681 1,885 2,216 1,894 2,048
Cost of third-party equipment and
software............................ 539 278 430 333 271 238 638 389
Software development.................. 933 1,045 1,458 1,498 1,440 1,486 1,732 2,016
Sales and marketing................... 603 671 721 748 783 806 878 993
General and administrative............ 413 386 538 538 516 626 579 562
Stock option compensation............. -- -- -- -- -- 867 -- --
Purchased in-process research and
development......................... -- -- -- -- -- -- 394 --
------ ------ ------ ------ ------ ------ ------ -------
Total operating expenses........ 3,770 3,704 4,595 5,107 5,259 6,586 6,451 6,279
------ ------ ------ ------ ------ ------ ------ -------
Income from operations.................. 2,038 2,037 2,374 3,224 2,342 981 2,752 4,130
Interest income......................... 100 96 99 98 104 102 81 95
------ ------ ------ ------ ------ ------ ------ -------
Income before state income taxes........ 2,138 2,133 2,473 3,322 2,446 1,083 2,833 4,225
Provision for state income taxes ....... 9 13 12 11 45 12 18 18
------ ------ ------ ------ ------ ------ ------ -------
Net income.............................. $2,129 $2,120 $ 2,461 $3,311 $2,401 $1,071 $ 2,815 $ 4,207
====== ====== ====== ====== ====== ====== ====== =======
PRO FORMA STATEMENT OF OPERATIONS DATA:
Income tax provision.................... $ 813 $ 811 $ 940 $1,262 $ 954 $ 422 $ 1,105 $ 1,650
Net income.............................. 1,325 1,322 1,533 2,060 1,492 661 1,728 2,575
</TABLE>

23
<PAGE> 24

<TABLE>
<CAPTION>
QUARTER ENDED
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31,
1995 1995 1995 1995 1996 1996 1996 1996
------ ------ ------ ------ ------ ------ ------ -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
License fees.......................... 27.2% 30.5% 39.2% 43.9% 37.9% 30.7% 35.0% 39.6%
Services.............................. 60.8 63.5 52.9 51.5 57.4 65.4 56.9 55.9
Third-party equipment and software.... 12.0 6.0 7.9 4.6 4.7 3.9 8.1 4.5
------ ------ ------ ------ ------ ------ ------ -------
Total revenues.................. 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
------ ------ ------ ------ ------ ------ ------ -------
Operating Expenses:
Cost of software...................... 1.9 3.1 4.2 3.7 4.8 4.6 3.7 2.6
Cost of services...................... 20.1 19.9 16.6 20.2 24.8 29.3 20.6 19.7
Cost of third-party equipment and
software............................ 9.3 4.8 6.2 4.0 3.6 3.1 6.9 3.7
Software development.................. 16.1 18.2 20.9 18.0 18.9 19.6 18.8 19.4
Sales and marketing................... 10.4 11.7 10.3 9.0 10.3 10.7 9.5 9.5
General and administrative ........... 7.1 6.8 7.7 6.4 6.8 8.2 6.3 5.4
Stock option compensation............. -- -- -- -- -- 11.5 -- --
Purchased in-process research and
development......................... -- -- -- -- -- -- 4.3 --
------ ------ ------ ------ ------ ------ ------ -------
Total costs and expenses........ 64.9 64.5 65.9 61.3 69.2 87.0 70.1 60.3
------ ------ ------ ------ ------ ------ ------ -------
Income from operations.................. 35.1 35.5 34.1 38.7 30.8 13.0 29.9 39.7
Interest income......................... 1.7 1.7 1.4 1.2 1.4 1.3 0.9 0.9
------ ------ ------ ------ ------ ------ ------ -------
Income before state income taxes ....... 36.8 37.2 35.5 39.9 32.2 14.3 30.8 40.6
Provision for state income taxes ....... 0.2 0.2 0.2 0.1 0.6 0.2 0.2 0.2
------ ------ ------ ------ ------ ------ ------ -------
Net income.............................. 36.6% 37.0% 35.3% 39.8% 31.6% 14.1% 30.6% 40.4%
====== ====== ====== ====== ====== ====== ====== =======
PRO FORMA STATEMENT OF OPERATIONS DATA:
Income tax provision.................... 14.0% 14.2% 13.5% 15.2% 12.6% 5.6% 12.0% 15.9%
Net income.............................. 22.8 23.0 22.0 24.7 19.6 8.7 18.8 24.7
</TABLE>

24
<PAGE> 25

The Company experienced significant fluctuations in quarterly operating
results in 1995 and 1996 as a result of a number of factors. Increased revenues
in the last six months of 1995 were primarily attributable to increased
Costpoint license fees and related consulting services associated with initial
Costpoint implementations. Over the last several years, the Company has
experienced seasonal variations in operating results, partly due to customers'
desire to have their systems operational at the beginning of a calendar year.
Accordingly, these customers typically order their systems in the middle of the
preceding year in order to allow adequate time for implementation, resulting in
a seasonally high level of license fees being recognized in the fourth quarter
upon the expiration of refund periods and, to a lesser extent, increased
revenues in the fourth quarter from consulting services related to these
implementations.

Increases in cost of services in the fourth quarter of 1995 and the first
two quarters of 1996 were primarily due to increases in personnel costs to
support the Costpoint product line. In addition, reimbursed travel expenses
increased during this period due primarily to consulting activity related to
Costpoint implementations. Cost of services for the second quarter of 1996 also
included $283,000 related to the Company's national user conference in April
1996. The increase in cost of services as a percentage of service revenues
during this period reflected the Company's investment in the initial
implementations of Costpoint systems by providing consulting services to a
number of customers at reduced fees or no charge and also reflected the
increased reimbursed travel expenses which were billed with no mark-up and the
national user conference for which customer billings approximated cost. Cost of
services as a percentage of service revenues declined in the third and fourth
quarters of 1996 due to greater utilization of the Company's consulting staff,
as the number of Costpoint implementations increased and the implementation
process became more efficient.

In June 1996, the Company recorded a non-recurring charge to operations in
the amount of $867,000 related to stock option compensation. In September 1996,
the Company recorded a non-recurring charge of $394,000 representing the value
of in-process research and development acquired in connection with its
acquisition of The Allegro Group, Inc. See "-- Overview." Exclusive of these
non-recurring charges, income from operations, net income and pro forma net
income would have been $1.8 million, $1.9 million and $1.2 million,
respectively, for the quarter ended June 30, 1996 and $3.1 million, $3.2 million
and $2.0 million, respectively, for the quarter ended September 30, 1996.

The Company expects that it will continue to experience significant
fluctuations in quarterly operating results. The Company's future operating
results will depend upon a number of factors, including the demand for its
products, the size and timing of specific sales, the delay or deferral of
customer implementations, the level of product and price competition that it
encounters, the length of its sales cycles, the successful expansion of its
direct sales force and customer support organization, the timing of new product
introductions and product enhancements by the Company and its competitors, the
mix of products and services sold, the activities of and acquisitions by its
competitors, the timing of new hires and its ability to develop and market new
products and control costs. The Company's operating results could also be
affected by general economic conditions. In addition, the decision to license
and implement an enterprise-level business software system is usually
discretionary, involves a significant commitment of customer resources and is
subject to delays, and to budget cycles and internal authorization procedures of
the Company's customers. The loss or delay of individual orders could have a
significant impact on the Company's operating results, particularly on a
quarterly basis. Furthermore, while the Company's revenue from license fees is
difficult to predict because of the length and variability of the Company's
sales cycles, the Company's operating expenses are based on anticipated revenue
trends. Because a high percentage of these expenses are relatively fixed, a
delay in the recognition of revenue from a limited number of license
transactions could cause significant variations in operating results from
quarter to quarter. To the extent such expenses precede, or are not subsequently
followed by, anticipated revenue, the Company's operating results could be
materially and adversely affected.

25
<PAGE> 26

revenues or revenues from third-party equipment and software increase in the
future as a percentage of total revenues, the Company's margins and income from
operations could be adversely affected.

LIQUIDITY AND CAPITAL RESOURCES

The Company has financed its operations almost exclusively from cash flow
from its operations. As of December 31, 1996, the Company had cash and cash
equivalents of $8.3 million and working capital of $6.9 million.

For the year ended December 31, 1996, the Company's operating activities
provided net cash of $14.5 million, primarily as a result of income before
depreciation and amortization, after including the non-cash charges for stock
option compensation and the purchase of in-process research and development. In
addition, the increase in accounts receivable was offset by a greater increase
in deferred revenue and accounts payable and other accrued expenses. Accounts
receivable, net of the allowance for doubtful accounts, were $6.0 million as of
December 31, 1996, compared to $6.0 million as of December 31, 1995. Accounts
receivable days sales outstanding was 52 days as of December 31, 1996, compared
to 65 days as of December 31, 1995. The increase in deferred revenue reflects
increased Costpoint license fees, for which revenue is recognized upon the
expiration of the refund period. Exclusive of receivables which were recorded as
deferred revenue, days sales outstanding was 36 days as of December 31, 1996,
compared to 49 days as of December 31, 1995. The Company's allowance for
doubtful accounts decreased during 1996 due to a write-off of $245,000 as a
result of the insolvency of a significant customer. While the Company believes
that its allowance for doubtful accounts as of December 31, 1996 remains
adequate, there can be no assurance that such allowance will be sufficient to
cover receivables which are later determined to be uncollectible.

Investing activities provided $1.3 million for the year ended December 31,
1996. This amount included $3.1 million from the maturity of treasury and other
investments, offset by $1.1 million in purchased property and equipment and
$622,000 of capitalized software production costs for new Costpoint product
modules.

Financing activities for the year ended December 31, 1996 consisted
primarily of $11.9 million in dividend and tax distributions to the Company's
shareholders. The Company historically has distributed most of its profits as S
Corporation dividends. See "Prior S Corporation Status."

The Company has a commitment from a bank to establish a credit facility
upon the closing of this offering that will provide for a $1.0 million operating
capital line of credit. Loans under this facility will be secured by
substantially all of the Company's assets and will bear interest at the lender's
prime rate.

The Company believes that the net proceeds from this offering, together
with existing sources of liquidity and anticipated cash flow from operations,
will satisfy the Company's anticipated working capital and capital expenditure
requirements through at least 1997. However, depending on its rate of growth and
profitability, the Company may require additional equity or debt financing to
meet its working capital requirements or capital expenditure needs in the
future. There can be no assurance that additional financing will be available
when required or, if available, will be on the terms satisfactory to the
Company.

26
<PAGE> 27

BUSINESS

Deltek designs, develops, sells and supports a family of integrated
software products that provide project-oriented businesses with tools to more
effectively manage, operate and grow their operations. Deltek's products address
the enterprise-level needs of project-oriented businesses and allow these
organizations to manage financial and project accounting, compute costs and
revenues on a project-by-project basis, submit accurate and detailed bills,
comply with complex industry-specific and regulatory requirements, administer
employee time collection, labor costing and payroll, automate materials
management functions, and empower their managers with timely and pertinent
information. Deltek also provides a full range of consulting and maintenance
services to assist its customers with system implementation and integration and
to provide training and ongoing support for the Company's software products.

Deltek sells its products and services, through its direct sales force, to
project-oriented businesses, such as professional and technical service
providers, including engineering and environmental firms, research and
development firms and contract service organizations, as well as not-for profit
organizations and make-to-order manufacturers. Since its inception, the Company
has installed more than 1,950 systems for a wide range of project-oriented
organizations of all sizes, predominantly in the United States. Deltek's
customers include Bell Atlantic Federal Integrated Systems, Inc., Computer
Sciences Corporation, Coopers & Lybrand, LLP, Lockheed Martin Corp., Northrop
Grumman Corporation and Raytheon Service Co., Inc.

INDUSTRY BACKGROUND

While organizations are increasing their use of client/server
enterprise-level business systems, most of these systems are general purpose and
fail to address many of the specific requirements of businesses engaged
primarily in providing goods and services to customers under project-specific
contracts and engagements. These project-oriented businesses include a wide
variety of professional and technical service providers, including engineering
and environmental firms, research and development firms and contract service
organizations, as well as not-for-profit organizations, make-to-order
manufacturers and construction companies. Many of these project-oriented
businesses provide goods and services under government contracts.
Project-oriented businesses have many project-specific requirements, including
the need to track costs and profitability on a project-by-project basis, provide
timely project information to managers and customers and submit accurate and
detailed bills, often in compliance with complex industry-specific and
regulatory requirements. Project accounting for these organizations often
requires the use of sophisticated methodologies for allocating and computing
project costs and revenues.

The use of project-oriented business systems is expanding as a result of a
number of trends prevalent throughout the economy. Traditionally, service
organizations have been more prone to utilize project accounting due to their
need to customize their services for each client and properly allocate the
associated costs. Therefore, as the shift from a manufacturing-based economy to
a service-based economy continues, the market for project-oriented businesses is
expanding. Furthermore, the trend toward outsourcing an increasing range of
activities broadens the market for project-oriented businesses as both customers
and vendors need to track the costs associated with their projects. Finally,
many organizations with significant internal development activities can benefit
from the use of project accounting systems to closely monitor their progress and
cost.

As the number and type of project-oriented businesses increase, they also
are demanding increasingly sophisticated tools to address their core information
and accounting needs, including project accounting,

27
<PAGE> 28

employee time collection, project budgeting and project reporting. At the same
time, these organizations are recognizing that, because most aspects of their
business revolve around their project orientation, they can achieve efficiencies
in a number of other accounting and business functions, such as general ledger,
accounts payable, accounts receivable, materials management and human resources,
through the use of software applications designed with the special needs of
project-oriented businesses in mind. Like other businesses, project-oriented
organizations are also demanding solutions that allow them to combine their
business software applications into a single integrated, enterprise-level
system.

The recent emergence of client/server software and computing environments
and other new information technologies offer organizations a powerful and open
data architecture through the use of relational databases that allow for
scalability and growth. Larger project-oriented businesses are reengineering
their legacy business information and management systems to meet the pressures
of increased competition, smaller project-oriented businesses are upgrading from
PC-based systems to client/server environments, and other enterprises are
adopting a more project-oriented approach to their businesses. As a result, such
organizations are seeking integrated, enterprise-level software solutions that
are specifically designed to address the core information and accounting needs
of project-oriented businesses and that will provide their managers with timely
and pertinent information. Project-oriented businesses are also demanding a full
range of implementation, training and support services provided by organizations
experienced in dealing with the needs of project-oriented businesses.

THE DELTEK SOLUTION

Deltek designs, develops, sells and supports a family of integrated
software products that provide project-oriented businesses with tools to more
effectively manage, operate and grow their operations. Deltek's products address
the enterprise-level needs of project-oriented businesses and allow these
organizations to manage financial and project accounting, compute costs and
revenues on a project-by project basis, maintain employee timekeeping systems,
submit accurate and detailed bills, comply with complex industry-specific and
regulatory requirements, administer employee time collection, labor costing and
payroll, automate materials management functions, and empower their managers
with timely and pertinent information. Deltek also provides a full range of
consulting and maintenance services to assist its customers with system
implementation and integration and to provide training and ongoing support for
the Company's software products.

Deltek's family of software products consists of Costpoint, the Company's
advanced client/server, enterprise-level business software system; System 1, a
DOS-based accounting and management system designed primarily for organizations
providing goods and services under contracts with the federal government;
Electronic Timesheet, an employee timekeeping system; and Allegro, a project and
resource management tool. These products include modules spanning financial
accounting, project accounting and management, human resources and payroll
administration, time and labor collection, materials management and reporting
tools. Application modules within each Deltek product are integrated and utilize
a common user interface and database structure, allowing project-oriented
organizations to configure and implement a fully-integrated system solution.
Costpoint, Deltek's current flagship product, is a client/server based business
software system incorporating an open, relational database architecture, an
object-oriented development approach, Microsoft Windows client operating
systems, on-line analytical processing ("OLAP") tools, drill down data
exploration, workflow management and popular network operating systems,
including Windows NT, UNIX and Netware.

