DELTEK SYSTEMS INC, S-3, 1998-08-03

DELTEK SYSTEMS INC
S-3, 1998-08-03
COMPUTER PROGRAMMING SERVICES

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<PAGE> 1

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 31, 1998

REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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DELTEK SYSTEMS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

<TABLE>
<S> <C> <C>
VIRGINIA 54-1252625
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION
NUMBER)
INCORPORATION OR ORGANIZATION)
</TABLE>

8280 GREENSBORO DRIVE
MCLEAN, VA 22102
(703) 734-8606
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)

KENNETH E. DELASKI
PRESIDENT AND CHIEF EXECUTIVE OFFICER
8280 GREENSBORO DRIVE
MCLEAN, VA 22102
(703) 734-8606
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
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Copies to:

<TABLE>
<S> <C>
KATHLEEN L. CERVENY, ESQ. MATTHEW S. BROWN, ESQ.
HAZEL & THOMAS, P.C. KATTEN MUCHIN & ZAVIS
3110 FAIRVIEW PARK DRIVE, SUITE 1400 525 WEST MONROE STREET, SUITE 1600
FALLS CHURCH, VA 22042 CHICAGO, IL 60661
TELEPHONE (703) 641-4200; FACSIMILE (703) 641-4340 TELEPHONE (312) 902-5200; FACSIMILE (312) 902-1061
</TABLE>

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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC: As soon as practicable after the effective date of this Registration
Statement.

If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]

If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933 other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [ ]

If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ] ____________

If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] ____________

If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE

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PROPOSED
TITLE OF EACH PROPOSED MAXIMUM
CLASS OF SECURITIES AMOUNT TO BE MAXIMUM OFFERING AGGREGATE AMOUNT OF
TO BE REGISTERED REGISTERED PRICE PER SHARE(1) OFFERING PRICE REGISTRATION FEE
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<S> <C> <C> <C> <C>
Common Stock, $.001 par value.......... 3,910,000(2) $23.125 $90,418,750 $26,674
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</TABLE>

(1) Estimated solely for purposes of calculating the amount of the registration
fee pursuant to Rule 457 under the Securities Act of 1933, as amended, and
based on the closing price of the Common Stock as reported on the Nasdaq
National Market on July 30, 1998.

(2) Includes 510,000 shares which the Underwriters have the option to purchase
to cover over-allotments, if any.

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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<PAGE> 2

INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.

SUBJECT TO COMPLETION, DATED JULY 31, 1998

PROSPECTUS

3,400,000 SHARES

[LOGO] DELTEK SYSTEMS, INC.

COMMON STOCK

Of the 3,400,000 shares of Common Stock offered hereby, 500,000 are being
sold by Deltek Systems, Inc. ("Deltek" or the "Company") and 2,900,000 are being
sold by certain shareholders of the Company (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.

The Common Stock is traded on the Nasdaq National Market under the symbol
"DLTK." On July 30, 1998, the closing price of the Common Stock as reported on
the Nasdaq National Market was $23.125 per share. See "Price Range of Common
Stock and Dividends."

SEE "RISK FACTORS" BEGINNING ON PAGE 6 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE SHARES OF 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>

<S> <C> <C> <C> <C>
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<CAPTION>
PROCEEDS TO
PRICE UNDERWRITING PROCEEDS TO SELLING
TO PUBLIC DISCOUNT(1) COMPANY(2) SHAREHOLDERS
<S> <C> <C> <C> <C>
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Per Share....................... $ $ $ $
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Total(3)........................ $ $ $ $
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(1) The Company and the Selling Shareholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended. See "Underwriting."

(2) Before deducting expenses payable by the Company, estimated at $425,000.

(3) Certain of the Selling Shareholders have granted to the Underwriters a
30-day option to purchase up to an additional 510,000 shares of Common Stock
solely to cover over-allotments, if any. See "Underwriting." If all such
shares are purchased, the total Price to Public, Underwriting Discount, and
Proceeds to Selling Shareholders will be $ , $ and
$ , respectively.

The shares of Common Stock are being offered by the several Underwriters
when, as and if delivered to and accepted by them and subject to their right to
reject orders in whole or in part. It is expected that delivery of the
certificates for the shares of Common Stock will be made on or about ,
1998.

WILLIAM BLAIR & COMPANY
NATIONSBANC MONTGOMERY SECURITIES LLC
BEAR, STEARNS & CO. INC.
FRIEDMAN, BILLINGS, RAMSEY & CO., INC.

THE DATE OF THIS PROSPECTUS IS , 1998.
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[INSIDE FRONT COVER GRAPHIC]

Product logos for CostPoint, Advantage, System 1, ET Enterprise, Allegro
and CFMS together with a representation of the five enterprise-wide product
functional areas (project accounting, financial accounting, project management,
human resources management and materials management)

------------------------
Deltek, Costpoint and Allegro are registered trademarks of the Company, and
Advantage, CFMS, MICRO/CFMS, CFMS/RD, Electronic Timesheet, ET Enterprise 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.
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CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK OF
THE COMPANY, INCLUDING SYNDICATE COVERING TRANSACTIONS OR THE IMPOSITION OF
PENALTY BIDS. FOR A DISCUSSION OF THESE ACTIVITIES, SEE "UNDERWRITING."

IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS AND OTHER SELLING
GROUP MEMBERS OR THEIR AFFILIATES MAY ENGAGE IN PASSIVE MARKET MAKING
TRANSACTIONS IN THE COMMON STOCK OF THE COMPANY ON THE NASDAQ NATIONAL MARKET IN
ACCORDANCE WITH RULE 103 OF REGULATION M UNDER THE EXCHANGE ACT. SEE
"UNDERWRITING."
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<PAGE> 4

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 or incorporated herein by reference. Except as
otherwise indicated, all information in this Prospectus (i) gives effect to a
December 1996 three-for-one split of the Company's common stock, $.001 par value
per share (the "Common Stock"); (ii) gives retroactive effect to the Company's
May 1998 acquisition of Harper and Shuman, Inc. ("Harper & Shuman") which was
accounted for as a pooling-of-interests transaction, and, accordingly, the
Consolidated Financial Statements of the Company for the periods prior to the
combination have been restated to include the accounts and operations of Harper
& Shuman; and (iii) assumes that the Underwriters' over-allotment option is not
exercised. Prospective investors should carefully consider the information under
the caption "Risk Factors." Except where the context indicates otherwise, all
references to the "Company" or "Deltek" herein shall refer to Deltek Systems,
Inc. and its subsidiaries.

THE COMPANY

Deltek is a leading provider of enterprise software products that enable
project-oriented organizations to more effectively manage, operate and grow
their operations. The Company's software products address the needs specific to
such organizations through a wide range of functionality, such as financial and
project accounting, human resources management and administration, materials
management and project reporting. The Company also provides a full range of
services, including implementation and consulting, training and ongoing support.
In 1997, 36.5% of the Company's total revenues was derived from software license
fees and 57.6% of its total revenues was generated from services. Since its
inception, the Company has licensed its products to over 5,000 project-oriented
organizations across a spectrum of industries, including architecture and
engineering, environmental, systems integration, research and development,
contract services and construction, as well as make-to-order manufacturers and
not-for-profit organizations. Many of these project-oriented businesses provide
products and services under federal government contracts. The Company's
customers include Bell Atlantic Federal Integrated Systems, Inc., Computer
Sciences Corporation, Lockheed Martin Corp., Northrup Grumman Corporation and
Raytheon Service Co., Inc.

Increasing competition has created pressure for organizations to better
utilize information technologies to manage their businesses, improve efficiency,
reduce costs and provide employees and management with more timely and pertinent
information. Information technology is now viewed as a strategic and tactical
tool, as well as a means of facilitating information processing and reducing
costs. As a result, many organizations are implementing enterprise-wide business
systems to automate their operations, including finance, accounting,
manufacturing, human resources, reporting and customer management functions.
Most enterprise-wide business systems are general purpose in design and
therefore do not address many of the unique requirements of businesses engaged
primarily in providing products and services under project-specific contracts
and engagements.

Since its inception, Deltek has focused exclusively on developing and
providing products and services designed to meet the needs of project-oriented
organizations. The Company believes that this focus is a competitive advantage
in serving project-oriented markets relative to companies that offer more
general-purpose enterprise software. Deltek believes that its solutions
generally are better-suited, require shorter implementation times and cost less
to install and maintain than general-purpose enterprise solutions. Deltek's
enterprise-wide products consist of Costpoint, an advanced client/server
business software system designed for all types of project-oriented
organizations; Advantage, a client/server accounting system designed for
professional services firms; System 1, a character-based accounting system
designed primarily for organizations providing products or services under
contracts with the federal government; and CFMS, a family of older-generation
project-based accounting systems used primarily by architecture and engineering
firms. Deltek's stand-alone application software products, which also can be
integrated with the Company's enterprise-wide systems, consist of Electronic
Timesheet, an advanced employee timekeeping system, and Allegro, a project
budgeting and resource management tool.

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Deltek also provides implementation and consulting, training and ongoing
support services as an integral part of its solution. In contrast to
general-purpose software vendors that often rely on third-party providers,
Deltek has a staff of over 100 experienced system consultants who directly
assist Deltek's customers with system implementation. Beyond implementation, the
Company provides training either on site or at one of its three training
centers. The Company also provides ongoing product maintenance and technical
support, which is a significant source of recurring revenues.

From 1994 through 1997, total revenues increased from $28.8 million to
$57.6 million, representing compound annual growth of 26.0%, and income from
operations, exclusive of non-recurring charges, increased from $8.4 million to
$17.1 million, representing compound annual growth of 26.8%. For the six months
ended June 30, 1998, total revenues increased 43.0% from the comparable prior
year period to $37.7 million, and income from operations, excluding
non-recurring charges, increased 33.7% from the comparable prior year period to
$10.1 million.

The Company has completed three transactions to broaden its product line
and extend its technical capabilities. In September 1996, Deltek acquired The
Allegro Group, Inc. in order to obtain a project budgeting and resource
management product. In April 1998, the Company purchased certain assets of
SalesKit Software Corporation ("SalesKit") in order to support its initiative to
develop customer and sales opportunity management software for project-oriented
businesses. In May 1998, Deltek acquired Harper & Shuman, the leading provider
of project accounting software to architecture and engineering firms.

The Company's objective is to strengthen its position as a leading provider
of enterprise software to project-oriented organizations. To achieve this goal,
the Company's strategy is to (i) maintain its focus on project-oriented markets;
(ii) expand its technologically advanced product line; (iii) provide superior
services; (iv) leverage its large installed customer base; and (v) expand its
sales and marketing efforts. The Company may also from time to time consider
strategic acquisitions.

The Company was incorporated in Virginia in 1983. The Company's executive
offices are located at 8280 Greensboro Drive, McLean, Virginia 22102, and its
telephone number is (703)734-8606. The Company's website address is
www.deltek.com. The Company's website is not, and shall not be deemed to be, a
part of this Prospectus.

THE OFFERING

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<S> <C>
Shares Offered by the Company................ 500,000
Shares Offered by Selling Shareholders....... 2,900,000
Shares Outstanding Immediately After the
Offering................................... 18,340,613(1)
Use of Proceeds to the Company............... For working capital and other general
corporate purposes, including potential
acquisitions or investments in businesses,
technologies or product lines complementary
to the Company's business. See "Use of
Proceeds."
Nasdaq National Market Symbol................ DLTK
</TABLE>

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(1) Excludes (i) 1,298,330 shares of Common Stock reserved for issuance under
the Company's employee stock option plans upon the exercise of options
outstanding as of June 30, 1998, at a weighted average exercise price of
$10.18 per share, (ii) 602,273 shares of Common Stock reserved for future
issuances under the Company's stock option and stock purchase plans as of
June 30, 1998, and (iii) 130,000 shares of Common Stock issuable upon
exercise of outstanding warrants at an exercise price of $22.00 per share.

4
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SUMMARY CONSOLIDATED FINANCIAL DATA(1)
(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
----------------------------------------------- ---------------------
1993 1994 1995 1996(2) 1997(3) 1997 1998(4)
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(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenues..................... $25,563 $28,814 $34,306 $41,711 $57,646 $26,366 $37,702
Operating expenses before
non-recurring charges............ 18,445 20,395 24,462 30,335 40,500 18,791 27,572
Non-recurring charges.............. -- -- -- 1,261 320 -- 7,906
Income from operations............. 7,118 8,419 9,844 10,115 16,826 7,575 2,224
Income before income taxes......... 7,353 8,681 10,228 10,507 17,607 7,889 2,724
Net income......................... $ 7,291 $ 8,453 $10,126 $10,453 $11,709 $ 5,732 $ 1,370
Diluted net income per share....... $ 0.07
Weighted average shares, diluted... 18,293

PRO FORMA STATEMENT OF OPERATIONS
DATA (UNAUDITED)(5):
Provision for income taxes......... $ 2,798 $ 3,319 $ 3,884 $ 4,092 $ 6,780 $ 3,039
Net income......................... 4,555 5,362 6,344 6,415 10,827 4,850
Diluted net income per share....... $ 0.28 $ 0.33 $ 0.39 $ 0.39 $ 0.61 $ 0.28
Weighted average shares, diluted... 16,168 16,107 16,279 16,282 17,882 17,539
</TABLE>

<TABLE>
<CAPTION>
JUNE 30, 1998
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ACTUAL AS ADJUSTED(6)
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(UNAUDITED)
<S> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and marketable securities............ $24,684 $35,214
Working capital............................................. 21,052 31,582
Total assets................................................ 50,919 61,449
Total shareholders' equity.................................. 29,960 40,490
</TABLE>

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(1) All amounts have been restated to reflect the acquisition of Harper & Shuman
in May 1998, which was accounted for using the pooling-of-interests method
of accounting. See Note 1 of Notes to Consolidated Financial Statements.

(2) In 1996, the Company incurred 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 diluted net income per share for
1996 would have been $11.4 million, $11.7 million, $7.2 million and $0.44,
respectively.

(3) In 1997, the Company incurred a non-recurring, non-cash charge of $320,000
for acquisition costs. Exclusive of this charge, income from operations, net
income, pro forma net income and pro forma diluted net income per share for
1997 would have been $17.1 million, $12.0 million, $11.1 million and $0.62,
respectively.

(4) In the six months ended June 30, 1998, the Company incurred non-recurring,
non-cash charges of $1.1 million for acquisition costs and $6.8 million for
purchased in-process research and development. Exclusive of these charges,
income from operations, net income and diluted net income per share for the
six months ended June 30, 1998 would have been $10.1 million, $6.6 million
and $0.36, respectively.

(5) Prior to February 25, 1997, Deltek (excluding Harper & Shuman) 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 Deltek had not
elected S Corporation status for the periods indicated.

(6) As adjusted to give effect to the sale of 500,000 shares of Common Stock
offered by the Company hereby (at an assumed offering price of $23.125 per
share), after deducting the estimated underwriting discount and offering
expenses, and the application of the estimated net proceeds therefrom.

5
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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. See "Information
Concerning Forward-Looking Statements."

POTENTIAL FLUCTUATIONS IN QUARTERLY OPERATING RESULTS

The Company's future operating results may vary from quarter to quarter
depending 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, its ability to attract and retain personnel, the
timing of new hires, 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 the Company's national user conference, general economic conditions and its
ability to develop and market new software products and enhancements and control
costs. 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 revenues from license fees are difficult to predict because
of the length and variability of the Company's sales cycles (typically 3 to 18
months), 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 adversely
affected.

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

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.
The Company's future quarterly operating results from time to time may not meet
the expectations of market analysts or investors. In such event, the price of
the Common Stock would likely be materially adversely affected.

YEAR 2000 COMPLIANCE

Many existing computer systems and applications, and other control devices,
use only two digits to identify a year in the date field, without considering
the impact of the upcoming change in the century. As a result, such systems,
applications and devices could fail or create erroneous results unless they are
modified in some fashion to distinguish 21st century dates from 20th century
dates (i.e., to be year 2000 compliant). Management believes that the growth in
demand for the Company's products over the past several years is due in part to
its customers' need to update their computer systems in preparation for the year
2000. As the year 2000 approaches and the number of upgrades driven primarily by
the need to achieve year 2000 compliance diminishes, there can be no assurance
that the Company's business, operating results and financial condition will not
be adversely impacted.

versions of its products. The Company intends to provide the year 2000 compliant
versions of its products as normal product upgrades to all licensees that are
using non-compliant versions and are currently receiving ongoing support
services from the Company. The Company is attempting to identify those other
licensees, which are currently using a non-compliant version of its products but
are not receiving ongoing support services, in order to determine whether those
licensees intend to continue using the Company's products and, if so, how the
Company can assist them in converting to a year 2000 compliant version. Although
the Company does not anticipate that the impact of these conversions will be
significant, there can be no assurance that the Company will be able to identify
and satisfactorily resolve year 2000 issues with such licensees in a manner that
will not have a material adverse effect on the Company's business, operating
results and financial condition. Although the Company's year 2000 compliant
products have, or will have, undergone the Company's normal quality testing
procedures, there can be no assurance that these products contain all necessary
date code changes. Any system malfunctions due to the onset of the year 2000 and
any disputes with customers relating to year 2000 compliance, including
licensees of non-compliant products that the Company is unable to locate, could
have a material adverse effect on the Company's business, operating results and
financial condition. See "Business -- Products."

The Company's internal business information systems are primarily comprised
of the commercial application software products offered for license by the
Company to its customers. These products are designed to be year 2000 compliant.
The Company does, however, utilize some third-party vendor network equipment,
telecommunication products and other products which may or may not be year 2000
compliant. The Company also relies, directly and indirectly, on external systems
of customers, suppliers, creditors, financial organizations and governmental
entities for accurate exchange of data. The Company is evaluating its
information technology infrastructure for year 2000 compliance to determine what
actions are required to make all internal systems year 2000 compliant and what
actions are needed to mitigate vulnerability to problems related to enterprises
with which the Company interacts. While the Company has not fully identified the
impact of the year 2000 issue on its internal systems or whether any problems
can be resolved without disrupting its business and incurring significant
expense, the Company's current estimate is that the costs associated with the
year 2000 issue, and the consequences of incomplete or untimely resolution of
the year 2000 issue, will not have a material adverse effect on the Company's
business, operating results or financial condition. There can be no assurance
that the Company will not be affected by year 2000 disruption in the operation
of the enterprises with which the Company interacts. Accordingly, year 2000
problems could have a material adverse effect upon the Company's business,
operating results and financial condition.

COMPETITION

The market for client/server-based business application software is
intensely competitive and rapidly changing. The Company competes with a number
of companies, many of which have significantly greater financial, technical,
marketing and other resources than the Company. In addition, certain competitors
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. The Company also faces
indirect competition from the internal MIS departments of its potential
customers.

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."

HIRING AND RETENTION OF EMPLOYEES; DEPENDENCE ON KEY EMPLOYEES

The Company's success is dependent upon its ability to attract and retain
highly skilled managerial, research and development, consulting, customer
service, sales and marketing personnel. Although the Company currently is
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
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recruiting qualified personnel. The Company could be adversely affected if it is
unable to recruit qualified personnel or if senior managers or other such
personnel were to leave the Company and qualified replacements were not
available. Competition for skilled personnel in the software industry is
intense. There can be no assurance that the Company will continue to be able to
attract and retain the personnel it requires to develop and market new and
enhanced products or to market and service its existing products and conduct its
operations successfully. Any inability to do so could have a material adverse
effect on the Company's business, operating results and financial condition. In
addition, the Company may incur increased compensation costs in order to attract
and retain skilled employees.

The Company's success will also 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 and Chief Operating Officer, or Dien Hoang Do, its Vice
President, Technology, could have a material adverse effect on the Company's
business, operating results and financial condition.

DEPENDENCE ON COSTPOINT AND ADVANTAGE PRODUCT LINES; PRODUCT MIGRATION

For the year ended December 31, 1997 and the six months ended June 30,
1998, 71.3% and 75.1%, respectively, of the Company's software revenues were
derived from licenses of its Costpoint and Advantage business software products.
In addition, the Company generates service revenues related to its Costpoint and
Advantage products. The Company expects its Costpoint and Advantage product
lines to continue to account for a significant percentage of the Company's
future revenues. Accordingly, factors adversely affecting the pricing of, or the
demand for Costpoint and Advantage, such as the success of competitive products
or technological change, or the Company's inability to continue to enhance the
Costpoint and Advantage product lines 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 and to license Costpoint or Advantage to existing CFMS
users as those customers reengineer their information systems and migrate to
client/server solutions. There can be no assurance, however, that a significant
percentage of current System 1 and CFMS customers will migrate to Costpoint or
Advantage. In particular, smaller System 1 customers are less likely to migrate
to Costpoint because the cost of migrating to a client/server environment may be
relatively high and because System 1 may adequately meet their needs. If a
significant number of the Company's current System 1 or CFMS customers elect not
to migrate to Costpoint or Advantage or purchase competitive products, the
Company's business, operating results and financial condition would be
materially adversely affected. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Business --Products."

RAPID TECHNOLOGICAL CHANGE; RISKS ASSOCIATED WITH NEW PRODUCT DEVELOPMENT;
POTENTIAL LIABILITY

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 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. There can be no assurance that the
Company will be successful in completing the development of new products and
enhancements or that any new product or enhancement it may introduce will
achieve market acceptance.

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 or integration with older products in order to minimize disruption in sales
of existing products. There can be no

8
<PAGE> 10

assurance that the Company's development efforts will progress satisfactorily or
keep pace with industry developments. The Company allocates resources for
research and development projects based on planned product introductions and
enhancements; however, actual expenditures may significantly differ from amounts
allocated. The Company has experienced, and may experience in the future, delays
in the introduction of its products, due to factors internal and external to the
Company. Additionally, because the Company's software products are complex,
there can be no assurance that, despite testing, errors will not be found after
commencement of commercial shipments, resulting in loss of or delay in market
acceptance. 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. The sale and support of
software products by the Company entails the risk of product liability claims.
In addition, the failure to perform services to a customer'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. See "Business -- Products" and "-- Product
Development."

RISKS RELATED TO ACQUISITION ACTIVITIES

As part of its growth strategy, the Company has acquired or invested, and
from time to time may acquire or invest, in complementary businesses,
technologies and product lines. In April 1998, the Company acquired certain
assets of SalesKit and in May 1998, the Company completed the acquisition of
Harper & Shuman. In order to achieve the anticipated benefits of these
acquisitions and any future acquisitions, the Company must successfully
assimilate the operations of the acquired business, and integrate and market its
acquired products and technologies in a timely manner. In order to successfully
integrate acquired products into the Company's sales and marketing channels, the
Company must train its sales force on acquired products and integrate employees
of the acquired companies with respect to sales commission, territories, product
positioning and training. In addition, certain of such acquired assets, licenses
or technology may require significant additional development, such as the
completion of product functionality, before the commercial release of products.
Although the Company currently has no understandings, commitments or agreements
with respect to any additional acquisitions, any such acquisitions may be
accompanied by the risks commonly encountered in such transactions. Such risks
include, among others, the disruption of the Company's ongoing business;
diversion of management from day-to-day operations; amortization of acquired
intangible assets; impairment of relationships with customers, employees and
strategic partners; the loss of personnel; the difficulty of maintaining uniform
standards, controls, procedures and policies; and the potential liabilities
arising from any acquisition. The Company's inability to address such risks or
fulfill expectations regarding revenues from acquired businesses, products and
technologies could have a material adverse effect on the Company's business,
operating results and financial condition.

MANAGEMENT OF GROWTH

The Company is currently experiencing growth and expansion, internally and
through acquisitions, which have placed, and will continue to place, a strain on
its administrative, operational and financial resources and demands on its
systems and controls. This growth has resulted in an increasing level of
responsibility for the Company's management 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 management is unable to manage
growth effectively, the Company's business, operating results and financial
condition could be materially adversely affected.

UNCERTAINTY OF EXPANSION INTO NEW MARKETS

The Company believes that its future success is dependent, in part, on its
ability to successfully penetrate new project-oriented markets and expand
internationally. Although the Company has an ongoing program to further
customize and add functionality to its products in order to address the specific
needs of customers in

9
<PAGE> 11

new markets, the Company's limited resources may restrict its ability to track
developments in these markets, to develop appropriate products, and to
effectively pursue marketing activities in multiple markets simultaneously.
There can be no assurance that the Company's products will be accepted in 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."

DEPENDENCE UPON ORGANIZATIONS WITH FEDERAL GOVERNMENT CONTRACTS

A significant portion of the Company's total revenues is derived from
customers that provide products 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
significant percentage of its total revenues. While such organizations are
subject to the same general economic conditions as other businesses, demand for
their products and services is also dependent upon applicable procurement
policies and the availability of appropriated funds. Any significant downsizing,
consolidation or liquidation of such organizations as a result of changes in
procurement policies, budget reductions or reallocations or other causes could
adversely affect the Company's business, operating results and financial
condition.

RELIANCE ON THIRD-PARTY SOFTWARE DEVELOPMENT TOOLS

The Company licenses from third parties certain software development tools
that the Company utilizes in the development of its products. Accordingly, the
Company is dependent upon such third parties' abilities to deliver quality
products, correct errors, support their current products, develop new and
enhanced products on a timely and cost-effective basis and respond to emerging
industry standards and other technological changes. Should these third-party
development tools 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. Although the Company believes that
other development tools with comparable functionality are currently available
from other third parties, there can be no assurance that, if needed, replacement
products could be obtained on reasonable terms. 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 Company's inability to rewrite its products using different
development tools on a timely and cost-effective basis could have a material
adverse effect on the Company's business, operating results and financial
condition. See "Business -- Products" 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 from day-to-day
operations 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
10
<PAGE> 12

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 adversely affected.

CONTROL BY PRINCIPAL SHAREHOLDERS; SHARES ELIGIBLE FOR FUTURE SALE

The Company's principal shareholders, Kenneth E. deLaski, its President and
Chief Executive Officer, and Donald deLaski, its Chairman, together with their
affiliates, in the aggregate own approximately 53.9% of the outstanding shares
of the Common Stock as of June 30, 1998 and will own approximately 40.3% upon
conclusion of this offering. As a result, these shareholders, acting together,
are able to effectively control substantially all matters requiring approval by
the shareholders of the Company including the election of the Board of Directors
and significant corporate transactions. Such influence 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. Substantially all of the Company's
restricted securities are available for resale pursuant to Rule 144 under the
Securities Act of 1933, as amended (the "Securities Act"), including the shares
owned by the principal shareholders. Sales of substantial amounts of such
restricted securities could adversely affect prevailing market prices for the
Common Stock. See "Principal and Selling Shareholders."

VOLATILITY OF THE MARKET PRICE OF THE COMMON STOCK

The market price of the Common Stock has historically been volatile. The
Company believes factors such as quarterly fluctuations in results of
operations, announcements of new products and acquisitions by the Company or by
its competitors, changes in earnings estimates by analysts, changes in
accounting treatments or principles and other factors may cause the market price
of the Common Stock to fluctuate, perhaps substantially. The market price of the
Common Stock also may be affected by the Company's ability to meet market
analysts' expectations, and any failure to meet such expectations could have a
material adverse effect on the market price of the Common Stock. In addition,
securities prices for many technology companies fluctuate widely for reasons
which may be unrelated to operating results of such companies. These
fluctuations, as well as general economic, political and market conditions, may
adversely affect the market price of the Common Stock in the future. In the
past, following periods of volatility in the market price of a company's
securities, class action litigation has often been instituted against such
company. Any such litigation instigated against the Company could result in
substantial costs and a diversion of management's attention and resources from
day-to-day operations, which could have a material adverse effect on the
Company's business, operating results and financial condition. See "Price Range
of Common Stock and Dividends."

INFORMATION CONCERNING FORWARD-LOOKING STATEMENTS

In addition to historical information, this Prospectus and the documents
incorporated herein by reference include certain "forward-looking statements" as
defined in Section 27A of the Securities Act and Section 23E of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), that are based on the
beliefs of, assumptions made by, and information currently available to, the
Company's management. The words "anticipates," "believes," "estimates,"
"expects," "plans," "intends" and other similar expressions are intended to
identify these forward-looking statements, but are not the exclusive means of
identifying them. These forward-looking statements reflect the current view of
the Company or its management and are subject to certain risks, uncertainties
and contingencies which could cause the Company's actual results, performance or
achievements to differ materially from those expressed in or implied by these
statements. These risks, uncertainties and contingencies include, but are not
limited to, the factors discussed under the heading "Risk Factors" and elsewhere
in this Prospectus. Deltek undertakes no obligation and does not intend to
update,
11
<PAGE> 13

revise or otherwise publicly release the result of any revisions to these
forward-looking statements that may be made to reflect future events or
circumstances.

12
<PAGE> 14

USE OF PROCEEDS

The net proceeds to be received by the Company from the sale of the 500,000
shares of Common Stock being offered by it hereby, after deducting the estimated
underwriting discount and offering expenses, are expected to be approximately
$10.5 million (at an assumed offering price of $23.125 per share). The Company
intends to use the net proceeds for working capital and other general corporate
purposes, including potential acquisitions or investments in businesses,
technologies or product lines complementary to the Company's business. The
Company currently has no 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 such net proceeds in short-term, interest bearing,
investment grade securities. The Company will not receive any of the proceeds
from the sale of shares of Common Stock by the Selling Shareholders.