An integral part of Deltek's solution is to provide superior services and
support directly to its customers. These services include comprehensive
implementation and consulting services, user training and ongoing product
maintenance and support. The Company believes that its implementation expertise,
together with its focus on the unique requirements of project-oriented
organizations, result in a faster and more cost-effective system implementation
than is typically achieved by companies which choose to adapt general-purpose
business systems to the needs of their project-oriented organizations. After a
customer's implementation is completed, Deltek provides ongoing support services
to assist the customer in maintaining and updating its system, training its
employees and adding functionality as the customer's business grows and its
requirements change.

28
<PAGE> 29

STRATEGY

Target Additional Project-Oriented Markets. Deltek's expertise in
project accounting and information systems is the result of its years of
experience in addressing the complex requirements of project-oriented
businesses having government contracts. Over time, Deltek has broadened its
product and marketing focus to target a wide range of project-oriented
industries, such as professional and technical service providers, including
engineering and environmental firms, research and development firms and
contract service organizations, as well as not-for-profit organizations and
make-to-order manufacturers. Deltek intends to continue to target
additional project-oriented markets such as architectural and design firms,
construction companies, governmental agencies as well as organizations
managing large internal projects.

Leverage Large Installed Customer Base. Deltek's installed base of
approximately 1,700 active customers enables it to generate revenues from
support and maintenance services provided to these customers. Deltek's
strategy is to maintain and strengthen relationships with its existing
customers through the provision of these services and to derive additional
software licensing and consulting revenues as these companies grow and
their requirements change. An important element of the Company's strategy
is to license its Costpoint products to existing System 1 users as these
customers reengineer their information systems and migrate to new
client/server business software solutions.

Expand and Enhance Product Line. Deltek intends to continue to develop
or acquire additional products and modules in order to provide more
comprehensive enterprise solutions to address the changing requirements of
its existing and prospective customers. For example, Deltek has recently
expanded its product line by adding a comprehensive human resources module
and by acquiring the Allegro resource management product. Deltek also has
an ongoing commitment to enhance the existing capabilities of its
Costpoint, Electronic Timesheet and Allegro products. For example, the
Company is currently adding functionality that will enable its Costpoint
modules to perform additional materials management functions as well as to
handle foreign currencies and international transactions.

Maintain Technological Leadership. Deltek plans to continue to invest
in research and development and to incorporate into its products
advancements in information technologies as they become accepted. Deltek
maintains an in-house research and testing facility where new technologies,
operating systems, hardware platforms and Internet capabilities are
developed and tested. Deltek is currently modifying its products to support
the Microsoft SQLServer database and electronic data interchange ("EDI")
and developing enhanced user interfaces and Internet applications,
including a Web-enabled timesheet product.

Differentiate Through Superior Service. Deltek believes that its
reputation for providing high quality implementation and consulting
services, user training and ongoing support and maintenance and its ability
to work directly with its customers, rather than through third-party
resellers and system implementors, are significant competitive advantages.
Deltek intends to differentiate itself from its competitors by continuing
to build customer loyalty through the delivery of superior service.

PRODUCTS

Deltek designs, develops, sells and supports a family of integrated
software products that provide project-oriented businesses with tools to more
effectively manage accounting, projects, people, materials and reporting
requirements in order to operate and grow their businesses. Deltek's family of
software products consists of Costpoint, System 1, Electronic Timesheet and
Allegro.

29
<PAGE> 30

COSTPOINT

Costpoint utilizes an open, relational database architecture on the server
and Microsoft Windows operating systems on the desktop client PC. Costpoint can
be operated on a variety of network operating systems, including Windows NT,
UNIX and Novell Netware and currently supports Oracle, Sybase Inc. ("Sybase")
and Centura Corporation ("Centura") relational databases. Deltek also expects to
introduce support for the Microsoft SQLServer database in the first half of
1997. Costpoint was developed with extensive use of object-oriented programming
techniques utilizing a fourth generation language together with C++ and
database-specific stored procedures to maximize performance.

The Company began development of Costpoint in 1992 in response to the
maturation of Deltek's DOS-based business software system, System 1. Costpoint
differs from System 1 primarily in its inherent design that allows it to handle
a broader range of project-oriented businesses, its ability to utilize advanced
technologies and operating systems, its enhanced reporting capabilities, and its
ability to provide more complete and flexible functionality in project
accounting and other business system areas to allow for business change and
growth.

Costpoint is designed to meet the specialized needs of project-oriented
businesses, including project costing, indirect cost allocation, revenue
recognition, project budgeting and project reporting. Costpoint also meets the
regulatory and reporting requirements of businesses having contracts with the
United States government. Costpoint combines these capabilities with
applications in other business system areas that are designed for the special
needs of project-oriented businesses. Through its open data architecture and the
use of drill-down inquiries, OLAP tools and standard reports, Costpoint is also
designed to provide managers with timely, pertinent and empowering information.

Costpoint was commercially released in June 1995. Through December 31,
1996, the Company had licensed approximately 220 Costpoint systems that had been
implemented or were in the process of being implemented. License fees for
Costpoint systems vary depending on the number of users and sites and the number
and type of modules licensed. For new customers, license fees for an initial
Costpoint installation typically range from $20,000 to $500,000, exclusive of
consulting services. For the year ended December 31, 1996, the average fee for
an initial Costpoint license was approximately $86,000.

The following table describes the principal Costpoint application modules:

30
<PAGE> 31

<TABLE>
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------

- -----------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------
FINANCIAL ACCOUNTING
General Ledger............................ Provides flexible account and organization structures and extensive
audit trails; delivers numerous financial reports and responds to
user inquiries.
Accounts Payable.......................... Allows for flexible payment (checks, EFT) and vouchering of invoices
which can also be matched to purchase orders.
Accounts Receivable....................... Tracks customer receivables and cash receipts, provides reporting on
billed and unbilled receivables and simplifies collections.
Travel.................................... Automates all travel transactions from per diems to travel advances
and account reconciliations.
Fixed Assets.............................. Collects acquisition data for company-owned and government-furnished
property. Computes and tracks depreciation and disposal data and
posts to general ledger.
- ------------------------------------------------------------------------------------------------------------------

- -----------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------
PROJECT ACCOUNTING
Project Setup............................. Sets up and tracks information on every project or activity,
including work breakdown structures, modifications, labor categories,
dollars, hours and unit usage.
Project Cost and Revenue Processing....... Allocates indirect costs to projects using various formulas, and
automatically calculates and posts project revenues based on many
different project types.
Project Budgeting and ETC................. Tracks budgets at virtually any level or aspect of the project;
calculates, revises and reports on estimates-to-complete.
Project Billing........................... Allows companies to produce numerous types of bills to satisfy the
requests of each customer. The posting of bills automatically updates
the general ledger and accounts receivables.
Project Reporting......................... Provides numerous standard reports and responds to user inquiries
with flexible formatting options.
- ------------------------------------------------------------------------------------------------------------------

- -----------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------
PEOPLE MANAGEMENT AND ADMINISTRATION
Labor..................................... Manages the collection and proper account and cost distribution of
timesheet hours and dollars.
Payroll................................... Handles payroll processing by calculations from timesheets, updates
information affecting general ledger and earnings tables, tracks
employee labor data and computes and creates checks.
Human Resources*.......................... Includes compensation administration, personnel administration,
affirmative action, 401(k) reporting and forecasting, and COBRA.
Labor/Payroll Interfaces.................. Interfaces for uploading timesheet data as well as interfaces to ADP
and Ceridian payroll services.
- ------------------------------------------------------------------------------------------------------------------

- -----------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------
MATERIALS MANAGEMENT
Product Definition........................ Defines and tracks the parts, goods and services companies will buy
or sell for project specific items; tracks billing and shipping data.
Purchasing................................ Allows businesses to administer the procurement of company-owned or
project-specific parts, goods or services through tracking of
purchase orders, buyer authorizations and commitments.
Procurement Planning...................... On-line entry of requisitions, approvals, requests for quotes and
actual vendor quotes with the automatic creation of purchase orders.
Inventory................................. On-line, real time inventory tracking and control for use by any
company which has project-specific, company-owned, and
government-furnished materials.
Bill of Materials*........................ Defines saleable products in terms of the raw materials, purchased
parts and assemblies which comprise them.
Sales Order Entry*........................ Supports and monitors the sales order process, including procurement,
issuing, shipping and invoicing.
- ------------------------------------------------------------------------------------------------------------------

- --------------------------------------------------------------------------------
- ---------------
* Currently in Beta testing.

** Software licensed from third parties and sublicensed to Deltek customers.

31
<PAGE> 32

SYSTEM 1

System 1, formerly known as the Government Contractors Software Series, is
Deltek's original business software system. System 1 was designed specifically
for use by organizations having contracts with the federal government and helps
these organizations comply with stringent federal regulations applicable to such
contractors, including the requirements of the Defense Contract Audit Agency.
System 1 is DOS-based, operates on Novell Netware, UNIX and DEC VAX/VMS network
operating systems and utilizes a character-based user interface and a
proprietary COBOL data structure. System 1 consists of 23 application modules
spanning financial accounting, labor and payroll administration, materials
management and reporting tools.

System 1 was commercially released in 1985. As of December 31, 1996,
approximately 1,500 project-oriented organizations were using System 1 as their
primary accounting system. License fees for System 1 vary depending upon the
number of users or facilities and the number and type of modules licensed. Prior
to the introduction of Costpoint in June 1995, license fees for an initial
System 1 installation typically ranged from $10,000 to $200,000, exclusive of
consulting services. Since the introduction of Costpoint, the majority of new
customers have licensed Costpoint systems, and new System 1 sales have decreased
in number and system size. For the year ended December 31, 1996, typical license
fees for an initial System 1 installation ranged from $10,000 to $50,000, and
the average license fee was approximately $15,000.

An important element of the Company's strategy is to license Costpoint to
existing System 1 users as those customers reengineer their information systems
and migrate to new client/server business software solutions. In an effort to
influence the migration of its System 1 customers to Costpoint, the Company
offers substantial discounts to existing System 1 users and provides automated
data conversion programs which provide significant assistance in the Costpoint
upgrade/implementation process. As of December 31, 1996, approximately 40 of the
Company's System 1 customers, representing approximately 3% of the installed
base of System 1 users, had migrated to or were in the process of migrating to
Costpoint systems. There can be no assurance that a significant percentage of
current System 1 customers will migrate to Costpoint. In particular, smaller
System 1 customers are less likely to migrate to Costpoint because the cost of
migrating to a client/ server environment is high relative to their size and
because in many cases System 1 adequately meets their present needs. The Company
intends to provide support services and product maintenance for System 1 for the
foreseeable future although it does not currently intend to develop significant
new enhancements to the System 1 product line.

ELECTRONIC TIMESHEET

Electronic Timesheet is a comprehensive timesheet software application
which allows employees to enter their timesheets on a daily basis on their
desktop PC. Electronic Timesheet utilizes either Windows or DOS operating
systems on the desktop PC and provides a graphical, point and click interface.
Using this graphical interface, the employee may select from a list of
authorized charges rather than having to enter complicated account and project
numbers. This feature serves to greatly reduce costly and time-consuming errors.
After the employee electronically signs his or her timesheet, the timesheet then
is forwarded through the network for manager approval. Timesheets and the
appropriate labor charges can then be automatically accumulated and integrated
with the accounting system, completely eliminating the paper timesheet.
Electronic Timesheet also allows managers to view information about employees'
activities and helps them to better manage their employees.

Electronic Timesheet may be licensed together with Costpoint or System 1 or
as a stand-alone application that can be integrated with other accounting
systems. The Company is currently developing a Web-enabled timesheet product and
expects to begin beta testing in the first half of 1997, although there can be
no assurance that development of this product will be successfully completed.

Electronic Timesheet was commercially released in January 1995. As of
December 31, 1996, Electronic Timesheet had been licensed to over 170 customers.
License fees for Electronic Timesheet typically range from $2,500 to $100,000.
For the year ended December 31, 1996, the average license fee for Electronic
Timesheet was approximately $12,000.

32
<PAGE> 33

ALLEGRO

Allegro is a software application that enables project managers to plan and
monitor project resources. Using a user interface similar to a spreadsheet,
Allegro allows project managers to create budgets and estimates-to-complete,
plan and schedule employees and other resources, forecast revenue and profits,
and receive timely status on each project from the accounting system interface.
The Company believes that Allegro's principal advantage is its user-friendly,
spreadsheet-like interface and its ability to view and manage resources across
multiple projects in an organization. Allegro is a client/server based system
running on a variety of databases and utilizing Microsoft Windows operating
systems.

The Company acquired the Allegro product through the acquisition of The
Allegro Group, Inc., in September 1996. Prior to the acquisition, The Allegro
Group, Inc. had licensed a limited number of Allegro products, and since the
acquisition the Company has also licensed a limited number of these products on
a stand-alone basis. The Company is in the process of making further
improvements and refinements to Allegro and developing data interfaces that will
allow it to be fully-integrated with its Costpoint and System 1 products. The
Company believes that its ability to market Allegro, particularly to its
existing customer base, will be dependent upon the successful completion of
these improvements and interfaces, of which there can be no assurance. The
Company expects license fees for new Allegro customers to range from $10,000 to
$100,000.

THIRD-PARTY PRODUCTS

Deltek incorporates into its software products certain application software
licensed from third parties. The Costpoint reporting tools, CP Reports and CP
Scope, are both licensed from Cognos Corporation under an OEM agreement, and
System 1 utilizes a report-writer, Intelligent Query, licensed from a third
party. In order to support the Oracle, Sybase and Centura relational databases,
Costpoint contains certain native "router" software licensed from Centura. Also,
the Company's Costpoint and Allegro customers must license applicable database
software from Oracle, Sybase, Centura, or Microsoft, either directly or through
the Company. Because some customers desire a "turnkey" solution, the Company
will purchase servers, network software and other software and hardware
products, which the Company resells or sublicenses to its customers and installs
together with Deltek products to provide a fully operational system.

CUSTOMER SERVICE AND SUPPORT

An integral part of Deltek's solution is to provide superior services and
support directly to its customers. These services include comprehensive
implementation and consulting services, user training and ongoing maintenance
and support. The Company believes that its reputation for providing high quality
services and its ability to work directly with its customers, rather than
through third-party resellers and system implementors, are significant
competitive advantages. Deltek's implementation management and other consulting
services are generally charged on a time and materials basis. Classroom
education and training is charged on a per class basis. Telephone support and
periodic product enhancements and updates are provided for maintenance fees that
are payable quarterly and initially represent between 15% and 20% of the related
software license fee on an annual basis.

Implementation and Consulting Services. Deltek provides a full range of
consulting, training and technical services to customers both during and after
implementation of Deltek software. Since its inception, the Company's staff of
system consultants has been directly involved with over 1,950 installations.
Deltek's system consultants are involved in the important early planning and
design stages of each implementation, participate in user training, and work
closely with the customer during the two to six-month period just before and
after the "going live" date. After the implementation is completed, Deltek's
consultants typically maintain an ongoing relationship with the customer and
assist the customer in refining its systems and adding functionality as its
business grows and its requirements change.

Telephone Support. Deltek provides comprehensive telephone support during
business hours as well as supplemental emergency support after hours and on
weekends. Deltek maintains a "one-hour call-back policy" under which customers
leave a message with a description of their problem and a Deltek support

33
<PAGE> 34

representative who is qualified to handle the specific problem returns the call
within one hour. Deltek utilizes a sophisticated in-house support tracking
system which enables call, problem and resolution tracking. Deltek also
maintains an "open phone" policy whereby customers are encouraged to contact any
supervisor or senior manager at Deltek for any reason. Deltek typically handles
between 250 and 450 support calls per day.