PRICE RANGE OF COMMON STOCK AND DIVIDENDS

Since February 25, 1997, the Common Stock has been traded on the Nasdaq
National Market under the symbol "DLTK." The high and low per share sales prices
for the Common Stock for each period indicated, as reported on the Nasdaq
National Market, are as follows:

<TABLE>
<CAPTION>
PRICE
---------------
HIGH LOW
------ ------
<S> <C> <C>
YEAR ENDED DECEMBER 31, 1997
First Quarter (from February 25, 1997)................. $11.13 $ 8.50
Second Quarter......................................... 18.00 7.25
Third Quarter.......................................... 23.13 13.63
Fourth Quarter......................................... 22.50 14.00

YEAR ENDING DECEMBER 31, 1998
First Quarter.......................................... $21.13 $15.75
Second Quarter......................................... 25.25 16.50
Third Quarter (through July 30, 1998).................. 24.50 21.00
</TABLE>

On July 30, 1998, the closing price for the Common Stock as reported on the
Nasdaq National Market was $23.125 per share and the Company had approximately
75 holders of record of the Common Stock. Management believes that the number of
beneficial holders of Common Stock is substantially larger because most of the
shareholders hold such shares in street name.

As an S Corporation, the Company made cash distributions to its
shareholders, including in connection with the termination of the Company's S
Corporation status in February 1997. In 1996, 1997 and the six months ended June
30, 1998, the Company paid $11.9 million, $13.6 million and $370,000,
respectively, in such cash distributions to the S Corporation shareholders. The
Company does not intend to pay cash dividends in the future as it intends to
retain all earnings to support its planned growth. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources."

13
<PAGE> 15

SELECTED CONSOLIDATED FINANCIAL DATA(1)
(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
----------------------------------------------- -----------------
1993 1994 1995 1996(2) 1997(3) 1997 1998(4)
------- ------- ------- ------- ------- ------- -------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
License fees............................ $ 9,104 $ 8,965 $11,656 $14,114 $21,043 $ 9,515 $12,690
Services................................ 13,533 16,421 19,076 24,343 33,216 15,211 23,222
Third-party equipment and software...... 2,926 3,428 3,574 3,254 3,387 1,640 1,790
------- ------- ------- ------- ------- ------- -------
Total revenues.................... 25,563 28,814 34,306 41,711 57,646 26,366 37,702
Operating expenses:
Cost of software........................ 990 1,092 1,230 1,577 2,079 923 1,133
Cost of services........................ 5,217 6,060 6,937 9,844 14,375 6,363 11,038
Cost of third-party equipment and
software.............................. 2,085 2,538 2,750 2,516 2,631 1,311 1,382
Software development.................... 5,363 5,212 6,577 8,380 11,214 5,388 7,210
Sales and marketing..................... 2,773 3,149 4,178 5,000 6,643 3,008 4,882
General and administrative.............. 2,017 2,344 2,790 3,018 3,558 1,798 1,927
Stock option compensation............... -- -- -- 867 -- -- --
Acquisition costs....................... -- -- -- -- 320 -- 1,096
Purchased in-process research and
development........................... -- -- -- 394 -- -- 6,810
------- ------- ------- ------- ------- ------- -------
Total operating expenses.......... 18,445 20,395 24,462 31,596 40,820 18,791 35,478
------- ------- ------- ------- ------- ------- -------
Income from operations.................... 7,118 8,419 9,844 10,115 16,826 7,575 2,224
Interest income, net...................... 235 262 384 392 781 314 500
------- ------- ------- ------- ------- ------- -------
Income before income taxes................ 7,353 8,681 10,228 10,507 17,607 7,889 2,724
Provision for income taxes................ 62 228 102 54 5,898 2,157 1,354
------- ------- ------- ------- ------- ------- -------
Net income................................ $ 7,291 $ 8,453 $10,126 $10,453 $11,709 $ 5,732 $ 1,370
======= ======= ======= ======= ======= ======= =======
Diluted net income per share.............. $ 0.07
Weighted average shares, diluted.......... 18,293

PRO FORMA STATEMENT OF OPERATIONS DATA
(UNAUDITED)(5):
Provision for income taxes................ $ 2,798 $ 3,319 $ 3,884 $4,092 $ 6,780 $ 3,039
Net income................................ 4,555 5,362 6,344 6,415 10,827 4,850
Diluted net income per share.............. $ 0.28 $ 0.33 $ 0.39 $ 0.39 $ 0.61 $ 0.28
Weighted average shares, diluted.......... 16,168 16,107 16,279 16,282 17,882 17,539
</TABLE>

<TABLE>
<CAPTION>
JUNE 30,
1998
-------------
(UNAUDITED)
<S> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and marketable securities............ $24,684
Working capital............................................. 21,052
Total assets................................................ 50,919
Total shareholders' equity.................................. 29,960
</TABLE>

14
<PAGE> 16

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

The following discussion and analysis of the Company's consolidated
financial condition and consolidated results of operations should be read in
conjunction with the Company's Consolidated Financial Statements, including the
Notes thereto, appearing elsewhere in this Prospectus or incorporated herein by
reference.

OVERVIEW

Deltek is a leading provider of enterprise software products that enable
project-oriented organizations 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 System 1 business software, designed
primarily for organizations providing products or services under contracts with
the federal government, and services related to System 1. In 1992, the Company
began development of Costpoint, an advanced client/server-based, enterprise-wide
business software system, which was commercially released in June 1995 and which
represented approximately 57.9% of the Company's license fees for the six months
ended June 30, 1998. The Company's other enterprise software products are
Advantage, a client/server accounting system designed for professional services
firms, and CFMS, a family of older-generation project-based accounting systems
used primarily by architecture and engineering firms. Deltek's stand-alone
application software products, which also can be integrated with the Company's
enterprise-wide systems, consist of Electronic Timesheet, an advanced employee
timekeeping system, and Allegro, a project budgeting and resource management
tool. Deltek also provides a full range of services, including implementation
and consulting, 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 other services, and
revenues from the resale of third-party equipment and the sublicensing of
third-party software. For certain of its software products, the Company
typically grants its customers a right of return for a full or partial refund of
the license fee during a refund period, which is generally 60 to 90 days from
the date of the initial software delivery. The Company occasionally has
provided, and may in the future provide, longer refund periods for larger, more
complex Costpoint installations. Costpoint and Allegro license fees are
recognized upon the expiration of the applicable refund period and are recorded
as deferred revenues until recognized. Because of customers' refund rights and
the varying length of applicable refund periods, deferred revenues at the end of
a quarter do not necessarily reflect revenues that the Company will recognize in
a succeeding quarter. The Company generally recognizes license fees from its
Advantage, System 1 and Electronic Timesheet products upon delivery.
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. Ongoing support services are provided for fees that are payable
quarterly and initially represent between 15% and 20% of the related software
license fee on an annual basis. Revenues from ongoing support services are
recognized over the quarter in which the services are provided. Training is
billed by the hour or per class and recognized as the services are provided.
Revenues from third-party equipment and software are 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 are generally
recognized on delivery. The Company derives substantially greater profit margins
from license fees than from service revenues or third-party equipment and
software revenues. The mix of revenues can fluctuate from quarter to quarter,
and such fluctuations can have a material effect on margins. Over the past five
years, the percentage of the Company's total revenues represented by service
revenues has increased, and the Company anticipates that it will continue to do
so.

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 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, the
Windows version of System 1 and a browser-based Electronic Timesheet product.

15
<PAGE> 17

In April 1998, the Company acquired substantially all of the assets of
SalesKit and assumed certain related liabilities. The purchase price consisted
of $6.1 million of cash in addition to three-year warrants with an estimated
fair value of $932,000. The warrants are exercisable for 130,000 shares of
Common Stock at an exercise price of $22.00 per share. The acquisition has been
accounted for as an asset purchase. The Company assigned $6.8 million of the
SalesKit purchase price to in-process research and development based upon an
independent appraisal and expensed this amount in 1998. In the opinion of
management, the acquired in-process research and development had not yet reached
technological feasibility and had no alternative future uses.

In May 1998, the Company completed its acquisition of Harper & Shuman by
exchanging approximately 686,000 shares of its Common Stock for all of the
common stock of Harper & Shuman. The acquisition constituted a tax-free
reorganization and has been accounted for as a pooling-of-interests.
Accordingly, all prior period consolidated financial statements presented have
been restated to include the combined results of operations, financial position
and cash flows of Harper & Shuman as though it had always been a part of Deltek.

RESULTS OF OPERATIONS

The following table sets forth, for the periods indicated, information
derived from the consolidated statements of operations of the Company expressed
as a percentage of total revenues, and the percentage change in such items
compared to the same period in the prior year. There can be no assurance that
the trends in revenue growth or operating results will continue in the future.

<TABLE>
<CAPTION>
PERCENTAGE OF TOTAL REVENUES
-------------------------------------------------------
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
------------------------------- ------------------
1995 1996(2) 1997(3) 1997 1998(4)
----- ------- ------- ----- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA(1):
Revenues:
License fees............................................ 34.0% 33.8% 36.5% 36.1% 33.7%
Services................................................ 55.6 58.4 57.6 57.7 61.6
Third-party equipment and software...................... 10.4 7.8 5.9 6.2 4.7
----- ----- ----- ----- -----
Total revenues........................................ 100.0 100.0 100.0 100.0 100.0
Operating expenses:
Cost of software........................................ 3.6 3.8 3.6 3.5 3.0
Cost of services........................................ 20.2 23.6 24.9 24.1 29.3
Cost of third-party equipment and software.............. 8.0 6.0 4.6 5.0 3.7
Software development.................................... 19.2 20.1 19.4 20.5 19.1
Sales and marketing..................................... 12.2 12.0 11.5 11.4 12.9
General and administrative.............................. 8.1 7.2 6.2 6.8 5.1
Stock option compensation............................... -- 2.1 -- -- --
Acquisition costs....................................... -- -- 0.6 -- 2.9
Purchased in-process research and development........... -- 0.9 -- -- 18.1
----- ----- ----- ----- -----
Total operating expenses.............................. 71.3 75.7 70.8 71.3 94.1
Income from operations.................................... 28.7 24.3 29.2 28.7 5.9
Interest income........................................... 1.1 0.9 1.3 1.2 1.3
----- ----- ----- ----- -----
Income before income taxes................................ 29.8 25.2 30.5 29.9 7.2
Provision for income taxes................................ 0.3 0.1 10.2 8.2 3.6
----- ----- ----- ----- -----
Net income................................................ 29.5% 25.1% 20.3% 21.7% 3.6%
===== ===== ===== ===== =====
PRO FORMA STATEMENT OF OPERATIONS DATA (UNAUDITED)(5):
Provision for income taxes................................ 11.3% 9.8% 11.8% 11.5%
Net income................................................ 18.5 15.4 18.8 18.4
</TABLE>

(Footnotes continued on following page)

16
<PAGE> 18

(Footnotes continued from previous page)

(2) In 1996, the Company incurred non-recurring, non-cash charges for stock
option compensation and purchased in-process research and development.
Exclusive of these charges, income from operations, net income and pro forma
net income for 1996 would have been 27.3%, 28.1% and 17.2%, respectively, of
total revenues.

(3) In 1997, the Company incurred a non-recurring, non-cash charge for
acquisition costs. Exclusive of this charge, income from operations, net
income and pro forma net income for 1997 would have been 29.7%, 20.9% and
19.3%, respectively, of total revenues.

(4) In the six months ended June 30, 1998, the Company incurred non-recurring,
non-cash charges for acquisition costs and purchased in-process research and
development. Exclusive of these charges, income from operations and net
income for the six months ended June 30, 1998, would have been 26.9% and
17.4%, respectively, of total revenues.

SIX MONTHS ENDED JUNE 30, 1998 COMPARED TO SIX MONTHS ENDED JUNE 30, 1997

License Fees. License fees for the six months ended June 30, 1998
increased by 33.4% to $12.7 million from $9.5 million for the same period in
1997. The increase in license fees was principally attributable to Costpoint
license fees, which increased by 51.5% to $7.3 million for the six months ended
June 30, 1998 from $4.8 million for the same period in 1997, 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. Advantage license fees increased by 5.5% to $2.2 million
for the six months ended June 30, 1998 as compared to $2.1 million for the same
period in 1997. License fees from System 1 products were $1.3 million for the
six months ended June 30, 1998 compared to $1.8 million for the six months ended
June 30, 1997, a decrease of 30.0%. The decline in System 1 license fees was the
result of increased licenses of the Company's advanced client/server system,
Costpoint, to new customers. License fees for Electronic Timesheet increased by
127.4% to $1.5 million for the six months ended June 30, 1998 from $665,000 for
the same period in 1997. License fees comprised 33.7% of the Company's total
revenues for the six months ended June 30, 1998, compared to 36.1% for the
comparable prior year period.

Services. Service revenues for the six months ended June 30, 1998
increased by 52.7% to $23.2 million from $15.2 million for the same period in
1997. The increase in service revenues was principally attributable to increased
consulting services related to new implementations of Costpoint systems.
Consulting service revenues increased by 96.6% to $10.1 million for the six
months ended June 30, 1998 from $5.2 million for the same period in 1997. Other
service revenues increased by 30.1% to $13.1 million for the six months ended
June 30, 1998 from $10.1 million for the same period in the prior year,
principally as a result of the addition of new customers and the license of
additional software products to existing customers and, to a lesser extent,
increases in service rates. Service revenues comprised 61.6% of the Company's
total revenues for the six months ended 1998, compared to 57.7% for the same
period in 1997.

Third-Party Equipment and Software. Revenues from third-party equipment
and software for the six months ended June 30, 1998 increased by 9.1% to $1.8
million from $1.6 million for the six months ended June 30, 1997. These revenues
comprised 4.7% and 6.2% of total revenues for the six months ended June 30, 1998
and 1997, respectively.

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 the six months ended June 30, 1998 was $1.1 million, a
slight increase from $923,000 for the same period in 1997. This change was due
to an increase in licensing activity.

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 the six months ended June 30, 1998
increased by 73.5% to $11.0 million from $6.4 million for the same period in
1997. The increase in cost of services was primarily due to increases in
services personnel. Cost of services represented 47.5% and 41.8% of service
revenues for the six months ended June 30, 1998 and 1997, respectively. The
increase in cost of services as a percentage of service revenues primarily
reflected the increase in consulting

17
<PAGE> 19

revenues as a percentage of service revenues. The Company earns a lower margin
on its consulting revenues than on its ongoing support service revenues. To a
lesser extent, cost of services as a percentage of service revenues increased
due to hiring of additional telephone support personnel to service the Company's
growing customer base.

Cost of Third-Party Equipment and Software. Cost of third-party equipment
and software consists of the costs of computer and peripheral equipment and
license fees and royalties for third-party software. Cost of third-party
equipment and software for the six months ended June 30, 1998 increased to $1.4
million from $1.3 million for the same period in the prior year. As a percentage
of related revenues, cost of third-party equipment and software products
represented 77.2% and 79.9% for the six months ended June 30, 1998 and 1997,
respectively. The decrease in these costs as a percentage of related revenues
was the result of changes in the product mix of equipment and software sold.