Training Classes. Deltek operates training facilities at its McLean,
Virginia headquarters and at its offices in San Jose, where it provides
regularly scheduled training classes on over 25 topics related to the Company's
products to supplement training that its customers receive in connection with
their initial system installation. Deltek maintains system laboratories at its
training facilities which are available for customer use for testing,
benchmarking and troubleshooting. Deltek also offers custom, on-site training
classes.

Product Updates and Enhancements. Since its inception, Deltek has provided
periodic updates and enhancements to each of its software products. Typically,
the Company provides several minor updates per year, which include system error
corrections, tax table updates and other minor enhancements, and new version
releases periodically, which include major enhancements and changes to the
database design. These product updates and enhancements are provided at no
additional charge for customers who purchase support and maintenance services.

Client/Server Technical Services. To address the challenges that many
companies face when implementing a client/server system, Deltek provides
client/server and database consulting services together with turnkey hardware
and third-party database and operating system software. Deltek believes these
services provide a significant benefit to its customers by streamlining their
system implementation and providing a complete, turnkey solution.

Custom Solutions. From time to time, customers require custom modifications
to the Company's software or a custom interface to an in-house application.
Deltek provides custom programming services through its Custom Solutions Group
to assist customers with these needs.

Web Site Services. Deltek has recently begun to provide several other
support services in conjunction with its Web site. Customers may utilize the Web
site to download revised software programs and documentation, to communicate
with other customers and Deltek's employees, and to join Deltek user groups.
These services are provided at no additional charge, as a part of the Company's
support and maintenance program.

34
<PAGE> 35

CUSTOMERS

Since its inception, the Company has installed more than 1,950 systems for
a wide range of project-oriented organizations of all sizes, predominately in
the United States. Today, more than 1,750 of these customers, or approximately
90%, remain active users of the Company's products. No customer accounted for
more than 10% of the Company's total revenues in 1994, 1995 or 1996. The
following is a representative list of the Company's customers who purchased at
least $100,000 of the Company's products and services from January 1, 1992
through December 31, 1996, in some cases for use by a division of the customer,
and who are currently receiving support and maintenance services:

AEL Industries, Inc.
Alcone Marketing Group
AlliedSignal Technical Services Corp.
American Institute for Research in the Behavioral
Sciences
Anteon Corporation
Ball Aerospace & Technologies Corp.
Bell & Howell Postal Systems, Inc.
Bell Atlantic Federal Integrated Systems, Inc.
Boeing Information Services, Inc.
BTG, Inc.
Capitol Multimedia, Inc.
Chem-Nuclear Systems, Inc.
Coleman Research Corp.
Comsat RSI Inc.
Computer Sciences Corporation
Concurrent Technologies, Corp.
Continuous Electron Beam Research Accelerator
Facility
Coopers & Lybrand, LLP
Cortez III Service Corp.
DynCorp
EA Engineering Science & Technology, Inc.
EDO Corporation
EG&G Defense Materials, Inc.
Frontier Engineering, Inc.
GEC Marconi Avionics, Inc.
Hughes STX Corp.
Institute for Defense Analyses Inc.
Johnson Controls World Services, Inc.
KPMG Peat Marwick LLP
Kuwait Dynamics Limited
Lear Astronics Corp.
Lockheed Martin Corp.
Los Alamos Technical Associates Inc.
Lovelace Institutes
Mantech International Corp.
Market Facts, Inc.
Microcraft Inc.
Monterey Bay Aquarium Research Institute
National Opinion Research Center
Nichols Research Corp.
Northrop Grumman Corporation
Nortel Federal Systems, Inc.
Norton Diamond Film, Inc.
Orbital Sciences Corporation
Pacific Architects & Engineers, Inc.
Porter Novelli, Inc.
RAPP Collins Worldwide, Inc.
Raytheon E-Systems, Falls Church Division
Raytheon Service Co., Inc.
Research Triangle Institute, Inc.
Southern Research Institute, Inc.
Space Telescope Institute
Telephonics Corp.
Titan Systems Corp.
TRW Environmental Safety Systems, Inc.
UNC Aviation Services, Inc.
US Generating Company
Universities Space Research Association
VSE Corporation
Wyle Laboratories, Inc.
Xerox Corporation

SALES AND MARKETING

The Company sells its products and services through its direct sales force.
As of December 31, 1996, the Company's sales organization consisted of 24
full-time sales personnel, based at the Company's corporate headquarters in
McLean, Virginia and at its offices in Denver, Colorado and San Jose,
California.

The Company's sales cycle begins with the generation of a sales lead or the
receipt of a request for proposal. Sales leads are generated by direct mailing
to potential customers in selected markets, as well as through advertising,
seminars and trade shows. The Company's sales personnel work closely with
prospective customers to understand their reasons for undertaking a system
change and to identify their specific business and system requirements. They
then provide prospective customers with information regarding the capabilities
and benefits of the Company's products and to assist in planning for the system
implementation. The licensing

35
<PAGE> 36

and implementation of the Company's business software products is often a
decision with significant enterprise-wide implications involving a substantial
commitment of the customer's management attention and resources. The period
between initial customer contact and the customer's purchase commitment is often
lengthy and typically ranges from 3 to 18 months. Accordingly, the Company's
sales process is subject to delays associated with a lengthy evaluation and
approval process that typically accompanies major initiatives or capital
expenditures, including delays over which the Company has little or no control.

Deltek's installed base of approximately 1,750 active customers enables it
to generate revenues from support and maintenance services provided to these
customers. Deltek's strategy is to maintain and strengthen relationships with
its existing customers through the provision of these services and to derive
additional software licensing and consulting revenues as these companies grow
and their requirements change. An important element of the Company's strategy is
to license its Costpoint products to existing System 1 users as these customers
reengineer their information systems and migrate to new client/server business
software solutions. In support of its efforts to market additional products and
services to its existing customer base, the Company conducts on-going customer
communications programs and national user conferences every 18 to 24 months.

The Company's strategy is to expand its sales and marketing activities to
target project-oriented organizations in additional markets. Deltek's ability to
achieve significant revenue growth in the future will depend in large part on
its success in recruiting, training and retaining additional sales, sales
support and marketing personnel. In the future, the Company may seek to develop
third-party distribution channels and use third-party consultants to provide
implementation consulting services. There can be no assurance that the Company
would be successful in establishing such third party arrangements, that any such
expansion of the Company's sales and support capabilities would result in
increased revenues, or that the resulting reduction in the Company's direct
involvement with its customers would not adversely affect its competitive
position.

PRODUCT DEVELOPMENT

The Company utilizes a team approach to product development. Deltek's
product development is generally organized into teams of 6 to 12 developers who
handle a particular product area, a group of programs or functions, or a new
development area. Each development team includes one or more subject matter
experts who are instrumental in the design of each new module and capability.
Following the completion of high-level design, the development team receives
assistance from Deltek's database design team which helps with the important
step of designing or making changes to the relational database architecture.
Throughout the development process, and particularly when the initial
programming has been completed, quality assurance team members provide testing
and analysis to ensure that the application has been developed using standards
and functions appropriate to its design and purpose. Deltek's Object, Class, and
Technology group supports each development group and focuses on development,
enhancement and maintenance of the object-oriented product development tools
used throughout the development process. Deltek utilizes a sophisticated
in-house system for tracking the development process, for program check-in and
check-out, for version control, and for system error and bug tracking.

A significant portion of the development related to the Costpoint product
line is conducted using a fourth generation client/server development tool
called SQLWindows which the Company licenses from Centura. See "Proprietary
Rights and Licenses." Using this tool, the Company has developed a number of
reusable objects and classes to better facilitate development. In order to
optimize performance for process intensive functions in Costpoint, such as
project costing and billing applications, the Company makes extensive use of
database stored procedures which enable specific applications to operate much
faster with considerably less network traffic. C++ programming is also used
throughout Costpoint in various situations to improve performance and
functionality.

The Company's product development groups are currently focused on
enhancements and customary error corrections to existing versions, and
development of future versions of Costpoint, Electronic Timesheet and Allegro.
New capabilities currently under development for Costpoint include full support
for Windows NT on the client PC, support for the Microsoft SQL Server database,
foreign currency handling, enhanced Internet

36
<PAGE> 37

capabilities, additional material management modules, and enhanced functionality
for specific project-oriented industries. Development efforts relating to
Electronic Timesheet are currently focused on development of a
client/server-based version of the software and the further expansion of
Internet and intranet timekeeping capabilities. Allegro development is currently
focused on developing interfaces that will allow Allegro to be fully integrated
with the Company's Costpoint and System 1 products and additional interfaces to
products such as Microsoft Project and Primavera. There can be no assurance that
the Company will be successful in completing the development of these or other
new products and enhancements or that any new product or enhancement that it may
introduce will achieve market acceptance.

The Company intends to continue making substantial investments in product
development to address advancements in technology, respond to changing customer
requirements, extend the functionality of its current products and expand its
product line.

The Company's software development expenses, exclusive of certain
development costs which have been capitalized, were $3.9 million, $4.9 million
and $6.7 million in 1994, 1995 and 1996, respectively. As of December 31, 1996,
the Company had 128 employees engaged in product development and quality
assurance activities.

COMPETITION

The business application software market, including the market for
client/server-based business software systems, is intensely competitive and
rapidly changing. Deltek's products are targeted toward a wide range of
project-oriented organizations, and the competition that the Company encounters
varies depending upon the customer's size, industry and specific system
requirements. For larger Costpoint implementations, the Company's principal
competitors include Oracle, PeopleSoft and SAP. For smaller and medium-size
Costpoint and System 1 implementations, the Company's competitors include Great
Plains Software, Inc., Harper and Shuman, Inc., Maxwell Business Systems, Inc.,
Platinum Software Corporation, Solomon Software, State of the Art, Inc. and
Timberline Software Corporation, some of which offer industry-specific products.
Electronic Timesheet competes with electronic timekeeping systems offered by
vendors including TIMESLIPS Corporation and Kronos, Inc. The Company also faces
indirect competition from systems developed by the internal MIS departments of
large organizations.

Deltek believes that competition in the rapidly evolving markets for
business application software is based primarily on product features and
functions, product architecture, ease of implementation, vendor and product name
recognition and reputation, customer service and support, and price. Deltek
believes that it has competed effectively to date on the basis of these factors,
and, particularly that its product and marketing focus on the unique needs of
project-oriented organizations and its reputation for high quality service and
support, its ability to work directly with its customers (rather than through
third-party resellers and system implementors) and its ability to provide rapid
implementations have constituted competitive advantages.

Many of the Company's competitors have significantly greater financial,
technical, marketing and other resources than the Company. In addition, certain
competitors, particularly Oracle, PeopleSoft and SAP, have well-established
relationships with the Company's current and prospective customers and with
major accounting and consulting firms that may have an incentive to recommend
such competitors over the Company. Further, because the Company's products run
on RDBMS and Oracle has the largest market share for RDBMS software, Oracle may
have a competitive advantage in selling its application products to its
installed RDBMS customer base. Furthermore, as the client/server computing
market develops, companies with significantly greater resources than the Company
could attempt to increase their presence in this market by acquiring or forming
strategic alliances with competitors of the Company. In addition, as the Company
attempts to penetrate other strategic vertical markets, it will likely encounter
competitors with substantially more experience in those markets.

37
<PAGE> 38

competition may result in price reductions, reduced gross margins and loss of
market share, any of which could have a material adverse effect on the Company's
business, operating results and financial condition.

PROPRIETARY RIGHTS AND LICENSES

The Company's success and ability to compete is dependent in part upon its
proprietary software. Deltek relies on a combination of copyright and trademark
laws, trade secrets, confidentiality procedures and contractual provisions to
establish and protect its rights in its software. Despite the Company's efforts
to protect its proprietary rights, unauthorized parties may attempt to copy,
design around or reverse engineer aspects of the Company's products or to obtain
and use information that the Company regards as proprietary. Furthermore, the
Company has no patents, and existing copyright laws afford only limited
protection. 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. Accordingly, there can be no assurance that the Company will be able to
protect its proprietary software against unauthorized third party copying or
use, which could adversely affect the Company's competitive position. Deltek
believes, however, that because of the rapid rate of technological change in the
software industry, trade secret and copyright protection are less significant
than factors such as the knowledge, ability and experience of the Company's
employees, frequent product enhancements and the timeliness and quality of
support services.

The Company licenses its products to customers under license agreements
which are generally in standard form, although each license is individually
negotiated and may contain variations. Deltek's standard license agreement
allows the customer to use the Company's products solely on the customer's
computer equipment for the customer's internal purposes, and the customer is
generally prohibited from sublicensing or transferring the products. The license
agreements generally provide that the Company's warranty for its products is
limited to correction or replacement of the affected product and that the
Company will refund the applicable license fee if the customer is not satisfied
with the product for any reason, sets forth the reasons for dissatisfaction,
requests the refund prior to the end of the applicable refund period (normally
60 to 90 days) and returns all copies of the product to the Company. Deltek's
standard license agreement also includes a confidentiality provision protecting
proprietary information relating to the Company's products.

The Company's products are generally provided to customers in object code
(machine-readable) format only. From time to time, in limited circumstances, the
Company has licensed certain of its products in source code (human-readable)
form, subject to customary protections such as use restrictions and
confidentiality agreements. In addition, customers can be beneficiaries of a
master source code escrow, pursuant to which the source code for Costpoint and
System 1 products will be released to end users in the event the Company or its
assignee is unable or unwilling to continue to support these products. The
provision of source code to the Company's customers may increase the likelihood
of misappropriation or other misuse of the Company's intellectual property.

The Company licenses from third parties, generally on a nonexclusive basis,
certain software development tools that the Company utilizes in the development
of its products and certain application software that the Company incorporates
into its products. Third parties also license to the Company or its customers
certain relational database software used in conjunction with the Company's
products. See "Business -- Products -- Third-Party Products." Accordingly, the
Company is dependent upon such third parties' abilities to deliver quality
products, to correct errors, to support their current products, to develop new
and enhanced products on a timely and cost-effective basis and to respond to
emerging industry standards and other technological changes. Should these
third-party development tools or software products become unavailable, or should
their developers fail to adequately support or enhance them, the Company would
be required to rewrite its products using different development tools or replace
the functionality provided by the third-party software currently used in and
licensed with its products. Although the Company believes that other development
tools and application and database software with comparable functionality are
currently available from other third parties, there can be no assurance that
replacement products could be obtained when needed. In addition, there can be no
assurance that the Company could successfully rewrite its products using
different development tools or that it would not encounter substantial delays in
doing so. The inability to rewrite its products using different development
tools on a timely and cost-effective basis or the loss of, or any significant

38
<PAGE> 39

delay in the replacement of, the functionality provided by the third-party
software could have a material adverse effect on the Company's business,
operating results and financial condition. While it may be necessary or
desirable in the future to obtain other licenses relating to one or more of the
Company's products or relating to current or future technologies, there can be
no assurance that the Company will be able to do so on commercially reasonable
terms or at all.

There are currently no claims pending against the Company relating to the
infringement of any proprietary rights of third parties. There can be no
assurance, however, that third parties will not claim infringement by the
Company of their intellectual property rights. Deltek expects that software
product developers will increasingly be subject to infringement claims as the
number of products and competitors in the Company's industry segment grows and
the functionality of products in different industry segments overlaps. Any such
claims, with or without merit, could be time-consuming to defend, result in
costly litigation, divert management's attention and resources or cause delays
in the delivery or implementation of the Company's products. In addition, such
claims could require the Company to discontinue the use of certain software
codes or processes, to cease the manufacture, use and sale of infringing
products, to incur significant litigation costs and expenses and to develop
non-infringing technology or to obtain licenses to the alleged infringing
technology. There can be no assurance that the Company would be able to develop
alternative technologies or to obtain such licenses or, if a license were
obtainable, that the terms would be commercially acceptable to the Company. In
the event of a successful claim of product infringement against the Company and
failure or inability of the Company to license the infringed or similar
technology, the Company's business, operating results and financial condition
could be materially adversely affected.