Software Development. Software development costs consist primarily of the
personnel costs of analysts and programmers who research, develop, maintain and
enhance the Company's existing software product lines and develop new products.
Software development costs for the six months ended June 30, 1998 increased by
33.8% to $7.2 million from $5.4 million for the same period in 1997. This
increase was due primarily to hiring additional personnel. Software development
costs represented 19.1% and 20.4% of total revenues for the six months ended
June 30, 1998 and 1997, respectively.

Sales and Marketing. Sales and marketing expenses consist primarily of the
costs of the Company's sales and marketing personnel as well as the costs of
advertising, direct mail and other sales and marketing activities. Sales and
marketing expenses for the six months ended June 30, 1998 increased by 62.3% to
$4.9 million from $3.0 million for the same period in 1997. This increase was
due primarily to hiring additional personnel and increased marketing activities.
The Company expects sales and marketing expenses to continue to increase for the
foreseeable future as the Company pursues its strategy. Sales and marketing
expenses represented 12.9% of the Company's total revenues for the six months
ended June 30, 1998, compared to 11.4% for the same period in 1997. See
"Business -- Strategy."

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 the six months ended June 30, 1998 increased by 7.2% to $1.9
million from $1.8 million for the same period in 1997. This increase was due
primarily to the Company's overall growth. General and administrative expenses
represented 5.1% of the Company's total revenues for the six months ended June
30, 1998, compared to 6.8% for the same period in 1997.

Acquisition Costs. A charge of $1.1 million was recorded for the six
months ended June 30, 1998 for the transaction costs related to the acquisition
of Harper & Shuman. The acquisition was accounted for as a pooling-of-interests.
See "-- Overview."

Purchased In-Process Research and Development. A charge of $6.8 million
was recorded during the six months ended June 30, 1998 for the appraised
valuation of the purchased in-process research and development costs acquired
from SalesKit. See "-- Overview."

Interest Income. Interest income results from investment and, to a lesser
extent, from installment financing. Interest income for the six months ended
June 30, 1998 increased by 59.2% to $500,000 from $314,000 for the same period
in 1997. This increase is due to the higher level of cash balances available for
investment.

Income Tax Provision. The Company's effective tax rate for the six months
ended June 30, 1998 was 49.7%, as compared to the pro forma effective tax rate
of 38.5% for the same period in 1997. The tax rate for the six months ended June
30, 1998 was affected by the nondeductible nature of a majority of the
transaction costs for the acquisition of Harper & Shuman. The provision for
income taxes for the six months ended June 30, 1998 is based upon the Company's
estimate of the effective tax rate for fiscal 1998.

18
<PAGE> 20

YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996

License Fees. License fees for 1997 increased by 49.1% to $21.0 million
from $14.1 million for 1996. Costpoint license fees increased by 52.0% to $11.7
million for 1997 from $7.7 million for 1996, 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 7.4% decrease
in license fees for System 1 products to $3.5 million from $3.8 million in 1996,
as both the number of systems licensed and the average system size declined.
License fees for Electronic Timesheet increased by 82.8% to $1.8 million from
$1.0 million in 1996. Advantage and CFMS license fees increased by 131.2% to
$3.6 million for 1997, compared to $1.6 million in 1996. License fees comprised
36.5% of the Company's total revenues for 1997, compared to 33.8% for 1996.

Services. Service revenues for 1997 increased by 36.4% to $33.2 million
from $24.3 million for 1996. The increase in service revenues was principally
attributable to increased consulting services related to implementations of new
Costpoint systems. Consulting service revenues increased by 66.4% to $11.3
million for 1997 from $6.8 million for 1996. Other service revenues increased by
24.8% to $21.9 million for 1997 from $17.5 million for 1996, 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. Service revenues comprised 57.6% of the Company's total revenues in 1997,
compared to 58.4% for 1996.

Third-Party Equipment and Software. Revenues from third-party equipment
and software for 1997 increased by 4.1% to $3.4 million from $3.3 million for
1996. Revenues from third-party equipment and software comprised 5.9% of the
Company's total revenues in 1997, compared to 7.8% in 1996.

Cost of Software. Cost of software for 1997 increased by 31.8% to $2.1
million from $1.6 million for 1996. This increase was attributable to an
increase in licensing activity.

Cost of Services. Cost of services for 1997 increased by 46.0% to $14.4
million from $9.8 million for 1996. The increase in cost of services was
primarily due to hiring additional services personnel to support the Costpoint
product line. In addition, reimbursed travel expenses increased by $1.0 million
from the prior year due primarily to consulting activity related to Costpoint
implementations. Expenses related to the Company's national user conference,
which totalled $566,000 and $283,000 in 1997 and 1996, respectively, are also
included in cost of services. Cost of services represented 43.3% and 40.4% of
service revenues for 1997 and 1996, respectively. The increase in cost of
services as a percentage of service revenues primarily reflected the increase in
consulting revenues as a percentage of service revenues.

Cost of Third-Party Equipment and Software. Cost of third-party equipment
and software for 1997 increased by 4.6% to $2.6 million from $2.5 million for
1996. As a percentage of related revenues, cost of third-party equipment and
software products represented 77.7% and 77.3% for 1997 and 1996, respectively.
The increase in these costs as a percentage of related revenues was the result
of continued competitive pressures on the sales prices for third-party products.

Software Development. Software development costs for 1997 increased by
33.8% to $11.2 million from $8.4 million for 1996. This increase was due
primarily to hiring additional personnel. Software development costs represented
19.5% and 20.1% of total revenues for 1997 and 1996, respectively.

Sales and Marketing. Sales and marketing expenses for 1997 increased by
32.9% to $6.6 million from $5.0 million for 1996. This increase was due
primarily to increased personnel, advertising and trade show expenses. Sales and
marketing expenses represented 11.5% of the Company's total revenues for 1997
compared to 12.0% for 1996.

General and Administrative. General and administrative expenses for 1997
increased by 17.9% to $3.6 million from $3.0 million for 1996. This increase was
due primarily to additional professional fees and expenses related to the
Company's first year as a public company. General and administrative expenses
represented 6.2% of the Company's total revenues for 1997, compared to 7.2% for
1996.

Acquisition Costs. In September 1997, the Company recorded a non-recurring
charge of $320,000 representing the costs associated with a potential
acquisition that was not consummated.
19
<PAGE> 21

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.

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.

Interest Income. Interest income results from investments and, to a lesser
extent, from installment financing. Interest income for 1997 increased by 99.2%
to $781,000 from $392,000 for 1996. The increase was due to the higher level of
cash balances available for investment.

Pro Forma Income Tax Provision. The Company's pro forma effective tax rate
for 1997 was 38.5%, compared to 38.9% for 1996. The reduction is primarily
attributed to the amount of tax-exempt interest income earned in 1997.

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

License Fees. License fees for 1996 increased by 21.1% to $14.1 million
from $11.7 million for 1995. The increase in license fees was principally
attributable to Costpoint which was commercially released in June 1995.
Costpoint license fees increased by 86.3% 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 21.4% decrease in license fees for System
1 products to $3.8 million from $4.9 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.
The license fees for the Advantage product, which was introduced in December
1996, were $362,000 for 1996. License fees for the CFMS products for 1996
decreased by 37.7% to $1.2 million from $1.9 million for 1995. License fees
comprised 33.8% of the Company's total revenues for 1996, compared to 34.0% for
1995.

Services. Service revenues for 1996 increased by 27.6% to $24.3 million
from $19.1 million for 1995. The increase in service revenues was principally
attributable to increased consulting services related to implementations of new
Costpoint systems. Consulting service revenues increased by 53.3% to $6.8
million for 1996 from $4.4 million for 1995. Other service revenues increased by
19.8% to $17.5 million for 1996 from $14.6 million for 1995, 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. Service revenues comprised 58.4% of the Company's total revenues in 1996,
compared to 55.6% for 1995.

Third-Party Equipment and Software. Revenues from third-party equipment
and software for 1996 decreased by 9.0% to $3.3 million from $3.6 million for
1995. Revenues from third-party equipment and software comprised 7.8% of the
Company's total revenues in 1996, compared to 10.4% in 1995.

Cost of Software. Cost of software for 1996 increased by 28.2% to $1.6
million from $1.2 million for 1995. This increase was attributable to increased
software amortization expense and increased licensing activity.

Cost of Services. Cost of services for 1996 increased by 41.9% to $9.8
million from $6.9 million for 1995. The increase in cost of services was
primarily due to hiring additional services personnel to support the Costpoint
product line. In addition, travel expenses increased by $641,000 from the prior
year due primarily to consulting activity related to Costpoint implementations.
Cost of services for 1996 also included $283,000 related to the Company's
national user conference in April 1996. Cost of services represented 40.4% and
36.4% of service revenues for 1996 and 1995, respectively. The increase in cost
of services as a percentage of service revenues reflected 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 increased reimbursed travel expenses, which are billed to the customer
at cost, and the national user conference, for which customer billings
approximated cost.

20
<PAGE> 22

Cost of Third-Party Equipment and Software. Cost of third-party equipment
and software for 1996 decreased by 8.5% to $2.5 million from $2.8 million for
1995. As a percentage of related revenues, cost of third-party equipment and
software products represented 77.3% and 76.9% for 1996 and 1995, respectively.
The increase in these costs as a percentage of related revenues 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 for 1996 increased by
27.4% to $8.4 million from $6.6 million for 1995. This increase was due
primarily to hiring additional personnel and a decrease in capitalized software
production costs which occurred after the commercial release of Costpoint in
June 1995. Software development costs represented 19.2% and 20.1% of total
revenues for 1995 and 1996, respectively.

Sales and Marketing. Sales and marketing expenses for 1996 increased by
19.7% to $5.0 million from $4.2 million for 1995. This increase was due
primarily to increased personnel, advertising and trade show expenses. Sales and
marketing expenses represented 12.0% of the Company's total revenues for 1996,
compared to 12.2% for 1995.

General and Administrative. General and administrative expenses for 1996
increased by 8.2% to $3.0 million from $2.8 million for 1995. This increase was
due primarily to an increase in bad debt expense. General and administrative
expenses represented 7.2% of the Company's total revenues for 1996, compared to
8.1% for 1995.

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.

Interest Income. Interest income for 1996 increased by 2.1% to $392,000
from $384,000 for 1995. The increase was due to the higher level of cash
balances available for investment.

Pro Forma Income Tax Provision. The Company's pro forma effective tax rate
for 1996 was 38.9%, compared to 38.0% for 1995.

QUARTERLY RESULTS OF OPERATIONS

The following table sets forth certain unaudited historical and pro forma
consolidated statement of operations data of the Company for the eight quarters
ended June 30, 1998, and such data expressed as a percentage of total revenues
for such quarters. These data have been derived from the Company's unaudited
quarterly consolidated financial statements. In management's opinion, these
quarterly consolidated financial statements have been prepared on a basis
consistent with the audited Consolidated Financial Statements contained in this
Prospectus or incorporated by reference 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 Consolidated Financial

21
<PAGE> 23

Statements, including the Notes thereto appearing elsewhere in this Prospectus
or incorporated by reference herein.

<TABLE>
<CAPTION>
1996 QUARTERS ENDED 1997 QUARTERS ENDED 1998 QUARTERS ENDED
--------------------- ----------------------------------------- --------------------
SEPT. 30(2) DEC. 31 MAR. 31 JUNE 30 SEPT. 30(3) DEC. 31 MAR. 31 JUNE 30(4)
----------- ------- ------- ------- ----------- ------- ------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA(1):
Revenues:
License fees.................. $ 3,527 $ 4,799 $ 4,706 $ 4,809 $ 5,141 $ 6,387 $ 5,883 $ 6,807
Services...................... 6,123 6,971 7,523 7,688 8,736 9,269 11,093 12,129
Third-party equipment and
software.................... 968 1,034 534 1,106 624 1,123 777 1,013
------- ------- ------- ------- ------- ------- ------- -------
Total revenues.............. 10,618 12,804 12,763 13,603 14,501 16,779 17,753 19,949
Operating expenses:
Cost of software.............. 413 333 412 511 567 589 531 602
Cost of services.............. 2,308 2,598 3,087 3,276 3,928 4,084 5,139 5,899
Cost of third-party equipment
and software................ 764 830 417 894 479 841 603 779
Software development.......... 2,135 2,466 2,605 2,783 2,683 3,143 3,334 3,876
Sales and marketing........... 1,298 1,460 1,427 1,581 1,551 2,084 2,257 2,625
General and administrative.... 729 735 918 880 887 873 1,066 861
Acquisition costs............. -- -- -- -- 320 -- -- 1,096
Purchased in-process research
and development............. 394 -- -- -- -- -- -- 6,810
------- ------- ------- ------- ------- ------- ------- -------
Total operating expenses.... 8,041 8,422 8,866 9,925 10,415 11,614 12,930 22,548
------- ------- ------- ------- ------- ------- ------- -------
Income (loss) from operations... 2,577 4,382 3,897 3,678 4,086 5,165 4,823 (2,599)
Interest income, net............ 78 103 61 253 236 231 250 250
------- ------- ------- ------- ------- ------- ------- -------
Income (loss) before income
taxes......................... 2,655 4,485 3,958 3,931 4,322 5,396 5,073 (2,349)
Provision (benefit) for income
taxes......................... (69) 146 684 1,473 1,640 2,101 1,967 (613)
------- ------- ------- ------- ------- ------- ------- -------
Net (loss) income............... $ 2,724 $ 4,339 $ 3,274 $ 2,458 $ 2,682 $ 3,295 $ 3,106 $(1,736)
======= ======= ======= ======= ======= ======= ======= =======
Diluted net income (loss) per
share......................... $ 0.17 $ 0.27 $ 0.19 $ 0.14 $ 0.15 $ 0.18 $ 0.17 $ (0.10)
Weighted average shares,
diluted....................... 16,371 16,265 17,002 18,097 18,257 18,157 18,205 18,323
PRO FORMA STATEMENT OF
OPERATIONS DATA(5):
Provision for income taxes...... $ 1,018 $ 1,778 $ 1,566
Net income...................... 1,637 2,707 2,392
Diluted net income per share.... $ 0.10 $ 0.17 $ 0.14
</TABLE>

(2) In the three months ended September 30, 1996, the Company incurred a
non-recurring, non-cash charge of $394,000 for purchased in-process research
and development. Exclusive of this charge, income from operations, net
income, pro forma net income and pro forma diluted net income per share for
the three months ended September 30, 1996 would have been $3.0 million, $3.1
million, $1.9 million and $0.11, respectively.

(3) In the three months ended September 30, 1997, the Company incurred a
non-recurring, non-cash charge of $320,000 for acquisition costs. Exclusive
of this charge, income from operations, net income and diluted net income
per share for the three months ended September 30, 1997 would have been $4.4
million, $3.0 million and $0.16, respectively.

(4) In the three months ended June 30, 1998, the Company incurred non-recurring,
non-cash charges of $1.1 million for acquisition costs and $6.8 million for
purchased in-process research and development. Exclusive of these charges,
income from operations, net income and diluted net income per share for the
three months ended June 30, 1998 would have been $5.3 million, $3.4 million
and $0.19, respectively.

LIQUIDITY AND CAPITAL RESOURCES

The Company has financed its operations almost exclusively from cash flow
from its operations. As of June 30, 1998, the Company had cash and cash
equivalents of $4.2 million, marketable securities of $20.5 million and working
capital of $21.1 million.

For the six months ended June 30, 1998, the Company's net cash provided by
operating activities was $6.3 million. Accounts receivable, net of the allowance
for doubtful accounts, were $12.9 million as of June 30,

22
<PAGE> 24

1998, compared to $9.9 million as of December 31, 1997. Accounts receivable days
sales outstanding was 55 days as of June 30, 1998, compared to 54 days as of
December 31, 1997. The increase in deferred revenue reflects increased Costpoint
license fees, for which revenues are recognized upon the expiration of the
refund period. Exclusive of unbilled receivables, which were recorded as
deferred revenue, days sales outstanding were 39 days as of June 30, 1998,
compared to 37 days as of December 31, 1997. While the Company believes that its
allowance for doubtful accounts as of June 30, 1998, 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 utilized $13.2 million for the six months ended June
30, 1998. This amount included $6.0 million for the assets acquired from
SalesKit, $5.5 million in acquired marketable securities, $1.2 million in
purchased property and equipment and $420,000 of capitalized software production
costs.

Financing activities for the six months ended June 30, 1998 consisted
primarily of $304,000 in proceeds from the exercise of stock options and
$285,000 from the issuance of stock under the Company's employee stock purchase
plan. This was offset by $370,000 in a final distribution to the Company's S
Corporation shareholders.

The Company has a $1.0 million bank line of credit which will be secured by
substantially all of the Company's assets and bear interest at the lender's
prime rate. To date, no amounts have been drawn under the line of credit.

The Company believes that its current liquidity, together with anticipated
cash flow from operations and proceeds of this offering, will satisfy the
Company's anticipated working capital and capital expenditure requirements
through the foreseeable future. However, depending on its rate of growth,
profitability and other factors, some of which are not in the Company's control,
the Company believes additional financing may be required to meet its working
capital requirements or capital expenditure needs, including acquisitions, in
the future. There can be no assurance that additional financing will be
available when required or, if available, that any such financing will be on
terms satisfactory to the Company.

Year 2000 Compliance. Many existing computer systems and applications, and
other control devices, use only two digits to identify a year in the date field,
without considering the impact of the upcoming change in the century. As a
result, such systems, applications and devices could fail or create erroneous
results unless they are modified in some fashion to distinguish 21st century
dates from 20th century dates (i.e., to be year 2000 compliant). Management
believes that the growth in demand for the Company's products over the past
several years is due in part to its customers' need to update their computer
systems in preparation for the year 2000. As the year 2000 approaches and the
number of upgrades driven primarily by the need to achieve year 2000 compliance
diminishes, there can be no assurance that the Company's business, operating
results and financial condition will not be adversely impacted.

Although the software products that the Company currently actively markets
either are, or are being redesigned to be, year 2000 compliant, many of the
Company's customers are still using non-compliant versions of its products. The
Company intends to provide the year 2000 compliant versions of its products as
normal product upgrades to all licensees that are using non-compliant versions
and are currently receiving ongoing support services from the Company. The
Company is attempting to identify those licensees, which are currently using a
non-compliant version of its products but are not receiving ongoing support
services, in order to determine whether those licensees intend to continue using
the Company's products and, if so, how the Company can assist them in converting
to a year 2000 compliant version. Although the Company does not anticipate that
the impact of these conversions will be significant, there can be no assurance
that the Company will be able to identify and satisfactorily resolve year 2000
issues with such licensees in a manner that will not have a material adverse
effect on the Company's business, operating results and financial condition.
Although the Company's year 2000 compliant products have, or will have,
undergone the Company's normal quality testing procedures, there can be no
assurance that these products contain all necessary date code changes. Any
system malfunctions due to the onset of the year 2000 and any disputes with
customers relating to year 2000 compliance, including licensees of non-compliant
products that the Company is unable to locate, could have a material adverse
effect on the Company's business, financial condition and results of operations.
See "Business -- Products."
23
<PAGE> 25

24
<PAGE> 26

BUSINESS

Deltek is a leading provider of enterprise software products that enable
project-oriented organizations to more effectively manage, operate and grow
their operations. The Company's software products address the needs specific to
such organizations through a wide range of functionality, such as financial and
project accounting, human resources management and administration, materials
management and project reporting . The Company also provides a full range of
services, including implementation and consulting, training and ongoing support.
In 1997, 36.5% of the Company's total revenues was derived from software license
fees and 57.6% of its total revenues was generated from services. Since its
inception, the Company has licensed its products to over 5,000 project-oriented
organizations across a spectrum of industries, including architecture and
engineering, environmental, systems integration, research and development,
contract services and construction, as well as make-to-order manufacturers and
not-for-profit organizations. Many of these project-oriented businesses provide
products and services under federal government contracts. The Company's
customers include Bell Atlantic Federal Integrated Systems, Inc., Computer
Sciences Corporation, Lockheed Martin Corp., Northrup Grumman Corporation and
Raytheon Service Co., Inc.

The Company has completed three transactions to broaden its product line
and extend its technical capabilities. In September 1996, Deltek acquired The
Allegro Group, Inc. in order to obtain a project budgeting and resource
management product. In April 1998, the Company purchased certain assets of
SalesKit in order to support its initiative to develop customer and sales
opportunity management software for project-oriented businesses. In May 1998,
Deltek acquired Harper & Shuman, the leading provider of project accounting
software to architecture and engineering firms.

INDUSTRY BACKGROUND

Increasing competition has created pressure for organizations to better
utilize information technologies to manage their businesses, improve efficiency,
reduce costs and provide employees and management with more timely and pertinent
information. Information technology is now viewed as a strategic and tactical
tool, as well as a means of facilitating information processing and reducing
costs. As a result, many organizations are implementing enterprise-wide business
systems to automate their operations, including finance, accounting,
manufacturing, human resources, reporting and customer management functions.
According to International Data Corporation, the market for accounting and human
resources client/server enterprise software applications grew more than 40% in
1997 to $4.5 billion, and is expected to grow at a compound annual rate of 28%
between 1997 and 2001.

Most enterprise-wide business systems are general purpose in design and,
without significant customization, do not address many of the unique
requirements of businesses engaged primarily in providing products and services
under project-specific contracts and engagements. Project-oriented businesses,
including architecture and engineering, environmental, systems integration,
research and development, contract services, and construction firms,
make-to-order manufacturers and not-for-profit organizations, have many
project-specific requirements. Such requirements include 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.
Many project-oriented businesses provide products and services under government
contracts. 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 application software systems is
expanding as a result of a number of economic trends. Service organizations
traditionally have utilized project accounting more than manufacturing firms due
to the need to customize their services for each client and to properly allocate
the associated
25
<PAGE> 27

revenues and 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 towards 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, such
businesses are demanding increasingly sophisticated tools to address their core
information and accounting needs, including project accounting, employee time
collection, project budgeting, project reporting and customer management. At the
same time, these organizations are recognizing that, because most aspects of
their businesses 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 to address
the special needs of project-oriented businesses. Like other businesses,
project-oriented organizations are also demanding solutions that allow them to
combine their business software applications into a single integrated,
enterprise-wide system.

THE DELTEK SOLUTION

Deltek also provides implementation and consulting, training and ongoing
support services as an integral part of its solution. In contrast to
general-purpose software vendors that often rely on third-party providers,
Deltek has a staff of over 100 experienced system consultants who directly
assist Deltek's customers with system implementation. Beyond implementation, the
Company provides training either on site or at one of its three training
centers. The Company also provides ongoing product maintenance and technical
support to its customers, which is a significant source of recurring revenues.

STRATEGY

The Company's objective is to strengthen its position as a leading provider
of enterprise software products to project-oriented organizations by pursuing a
strategy that includes the following elements:

Maintain Focus on Project-Oriented Markets. Since its inception, the
Company has focused on addressing the unique business needs of project-oriented
organizations. The Company believes that its exclusive focus on developing
applications for project-oriented organizations is a competitive advantage in
serving these markets relative to companies that offer more general-purpose
enterprise software. Deltek
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<PAGE> 28

believes that its solutions generally are better-suited for project-oriented
businesses, require shorter implementation times and cost less to install and
maintain than general-purpose enterprise solutions. Deltek intends to capitalize
on the expertise that it has developed by continuing to market to
project-oriented businesses, including those operating under federal government
contracts, architecture and engineering firms and other professional and
technical organizations. The Company plans to develop specific expertise in
certain vertical markets, such as construction and make-to-order manufacturing,
that it believes offer particular opportunities for application of its
project-oriented product line.

Expand Comprehensive, Technologically Advanced Product Line. The Company
has developed a family of complementary products with broad-based functionality,
usable in a variety of technology environments, that it offers to
project-oriented businesses. Deltek intends to continue to expand the breadth of
its product offering and to enhance the features and functionality of its
applications. The Company's current technology initiatives include development
of a Microsoft Windows version of System 1, the completion of interfaces that
will allow Allegro to be fully integrated with Costpoint, Advantage and System
1, development of a customer management and sales force automation application,
and development of a new n-tier, "thin" client architecture, which will allow
the Company's products to be used over an Internet connection.

Provide Superior Services. An integral part of Deltek's solution is to
provide superior services, including implementation and consulting, training and
ongoing support, directly to its customers. Services represented 61.6% of the
Company's total revenues in the six months ended June 30, 1998. The Company
believes that its reputation for providing high quality services and its
approach of working directly with customers are significant competitive
advantages that result in a high level of customer loyalty.

Leverage Large Installed Customer Base. Deltek's large installed customer
base enables the Company to generate revenues from ongoing services and product
enhancements provided to these customers. The Company's strategy is to (i)
maintain and strengthen relationships with its existing customers by providing
ongoing support services; and (ii) derive additional revenues by migrating
clients to more advanced products within the Company's product line, licensing
add-on application software products and offering its customers additional
consulting and training services. An important element of the Company's strategy
is to license its Costpoint, Advantage and new System 1 for Windows applications
to existing System 1 and CFMS users as these customers migrate to client/server
environments or otherwise update their technology systems.

Expand Sales and Marketing Efforts. With an established product line and a
substantial market opportunity, the Company intends to continue the recent
expansion of its sales and marketing activities. Between December 31, 1996 and
June 30, 1998, the Company increased the number of its sales and marketing
professionals, all of whom are in-house, from 23 to 56. The Company's sales and
marketing growth plans include continuing to add to its in-house capabilities,
utilizing resellers for certain of its products and extending its sales and
marketing efforts to international markets.

PRODUCTS

Deltek's enterprise-wide products consist of Costpoint, Advantage, System 1
and CFMS, and its application software products consist of Electronic Timesheet
and Allegro.

Costpoint. Costpoint is an advanced client/server-based, enterprise-wide
business software system, consisting of over 25 integrated module applications,
including financial accounting, project accounting, human resource and payroll
administration, materials management and project reporting. 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 with federal government contracts.
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, on-line
analytical processing ("OLAP") tools and standard reports, Costpoint provides
managers with timely and pertinent information.

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<PAGE> 29

Costpoint is year 2000 compliant and 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 Systems Corporation ("Oracle"), Microsoft SQLServer, Sybase Inc.
("Sybase") and Centura Corporation ("Centura") relational databases. 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. As a result of this architecture,
Costpoint is scaleable and can be utilized in organizations with 3 to 300
concurrent users.

The Company began development of Costpoint in 1992 and commercially
released the product in June 1995. Through June 30, 1998, the Company had
licensed approximately 513 Costpoint systems. License fees for Costpoint systems
vary depending on the number of users and sites and the number and types of
modules licensed. During the six months ended June 30, 1998, the Company
licensed a number of Costpoint systems for an initial license fee, exclusive of
services, between $200,000 and $850,000; however, the majority of new Costpoint
customers paid an initial license fee, exclusive of services, between $50,000
and $200,000. See "Risk Factors -- Dependence on Costpoint and Advantage Product
Lines; Product Migration."

The following table lists the principal Costpoint application modules:

[CAPTION]
<TABLE>
<CAPTION>
MODULE APPLICATIONS
<S> <C> <C>
<S> <C> <C>
Financial Accounting General Ledger Travel
Accounts Payable Fixed Assets
Accounts Receivable Workflow
Consolidations Multicurrency*
Project Accounting Project Setup Project Billing
Project Reporting Project Cost and Revenue
Processing
Project Budgeting Project Management Interfaces
Human Resources and Labor Benefits
Administration Payroll Labor/Payroll Interfaces
Human Resources
Materials Management Product Definition Product Control Routings
Purchasing and Receiving Routings
Procurement Planning Engineering Change Notice*
Inventory Material Requirements Planning*
Bills of Material
Sales Order Entry
Reporting Tools CP Reports**
CP Scope**
* Under development.
** Software licensed from third parties and sublicensed to Deltek customers.
</TABLE>

Advantage. Advantage, an integrated, project-focused accounting system for
professional services firms, was designed and developed by Harper & Shuman,
which was acquired by the Company in May 1998. The Advantage product currently
includes comprehensive modules for financial accounting, project control,
accounts payable, billing, payroll, and time and expense keeping. Advantage
employs 32-bit technology, provides a superior user interface utilizing current
Microsoft Windows platforms, and utilizes either Microsoft SQLServer or Access
database platforms. Advantage can operate on a stand-alone PC or within a local
or wide area network environment.

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<PAGE> 30

Advantage has fewer modules, is generally less complex and easier to
implement and results in a lower cost of ownership than Costpoint. Accordingly,
the Company expects to market Advantage primarily to small and mid-sized
professional services firms with relatively less complex requirements.

The Company began development of Advantage in 1995 in response to the
technical maturation of the CFMS product line. Advantage was commercially
released in December 1996 and is year 2000 compliant. Through June 30, 1998, it
has been licensed to approximately 1,100 organizations, primarily architecture
and engineering firms. These include approximately 1,000 customers who have
migrated from the older CFMS product line. License fees for Advantage systems
vary depending on the number of the customer's employees and sites and the
number and types of modules licensed. For the six months ended June 30, 1998,
the majority of the Company's new Advantage customers paid an initial license
fee, exclusive of services, between $5,000 and $40,000. With the recent
introduction of the Microsoft SQLServer version of Advantage, the Company
expects related license fees to increase.

System 1. System 1, Deltek's original accounting system, was designed
specifically for use by organizations with federal government contracts and
helps these organizations comply with federal regulations. System 1 is
character-based, operates on Novell Netware, UNIX and Digital VAX/VMS network
operating systems and utilizes a proprietary COBOL data structure. System 1
consists of 23 application modules, including financial accounting, labor and
payroll administration, materials management and project reporting. The Company
intends to provide support services and product maintenance for the
character-based version of System 1 for the foreseeable future.