EMPLOYEES

As of December 31 1996, the Company had 260 full-time employees, including
128 employees primarily engaged in product development and quality assurance, 91
in customer support and training activities, 24 in sales and marketing, and 17
in finance and administration. None of the Company's employees is represented by
a labor union or is subject to a collective bargaining agreement. Deltek has
never experienced a work stoppage and believes its employee relations are good.

The success of the Company depends in large part upon its ability to
recruit and retain exceptional employees, particularly highly skilled product
developers and system consultants. Deltek will likely experience significant
competition and difficulties in recruiting such personnel.

FACILITIES

Deltek's corporate headquarters, its principal administrative, product
development, sales and marketing operations and its principal customer training
center are located in 60,329 square feet of office space in a building in
McLean, Virginia which the Company occupies under leases expiring in March 2002,
subject to the Company's right to extend the lease term by one or three years.
The Company has agreed to lease an additional 3,638 square feet beginning in
September 1997 and an additional 9,296 square feet or 11,927 or 13,901 square
feet (at the option of the landlord) beginning in approximately April 1998. The
annual lease rate until April 1997, is $19.67 per square foot. The annual lease
rate increases to $20.02 per square foot in April 1997 and by 2.75% each year
thereafter. Deltek also leases approximately 4,000 square feet in Denver,
Colorado, at an annual lease rate of $15.00 per square foot, under a lease
expiring in January 1998 and 2,200 square feet in San Jose, California, at an
annual lease rate of $20.91 per square foot, under a lease expiring in February
1997. As of December 31, 1996 the Company's aggregate annual rental expense for
its facilities was $990,000. In February 1997, the Company will relocate its San
Jose office to a different building, in which the Company will lease 4,855
square feet at an annual lease rate of $23.45 per square foot, under a lease
expiring in January 2002. Deltek believes that its existing facilities and
offices are adequate to meet its current needs and that, should it be needed,
suitable additional or alternative space will be available in the future on
commercially reasonable terms.

39
<PAGE> 40

MANAGEMENT

EXECUTIVE OFFICERS AND DIRECTORS

The executive officers and directors of the Company are as follows:

<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------- --- ---------------------------------------------
<S> <C> <C>
Kenneth E. deLaski....... 38 President, Chief Executive Officer and
Director
Donald deLaski........... 64 Chairman of the Board of Directors and
Treasurer
Eric F. Brown............ 32 Executive Vice President, Technical
Operations
Johnny C. Cheng.......... 38 Vice President, Materials Management Product
Group
Donald G. Craft.......... 44 Vice President, Client Services
Dien Hoang Do............ 44 Vice President, Technology
Thomas W. Dudenhoefer.... 49 Vice President, Sales
Alan R. Stewart.......... 42 Chief Financial Officer and Secretary
Robert E. Gregg.......... 49 Director
Darrell J. Oyer.......... 56 Director Nominee
</TABLE>

Kenneth E. deLaski was a co-founder of the Company in November 1983 and has
served as a director since its inception. Mr. deLaski also has served as the
Company's President since May 1990 and as its Chief Executive Officer since
February 1996. From May 1990 to February 1996, he served as the Company's Chief
Operating Officer. Mr. deLaski is a certified public accountant. Kenneth E.
deLaski is the son of Donald deLaski, Chairman of the Board of Directors and
Treasurer of the Company.

Donald deLaski was a co-founder of the Company in November 1983 and has
served as Chairman of the Board of Directors and Treasurer since its inception.
Mr. deLaski also served as the Company's Chief Executive Officer from its
inception until February 1996. Mr. deLaski is a certified public accountant.
Donald deLaski is the father of Kenneth E. deLaski, President and Chief
Executive Officer of the Company.

Eric F. Brown was a co-founder of the Company in November 1983. He has
served as the Company's Vice President, Technical Operations since May 1990, and
as Executive Vice President since January 1997. Prior to May 1990, Mr. Brown
held various technical and management positions with the Company, including
management of the Company's Technical Services Division, which provides custom
programming services to the Company's customers, and various of the Company's
product groups responsible for development and maintenance of the Company's core
software products.

Johnny C. Cheng joined the Company in December 1987. He has served as the
Company's Vice President, Materials Management Product Group since May 1994, and
is responsible for the design, development and support of the Company's
materials management software products. From December 1987 to May 1994, Mr.
Cheng was employed as a senior system consultant responsible for implementing
the Company's software systems at customer facilities. Mr. Cheng is a certified
public accountant.

Donald G. Craft joined the Company in September 1986. He has served as the
Company's Vice President, Client Services since October 1994, and is responsible
for all of the Company's accounting consultants and telephone support personnel.
From January 1991 to October 1994, Mr. Craft served as the Company's Director of
Client Services. Mr. Craft successfully completed the National Uniform Certified
Public Accountant Examination.

Dien Hoang Do joined the Company in October 1987. He has served as the
Company's Vice President, Technology since January 1995, and is responsible for
the Company's research and development. From October 1987 to January 1995, Mr.
Do held various technical positions with the Company.

Thomas W. Dudenhoefer joined the Company in April 1988. He has served as
the Company's Vice President, Sales since January 1997. From April 1988 to March
1992, Mr. Dudenhoefer was employed as an account manager. From March 1992 to
January 1997, he served as Sales Manager.

40
<PAGE> 41

Alan R. Stewart joined the Company in July 1992 as Chief Financial Officer
and has served as its Secretary since February 1996. From March 1991 until July
1992, he was employed as Director of Accounting at BTG, Inc., a government
contractor. Prior to March 1991, Mr. Stewart held positions as a senior
accountant with Touche Ross and Co., as assistant Controller of C3, Inc. and as
Controller and Treasurer of Tempest Technologies, Inc. Mr. Stewart is a
certified public accountant.

Robert E. Gregg has served as a Director of the Company since September
1986. He has been a shareholder in Hazel & Thomas, P.C., counsel to the Company,
since Hazel & Thomas' inception in 1987.

Darrell J. Oyer has agreed to become a director of the Company immediately
following the closing of this offering. Since June 1991, Mr. Oyer has served as
President of Darrell J. Oyer and Company, a consulting company. Mr. Oyer is a
certified public accountant.

As of the date of this Prospectus, there are two vacancies on the Board of
Directors, one of which will be filled by Mr. Oyer promptly following the
closing of this offering and the other of which the Company intends to fill
within 90 days following the date of this Prospectus.

Deltek's executive officers are appointed annually by, and serve at the
discretion of, the Board of Directors. Each executive officer is a full-time
employee of the Company. Other than the relationship between Donald deLaski and
Kenneth E. deLaski, there are no family relationships between any director or
executive officer of the Company.

COMMITTEES OF THE BOARD OF DIRECTORS

The Company's Board of Directors intends to establish an Audit Committee
and a Compensation Committee. The Audit Committee will be responsible for
reviewing with management the financial controls, accounting, credit and
reporting activities of the Company. The Audit Committee will review the
qualifications of the Company's independent auditors, will make recommendations
to the Board of Directors regarding the selection of independent auditors, will
review the scope, fees and results of any audit and will review non-audit
services and related fees provided by the independent auditors. The members of
the Audit Committee have not yet been appointed. A majority of the members of
the Audit Committee will be independent directors. The Compensation Committee
will be responsible for the administration of all salary and incentive
compensation plans for the officers and key employees of the Company, including
bonuses. The Compensation Committee may also administer the Company's 1996 Stock
Option Plan and 1996 Employee Stock Purchase Plan. The members of the
Compensation Committee have not been appointed. A majority of the members of the
Compensation Committee will be independent directors.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

The Company did not have a Compensation Committee prior to this offering.
Accordingly, the Board of Directors made all decisions concerning executive
officer compensation.

DIRECTOR COMPENSATION

To date, directors have not received any cash compensation for their
services as members of the Board of Directors. Effective upon the completion of
this offering, directors who are not employees of the Company will receive
$1,000 for each board or committee meeting attended in person and $750 for each
such meeting attended telephonically and will be reimbursed for travel expenses
incurred in connection with attending such meetings. Each of the directors who
are not employees of the Company will be granted a nonqualified option to
purchase 5,000 shares of the Company's Common Stock at the initial public
offering price under the Company's 1996 Stock Option Plan. Directors who are
employees of the Company will receive no additional cash compensation for their
services as members of the Board of Directors or committees thereof other than
reimbursement for travel expenses incurred in connection with attending board
and committee meetings.

41
<PAGE> 42

EXECUTIVE COMPENSATION

SUMMARY COMPENSATION INFORMATION

The following table sets forth information concerning the compensation
earned during the year ended December 31, 1996 by the Company's Chief Executive
Officer and each of the Company's other four most highly compensated executive
officers (collectively, the "Named Executive Officers"):

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL AWARDS
COMPENSATION ---------------
-------------- OPTIONS GRANTED ALL OTHER
NAME AND PRINCIPAL POSITION SALARY (SHARES) COMPENSATION(1)
- ------------------------------------------- -------------- --------------- ---------------
<S> <C> <C> <C>
Kenneth E. deLaski......................... $156,667 -- $ 7,493(2)
President and Chief Executive Officer
Dien Hoang Do.............................. 136,696 6,000 4,000(3)
Vice President, Technology
Donald deLaski............................. 135,013 -- 6,607(4)
Chairman and Treasurer
Eric F. Brown.............................. 126,667 30,000 12,011(5)
Vice President, Technical Operations
Johnny C. Cheng............................ 119,118 6,000 4,000(3)
Vice President, Materials Management
Product Group
</TABLE>

- ---------------

(1) Does not include pro rata distributions of S Corporation dividends to the
individual as a shareholder. See "Prior S Corporation Status" and "Dividend
Policy."

(2) Represents premiums and benefits of $3,493 paid under medical insurance and
benefit plans and a 401(k) plan profit sharing contribution of $4,000.

(3) Represents a 401(k) plan profit sharing contribution.

(4) Represents premiums and benefits of $2,607 paid under medical insurance and
benefit plans and a 401(k) plan profit sharing contribution of $4,000.

(5) Represents premiums and benefits of $8,011 paid under medical insurance and
benefit plans and a 401(k) plan profit sharing contribution of $4,000.

OPTION GRANTS IN LAST FISCAL YEAR

The following table sets forth information concerning grants of options to
purchase the Company's Common Stock made during the year ended December 31, 1996
to the Named Executive Officers.

<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
INDIVIDUAL GRANTS VALUE AT ASSUMED
------------------------------------------------------------ ANNUAL RATES OF
NUMBER OF STOCK PRICE
SHARES % OF TOTAL APPRECIATION FOR
UNDERLYING OPTIONS GRANTED EXERCISE OPTION TERM(2)
OPTIONS TO EMPLOYEES IN PRICE PER EXPIRATION ----------------------
NAME GRANTED FISCAL YEAR SHARE(1) DATE 5% 10%
- --------------------- ---------- --------------- ---------- ---------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Kenneth E. deLaski... -- -- -- -- -- --
Dien Hoang Do........ 6,000 0.9% $ 4.00 4/1/06 $15,093 $ 38,250
Donald deLaski....... -- -- -- -- -- --
Eric F. Brown........ 30,000 4.3 4.00 4/1/06 75,467 191,249
Johnny C. Cheng...... 6,000 0.9 4.00 4/1/06 15,093 38,250
</TABLE>

- ---------------

(1) The Company granted options to purchase an aggregate of 693,000 shares of
the Company's Common Stock to employees during the year ended December 31,
1996.

42
<PAGE> 43

(2) The potential realizable value is based on the term of the option at the
time of grant (ten years). Potential gains are net of the exercise price but
before taxes associated with the exercise. Amounts represent hypothetical
gains that could be achieved for the respective options if exercised at the
end of the option term. The assumed 5% and 10% rates of stock price
appreciation are provided in accordance with the rules of the Securities and
Exchange Commission and do not represent the Company's estimate or
projection of the future Common Stock price. Actual gains, if any, on stock
option exercises are dependant on the future financial performance of the
Company, overall market conditions and the option holders' continued
employment through the vesting period. This table does not take into account
any appreciation in the price of the Common Stock from the date of grant to
the date of this Prospectus.

OPTION EXERCISES AND 1996 YEAR END OPTION VALUES

The following table sets forth information concerning the exercise of stock
options during the year ended December 31, 1996 and the value of options held as
of such date by the Named Executive Officers:

<TABLE>
<CAPTION>
NUMBER OF NUMBER OF SECURITIES VALUE OF UNEXERCISED
SHARES UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT
ACQUIRED OPTIONS AT DECEMBER 31, 1996 DECEMBER 31, 1996(2)
UPON VALUE ----------------------------- -----------------------------
NAME EXERCISE REALIZED(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---------------------- --------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Kenneth E. deLaski.... -- -- -- -- -- --
Dien Hoang Do......... 4,500 $47,363 -- 16,500 -- $ 152,394
Donald deLaski........ -- -- -- -- -- --
Eric F. Brown......... -- -- -- 30,000 -- 210,000
Johnny C. Cheng....... 3,000 31,450 -- 15,000 -- 136,350
</TABLE>

- ---------------

(1) "Value Realized" represents the fair market value of the underlying Common
Stock on the exercise date minus the aggregate exercise price of such
options. For purposes of this calculation, the fair market value of the
Company's Common Stock as of December 31, 1996 of $11.00 per share, as
determined by the Board of Directors, was used.

(2) Based upon the fair market value of the Company's Common Stock as of
December 31, 1996 of $11.00 per share, as determined by the Board of
Directors, minus the aggregate exercise price of such options.

STOCK PLANS

1996 STOCK OPTION PLAN

Deltek's 1996 Stock Option Plan (the "1996 Option Plan") was adopted by the
Company's Board of Directors in November 1996 and approved by the Company's
shareholders in December 1996. A total of 900,000 shares of Common Stock have
been reserved for issuance under the 1996 Option Plan. The 1996 Option Plan will
be administered by the Board of Directors or a committee thereof. The 1996
Option Plan provides for grants of "incentive stock options," within the meaning
of Section 422 of the Code, to employees (including officers and employee
directors), and for grants of nonstatutory options to employees, non-employee
directors and consultants. The 1996 Option Plan will terminate in December 2006,
unless terminated sooner by the Board of Directors.

The exercise price of stock options granted under the 1996 Option Plan must
be not less than the fair market value of the Common Stock on the date of grant.
With respect to any optionee who owns stock representing more than 10% of the
voting power of all classes of the Company's outstanding capital stock, the
exercise price of any incentive stock option must be equal to at least 110% of
the fair market value of the Common Stock on the date of grant, and the term of
the option must not exceed five years. The terms of all other options may not
exceed ten years. The aggregate fair market value of Common Stock (determined as
of the date of the option grant) for which an incentive stock option may for the
first time become exercisable in any calendar year may not exceed $100,000. The
Board of Directors or any committee administering the 1996 Option Plan has
discretion to determine exercise schedules and vesting requirements, if any, of
all option grants under the 1996 Option Plan.

43
<PAGE> 44

As of December 31, 1996, no options had been granted under the 1996 Option
Plan, and all 900,000 shares remained available for future grants. Between
January 1, 1997 and the date of this Prospectus, options to purchase 109,000
shares were granted under the 1996 Option Plan, at an exercise price of $11.00
per share.

EMPLOYEE TIME ACCELERATED STOCK OPTION PLAN

Deltek's Time Accelerated Stock Option Plan (the "Accelerated Plan") was
adopted by the Company's Board of Directors and approved by its shareholders in
April 1996. A total of 1,500,000 shares of Common Stock originally were reserved
for issuance under the Accelerated Plan. In December 1996, the Company's Board
of Directors reduced the number of shares of Common Stock reserved for issuance
under the Accelerated Plan to 679,500, the number of shares of Common Stock
issuable upon the exercise of options then outstanding. The Accelerated Plan
provides for grants of nonstatutory options to key employees of the Company. The
Accelerated Plan was discontinued at the time of the adoption of the 1996 Option
Plan, and no additional options will be granted under the Accelerated Plan.
Options previously granted under the Accelerated Plan will continue to be
governed by the terms of the Accelerated Plan, which will be administered by the
Board of Directors.