The Company estimates that approximately 1,800 companies have licensed
System 1 since it was commercially released in 1985. As of June 30, 1998,
approximately 1,500 licensees were continuing to pay for ongoing support
services related to System 1. License fees for System 1 vary depending upon the
number of users and sites and the number and types of modules licensed. Since
the Company's introduction of its more advanced Costpoint system, the majority
of its new customers have licensed Costpoint systems, and new System 1 sales
have decreased in number and system size. For the six months ended June 30,
1998, the majority of new System 1 customers paid an initial license fee,
exclusive of services, between $10,000 and $50,000.

An important element of the Company's strategy is to license Costpoint to
larger and more complex System 1 customers as those customers reengineer their
information systems and migrate to new client/server business software
solutions. Smaller System 1 customers are less likely to migrate to Costpoint
because the cost of migrating to a client/server environment may be relatively
high and because System 1 adequately meets their needs. The Company estimates
that larger and more complex customers comprise approximately one-third of its
System 1 customers. To encourage these System 1 customers to migrate 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 June 30, 1998,
approximately 126 of the Company's System 1 customers had migrated to or were in
the process of migrating to Costpoint systems. The Company is also developing a
Windows-based version of System 1 which is targeted for release in the second
half of 1999 and which will be directed towards the smaller and less-complex
System 1 users.

System 1 is currently not year 2000 compliant. However, the year 2000
compliant version of System 1 was released in Beta form in April 1998, and is
expected to be commercially available by the fall of 1998. The Company intends
to provide the year 2000 compliant version of System 1 as a normal product
upgrade to System 1 licensees currently on support and the Company believes that
most of the licensees currently using a non-compliant version of System 1 are
receiving ongoing product maintenance and support from the Company. The Company
is attempting to identify those System 1 licensees who are not currently on
support in order to determine whether they intend to continue using System 1
and, if so, how the Company can assist them in converting to a year 2000
compliant version of System 1. See "Risk Factors -- Year 2000 Compliance."

CFMS. The CFMS product line includes three older-generation accounting
systems designed and developed for architecture and engineering firms by Harper
& Shuman, which was acquired by the Company
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<PAGE> 31

in May 1998. The Company intends to seek to migrate CFMS users to Advantage or
Costpoint. To date, approximately 1,000 CFMS users have migrated to the
Advantage product. The Company plans to continue to offer telephone support
services to CFMS users for the foreseeable future but does not plan to make
significant software enhancements to these products.

Two of the three CFMS products are currently not year 2000 compliant. The
Company has completed development of a year 2000 compliant version of the third
CFMS product and intends to provide the compliant version as a normal product
upgrade to all licensees of that product currently on support. The Company is
attempting to identify those licensees of that product no longer on support to
determine whether they intend to continue using the product and, if so, how the
Company can assist them in converting to the year 2000 compliant version or to
Advantage or Costpoint. Although the Company is still identifying licensees
using the two non-compliant CFMS products, the Company estimates that there are
fewer than 1,100 licensees currently using them. The Company intends to offer
discounts to encourage licensees currently using the two non-compliant CFMS
products, which are based on outdated technology, to migrate to Advantage or
Costpoint or to the year 2000 compliant CFMS product. See "Risk Factors -- Year
2000 Compliance."

Electronic Timesheet. Electronic Timesheet is a comprehensive timesheet
software application that 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. Electronic Timesheet enables employees to 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 is
then 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 allows managers to view information about employees'
activities and helps them to better manage their employees. In May 1998, the
Company introduced ET Enterprise, a client/server version of Electronic
Timesheet, which is highly scaleable and operates on various relational database
management systems platforms. The Company also provides an optional
browser-based timesheet screen called Web E.T. and is currently developing an
add-on product for employee expense reports which it expects to release by the
end of 1998.

Electronic Timesheet was introduced in January 1995. The majority of the
Company's Electronic Timesheet licensees are also licensees of Costpoint, System
1, or Advantage, although the product is also sold on a stand-alone basis to
users of other accounting systems. As of June 30, 1998, Electronic Timesheet had
been licensed to 366 customers. License fees for Electronic Timesheet vary
depending on the number of employees. For the six months ended June 30, 1998,
the majority of the new Electronic Timesheet customers paid an initial license
fee, exclusive of services, between $5,000 and $80,000.

Allegro. Allegro is a software application that enables project managers
to plan and monitor project resources. Employing a year 2000 compliant interface
similar to a spreadsheet, Allegro allows project managers to create budgets and
estimates-to-complete, plan and schedule employees and other resources, forecast
revenues and profits, and receive timely status reports on each project from the
accounting system interface. The Company believes that Allegro's principal
advantages are 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. Deltek provides standard data interfaces
between Allegro and Costpoint, Advantage, System 1, and CFMS, as well as several
other third-party accounting systems.

The Company acquired the Allegro product through the acquisition of The
Allegro Group, Inc., in September 1996. Since the acquisition, the Company has
primarily marketed Allegro to its existing customers and in conjunction with new
Costpoint sales. As of June 30, 1998, Allegro had been licensed to 59 customers.
License fees for Allegro vary depending on the number of users. For the six
months ended June 30, 1998, the initial license fee for the majority of new
Allegro customers, exclusive of services, was between $10,000 and $80,000.

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<PAGE> 32

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, and the System 1 report-writer, Intelligent Query, is also licensed
from a third-party. In order to support 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 occasionally purchases servers, network software and other
software and hardware products, which the Company resells or sublicenses to its
customers and installs with Deltek products to provide a fully operational
system. See "Risk Factors -- Reliance on Third-Party Software Development
Tools."

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, training and ongoing 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.

Implementation and Consulting Services. Deltek typically provides a full
range of consulting and technical services to customers both during and after
implementation of Deltek software. The Company's system consultants are involved
in the important early planning and design stages of an implementation,
participate in user training, and work closely with the customer during the 2 to
12 month period just before and after the "going live" date. After the
implementation is completed, the Company'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 requirements change.
Deltek's implementation and consulting services are generally charged on a time
and materials basis.

Ongoing Support Services. Deltek provides comprehensive telephone support
during business hours as well as supplemental emergency support after hours and
on weekends. Deltek utilizes a sophisticated in-house support tracking system
that enables call, problem and resolution tracking. The Company also maintains
an "open phone" policy whereby customers are encouraged to contact any
supervisor or senior manager at Deltek for any reason. The Company typically
handles between 250 and 450 support calls per day. Deltek provides 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. Telephone support and periodic product enhancements and updates
are provided for fees that are payable quarterly and initially represent, on an
annual basis, between 15% and 20% of the related software license fee.

Training Services. The Company operates training facilities at its McLean,
Virginia headquarters and at its offices in San Jose, California and Boston,
Massachusetts, where it provides regularly scheduled training classes on over 25
topics related to the Company's products. Deltek maintains system laboratories
at its training facilities which are available for customer testing,
benchmarking and troubleshooting. The Company also offers custom, on-site
training classes. Training is billed hourly or on a per class basis.

CUSTOMERS

Since inception, the Company has licensed its products to over 5,000
project-oriented organizations, predominantly in the United States, across a
spectrum of industries. Costpoint and System 1 have been installed in more than
2,000 project-oriented organizations. Advantage and CFMS have been installed at
approximately 3,000 organizations, predominantly architecture and engineering
firms. Other project-oriented industries that the Company currently serves
include environmental, systems integration, research and development, contract
services and construction, as well as make-to-order manufacturers and
not-for-profit organizations. Many project-oriented businesses within these
industries provide products and services under

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<PAGE> 33

government contracts. The Company's clients include Bell Atlantic Federal
Integrated Systems, Inc., Computer Sciences Corporation, Lockheed Martin Corp.,
Northrup Grumman Corporation and Raytheon Service Co., Inc.

SALES AND MARKETING

The Company sells its products and services primarily through its direct
sales force. As of June 30, 1998, the Company had 47 full-time sales personnel
and 9 full-time marketing personnel at its offices in McLean, Virginia; Denver,
Colorado; San Jose, California; and London, England.

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.
Increasingly, the Company targets project managers in addition to accounting
managers. When the prospective customer is ready for a product demonstration,
the Company utilizes specially-trained and industry-experienced professionals to
provide the product presentation. The Company provides prospective customers
with information to explain the capabilities and benefits of the Company's
products and to assist in planning for the system implementation. 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,
including delays over which the Company has little or no control.

The Company's strategy is to expand its sales and marketing activities by
targeting organizations in additional project-oriented industries and
international markets and by developing a value-added reseller distribution
channel for certain of its products. Additionally, a significant source of
business for the Company is migrating existing customers to other systems. In
support of its marketing efforts for existing customers, the Company conducts
ongoing customer communications programs and an annual user conference. See
"Risk Factors -- Uncertainty of Expansion into New Markets."

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 all of the Company's product development
groups 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, program check-in and check-out, version control and system
error and bug tracking.

A significant portion of the development related to the Costpoint product
line is conducted using two fourth generation client/server development tools,
SQLWindows and Team Developer, which the Company licenses from Centura. Using
these tools, 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-specific stored
procedures which enable specific applications to operate much faster with
considerably less network traffic. C and C++ programming is also used throughout
Costpoint in various situations to improve

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<PAGE> 34

performance and functionality. The Company also makes extensive use of Microsoft
Visual Basic 5.0 as the primary development tool for many of its new software
products.

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, Advantage, Electronic Timesheet,
Allegro and a Windows-based version of System 1. During 1997, full support for
Windows NT on the client PC, support for the Microsoft SQLServer database,
additional material management modules, enhanced functionality for specific
project-oriented industries and the capacity to handle a single foreign currency
were developed for Costpoint. Development efforts relating to Electronic
Timesheet for a client/server-based version and further expansion of Internet
and intranet timekeeping capabilities resulted in a new release of Electronic
Timesheet called ET Enterprise in May 1998. The Company currently is developing
a new n-tier, "thin" client technical architecture for its future products,
which the Company expects will enable such products to utilize fewer client
resources in order to operate effectively using an Internet connection. The
Company also is developing a new, stand-alone "front-office" sales force
automation and customer management software product to meet the needs of
project-oriented businesses. The new product, which will be sold as a
stand-alone application or integrated with the Company's enterprise-wide
systems, is based upon the user interface and database designs acquired from
SalesKit in April 1998, and is being developed by the former SalesKit employees
who have extensive experience in the development of, and knowledge of the
functional requirements for, sales force automation and customer management
applications. See "Risk Factors -- Rapid Technological Change; Risks Associated
with New Product Development; Potential Liability."

The Company's software development expenses, exclusive of certain
development costs which have been capitalized, were $4.9 million, $6.7 million
and $9.5 million in 1995, 1996 and 1997, respectively. As of June 30, 1998, the
Company had 210 employees engaged in product development and quality assurance
activities.

COMPETITION

The market for client/server-based business application software 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 implementations of the Company's
enterprise-wide products, the Company's principal competitors include Oracle,
PeopleSoft, Inc., J.D. Edwards, SAP AG and The Baan Company. For smaller
implementations of the Company's enterprise-wide products, the Company's
competitors include Great Plains Software, Inc., Maxwell Business Systems, Inc.,
Platinum Software Corporation, Solomon Software, State of the Art, Inc.,
Timberline Software Corporation, and Semaphore Corporation, some of which offer
industry-specific products. Electronic Timesheet competes with electronic
timekeeping systems offered by vendors including Executive Partners Software,
Automatic Data Processing, Inc. and Oracle. The Company also faces indirect
competition from the internal MIS departments of its potential customers.

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 by developing products and
services that meet the unique needs of project-oriented organizations. The
Company also believes that its reputation for high quality service and support,
its ability to work directly with its customers 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 and PeopleSoft, have well-established
relationships with many of 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. In addition, as the Company
attempts to penetrate other strategic vertical markets, it will likely encounter
competitors with substantially more experience in those markets. See "Risk
Factors -- Competition."

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<PAGE> 35

EMPLOYEES

As of June 30, 1998, the Company had 523 full-time employees, including 210
employees primarily engaged in product development and quality assurance, 105 in
customer support and training activities, 123 in consulting, 56 in sales and
marketing, and 29 in finance and administration. None of the Company's employees
is represented by a labor union or is subject to a collective bargaining
agreement. See "Risk Factors -- Hiring and Retention of Employees; Dependence on
Key Employees."

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<PAGE> 36

MANAGEMENT

The following table sets forth certain information regarding the Company's
executive officers and directors:

<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Kenneth E. deLaski............. 40 President, Chief Executive Officer and Director
Eric F. Brown.................. 34 Executive Vice President and Chief Operating Officer
Alan R. Stewart................ 43 Chief Financial Officer and Secretary
Donald deLaski................. 66 Chairman of the Board of Directors and Treasurer
Robert E. Gregg................ 51 Director
Darrell J. Oyer................ 57 Director(1)
Charles W. Stein............... 58 Director(1)
</TABLE>

- ---------------
(1) Member of the Audit Committee and the Compensation Committee

Kenneth E. deLaski was a co-founder of the Company in November 1983 and has
served as a director of the Company 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.
He is the son of Donald deLaski, Chairman of the Board of Directors and
Treasurer of the Company.

Eric F. Brown was a co-founder of the Company in November 1983. He served
as the Company's Vice President, Operations from May 1990 to January 1997, was
appointed Executive Vice President in January 1997 and assumed the additional
office of Chief Operating Officer in May 1998. Prior to May 1990, Mr. Brown held
various technical and management positions within 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.

Alan R. Stewart joined the Company in July 1992 as Chief Financial Officer
and has served as its Secretary since February 1996. Prior to joining the
Company, he was employed as director of accounting at BTG, Inc., a government
contractor, as a senior accountant with Touche Ross and Co., a public accounting
firm, as Assistant Controller of C3, Inc., a systems integrator primarily
dealing with the federal government, as Controller and Treasurer of Tempest
Technologies, Inc., a systems integrator primarily dealing with the federal
government, and as a staff accountant with the U.S. Securities and Exchange
Commission. Mr. Stewart is a certified public accountant.

Donald deLaski was a co-founder of the Company in November 1983 and has
served as Chairman of the Board of Directors and Treasurer of the Company 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. He is the father of Kenneth E. deLaski, President and Chief
Executive Officer of the Company.

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 became a director of the Company in February 1997. Since
June 1991, Mr. Oyer has served as President of Darrell J. Oyer and Company, a
consulting company. Mr. Oyer was previously a partner with Deloitte and Touche
and was previously the Assistant Director of several functional areas of the
Defense Contract Audit Agency.

Charles W. Stein became a director of the Company on April 1, 1997. Since
August 1997, Mr. Stein has served as president of Stein Venture Management, a
consulting firm. From February 1987 until January 1997, Mr. Stein served as
President and Chief Executive Officer of Netrix Corporation, a wide area network
product and systems company. Mr. Stein also was a director of Netrix Corporation
and its Chairman until he resigned from the board of directors on March 31,
1997.

35
<PAGE> 37

The Board of Directors is divided into three classes serving staggered
three-year terms. 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 described herein, there are no family
relationships between any director or executive officer of the Company.

36
<PAGE> 38

PRINCIPAL AND SELLING SHAREHOLDERS

The following table sets forth certain information regarding the beneficial
ownership of the Common Stock as of June 30, 1998, and as adjusted to reflect
the sale of Common Stock offered hereby by (i) each person known by the Company
to own beneficially 5% or more of the Common Stock, (ii) each of the Company's
directors, (iii) certain of the Company's executive officers, (iv) each of the
Selling Shareholders and (v) all executive officers and directors of the Company
as a group.

<TABLE>
<CAPTION>
SHARES BENEFICIALLY
SHARES BENEFICIALLY OWNED OWNED
PRIOR TO THE OFFERING(1) AFTER THE OFFERING
-------------------------- NUMBER OF SHARES --------------------
BENEFICIAL OWNER NUMBER PERCENT BEING OFFERED NUMBER PERCENT
---------------- ---------- ------- ---------------- ---------- -------
<S> <C> <C> <C> <C> <C>
EXECUTIVE OFFICERS AND DIRECTORS
Kenneth E. deLaski................ 3,858,250(2) 21.6% 300,000 3,558,250 19.4%
Donald deLaski.................... 3,961,300(3) 22.2 969,000 2,992,300 16.3
Eric F. Brown..................... 412,200(4) 2.3 60,000 352,200 1.9
Alan R. Stewart................... 15,622(5) * -- 15,622 *
Robert E. Gregg................... 2,000(6) * -- 2,000 *
Darrell J. Oyer................... 4,519(6)(7) * -- 4,519 *
Charles W. Stein.................. 5,350(6) * -- 5,350 *
All directors and executive
officers as a group (7
persons)(2) (3) (7) (8)......... 8,259,241 46.2% 1,329,000 6,930,241 37.7%
OTHER SELLING SHAREHOLDERS
Tena R. deLaski................... 938,750(9) 5.3 100,000 838,750 4.6
The Donald and Nancy L. deLaski
Foundation...................... 600,000(10) 3.4 600,000 -- --
Chester A. Shuman................. 462,406(11) 2.6 416,165 46,241 *
The Kenneth E. and Tena R. deLaski
Foundation...................... 250,000(12) 1.4 250,000 -- --
Other Shareholders................ 54,345(13) * 48,910 5,435 *
The Harper and Shuman, Inc.
Employee Stock Ownership
Trust........................... 173,244(14) * 155,925 17,319 *
</TABLE>

- ---------------
* Represents less than one percent.

(1) Unless otherwise indicated and subject to community property laws where
applicable, each of the shareholders named in this table has sole voting
and investment power with respect to the shares shown as beneficially owned
by such shareholder. Beneficial ownership is determined in accordance with
Rule 13d-3 under the Exchange Act.

(2) Includes 34,500 shares held by various trusts for which Mr. Kenneth E.
deLaski and his spouse serve as trustees. Excludes (i) 938,750 shares held
of record or beneficially by Mr. deLaski's spouse, Tena R. deLaski, and
(ii) 250,000 shares held by a foundation established by Mr. deLaski for
which Mr. deLaski and his spouse serve as directors and officers, in each
case as shown below. Such shares may be deemed to be beneficially owned by
Mr. deLaski.

(3) Excludes 600,000 shares held by a foundation established by Mr. Donald
deLaski and for which Mr. deLaski and his spouse serve as directors and
officers, as shown below. Such shares may be deemed to be beneficially
owned by Mr. deLaski.

(4) Includes 12,000 shares issuable upon exercise of options exercisable as of
June 30, 1998 or within 60 days thereof.

(5) Includes 4,800 shares issuable upon exercise of options exercisable as of
June 30, 1998 or within 60 days thereof.

(6) Includes 2,000 shares issuable upon exercise of options exercisable as of
June 30, 1998 or within 60 days thereof.

37
<PAGE> 39

(7) Includes 319 shares held of record or beneficially by Mr. Oyer's spouse of
which Mr. Oyer may be deemed to be the beneficial owner. Mr. Oyer's shares
are held in a pension trust for which he serves as trustee.

(8) Includes 22,800 shares issuable upon exercise of options exercisable as of
June 30, 1998 or within 60 days thereof.

(9) Excludes (i) 3,858,250 shares held of record or beneficially by Mrs.
deLaski's spouse, Kenneth E. deLaski, and various trusts for which Mrs.
deLaski and her spouse serve as trustees, and (ii) 250,000 shares owned by
a foundation established by Mr. deLaski for which Mrs. deLaski and her
husband serve as directors and officers, in each case as shown above. Such
shares may be deemed to be beneficially owned by Mrs. deLaski.

(10) Donald deLaski and his spouse serve as directors and officers of the
foundation.

(11) Ten percent of such shares are held in escrow until the earlier of May 29,
1999 or the date of the first audit of financial statements containing
combined operations of the Company and Harper & Shuman. Mr. Shuman serves
as Trustee of the Harper and Shuman, Inc. Employee Stock Ownership Trust
(the "Trust"). Excludes 173,244 shares held by the Trust as shown below.
Because of his voting and investment power as Trustee with respect to the
shares held by the Trust, Mr. Shuman may be deemed the beneficial owner of
such shares. Mr. Shuman disclaims beneficial ownership of such shares.

(12) Kenneth E. deLaski and his spouse serve as directors and officers of the
foundation.

(13) Represents shares beneficially owned by nine individuals who received
Common Stock in exchange for their shares of Harper & Shuman.

(14) Ten percent of such shares are held in escrow until the earlier of May 29,
1999 or the date of the first audit of financial statements containing
combined operations of the Company and Harper & Shuman. In accordance with
the terms of the Trust, each participant in the Trust has a fully vested
and nonforfeitable interest in his or her share of the Trust's assets and
the Trustee will make distributions in accordance with the instructions of
the Administrator, or, in the absence of such instructions, as the Trustee
in his discretion deems advisable.

38
<PAGE> 40

UNDERWRITING

William Blair & Company, L.L.C., NationsBanc Montgomery Securities LLC,
Bear, Stearns & Co. Inc. and Friedman, Billings, Ramsey & Co., Inc.
(collectively, the "Underwriters") have severally agreed, subject to the terms
and conditions set forth in the Underwriting Agreement by and among the Company,
certain Selling Shareholders and the Underwriters, to purchase from the Company
and from the Selling Shareholders the aggregate number of shares of Common Stock
(excluding the over-allotment shares) set forth opposite each Underwriter's name
below:

<TABLE>
<CAPTION>
UNDERWRITERS NUMBER OF SHARES
------------ ----------------
<S> <C>
William Blair & Company, L.L.C..............................
NationsBanc Montgomery Securities LLC.......................
Bear, Stearns & Co. Inc.....................................
Friedman, Billings, Ramsey & Co., Inc.......................
---------
Total............................................. 3,400,000
=========
</TABLE>

The nature of the Underwriters' obligations under the Underwriting
Agreement is such that all shares of Common Stock offered hereby, excluding
shares covered by the over-allotment option granted to the Underwriters, must be
purchased if any are purchased. In the event of a default by any Underwriters,
the Underwriting Agreement provides, in certain circumstances, that purchase
commitments of the nondefaulting Underwriters may be increased or such
Underwriting Agreement may be terminated.

The Underwriters have advised the Company and the Selling Shareholders that
they propose to offer the Common Stock directly to the public initially at the
public offering price set forth on the cover page of this Prospectus and to
certain dealers at such price less a concession of not more than $ . per
share. Additionally, the Underwriters may allow, and such dealers may reallow, a
concession not in excess of $ . per share to certain other dealers. After
the shares are released for sale to the public, the public offering price and
other selling terms may be changed by the Underwriters.

Certain Selling Shareholders have granted to the Underwriters an option,
exercisable within 30 days after the date of this Prospectus, to purchase up to
an additional 510,000 shares of Common Stock at the same price per share to be
paid by the Underwriters for the other shares offered hereby. The Underwriters
may exercise the option only for the purpose of covering over-allotments, if
any, made in connection with the distribution of the Common Stock offered
hereby.

The Company, the Selling Shareholders and the Company's directors and
executive officers have agreed that they will not sell, offer to sell, contract
to sell, pledge, issue, distribute or otherwise dispose of any shares of Common
Stock or any securities convertible into or exercisable for any shares of Common
Stock or register any shares of Common Stock for sale under the Securities Act,
for a period of 180 days after the effective date of the Registration Statement
of which this Prospectus is a part without the prior written consent of William
Blair & Company, L.L.C. except pursuant to the Underwriting Agreement, the
Company may issue shares upon exercise of outstanding options and warrants and
fulfill its obligations to register securities pursuant to existing registration
rights agreements and the Selling Shareholders may sell shares pursuant to the
over-allotment option.

The Underwriters have advised the Company that, pursuant to Regulation M
under the Exchange Act, certain persons participating in the offering may engage
in transactions that may stabilize, maintain or otherwise affect the market
price of the Common Stock, including stabilizing bids, syndicate covering
transactions or the imposition of penalty bids. A "stabilizing bid" is a bid
for, or the purchase of, the Common Stock on behalf of the Underwriters for the
purposes of fixing or maintaining the price of the Common Stock. A "syndicate
covering transaction" is a bid for, or the purchase of, the Common Stock on
behalf of the Underwriters to reduce a short position incurred by the
Underwriters in connection with the offering. A "penalty bid" is an arrangement
permitting a managing underwriter to reclaim the selling concession otherwise
accruing to an Underwriter or syndicate member in connection with the offering
if the Common Stock originally sold by such Underwriter or syndicate member is
purchased by the Underwriters in a

39
<PAGE> 41

syndicate covering transaction and has therefore not been effectively placed by
such Underwriter or syndicate member. The Underwriters have advised the Company
that such transactions may be effected on the Nasdaq National Market or
otherwise and, if commenced, may be discontinued at any time.

One or more of the Underwriters currently act as market makers for the
Common Stock and may engage in "passive market making" in such securities on the
Nasdaq National Market in accordance with Rule 103 of Regulation M under the
Exchange Act. Rule 103 permits, upon the satisfaction of certain conditions,
underwriters participating in a distribution that are also Nasdaq market makers
in the security being distributed to engage in limited market making
transactions during the period when Rule 103 would otherwise prohibit such
activity. Rule 103 prohibits underwriters engaged in passive market making
generally from entering a bid or effecting a purchase price that exceeds the
highest bid for those securities displayed on the Nasdaq National Market by a
market maker that is not participating in the distribution. Under Rule 103, each
underwriter engaged in passive market making is subject to a daily net purchase
limitation equal to the greater of (i) 30% of such entity's average daily
trading volume during the two full calendar months immediately preceding, or any
60 consecutive calendar days ending within the ten calendar days preceding, the
date of the filing of the registration statement under the Securities Act
pertaining to the security to be distributed or (ii) 200 shares of common stock.

The Company and the Selling Shareholders have agreed to indemnify the
Underwriters and their controlling persons against certain liabilities,
including liabilities under the Securities Act, or to contribute to payments the
Underwriters may be required to make in respect thereof. NationsBanc Montgomery
Securities LLC from time to time provides and in the past has provided
investment banking and cash management services to the Company and is serving as
one of the Underwriters in this offering.

LEGAL MATTERS

The legality of the Common Stock being offered hereby has been passed upon
for the Company and the Selling Shareholders by Hazel & Thomas, P.C., Falls
Church, Virginia, counsel to the Company. Robert E. Gregg, a director of the
Company, is a shareholder of Hazel & Thomas, P.C. Certain legal matters relating
to this offering will be passed upon for the Underwriters by Katten Muchin &
Zavis, a partnership including professional corporations, Chicago, Illinois.

EXPERTS

The consolidated financial statements of the Company as of December 31,
1996 and 1997 and for each of the three years in the period ended December 31,
1997 included in this Prospectus have been audited by Arthur Andersen LLP,
independent public accountants, as indicated in their reports with respect
thereto, and are included herein in reliance upon the authority of said firm as
experts in giving said reports.

The financial statements of Harper and Shuman, Inc. as of December 31, 1996
and 1997 and for each of the two years in the period ended December 31, 1997,
incorporated herein by reference, have been audited by Tofias, Fleishman,
Shapiro & Co., P.C., independent public accountants, as indicated in their
reports with respect thereto, and are incorporated by reference herein in
reliance upon the authority of said firm as experts in giving said reports.

ADDITIONAL INFORMATION

The Company is subject to the informational requirements of the Exchange
Act, and in accordance therewith files reports, proxy statements and other
information with the Securities and Exchange Commission (the "Commission").
Reports, registration statements, proxy statements and other information filed
by the Company with the Commission can be inspected and copied 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
Citicorp Center, 500 West Madison Street, Room 1400, Chicago, Illinois 60606 and
7 World Trade Center, Suite 1300, New York, New York 10048. Copies of such
material can be obtained from

40
<PAGE> 42

the Public Reference Section of the Commission at 450 Fifth Street, Washington,
D.C. 20549, at prescribed rates. The public may obtain information on the
operation of the Public Reference Room by calling the Commission at
1-800-SEC-0330. The Common Stock is listed on the Nasdaq National Market and
reports, registration statements, proxy statements and other information
concerning the Company can also be inspected at the offices of The Nasdaq Stock
Market, 1735 K Street, N.W., Washington, D.C. 20006. The Commission maintains a
website at www.sec.gov that contains reports, proxy and information statements
and other information regarding registrants that file electronically with the
Commission, including the Company.

The Company has filed with the Commission a Registration Statement on Form
S-3 (together with all amendments, exhibits and schedules thereto, the
"Registration Statement") 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 parts of which are omitted in accordance with
the rules and regulations of the Commission. For further information with
respect to the Company and the Common Stock, reference is hereby made to the
Registration Statement, which may be inspected and copied in the manner and at
the sources described above. Although statements contained in this Prospectus as
to the contents of any contract or other document filed with the Commission are
believed by the Company to set forth all material elements of the contract or
document as to which such statements relate, in each instance, reference is made
to the copy of such contract or documents so filed, each such statement being
qualified in all respects by such reference.

INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE

The following documents previously filed by the Company with the Commission
pursuant to the Exchange Act are hereby incorporated by reference into this
Prospectus:

1. The Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1997;

2. The Company's Quarterly Reports on Form 10-Q for the quarters ended
March 31, 1998 and June 30, 1998;

3. The Company's Current Reports on Form 8-K dated April 30, 1998, May
27, 1998 and May 29, 1998, as amended by the Form 8-K/A dated May
29, 1998; and

4. The Company's Registration Statement on Form 8-A filed January 17,
1997.

All documents filed by the Company pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of this Prospectus shall be
deemed to be incorporated by reference into this Prospectus from the date of
filing of such documents. Any statement contained herein or in a document
incorporated or deemed to be incorporated herein by reference shall be deemed to
be modified or superseded for purposes of this Prospectus to the extent that a
statement contained herein or in any other subsequently filed document which
also is, or is deemed to be, incorporated by reference herein modifies or
supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part of this
Prospectus.