The exercise price of options granted under the Accelerated Plan must be
not less than the fair market value of the Common Stock on the date of grant.
The term of options granted under the Accelerated Plan is ten years, subject to
certain exceptions. All of the options granted under the Accelerated Plan become
exercisable on January 1, 2004. However, upon the occurrence of certain events,
including a public offering of the Company's Common Stock, such options will
thereafter become exercisable pursuant to a five-year vesting schedule beginning
on the date of grant. Any options that are fully vested at the time an
optionee's employment with the Company terminates for any reason (other than
death, disability or retirement) terminate three months after the date of
termination unless earlier exercised.

As of December 31, 1996, options to purchase 679,500 shares of Common
Stock, at a weighted average exercise price of $4.00 per share, were outstanding
under the Accelerated Plan. None of such outstanding options were vested.

1987 EMPLOYEE STOCK OPTION PLAN

Deltek's 1987 Employee Stock Option Plan (the "1987 Option Plan") was
adopted by the Company's Board of Directors and approved by its shareholders in
December 1987. A total of 900,000 shares of Common Stock originally were
reserved for issuance under the 1987 Option Plan. In December 1996, the
Company's Board of Directors reduced the number shares of Common Stock reserved
for issuance under the 1987 Option Plan to 388,500, the number of shares of
Common Stock issuable upon the exercise of options outstanding as of September
30, 1996. The 1987 Option Plan provides for grants of nonstatutory options to
key employees of the Company. The 1987 Option Plan was discontinued at the time
of the adoption of the 1996 Option Plan, and no additional options will be
granted under the 1987 Option Plan. Options previously granted under the 1987
Option Plan will continue to be governed by the terms of the 1987 Option Plan,
which will be administered by the Board of Directors.

The exercise price of options granted under the 1987 Option Plan is based
on the book value of the Common Stock at the end of the fiscal year immediately
prior to the year in which the option is granted, as reflected in the Company's
audited financial statements, reduced by any dividend declared by the Company
with respect to the previous fiscal year. The term of options granted under the
1987 Option Plan is ten years, subject to certain exceptions. Generally, options
granted under the 1987 Option Plan become exercisable pursuant to a five-year
vesting schedule provided the optionee remains employed full time by the Company
and are subject to a right of repurchase by the Company upon the termination of
the optionee's employment.

As of December 31, 1996, options to purchase 379,500 shares of Common
Stock, at a weighted average exercise price of $0.40 per share, were outstanding
under the 1987 Option Plan. Options to purchase 259,200 of such shares were
fully vested as of December 31, 1996. Assuming all of the optionees remain
continually employed by the Company, the remaining unvested options will become
fully vested by December 31, 1998.

44
<PAGE> 45

1996 EMPLOYEE STOCK PURCHASE PLAN

Deltek's 1996 Employee Stock Purchase Plan (the "Purchase Plan") was
adopted by the Company's Board of Directors in November 1996 and approved by its
shareholders in December 1996. A total of 400,000 shares of Common Stock are
reserved for issuance under the Purchase Plan. The Purchase Plan, which is
intended to qualify under Section 423 of the Code, will be administered by the
Board of Directors or a committee thereof. Employees (including officers and
employee directors of the Company) are eligible to participate in the Purchase
Plan if they are customarily employed for more than 20 hours per week five
months per year. The Purchase Plan will be implemented during sequential
six-month offering periods. Deltek has not yet offered or sold shares of Common
Stock to employees pursuant to the Purchase Plan, but intends to initiate the
first offering under the Purchase Plan on the date of this offering. The
Purchase Plan permits eligible employees to purchase Common Stock through
payroll deductions, which may not exceed 10% of an employee's compensation. The
price at which stock may be purchased under the Purchase Plan is equal to 85% 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. Employees may end their
participation in the offering at any time during the offering period, and
participation ends automatically on termination of a participant's employment
with the Company. In addition, participants may not purchase shares of Common
Stock having a value (measured at the beginning of the offering period) greater
than $25,000 in any calendar year.

LIMITATION OF LIABILITY AND INDEMNIFICATION

Article 9 of the Virginia Stock Corporation Act (the "VSCA") provides
limitations on damages payable by officers and directors, except in cases of
willful misconduct or knowing violation of criminal law or any federal or state
securities law. Article 10 of the VSCA allows, in general, for indemnification
in certain circumstances, by a corporation of any person threatened with or made
a party to any action, suit or proceeding by reason of the fact that he or she
is, or was, a director, officer, employee or agent of such corporation.

As allowed by Article 9 of the VSCA the Company's Articles of Incorporation
eliminate the liability of the officers and directors of the Company for
monetary damages in any proceeding brought by or in the right of the Company or
brought by or on behalf of shareholders of the Company except in cases of
willful misconduct or a knowing violation of criminal law or any federal or
state securities law. As allowed by Article 10 of the VSCA, the Company's
Articles of Incorporation also provide for mandatory indemnification of any
director or officer of the Company who is, was, or is threatened to be made a
party to a proceeding (including a proceeding by or in the right of the Company)
because (i) he or she is or was a director or officer of the Company or (ii) he
or she is or was serving the Company or other legal entity in any capacity at
the request of the Company while a director or officer of the Company, against
all liabilities and expenses incurred in connection with such proceeding, except
such liabilities as are incurred because of such individual's willful misconduct
or knowing violation of the criminal law. In addition the Company's Articles of
Incorporation expressly authorize the Company to enter into agreements to
indemnify its officers and directors to the fullest extent permitted by the
Articles of Incorporation and to advance their expenses incurred as a result of
any proceeding against them as to which they could be indemnified. The Company
intends to enter into agreements setting forth certain procedures and other
conditions applicable to claims for indemnification pursuant to the Company's
Articles of Incorporation and agreeing, subject to certain limitations, to
obtain and maintain directors' and officers' liability insurance coverage for
its directors and officers.

At present, there is no pending litigation or proceeding involving any
director, officer, employer or agent of the Company where indemnification will
be required or permitted. The Company is not aware of any threatened litigation
or proceeding that might result in a demand for such indemnification.

45
<PAGE> 46

CERTAIN TRANSACTIONS

Deltek and its current shareholders have entered into a Tax Indemnification
Agreement relating to their respective income tax liabilities prior to the
offering. The Tax Indemnification Agreement generally provides that, subject to
certain exceptions, the current shareholders will be responsible for any federal
and state income taxes imposed upon the Company for all taxable periods ending
prior to the Termination Date (other than state income taxes in states where the
Company has not elected S Corporation status) and the Company will be
responsible for all federal and state income taxes arising on or after the
Termination Date. Because the Company will be fully subject to corporate income
taxation on and after the Termination Date, the reallocation of income and
deductions between the period during which the Company was treated as an S
Corporation and the period during which the Company will be subject to corporate
income taxation may increase the taxable income of one party while decreasing
that of another party. Accordingly, subject to certain limitations, the Tax
Indemnification Agreement generally provides that the current shareholders will
be indemnified by the Company with respect to federal and state income taxes
shifted from a Company taxable year subsequent to the Termination Date to a
taxable year in which the Company was an S Corporation, and the Company will be
indemnified by the current shareholders with respect to federal and state income
taxes shifted from an S Corporation taxable year to a Company taxable year
subsequent to the Termination Date. See "Prior S Corporation Status."

Robert E. Gregg, a director of the Company, is a shareholder in Hazel &
Thomas, P.C., a law firm that the Company has retained. The legal fees paid to
Hazel & Thomas by the Company did not exceed 5% of Hazel & Thomas' gross
revenues during the firm's last full fiscal year.

Deltek intends to enter into indemnification agreements with each of its
executive officers and directors. See "Management -- Limitation of Liability and
Indemnification."

Deltek believes that all of the foregoing transactions were on terms no
less favorable to the Company than would be obtained from unrelated third
parties. Any future transactions between the Company and its executive officers,
directors and affiliates will be on terms no less favorable to the Company than
can be obtained from unaffiliated third parties, and any material transactions
with any such person will 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.

46
<PAGE> 47

PRINCIPAL AND SELLING SHAREHOLDERS

The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock as of December 31, 1996, and as adjusted
to reflect the sale of the shares of Common Stock offered hereby, by: (i) each
of the Named Executive Officers; (ii) each of the Company's directors; (iii) all
directors and executive officers as a group; (iv) each other person known by the
Company to own beneficially more than 5% of the Company's Common Stock; and (v)
each Selling Shareholder.

<TABLE>
<CAPTION>
SHARE BENEFICIALLY SHARES BENEFICIALLY OWNED
OWNED PRIOR AFTER
TO THE OFFERING (1) THE OFFERING(1)(2)
-------------------- NUMBER OF SHARES --------------------------
BENEFICIAL OWNER NUMBER PERCENT BEING OFFERED NUMBER PERCENT
- ----------------------------------------- ---------- ------- ---------------- ---------------- -------
<S> <C> <C> <C> <C> <C>
EXECUTIVE OFFICERS AND DIRECTORS:
Kenneth E. deLaski(3).................. 5,550,000 36.6% 330,000 5,220,000 30.9%
Donald deLaski(3)...................... 5,100,000 33.6 327,200 4,772,800 28.3
Eric F. Brown(3)....................... 525,000 3.5 33,000 492,000 2.9
Johnny C. and Emily Cheng.............. 36,000 * -- 36,000 *
Donald G. and Monique H. Craft(4)...... 36,000 * 3,300 32,700 *
Dien Hoang and Thanh Hoang Do.......... 34,500 * -- 34,500 *
Robert E. Gregg........................ -- -- -- -- --
Darrell J. Oyer........................ -- -- -- -- --
All directors, director nominees and
executive officers as a group (9
persons)(5)......................... 11,293,500 74.5 693,500 10,600,000 62.8
OTHER 5% SHAREHOLDERS:
Onae Trust, R.A. Jacobs, Trustee....... 1,515,000 10.0% 200,000 1,315,000 7.8%
Milbank, Tweed, Hadley & McCloy
1 Chase Manhattan Plaza
New York, NY 10005-1413
OTHER SELLING SHAREHOLDERS:
Peter S. Novick........................ 735,000 4.8% 73,500 661,500 3.9%
David L. deLaski....................... 225,000 1.5 22,500 202,500 1.2
Edward R. and Kathleen Grubb........... 225,000 1.5 22,500 202,500 1.2
Nancy A. Drake......................... 150,000 * 120,000 30,000 *
Gerard L. Kelleher..................... 150,000 * 15,000 135,000 *
Mary B. Moore.......................... 135,000 * 13,500 121,500 *
Ellen Martin........................... 127,500 * 12,750 114,750 *
Dennis P. Barrow....................... 127,500 * 12,750 114,750 *
Joseph F. Bozovich..................... 102,000 * 8,000 94,000 *
Richard A. Darr........................ 30,000 * 3,000 27,000 *
Thomas W. Dudenhoefer.................. 30,000 * 3,000 27,000 *
</TABLE>

- ---------------

* Represents less than one percent.

(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission. In computing the number of shares
beneficially owned by a person and the percentage ownership of that person,
shares of Common Stock subject to options held by that person that are
currently exercisable, or will become exercisable within 60 days after
December 31, 1996, are deemed outstanding. Such shares, however, are not
deemed outstanding for purposes of computing the percentage ownership of any
other person. Unless otherwise indicated in the footnotes to this table, the
persons and entities named in the table have sole voting and sole investment
power with respect to all shares

47
<PAGE> 48

beneficially owned, subject to community property laws where applicable.
Unless otherwise indicated, the address of each of the individuals listed in
the table is: c/o Deltek Systems, Inc., 8280 Greensboro Drive, McLean,
Virginia 22102.

(2) Assumes no exercise of the Underwriters' over-allotment option.

(3) Should the Underwriters' over-allotment option be exercised in full, (i) the
number of shares being offered would be 450,000 for Kenneth E. deLaski,
632,200 for Donald deLaski and 43,000 for Eric F. Brown (ii) the number of
shares beneficially owned after the offering would be 5,100,000 for Kenneth
E. deLaski, 4,467,800 for Donald deLaski and 482,000 for Eric F. Brown and
(iii) the percentage of shares beneficially owned after the offering would
be 29.5% for Kenneth E. deLaski, 25.8% for Donald deLaski and 2.8% for Eric
Brown.

(4) Includes 3,000 shares issuable upon exercise of stock options which are
exercisable and fully vested within 60 days of December 31, 1996.

(5) Includes 15,000 shares issuable upon exercise of stock options which are
exercisable and fully vested within 60 days of December 31, 1996.

48
<PAGE> 49

DESCRIPTION OF CAPITAL STOCK

The authorized capital stock of the Company consists of 45,000,000 shares
of Common Stock, $.001 par value per share, and 2,000,000 shares of Preferred
Stock, $.001 par value per share.

The following summary of certain provisions of the Common Stock and
Preferred Stock does not purport to be complete and is subject to, and qualified
in its entirety by, the provisions of the Company's Articles of Incorporation,
as amended, which is included as an exhibit to the Registration Statement of
which this Prospectus is a part.

COMMON STOCK

As of December 31, 1996, there were 15,167,250 shares of Common Stock
outstanding held of record by 35 shareholders. The holders of Common Stock are
entitled to one vote for each share held of record on all matters submitted to a
vote of shareholders. Accordingly, holders of a majority of the shares of Common
Stock entitled to vote in any election of directors may elect all of the
directors standing for election. Subject to preferences that may be applicable
to any outstanding Preferred Stock, holders of Common Stock are entitled to
receive ratably such dividends as may be declared by the Board of Directors out
of funds legally available therefor. See "Dividend Policy." In the event of a
liquidation, dissolution or winding up of the Company, holders of Common Stock
are entitled to share ratably in the assets remaining after payment of
liabilities and the liquidation preference of any outstanding Preferred Stock.
Holders of Common Stock have no preemptive, conversion or redemption rights. All
of the outstanding shares of Common Stock are, and the shares to be sold by the
Company in this offering when issued and paid for will be, fully paid and
non-assessable.

PREFERRED STOCK

The Company's Articles of Incorporation authorize the issuance of 2,000,000
shares of undesignated Preferred Stock. Deltek's Board of Directors has the
authority, without further action by the shareholders, to issue such Preferred
Stock in one or more series and to fix the designations, powers, preferences,
privileges and relative participating, optional or special rights and the
qualifications, limitations or restrictions thereof, including dividend rights,
conversion rights, voting rights, terms of redemption and liquidation
preferences of each such series, any or all of which may be greater than the
rights of the Common Stock. It is impossible to state the actual effect of the
issuance of any shares of preferred stock upon the rights of holders. Preferred
Stock could thus be issued quickly with terms calculated to delay or prevent a
change in control of the Company or make removal of management more difficult.
Additionally, the issuance of Preferred Stock may have the effect of decreasing
the market price of the Common Stock. At present, the Company has no plans to
issue any of the Preferred Stock.

ANTI-TAKEOVER EFFECTS OF VIRGINIA LAW AND ARTICLES OF INCORPORATION

The Company is a Virginia corporation and subject to the VSCA, which
contains certain anti-takeover provisions regulating affiliated transactions and
control share acquisitions and validating the adoption of shareholder rights
plans. In general, the affiliated transactions provisions prevent a Virginia
corporation from engaging in an "affiliated transaction" (as defined) with an
"interested shareholder" (generally defined as a person owning more than 10% of
any voting securities of the corporation) unless approved by a majority of the
"disinterested directors" (as defined) and the holders of at least two-thirds of
the outstanding voting stock not owned by the interested shareholder, subject to
certain exceptions. Under the control share acquisitions provisions of the VSCA,
shares acquired in a "control share acquisition" (defined generally as
transactions that increase the voting strength of the person acquiring such
shares above certain thresholds in director elections) generally have no voting
rights unless granted by a majority of the outstanding voting stock not owned by
the such acquiring person. If such voting rights are granted and the acquiring
person controls 50% or more of the voting power, all shareholders, other than
the acquiring person, are entitled to receive "fair value" (as defined) for
their shares. If such voting rights are not granted, the corporation may, if
authorized by its articles of incorporation or bylaws, purchase the acquiring
person's shares at their cost to the acquiring person. Deltek's Bylaws authorize
such a purchase. Finally, the shareholder rights plan provisions of the VSCA
permit

49
<PAGE> 50

the Board of Directors to adopt a shareholder rights plan that could render a
hostile takeover prohibitively expensive if the Board determines that such a
takeover is not in the best interests of the corporation. The Board of Directors
has no present plan for the adoption of any shareholder rights plan and does not
intend to adopt any such plan except on terms that the Board of Directors deems
to be in the best interests of the Company and its shareholders. The existence
of the shareholder rights plan provision of the VSCA, as well as the affiliated
transactions and control share acquisition provisions could delay or prevent a
change in control of the Company, impede a merger, consolidation or other
business combination involving the Company or discourage a potential acquiror
from making a tender offer or otherwise attempting to obtain control of the
Company.

Deltek's Articles of Incorporation provides that its Board of Directors is
divided into three classes, with each class serving a staggered three-year term.
The classification system of electing directors may tend to discourage a third
party from making a tender offer or otherwise attempting to obtain control of
the Company and may maintain the incumbency of the Board of Directors, as it
generally makes it more difficult for shareholders to replace a majority of the
directors. The Company's Article of Incorporation also does not provide for
cumulative voting rights in the election of directors. These and other
provisions may have the effect of deferring hostile takeovers or delaying
changes in control or management of the Company. The amendment of any of these
provisions would require approval by holders of 66 2/3% or more of the
outstanding shares of the Company's stock entitled to vote thereon.

TRANSFER AGENT AND REGISTRAR

The transfer agent and registrar for the Company's Common Stock is The
First National Bank of Boston.

LISTING

The Company's Common Stock has been approved for quotation on The Nasdaq
National Market under the trading symbol "DLTK."

50
<PAGE> 51

SHARES ELIGIBLE FOR FUTURE SALE

Prior to this offering, there has not been any public market for the Common
Stock of the Company, and there can be no assurance that a significant public
market for the Common Stock will be developed or sustained after the offering.
Sales of substantial amounts of Common Stock in the public market after this
offering could adversely affect the trading price of the Common Stock.

Upon completion of this offering, the Company will have outstanding
16,867,250 shares of Common Stock, assuming no exercise of the Underwriters'
over-allotment option and no exercise of outstanding options subsequent to
December 31, 1996. Of these shares, the 2,900,000 shares offered hereby will be
freely tradeable in the public market without restriction under the Securities
Act, unless such shares are held by "affiliates" of the Company, as that term is
defined in Rule 144 under the Securities Act.

The remaining 13,967,250 shares of Common Stock outstanding upon completion
of this offering will be "restricted securities" as that term is defined in Rule
144 ("Restricted Shares"). Restricted Shares may be sold in the public market
only if registered or if they qualify for an exemption from registration under
Rules 144 or 701 under the Securities Act, which are summarized below. Sales of
Restricted Shares in the public market, or the availability of such shares for
sale, could adversely affect the market price of the Common Stock.

Pursuant to certain "lock-up" agreements, all of the officers, directors
and certain other holders of Common Stock, who collectively hold approximately
13,279,500 shares, have agreed not to offer, sell, contract to sell or grant any
option to purchase or otherwise dispose of such shares for a period of 180 days
from the date of this Prospectus without the prior written consent of Montgomery
Securities. Taking into account these lock-up agreements, the number of
Restricted Shares that will be available for sale in the public market, subject
in some cases to the volume and other restrictions of Rule 144, will be as
follows: (i) approximately 170,250 shares will be eligible for immediate sale as
of the date of this Prospectus, (ii) approximately 93,000 additional shares will
be eligible for sale beginning 90 days after the date of this Prospectus
pursuant to Rules 144 and 701, and (iii) approximately 13,279,500 additional
shares will be eligible for sale beginning 180 days after the date of this
Prospectus. Approximately 424,500 remaining Restricted Shares will not be
eligible for sale pursuant to Rule 144 until the expiration of their applicable
two-year holding periods, which will expire between January 1, 1998 and
September 15, 1998.

Subject to lock-up agreements, certain shares issued upon exercise of
options granted by the Company prior to the date of this Prospectus will also be
available for sale in the public market pursuant to Rule 701 under the
Securities Act. Rule 701 permits resales of such shares in reliance upon Rule
144 but without compliance with certain restrictions, including the holding
period requirement, imposed under Rule 144. In general, under Rule 144 as
currently in effect, beginning 90 days after the date of this Prospectus, a
person (or persons whose shares are aggregated) who has beneficially owned
Restricted Shares for at least two years (including the holding period of any
prior owner except an affiliate) would be entitled to sell within any three-
month period a number of shares that does not exceed the greater of (i) one
percent of the then outstanding shares of Common Stock (approximately 168,673
shares immediately after this offering) or (ii) the average weekly trading
volume of the Common Stock during the four calendar weeks preceding the filing
of a Form 144 with respect to such sale. Sales under Rule 144 are also subject
to certain manner-of-sale and notice requirements and to the availability of
current public information about the Company. Under Rule 144(k), a person who is
not deemed to have been an affiliate of the Company at any time during the 90
days preceding a sale and who has beneficially owned the shares proposed to be
sold for at least three years (including the holding period of any prior owner
except an affiliate of the Company) is entitled to sell such shares without
complying with the manner-of-sale, public information, volume limitation or
notice provisions of Rule 144. Effective April 21, 1997, the two-year and
three-year holding periods for Rule 144 and Rule 144(k), respectively, will be
reduced to one year and two years, respectively.

51
<PAGE> 52

Deltek has reserved an aggregate of 2,336,500 shares of Common Stock for
issuance pursuant to the Company's stock option and purchase plans. As of
December 31, 1996, options to purchase a total of 1,059,000 shares of Common
Stock were outstanding under the Company's stock option plans. The Company
intends to file registration statements on Form S-8 under the Securities Act
approximately 90 days after the date of this Prospectus to register an aggregate
of 1,300,000 shares of Common Stock issued or reserved for issuance under the
1996 Option Plan and the Purchase Plan. Shares of Common Stock issued under the
foregoing plans after the filing of such registration statements will be freely
tradeable in the public market, subject in the case of certain holders to the
Rule 144 limitations applicable to affiliates, the above-referenced lock-up
agreements with the Underwriters and vesting restrictions imposed by the
Company.

52
<PAGE> 53

UNDERWRITING

The underwriters named below (the "Underwriters"), represented by
Montgomery Securities and William Blair & Company, L.L.C. (the
"Representatives") have severally agreed, subject to the terms and conditions
set forth in the Underwriting Agreement, to purchase from the Company and the
Selling Shareholders the number of shares of Common Stock indicated below
opposite their respective names at the public offering price less the
underwriting discount set forth on the cover page of this Prospectus. The
Underwriting Agreement provides that the obligations of the Underwriters are
subject to certain conditions precedent and that the Underwriters are committed
to purchase all of such shares, if any are purchased.

<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
-------------------------------------------------------------------------- ---------
<S> <C>
Montgomery Securities..................................................... 1,000,000
William Blair & Company, L.L.C. .......................................... 1,000,000
Cowen & Company........................................................... 100,000
Goldman, Sachs & Co....................................................... 100,000
Hambrecht & Quist LLC..................................................... 100,000
Lehman Brothers Inc. ..................................................... 100,000
PaineWebber Incorporated.................................................. 100,000
Robertson, Stephens & Company LLC......................................... 100,000
Cruttenden Roth Incorporated.............................................. 50,000
Johnston, Lemon & Co. Incorporated........................................ 50,000
Piper Jaffray Inc. ....................................................... 50,000
Raymond James & Associates, Inc........................................... 50,000
Scott & Stringfellow, Inc. ............................................... 50,000
H.C. Wainwright & Co., Inc. .............................................. 50,000
Total........................................................... 2,900,000
</TABLE>

The Representatives have advised the Company that the Underwriters
initially propose to offer the Common Stock to the public on the terms set forth
on the cover page of this Prospectus. The Underwriters may allow to selected
dealers a concession of not more than $0.43 per share, and the Underwriters may
allow, and such dealers may reallow, a concession of not more than $0.10 per
share to certain other dealers. After the public offering, the offering price
and other selling terms may be changed by the Representatives. The Common Stock
is offered subject to receipt and acceptance by the Underwriters and to certain
other conditions, including the right to reject orders in whole or in part.

Certain of the Selling Shareholders have granted an option to the
Underwriters, exercisable during the 30-day period after the date of this
Prospectus, to purchase up to a maximum of 435,000 additional shares of Common
Stock to cover over-allotments, if any, at the same price per share as the
initial 2,900,000 shares to be purchased by the Underwriters. To the extent the
Underwriters exercise this option, each of the Underwriters will be committed,
subject to certain conditions, to purchase such additional shares in the same
proportion as set forth in the above table. The Underwriters may purchase such
shares only to cover over-allotments made in connection with this offering.

53
<PAGE> 54

The Underwriting Agreement provides that the Company and the Selling
Shareholders will indemnify the Underwriters against certain liabilities under
the Securities Act, or will contribute to payments the Underwriters may be
required to make in respect thereof.

Deltek's officers and directors, the Selling Shareholders and certain other
holders of Common Stock, who collectively hold approximately 13,279,500 shares
of Common Stock, have agreed not to offer, sell, contract to sell or grant any
option to purchase or otherwise dispose of any shares of Common Stock of the
Company, any options or warrants to purchase any shares of Common Stock or any
securities convertible into or exchangeable for any shares of Common Stock for a
period of 180 days from the date of this Prospectus without the prior written
consent of Montgomery Securities. Montgomery Securities may, in its sole
discretion and at any time without notice, release all or any portion of the
securities subject to agreements not to sell. In addition, the Company has
agreed that, without the prior written consent of Montgomery Securities, for a
period of 180 days from the date of this Prospectus, the Company will not, other
than pursuant to the stock option plans and the Purchase Plan described in this
Prospectus, issue, offer, pledge, sell, grant options to purchase or otherwise
dispose of, directly or indirectly, any of the Company's equity securities or
any other securities convertible into or exchangeable with its Common Stock or
other equity securities.

Prior to this offering, there has been no public market for the Company's
Common Stock. Consequently, the initial public offering price has been
determined through negotiations among the Company, the Selling Shareholders and
the Representatives. Among the factors considered in such negotiations were the
history of, and prospects for, the Company and the industry in which it
competes, an assessment of the Company's management, its past and present
operations and financial performance, the prospects for future earnings of the
Company, the present state of the Company's development, the general condition
of the securities markets at the time of the offering and the market prices of
and demand for publicly traded common stocks of comparable companies in recent
periods and other factors deemed relevant.

LEGAL MATTERS

The validity of the Common Stock offered hereby will be passed upon for the
Company by Gray Cary Ware & Freidenrich, A Professional Corporation, Palo Alto,
California. Certain legal matters relating to the offering will be passed upon
for the Underwriters by Brobeck, Phleger & Harrison LLP, Palo Alto, California.
Gray Cary Ware & Freidenrich, A Professional Corporation, and Brobeck, Phleger &
Harrison LLP, will rely as to all matters of Virginia law on Hazel & Thomas,
P.C., Falls Church, Virginia, counsel to the Company.

EXPERTS

The audited financial statements of the Company for the three years ended
December 31, 1996 included in this Prospectus have been audited by Arthur
Andersen LLP, independent public accountants, as indicated in their report, and
are included herein in reliance upon the authority of said firm as experts in
giving such reports.

54
<PAGE> 55

ADDITIONAL INFORMATION

Deltek has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement (which term shall include any amendments
thereto) on Form S-1 under the Securities Act with respect to the Common Stock
offered hereby. This Prospectus, which constitutes a part of the Registration
Statement, does not contain all of the information set forth in the Registration
Statement, certain items of which are contained in exhibits to the Registration
Statement as permitted by the rules and regulations of the Commission. For
further information with respect to the Company and the Common Stock offered
hereby, reference is made to the Registration Statement, including the exhibits
thereto, and the financial statements and notes filed as a part thereof.
Statements made in this Prospectus concerning the contents of any document
referred to herein are not necessarily complete. With respect to each such
document filed with the Commission as an exhibit to the Registration Statement,
reference is made to the exhibit for a more complete description of the matter
involved. The Registration Statement, including the exhibits thereto and the
financial statements and notes filed as a part thereof, as well as such reports
and other information filed with the Commission, may be inspected without charge
at the public reference facilities maintained by the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549 and at the regional offices of the
Commission located at Seven World Trade Center, 13th Floor, New York, New York
10048 and Northwestern Atrium Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661. Copies of all or any part thereof may be obtained from
the Commission upon the payment of certain fees prescribed by the Commission.
Such reports and other information may also be inspected without charge at a Web
site maintained by the Commission. The address of such site is
http://www.sec.gov.

Deltek will furnish its stockholders with annual reports containing
financial statements audited by independent accountants and quarterly reports
for the first three quarters of each year containing unaudited financial
statements. This Prospectus includes trademarks, tradenames and service marks of
other companies.

55
<PAGE> 56

(This page intentionally left blank)
<PAGE> 57

DELTEK SYSTEMS, INC.

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Public Accountants.............................................. F-2
Balance Sheets as of December 31, 1995 and 1996....................................... F-3
Statements of Operations for the Years Ended December 31, 1994, 1995 and 1996......... F-4
Statements of Changes in Shareholders' Equity for the Years Ended December 31, 1994,
1995 and 1996....................................................................... F-5
Statements of Cash Flows for the Years Ended December 31, 1994, 1995 and 1996......... F-6
Notes to Financial Statements......................................................... F-7
</TABLE>

F-1
<PAGE> 58

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Deltek Systems, Inc.:

We have audited the accompanying balance sheets of Deltek Systems, Inc. (a
Virginia corporation), as of December 31, 1995 and 1996, and the related
statements of operations, changes in shareholders' equity, and cash flows for
the three years in the period ended December 31, 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 Deltek Systems, Inc., as of
December 31, 1995 and 1996, and the results of its operations and its cash flows
for the three years in the period ended December 31, 1996, in conformity with
generally accepted accounting principles.

ARTHUR ANDERSEN LLP

Washington, D.C.
January 21, 1997

F-2
<PAGE> 59

DELTEK SYSTEMS, INC.

BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
PRO FORMA
DECEMBER 31, DECEMBER 31,
------------------- ------------
1995 1996 1996
------- ------- ------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................ $ 4,393 $ 8,333 $ 8,333
Marketable securities.................................... 3,128 -- --
Accounts receivable, net of allowance for doubtful
accounts of $343 and $396, respectively............... 6,042 5,995 5,995
Inventories.............................................. 100 209 209
Prepaid expenses and other current assets................ 574 1,058 1,058
------ ------ ------
Total current assets............................. 14,237 15,595 15,595
------ ------ ------
Furniture, equipment, and leasehold improvements, at cost,
net of accumulated depreciation and amortization of
$1,630 and $2,168, respectively.......................... 1,299 1,878 1,878
------ ------ ------
Computer software development costs, at cost, net of
accumulated amortization of $1,232 and $1,810,
respectively............................................. 2,547 2,591 2,591
Other assets............................................... -- 138 138
------ ------ ------
Total assets..................................... $18,083 $20,202 $ 20,202
====== ====== ======

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses.................... $ 1,724 $ 1,908 $ 1,908
Accrued dividends payable................................ 2,594 -- 5,100
Short-term notes payable to shareholders................. -- -- 4,000
Deferred revenue......................................... 4,916 6,808 6,808
Deferred income taxes.................................... -- -- --
------ ------ ------
Total current liabilities........................ 9,234 8,716 17,816
------ ------ ------
Commitments (Note 6)
Shareholders' equity:
Preferred stock, $0.001 par value per share; 2,000,000
shares authorized; none issued or outstanding......... -- -- --
Common stock, $0.001 par value; 45,000,000 shares
authorized; 15,050,250 and 15,167,250 shares issued
and outstanding at December 31, 1995 and 1996,
respectively.......................................... 15 15 15
Paid-in capital.......................................... 75 2,226 2,226
Retained earnings........................................ 8,736 9,965 865
Unrealized gain on marketable securities................. 23 -- --
------ ------ ------
8,849 12,206 3,106
------ ------ ------
Less -- Unearned compensation............................ -- 720 720
------ ------ ------
Total shareholders' equity....................... 8,849 11,486 2,386
------ ------ ------
Total liabilities and shareholders' equity....... $18,083 $20,202 $ 20,202
====== ====== ======
</TABLE>

The accompanying notes are an integral part of these balance sheets.

F-3
<PAGE> 60

DELTEK SYSTEMS, INC.

STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1994 1995 1996
------- ------- -------
<S> <C> <C> <C>
Revenues:
License fees.................................................... $ 7,360 $ 9,720 $12,545
Services........................................................ 12,545 15,154 20,362
Third-party equipment and software.............................. 1,451 1,975 1,873
------- ------- -------
21,356 26,849 34,780
------- ------- -------
Operating expenses:
Cost of software................................................ 766 893 1,318
Cost of services................................................ 4,171 5,151 8,043
Cost of third-party equipment and software...................... 1,054 1,580 1,536
Software development............................................ 3,877 4,934 6,674
Sales and marketing............................................. 1,852 2,743 3,460
General and administrative...................................... 1,593 1,875 2,283
Stock option compensation....................................... -- -- 867
Purchased in-process research and development................... -- -- 394
------- ------- -------
Total operating expenses................................ 13,313 17,176 24,575
------- ------- -------
Income from operations............................................ 8,043 9,673 10,205
Interest income................................................... 257 393 382
------- ------- -------
Income before state income taxes.................................. 8,300 10,066 10,587
Provision for state income taxes.................................. 65 45 93
------- ------- -------
Net income........................................................ $ 8,235 $10,021 $10,494
======= ======= =======
Pro forma statement of operations data (unaudited):
Income before provision for income taxes, as reported........... $ 8,300 $10,066 $10,587
Income tax provision............................................ 3,156 3,827 4,131
------- ------- -------
Net income...................................................... $ 5,144 $ 6,239 $ 6,456
======= ======= =======
Net income per share............................................ $ 0.33 $ 0.40 $ .41
======= ======= =======
Weighted average shares outstanding............................. 15,368 15,552 15,560
======= ======= =======
</TABLE>

The accompanying notes are an integral part of these statements.

F-4
<PAGE> 61

DELTEK SYSTEMS, INC.

STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
COMMON STOCK UNREALIZED
---------------------- GAIN ON TOTAL
PAR PAID-IN RETAINED MARKETABLE UNEARNED SHAREHOLDERS'
SHARES VALUE CAPITAL EARNINGS SECURITIES COMPENSATION EQUITY
---------- --------- ------- -------- ---------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1993...... 14,999,250 $15 $ 42 $ 5,709 $ -- $ -- $ 5,766
Cash dividends................ -- -- -- (7,186) -- -- (7,186)
Exercise of stock options..... 87,000 -- 20 -- -- -- 20
Common stock purchased and
retired.................... (67,500) -- -- (32) -- -- (32)
Net income.................... -- -- -- 8,235 -- -- 8,235
--
---------- ------ ------- ---- ----- -------
Balance, December 31, 1994...... 15,018,750 15 62 6,726 -- -- 6,803
Cash dividends................ -- -- -- (5,417) -- -- (5,417)
Accrued dividends payable..... -- -- -- (2,594) -- -- (2,594)
Exercise of stock options..... 31,500 -- 13 -- -- -- 13
Unrealized holding gain on
marketable securities...... -- -- -- -- 23 -- 23
Net income.................... -- -- -- 10,021 -- -- 10,021
--
---------- ------ ------- ---- ----- -------
Balance, December 31, 1995...... 15,050,250 15 75 8,736 23 -- 8,849
Cash dividends................ -- -- -- (9,265) -- -- (9,265)
Exercise of stock options..... 15,000 -- 7 -- -- -- 7
Acquisition of the Allegro
Group, Inc................. 102,000 -- 408 -- -- -- 408
Unrealized holding gain on
marketable securities...... -- -- -- -- (23) -- (23)
Conversion of book value plan
to fair value plan (Note
7)......................... -- -- 1,484 -- -- (468) 1,016
Issuance of stock options..... -- -- 252 -- -- (252) --
Net income.................... -- -- -- 10,494 -- -- 10,494
--
---------- ------ ------- ---- ----- -------
Balance, December 31, 1996...... 15,167,250 $15 $ 2,226 $ 9,965 $ -- $ (720) $11,486
========== == ====== ======= ==== ===== =======
</TABLE>

The accompanying notes are an integral part of these statements.

F-5
<PAGE> 62

DELTEK SYSTEMS, INC.

STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1994 1995 1996
------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income.................................................... $ 8,235 $ 10,021 $ 10,494
Adjustments to reconcile net income to net cash provided by
operating activities --
Depreciation and amortization.............................. 768 665 1,116
Compensation, noncash...................................... -- -- 980
Purchased research and development, noncash charge......... -- -- 394
(Gain) loss on disposal of fixed assets.................... (7) 13 (13)
Accreted interest on marketable securities................. (30) (61) 61
Change in accounts receivable, net......................... (1,114) (1,889) 47
Change in prepaid expenses, inventories, and other current
assets................................................... (204) (15) (593)
Change in accounts payable and accrued expenses............ (157) 618 184
Change in deferred revenue................................. 2,142 1,319 1,794
------- ------- -------
Net cash provided by operating
activities.......................................... 9,633 10,671 14,464
------- ------- -------
Cash flows from investing activities:
Sale (purchase) of marketable securities...................... (2,006) (993) 3,067
Purchase of property and equipment............................ (516) (642) (1,117)
Capitalization of computer software development costs......... (1,411) (1,105) (622)
------- ------- -------
Net cash (used in) provided by investing activities... (3,933) (2,740) 1,328
------- ------- -------
Cash flows from financing activities:
Cash dividends paid to stockholders........................... (7,186) (5,417) (11,859)
Cash proceeds from exercise of stock options.................. 20 13 7
Common stock purchased and retired............................ (32) -- --
------- ------- -------
Net cash used in financing
activities.......................................... (7,198) (5,404) (11,852)
------- ------- -------
Net increase (decrease) in cash and cash equivalents............ (1,498) 2,527 3,940
Cash and cash equivalents, beginning
of year....................................................... 3,364 1,866 4,393
------- ------- -------
Cash and cash equivalents, end of year.......................... $ 1,866 $ 4,393 $ 8,333
======= ======= =======
Supplemental disclosure of cash flow information:
Allegro acquisition (Note 2).................................. -- -- --
Cash paid during the year for income taxes.................... $ 65 $ 45 $ 75
======= ======= =======
</TABLE>

The accompanying notes are an integral part of these statements.

F-6
<PAGE> 63

DELTEK SYSTEMS, INC.

NOTES TO FINANCIAL STATEMENT

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Deltek Systems, Inc. (the "Company"), was incorporated in 1983 under the
laws of the Commonwealth of Virginia. The Company designs, develops, sells and
supports a family of integrated software products that provide project-oriented
businesses with tools to manage, operate and grow their operations. The
Company's family of software products consists of Costpoint, the Company's
advanced client/server, enterprise-level business software system designed for
project-oriented organizations; System 1, a DOS-based accounting and management
system designed primarily for organizations providing goods and services under
contracts with the federal government; Electronic Timesheet, an employee
timekeeping system; and Allegro, a project and resource management tool.

Recapitalization and Stock Split

On December 10, 1996, the Company amended its Articles of Incorporation to
increase the number of authorized shares of common stock to 45,000,000 and to
authorize 2,000,000 shares of undesignated preferred stock. The Company's Board
of Directors has the authority, without further action by the shareholders, to
issue such preferred stock in one or more series and to fix the terms and rights
of the preferred stock. Such actions by the Board of Directors could adversely
affect the voting power and other rights of the holders of common stock.
Preferred stock could thus be issued quickly with terms that could delay or
prevent a change in control of the Company or make removal of management more
difficult. At present, the Company has no plans to issue any of the preferred
stock.

On December 17, 1996, the Board of Directors effected a three-for-one stock
split by means of a stock dividend. The stock split has been reflected
retroactively in the financial statements for all periods presented.

Pro Forma Financial Information (Unaudited)

The pro forma financial information gives effect to a $9.1 million
distribution to the Company's shareholders, representing estimated undistributed
previously taxed S Corporation earnings as of December 31, 1996, assuming the
Company had terminated its S Corporation status as of that date. On a pro forma
basis, this amount is recorded as $5.1 million in accrued dividends payable and
$4.0 million in short-term notes payable. The deferred tax liability that would
have been recorded if the Company had terminated its S Corporation status as of
December 31, 1996 would not have been material. Pro forma net income is based on
the assumption that the Company's S Corporation status was terminated at the
beginning of each year.

Pro Forma Net Income Per Common Share

Net income per common and equivalent shares is based on the weighted
average equivalent shares outstanding during the period and assumes the dilutive
effect of all options as if they were outstanding for all periods presented
prior to the offering (using the treasury stock method and assuming a per share
price of $12.00). In accordance with SEC Staff Accounting Bulletin No. 83,
weighted average shares for periods prior to 1996 also include those options
which were granted within one year of the initial public offering date.

Primary earnings per share are not presented because the difference between
these amounts and the amounts presented is not material.

Management's 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.

F-7
<PAGE> 64

DELTEK SYSTEMS, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

Revenue Recognition

The Company grants perpetual licenses under a standard license agreement.
The Company historically has granted its customers the right to return its
software products for a refund of the license fee during a refund period which
is generally 60 to 90 days from the date of the license agreement, although the
Company occasionally has provided, and may in the future provide, longer refund
periods for larger, more complex Costpoint installations. The Company recognizes
license fees from its System 1 and Electronic timesheet products upon delivery,
whereas Costpoint license fees are recognized upon the expiration of the
applicable refund period and are recorded as deferred revenue until recognized
(Note 5). For contracts that involve significant installment payments, the
Company also evaluates whether fees are fixed and determinable. If the fees are
not fixed and determinable, the Company defers the recognition of revenue until
the payments become due. Implementation and other consulting services are
provided on a time and materials basis, billed monthly or semi-monthly and
recognized as the services are performed. Telephone support and periodic
enhancements and updates are provided for maintenance fees that are payable
quarterly and initially represent between 15% and 20% of the related software
license fee on an annual basis. Revenue from quarterly maintenance and support
service is recognized over the term of the support agreement, which is generally
three months. Revenue from third-party equipment and software is derived from
the resale and sublicensing of third-party hardware and software products in
connection with the license and installation of the Company's systems and is
generally recognized upon delivery.

The American Institute of Certified Public Accountants (the "AICPA")
recently approved for exposure a draft Statement of Position (the "Exposure
Draft") that would supersede SOP 91-1, Software Revenue Recognition. The
Exposure Draft provides additional guidance to multiple elements: returns,
exchanges, and platform transfer rights; resellers; services; funded
software-development arrangements; and contract accounting. If approved, the
Exposure Draft would need to be implemented for years beginning after December
15, 1996. While the Company is still analyzing the Exposure Draft, it believes
that the proposed changes will not have a material adverse financial impact on
the Company.

Cash and Cash Equivalents

The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents.

Furniture, Equipment and Leasehold Improvements

Furniture and equipment are stated at cost and are depreciated using the
straight-line method over the estimated useful lives of the assets, which are
generally three to five years. Leasehold improvements are amortized over the
shorter of the useful life of the asset or the lease term.

Inventories

Inventories are valued at the lower of cost (first-in, first-out) or
market. Inventories consist principally of equipment purchased for resale and
software user manuals.

Capitalized Computer Software Development Costs

Computer software development costs for products are capitalized subsequent
to the establishment of technological feasibility, as evidenced by detailed
program designs. Capitalization ceases when the products are available for
general release to customers, at which time amortization of the capitalized
costs begins on a straight-line basis over the estimated lives of the products,
which are generally five years. Amortization expense of approximately $406,000,
$276,000, and $579,000 was recorded related to these costs during 1994, 1995,
and 1996, respectively, and is included in cost of software.

F-8
<PAGE> 65

DELTEK SYSTEMS, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

Marketable Securities

Effective January 1, 1994, the Company adopted the fair value method of
accounting for certain investments in debt and equity securities under Statement
of Financial Accounting Standards ("SFAS") No. 115, Accounting for Certain
Investments in Debt and Equity Securities. The adoption of SFAS No. 115 had no
effect on the Company's financial position or results of operations in the year
ended December 31, 1994. At acquisition, debt and equity securities are
classified into three categories: held-to-maturity, available-for-sale, or
trading. At each reporting date, the appropriateness of the classifications is
reassessed.

Included in the balance sheet at December 31, 1995 are marketable
securities of approximately $3,103,000 that are U.S. Treasury securities
classified as available-for-sale and recorded at fair value. As of December 31,
1995, the Company recorded an unrealized gain of approximately $23,000 as a
separate component of shareholders' equity. No marketable securities were held
by the Company at December 31, 1996.

Concentrations of Credit Risk

Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist principally of cash and cash equivalents,
marketable securities, and accounts receivable. The Company maintains cash and
cash equivalents with high credit quality financial institutions. Marketable
securities consist primarily of U.S. Treasury securities with original
maturities at date of purchase beyond three months. The credit risk with respect
to accounts receivable is generally diversified due to the large number of
entities comprising the Company's customer base. The Company performs ongoing
credit evaluations of its customers' financial condition and maintains
allowances for potential credit losses. Actual losses and allowances have been
within management's expectations.

Fair Value of Financial Instruments

Financial instruments are defined as cash, evidence of an ownership
interest in an entity, or a contract that imposes an obligation to deliver cash
or other financial instruments to a second party. The carrying amounts of
current assets and current liabilities in the accompanying financial statements
approximate fair value due to the short maturity of these instruments.

Income Taxes

The Company has elected to be treated as an S Corporation for federal
income tax purposes. Accordingly, income or loss is prorated among the
stockholders and reported on their individual income tax returns. The
accompanying statements include a provision for state income taxes related to
certain states that do not recognize S Corporation status for state income tax
purposes.

Income taxes are accounted for in accordance with SFAS No. 109, Accounting
for Income Taxes. Under SFAS No. 109, deferred tax assets and liabilities are
computed based on the difference between the financial statement and tax basis
of assets and liabilities are measured by applying enacted tax rates and laws
for the taxable years in which those differences are expected to reverse. As of
December 31, 1995 and 1996, differences between the financial statement and tax
basis of assets and liabilities in states not recognizing S Corporation status
were insignificant. On a pro forma basis, the deferred tax liability that would
have been recorded if the Company had terminated its S Corporation status as of
December 31, 1996 would not have been material.

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, including software development costs; property,
plant, and equipment; identifiable intangibles; and goodwill, for impairment

F-9
<PAGE> 66

DELTEK SYSTEMS, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

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.

2. ALLEGRO ACQUISITION:

On September 18, 1996, the Company acquired, in a tax-free exchange, from
The Allegro Group, Inc. ("Allegro"), substantially all of the assets relating
solely to Allegro's software business, and assumed certain related liabilities,
in exchange for 102,000 shares of the Company's common stock, valued at $4.00
per share. The Company recorded the acquisition using the purchase method of
accounting.

Upon evaluation, the Company assigned approximately $130,000 to intangible
assets and is amortizing this amount over five years. The Company assigned
$394,000 to in-process research and development and expensed this amount. In the
opinion of management, the acquired in-process research and development had not
yet reached technological feasibility and had no alternative future uses. The
Company recorded approximately $140,000 in assumed liabilities of Allegro,
primarily related to deferred consulting revenue.

In addition, the Company entered into a three-year employment agreement
beginning October 1, 1996, with the two principals of Allegro for a base salary
and incentive compensation based upon revenue and profit growth of the Allegro
division of the Company.

3. ACCOUNTS RECEIVABLE:

The Company periodically licenses its software to certain customers under
monthly installment plans. Unbilled accounts receivable that relate primarily to
installment sales were approximately $1,490,000 and $1,837,000 at December 31,
1995 and 1996, respectively. Installment plans extending longer than four months
are generally interest-bearing.

The Company holds a note receivable from a shareholder in the principal
amount of $100,000 which is due on September 17,1997 and bears interest at the
rate of 8.0% per annum, payable semi-monthly. Shares of the Company's common
stock serve as collateral for the note.

4. ACCOUNTS PAYABLE AND ACCRUED EXPENSES:

Accounts payable and accrued expenses consist of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
---------------
1995 1996
------ ------
(IN THOUSANDS)
<S> <C> <C>
Accrued wages and other employee benefits............................ $ 942 $1,045
Deferred rent credit................................................. 70 47
Accounts payable and other accrued expenses.......................... 712 816
------
$1,724 $1,908
======
</TABLE>

5. DEFERRED REVENUE:

The Company had deferred revenue of approximately $2,786,000 and $3,196,000
as of December 31, 1995 and 1996, respectively, attributable to the sales of
licenses of Costpoint software. The revenue related to Costpoint will be
recognized upon the expiration of the refund period, right of return, generally
60 to 90 days from the date of sale, and the fulfillment of any significant
vendor obligations (Note 1). Also included in deferred revenue is ongoing
software support and consulting and training services.

F-10
<PAGE> 67

DELTEK SYSTEMS, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

6. COMMITMENTS:

Office Space Lease

The Company leases office space under noncancelable operating leases.
Minimum rental expense is recognized on a straight-line basis over the term of
the lease, regardless of when payments are due. Rent expense was approximately
$809,000 and $990,000 for the years ended December 31, 1995 and 1996,
respectively. The Company's primary lease expires in March, 2002.

As of December 31, 1996, the future minimum lease payments are as follows:

<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
--------------------------------------------------------------- AMOUNT
--------------
(IN THOUSANDS)
<S> <C>
1997........................................................... $1,371
1998........................................................... 1,352
1999........................................................... 1,381
2000........................................................... 1,415
2001........................................................... 1,451
Thereafter..................................................... 346
------
$7,316
======
</TABLE>

Profit-Sharing Plan

The Company has a 401(k) profit-sharing plan covering all eligible
employees. Employees are eligible to participate in the plan after they have
completed six months of service. Once the eligibility requirement is satisfied,
employees may become participants on the earlier of the first day of the plan
year or the first day of the seventh month of the plan year coinciding with the
employees' eligibility. Company contributions vest ratably over five years. The
Board of Directors approved a contribution of 5% and 4% of eligible compensation
for 1995 and 1996, respectively. The Company's contribution for 1995 and 1996
was approximately $438,000 and $418,000, respectively.

7. EMPLOYEE STOCK OPTION PLANS:

1987 Employee Stock Option Plan

Prior to April 1, 1996, the Company's sole stock option plan was the 1987
Employee Stock Option Plan (the "Book Value Plan"), a nonqualified plan under
which 900,000 shares of common stock were originally reserved for issuance. In
December 1996, the Board of Directors reduced the number of shares of common
stock reserved for issuance under the Plan to equal the number of shares
issuable upon the exercise of options outstanding at September 30, 1996. Until
June 1996, the exercise price of options granted under the Book Value Plan was
based on the book value per share at the end of the fiscal year immediately
preceding the grant, reduced by any dividends declared by the Company related to
the previous year and the Company recorded compensation expense each year based
on the change in the formula price per share. Options are exercisable over ten
years, subject to a five-year vesting period.

Options granted pursuant to the Book Value Plan are generally
nontransferable. Under the provisions of the Book Value Plan, the Company may
decline to accept a notice of exercise of vested options if such action is
necessary to maintain compliance with the limitation on the number of
shareholders prescribed in the IRS regulations pertaining to S Corporations. The
transfer of shares issued pursuant to options granted under the Book Value Plan
is subject to the Company's right of first refusal. In addition, the Company has
the right, but not the obligation, to repurchase shares and vested options from
employees upon the termination of their employment. The Company's right to
prohibit the exercise of options, right of first refusal and repurchase right
terminate upon a sale of the Company or upon the initial public offering of the
Company's common stock.

F-11
<PAGE> 68

DELTEK SYSTEMS, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

In June 1996, the Company amended the Book Value Plan to change the
exercise price of future options to be granted thereunder from a formula price
based on book value to the appraised fair market value of the underlying common
stock. This amendment requires the Company to pay the holder of a vested option
the difference between the then appraised fair value of the common stock and the
exercise price if the Company declines to permit the exercise of the option in
order to maintain its S Corporation status. This amendment also resulted in
changing the price paid for shares purchased by the Company upon the exercise of
its right of first refusal or its repurchase right to the appraised fair market
value of the common stock. As a result of these changes, the Company recorded a
non-recurring, non-cash charge to operations in the amount of $867,000,
representing the aggregate difference between the exercise price of outstanding
vested options and $4.00 per share, the appraised market value of the underlying
common stock at June 30, 1996. Additional compensation charges of $113,000 were
recorded during the six months ended December 31, 1996, and up to an additional
$468,000 of such charges will be recorded through December 31, 1998, as
outstanding options continue to vest under this plan.

Employee Time Accelerated Stock Option Plan

On April 1, 1996, the Company created the Employee Time Accelerated Stock
Option Plan (the "Accelerated Plan"), under which 1,500,000 shares of common
stock are reserved for issuance, and granted options thereunder to purchase
648,000 shares at an exercise price of $4.00 per share, the appraised value of
the common stock on the date of grant. Since the exercise price of these options
is equal to the appraised fair value of the common stock on the date of grant,
the Company recorded no compensation expense in accordance with Accounting
Principles Board ("APB") Opinion No. 25, Accounting for Stock Issued to
Employees. These options vest 100% on January 1, 2004. However, in the event of
an acquisition or an initial public offering of the Company's common stock,
these options will vest ratably over a five year period from the date of grant.
Other provisions of the Accelerated Plan are consistent with the Book Value Plan
described above. The Company granted options to purchase 36,000 shares of the
Company's common stock, at an exercise price of $4.00 per share, on December 1,
1996. As the options vest, the Company will record up to $252,000 in
compensation expense, representing the aggregate difference between the $4.00
per share exercise price and $11.00, the low end of the range of the estimated
offering price in the Company's planned initial public offering. In December
1996, the Board of Directors reduced the number of shares of common stock
reserved for issuance under the Accelerated Plan to equal the number of shares
issuable upon the exercise of options outstanding at December 10, 1996.

1996 Stock Option Plan

The Company's Board of Directors and the shareholders of the Company
adopted a new 1996 Stock Option Plan (the "1996 Option Plan") in December 1996.
A total of 900,000 shares of common stock have been reserved for issuance under
the 1996 Option Plan. No options have been granted. The 1996 Option Plan
provides for grants of incentive stock options to employees (including officers
and employee directors) and for grants of nonstatutory options to employees,
nonemployee directors and consultants.

The exercise price of incentive stock options granted under the 1996 Option
Plan must not be less than the fair market value of the common stock on the date
of the grant, and the exercise price of nonstatutory options must not be less
than 85% of the fair market value of the common stock on the date of the grant.
With respect to any optionee who owns stock representing more than 10% of the
voting power of all classes of the Company's outstanding common stock, the
exercise price of any incentive stock option must be equal to at least 110% of
the fair market value of the common stock on the date of the grant, and the term
of the option must not exceed five years. The terms of all other options may not
exceed 10 years.

F-12
<PAGE> 69

DELTEK SYSTEMS, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

1996 Employee Stock Purchase Plan

The Company's 1996 Employee Stock Purchase Plan (the "Purchase Plan") was
adopted by the Company's Board of Directors and approved by the shareholders of
the Company in December 1996. A total of 400,000 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 fair market value of the common stock
on the first day of the offering period or the last day of the offering period.

Summary Activity

The following table summarizes the activity of all the Company's stock
option plans:

<TABLE>
<CAPTION>
NUMBER PRICE
OF SHARES PER SHARE
--------- ----------------
<S> <C> <C>
Shares under option, December 31, 1993................. 435,000 $0.075 -- $0.392
Options granted...................................... 33,000 0.443
Options canceled..................................... (61,500) --
Options exercised.................................... (87,000) 0.075 -- 0.392
---------
Shares under option, December 31, 1994................. 319,500 0.249 -- 0.443
---------
Options granted...................................... 144,000 0.517
Options canceled..................................... (24,000) 0.304 -- 0.392
Options exercised.................................... (31,500) 0.249 -- 0.517
---------
Shares under option, December 31, 1995................. 408,000 0.249 -- 0.517
---------
Options granted...................................... 693,000 4.000
Options canceled..................................... (27,000) 0.517 -- 4.000
Options exercised.................................... (15,000) 0.392 -- 4.000
---------
Shares under option, December 31, 1996................. 1,059,000 0.249 -- 4.000
=========
</TABLE>

Of the options outstanding under the Book Value Plan at December 31, 1996,
options to purchase 259,200 shares are immediately exercisable at exercise
prices ranging from $0.249 to $0.517 per share.

The Company adopted the disclosure requirements of SFAS No. 123, Accounting
for Stock-Based Compensation, effective for the Company's December 31, 1996
financial statements. The Company applies APB Opinion No. 25 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 date of 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 those plans consistent with the method of FASB
Statement 123, the Company's net income and earnings per share would have been
reduced to the pro forma amounts indicated below.

<TABLE>
<CAPTION>
1995 1996
------- -------
(IN THOUSANDS)
<S> <C> <C>
Net income before taxes, as reported........................... $10,066 $10,587
Pro forma income tax provision................................. 3,824 4,068
Pro forma compensation expense................................. 9 162
------ ------
Pro forma net income........................................... $ 6,233 $ 6,357
====== ======
Earnings per share, as reported................................ $ 0.40 $ 0.41
Earnings per share, pro forma.................................. $ 0.40 $ 0.41
</TABLE>

F-13
<PAGE> 70

DELTEK SYSTEMS, INC.

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

The fair value of each option is estimated on the date of grant using the
Black-Scholes option-pricing model with the following assumptions used for
grants in 1995 and 1996, respectively; no dividend yield, expected volatility of
50%, risk-free interest rates of approximately 6.6% and 6.0%, respectively, and
expected lives of seven years. The volatility was based on the volatility
percentage of comparable publicly traded companies since the Company, as a
private company, does not have a sufficient history of stock transactions.
Income taxes represent the assumed effective rate which the Company would pay if
it had terminated its election as an S Corporation, net of any tax benefit for
the incremental increase in pro forma compensation expense.

In 1996, the Company remeasured the fair value of the Book Value Plan
options due to the significant changes in the plan discussed above. Based on the
Black-Scholes option-pricing model, at the remeasurement date, the 379,500 Book
Value Plan options had a fair value of $3.73 per option in 1996, rather than a
previous value of $0.31 per option. The incremental effect of this change on a
pro forma basis was minimal as the cumulative pro forma compensation expense for
the vested options was consistent with the $980,000 of compensation expense
recorded by the Company in accordance with APB No. 25.

Other than the remeasurement of the Book Value Plan, the only other pro
forma compensation expense in 1996 related to the options issued under the
Accelerated Plan which are expected to vest over five years. Based on the
Black-Scholes option-pricing model, at the grant date the 679,500 options
outstanding had a fair value of $2.43 per option.

8. SUBSEQUENT EVENTS

On January 2, 1997, the Board of Directors declared a dividend payable to
all shareholders of date. The Company distributed the dividends totaling
$10,000,000 on January 10, 1997.

On January 24, 1997, options to purchase 109,000 shares were granted under
the 1996 Option Plan, at an exercise price of $11.00 per share.

F-14
<PAGE> 71

APPENDIX - DESCRIPTION OF GRAPHICS

[A schematic diagram, accompanied by the Company's logo and entitled "Software
Solutions for Project-Oriented Businesses," will be provided on the first two
pages of a tri-fold on the inside front cover that contains icons graphically
illustrating eight representative project-oriented business (engineering and
environmental firms, research and development organizations, not-for-profit
organizations, make-to-order manufacturers, systems integrators, professional
service providers, construction companies and technical service providers)
surrounding the names of the Company's products. The following text will
accompany the diagram:

Since 1983, Deltek Systems has been helping project-oriented
organizations manager their unique business requirements through its
family of enterprise-level software products: System 1, Costpoint,
Electronic Timesheet and Allegro. Deltek's products address the core
needs of project-oriented businesses and allow these organizations to
manage financial and project accounting, compute costs and revenue on a
project-by-project basis; submit accurate and detailed bills, comply
with complex industry-specific and regulatory requirements, administer
employee time collection, labor costing and payroll, automate materials
management functions and empower their managers with timely and
pertinent information. Deltek also provides a full range of consulting
and maintenance services to assist its customers with system
implementation and integration and to provide training and ongoing
support for the Company's software products.

On the third page of the tri-fold on the inside front cover, a schematic
diagram, accompanied by the registered trademark for the Company's Costpoint
software product, will be provided that graphically illustrates the product's
five major groups of modules (project accounting; human resources and payroll
administration; reporting tools; materials management; and financial
accounting). The following text will accompany the diagram:

Costpoint, the Company's current flagship product, is a
client/server-based, enterprise-level business software system,
consisting of over 25 integrated module applications which span
financial accounting, project accounting, human resources and payroll
administration, materials management and reporting tools. Costpoint is
designed to meet the specialized needs of project-oriented businesses,
including project costing, indirect cost allocation, revenue
recognition, project budgeting and project reporting. Costpoint
combines these capabilities with applications in other business system
areas that are designed for the special needs of project-oriented
businesses.]

<PAGE> 72

======================================================

No dealer, sales representative or any other person has been authorized to
give any information or to make any representations in connection with this
offering other than those contained in this Prospectus, and, if given or made,
such information or representations must not be relied upon as having been
authorized by the Company, any Selling Shareholder or the Underwriters. This
Prospectus does not constitute an offer to sell or a solicitation of an offer to
buy any of the securities offered hereby in any jurisdiction to any person to
whom it is unlawful to make such offer in such jurisdiction. Neither the
delivery of this Prospectus nor any sale made hereunder shall, under any
circumstances, create any implication that the information contained herein is
correct as of any time subsequent to the date hereof or that there has been no
change in the affairs of the Company since such date.

----------------------------

TABLE OF CONTENTS
----------------------------

<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary.................... 3
Risk Factors.......................... 5
Prior S Corporation Status............ 13
Use of Proceeds....................... 14
Dividend Policy....................... 14
Capitalization........................ 15
Dilution.............................. 16
Selected Financial Data............... 17
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 18
Business.............................. 27
Management............................ 40
Certain Transactions.................. 46
Principal and Selling Shareholders.... 47
Description of Capital Stock.......... 49
Shares Eligible for Future Sale....... 51
Underwriting.......................... 53
Legal Matters......................... 54
Experts............................... 54
Additional Information................ 55
Index to Financial Statements......... F-1
</TABLE>

----------------------------

Until March 22, 1997 (25 days after the date of this Prospectus), all dealers
effecting transactions in the registered securities, whether or not
participating in this distribution, may be required to deliver a Prospectus.
This is in addition to the obligation of dealers to deliver a Prospectus when
acting as Underwriters and with respect to their unsold allotments or
subscriptions.

======================================================
======================================================

2,900,000 SHARES

LOGO

COMMON STOCK
----------------------------
PROSPECTUS
----------------------------

MONTGOMERY SECURITIES

WILLIAM BLAIR & COMPANY

February 25, 1997

======================================================