This Prospectus incorporates documents by reference which are not presented
herein or delivered herewith. The Company will provide, without charge, to each
person to whom a Prospectus is delivered, upon oral or written request of any
such person, a copy of any or all documents incorporated by reference herein
(excluding exhibits thereto, unless such exhibits are specifically incorporated
by reference into the information that this Prospectus incorporates). Requests
should be directed to Investor Relations, Deltek Systems, Inc., 8280 Greensboro
Drive, McLean, VA 22102 (telephone: (703)734-8606).

41
<PAGE> 43

DELTEK SYSTEMS, INC. AND SUBSIDIARIES

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<S> <C>
Report of Independent Public Accountants.................... F-2
Consolidated Balance Sheets as of December 31, 1996 and
1997, and June 30, 1998 (Unaudited)....................... F-3
Consolidated Statements of Operations for the Years Ended
December 31, 1995, 1996 and 1997, and for the Six Months
Ended June 30, 1997 and 1998 (Unaudited).................. F-4
Consolidated Statements of Changes in Shareholders' Equity
for the Years Ended December 31, 1995, 1996 and 1997...... F-5
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1995, 1996 and 1997 and for the Six Months
Ended June 30, 1997 and 1998 (Unaudited).................. F-6
Notes to Consolidated Financial Statements.................. F-7
Report of Independent Public Accountants.................... S-1
Schedule I -- Valuation and Qualifying Accounts............. S-2
</TABLE>

F-1
<PAGE> 44

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Deltek Systems, Inc.:

We have audited the accompanying consolidated balance sheets of Deltek
Systems, Inc. (a Virginia corporation) and subsidiaries, as of December 31, 1996
and 1997, and the related consolidated statements of operations, changes in
shareholders' equity, and cash flows for the three years in the period ended
December 31, 1997. 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 the 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. and
subsidiaries, as of December 31, 1996 and 1997, and the results of their
operations and their cash flows for the three years in the period ended December
31, 1997, in conformity with generally accepted accounting principles.

ARTHUR ANDERSEN LLP

Washington, D.C.
May 29, 1998

F-2
<PAGE> 45

DELTEK SYSTEMS, INC.

CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, JUNE 30,
1996 1997 1998
------------ ------------ -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................... $ 9,381 $10,883 $ 4,202
Marketable securities............................... -- 14,949 20,482
Accounts receivable, net of allowance for doubtful
accounts of $466, $573, and $589, respectively.... 7,063 9,929 12,930
Prepaid income taxes................................ 55 -- 1,916
Deferred income taxes............................... 104 1,158 1,030
Prepaid expenses and other current assets........... 1,439 1,440 1,451
------- ------- -------
Total current assets........................... 18,042 38,359 42,011
------- ------- -------
Furniture, equipment and leasehold improvements, at cost,
net of accumulated depreciation and amortization of
$4,500, $5,349 and $5,907, respectively................ 2,169 2,976 3,834
Computer software development costs, at cost, net of
accumulated amortization of $1,810, $2,509 and $2,868,
respectively........................................... 2,617 2,597 2,658
Deferred income taxes.................................... -- -- 1,628
Other assets............................................. 138 109 788
------- ------- -------
Total assets................................... $22,966 $44,041 $50,919
======= ======= =======

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses............... $ 2,680 $ 4,985 $ 6,773
Accrued dividends payable........................... -- 400 --
Income taxes payable................................ -- 543 --
Deferred income taxes............................... 10 1,223 --
Deferred revenue.................................... 8,043 11,076 14,186
------- ------- -------
Total current liabilities...................... 10,733 18,227 20,959
------- ------- -------
COMMITMENTS AND CONTINGENCIES (NOTE 8)
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; 15,877,167, 17,704,933, and 17,840,613
shares issued and outstanding at December 31, 1996
and 1997, and June 30, 1998, respectively......... 16 18 18
Paid-in capital..................................... 2,351 18,044 20,656
Retained earnings................................... 10,586 8,204 9,604
------- ------- -------
Less -- Unearned compensation....................... (720) (452) (318)
------- ------- -------
Total shareholders' equity..................... 12,233 25,814 29,960
------- ------- -------
Total liabilities and shareholders' equity..... $22,966 $44,041 $50,919
======= ======= =======
</TABLE>

The accompanying notes are an integral part of these balance sheets.
F-3
<PAGE> 46

DELTEK SYSTEMS, INC.

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

<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
--------------------------- -----------------
1995 1996 1997 1997 1998
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Revenues:
License fees.................................. $11,656 $14,114 $21,043 $ 9,515 $12,690
Services...................................... 19,076 24,343 33,216 15,211 23,222
Third-party equipment and software............ 3,574 3,254 3,387 1,640 1,790
------- ------- ------- ------- -------
Total revenues........................... 34,306 41,711 57,646 26,366 37,702
------- ------- ------- ------- -------
Operating expenses:
Cost of software.............................. 1,230 1,577 2,079 923 1,133
Cost of services.............................. 6,937 9,844 14,375 6,363 11,038
Cost of third-party equipment and software.... 2,750 2,516 2,631 1,311 1,382
Software development.......................... 6,577 8,380 11,214 5,388 7,210
Sales and marketing........................... 4,178 5,000 6,643 3,008 4,882
General and administrative.................... 2,790 3,018 3,558 1,798 1,927
Stock option compensation..................... -- 867 -- -- --
Acquisition costs............................. -- -- 320 -- 1,096
Purchased in-process research and
development................................ -- 394 -- -- 6,810
------- ------- ------- ------- -------
Total operating expenses................. 24,462 31,596 40,820 18,791 35,478
------- ------- ------- ------- -------
Income from operations............................ 9,844 10,115 16,826 7,575 2,224
Interest income, net.............................. 384 392 781 314 500
------- ------- ------- ------- -------
Income before income taxes........................ 10,228 10,507 17,607 7,889 2,724
Provision for income taxes........................ 102 54 5,898 2,157 1,354
------- ------- ------- ------- -------
Net income........................................ $10,126 $10,453 $11,709 $ 5,732 $ 1,370
======= ======= ======= ======= =======
Basic net income per share........................ $ 0.64 $ 0.66 $ 0.67 $ 0.34 $ 0.08
======= ======= ======= ======= =======
Weighted average shares outstanding............... 15,759 15,777 17,398 17,076 17,770
======= ======= ======= ======= =======
Diluted net income per share...................... $ 0.62 $ 0.64 $ 0.65 $ 0.33 $ 0.07
======= ======= ======= ======= =======
Weighted average shares outstanding, including
common stock equivalents........................ 16,279 16,282 17,882 17,539 18,293
======= ======= ======= ======= =======
Pro forma statement of operations data
(unaudited):
Income before provision for income taxes, as
reported................................... $10,228 $10,507 $17,607 $ 7,889
Provision for income taxes.................... 3,884 4,092 6,780 3,039
------- ------- ------- -------
Net income.................................... $ 6,344 $ 6,415 $10,827 $ 4,850
======= ======= ======= =======
Pro forma basic net income per share.............. $ 0.40 $ 0.41 $ 0.62 $ 0.28
======= ======= ======= =======
Pro forma diluted net income per share............ $ 0.39 $ 0.39 $ 0.61 $ 0.28
======= ======= ======= =======
</TABLE>

The accompanying notes are an integral part of these statements.
F-4
<PAGE> 47

DELTEK SYSTEMS, INC.

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

<TABLE>
<CAPTION>
UNREALIZED
COMMON GAIN ON TOTAL
STOCK 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, 1994................. 15,745,951 $16 $ 243 $ 7,286 -$- $-- $ 7,545
Cash dividends......................... -- -- -- (5,417) -- -- (5,417)
Accrued dividends payable.............. -- -- -- (2,594) -- -- (2,594)
Exercise of stock options.............. 31,500 -- 13 -- -- -- 13
Purchase and retirement of Common Stock
from ESOP............................ (7,246) -- (26) -- -- -- (26)
Unrealized holding gain on marketable
securities........................... -- -- -- -- 23 -- 23
Net income............................. -- -- -- 10,126 -- -- 10,126
---------- --- ------- -------- ---- ----- --------
BALANCE, DECEMBER 31, 1995................. 15,770,205 16 230 9,401 23 -- 9,670
Cash dividends......................... -- -- -- (9,265) -- -- (9,265)
Exercise of stock options.............. 15,000 -- 7 -- -- -- 7
Purchase and retirement of Common Stock
from ESOP............................ (10,038) -- (30) (3) -- -- (33)
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 9).................. -- -- 1,484 -- -- (468) 1,016
Issuance of stock options.............. -- -- 252 -- -- (252) --
Net income............................. -- -- -- 10,453 -- -- 10,453
---------- --- ------- -------- ---- ----- --------
BALANCE, DECEMBER 31, 1996................. 15,877,167 16 2,351 10,586 -- (720) 12,233
Cash dividends......................... -- -- -- (13,614) -- -- (13,614)
Accrued dividends payable.............. -- -- -- (400) -- -- (400)
Net proceeds from initial public
offering............................. 1,700,000 2 16,386 -- -- -- 16,388
Exercise of stock options.............. 202,717 -- 250 -- -- -- 250
Purchase and retirement of common stock
from ESOP............................ (24,146) -- (5) (77) -- -- (82)
Purchase and retirement of Stock....... (80,000) -- (1,211) -- -- -- (1,211)
Issuance of shares for Employee Stock
Purchase Plan........................ 29,195 -- 273 -- -- -- 273
Amortization of unearned
Compensation......................... -- -- -- -- -- 268 268
Net income............................. -- -- -- 11,709 -- -- 11,709
---------- --- ------- -------- ---- ----- --------
BALANCE, DECEMBER 31, 1997................. 17,704,933 $18 $18,044 $ 8,204 -$- $(452) $ 25,814
========== === ======= ======== ==== ===== ========
</TABLE>

The accompanying notes are an integral part of these statements.
F-5
<PAGE> 48

DELTEK SYSTEMS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
----------------------------- -------------------
1995 1996 1997 1997 1998
------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income............................... $10,126 $ 10,453 $ 11,709 $ 5,732 $ 1,370
Adjustments to reconcile net income to
net cash provided by operating
activities --
Depreciation and amortization......... 712 1,244 1,548 688 933
Purchased research and development,
noncash charge...................... -- 394 -- -- 6,810
Other noncash charges................. -- 980 268 120 384
Loss (gain) on disposal of fixed
assets.............................. 23 (23) -- -- --
Accreted interest on marketable
securities.......................... (61) 61 (186) (134) --
Change in accounts receivable, net.... (1,779) (165) (2,866) 54 (2,766)
Change in prepaid expenses,
inventories, and other assets....... 12 (902) 28 330 (146)
Change in prepaid income taxes........ (62) 7 55 (1,560) (1,916)
Change in accounts payable and accrued
expenses............................ 623 35 2,305 1,476 1,396
Change in deferred income taxes,
net................................. (10) (43) 159 104 (2,723)
Change in income taxes payable........ (173) -- 543 168 296
Change in deferred revenue............ 1,260 3,107 3,033 1,195 2,663
------- -------- -------- -------- --------
Net cash provided by operating
activities..................... 10,751 15,148 16,596 8,173 6,301
------- -------- -------- -------- --------
Cash flows from investing activities:
(Purchase) sale of marketable
securities............................ (1,018) 3,067 (14,763) (9,174) (5,533)
Purchase of property and equipment....... (786) (1,291) (1,656) (599) (1,194)
Acquisition of SalesKit Corporation...... -- -- -- -- (6,054)
Capitalization of computer software
development costs..................... (1,105) (648) (679) (294) (420)
------- -------- -------- -------- --------
Net cash (used in) provided by
investing activities........... (2,909) 1,128 (17,098) (10,067) (13,201)
------- -------- -------- -------- --------
Cash flows from financing activities:
Cash proceeds from initial public
offering, net of offering costs....... -- -- 16,388 16,392 --
Cash dividends paid to stockholders...... (5,417) (11,859) (13,614) (11,017) (370)
Cash proceeds from exercise of stock
options............................... 13 7 250 -- 304
Cash proceeds from issuance of stock for
employee purchase plan................ -- -- 273 147 285
Common stock purchased and retired....... (26) (33) (1,293) (426) --
------- -------- -------- -------- --------
Net cash used in financing
activities..................... (5,430) (11,885) 2,004 5,096 219
------- -------- -------- -------- --------
Net increase in cash and cash
equivalents.............................. 2,412 4,391 1,502 3,202 (6,681)
Cash and cash equivalents, beginning of
year..................................... 2,578 4,990 9,381 9,381 10,883
------- -------- -------- -------- --------
Cash and cash equivalents, end of year..... $ 4,990 $ 9,381 $ 10,883 12,583 4,202
======= ======== ======== ======== ========
Cash paid during the year for income
taxes.................................... $ 345 78 5,157 $ 1,548 $ 4,677
======= ======== ======== ======== ========
</TABLE>

- ---------------
Supplemental Disclosure
Allegro acquisition (Note 3)
SalesKit acquisition (Note 3)

The accompanying notes are an integral part of these statements.
F-6
<PAGE> 49

DELTEK SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BUSINESS COMBINATION WITH HARPER & SHUMAN, INC.:

In May 1998, Deltek Systems, Inc. completed its business combination with
Harper and Shuman, Inc. ("H&S") by exchanging 686,000 shares of its common stock
for all of the common stock of H&S. Each share of H&S was exchanged for 5.64
shares of Deltek Systems, Inc. common stock. In addition, outstanding H&S stock
options were converted at the same exchange factor into options to purchase
approximately 4,000 shares of Deltek Systems, Inc. common stock.

The acquisition constituted a tax-free reorganization and has been
accounted for as a pooling-of-interests under Accounting Principles Board
Opinion No. 16. Accordingly, all prior period consolidated financial statements
presented have been restated to include the combined results of operations,
financial position and cash flows as though H&S had always been a part of Deltek
Systems, Inc. (hereafter H&S and Deltek Systems, Inc. are collectively referred
to as the "Company" or "Deltek").

Acquisition costs of $1,096,000 consisted primarily of fees for investment
bankers, attorneys, accountants and other related charges and were expensed at
closing.

The results of operations for the separate companies and the combined
amounts presented in the consolidated financial statements follow.

<TABLE>
<CAPTION>
(THOUSANDS OF DOLLARS) 1995 1996 1997
---------------------- ------- ------- -------
<S> <C> <C> <C>
Revenues
Deltek...................................... $26,849 $34,780 $48,782
Harper & Shuman............................. 7,457 6,931 8,864
------- ------- -------
Combined............................... $34,306 $41,711 $57,646
======= ======= =======
Net Income (loss)
Deltek...................................... $10,021 $10,494 $11,312
Harper & Shuman............................. 105 (41) 397
------- ------- -------
Combined............................... $10,126 $10,453 $11,709
======= ======= =======
</TABLE>

2. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Deltek is incorporated 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 more effectively
manage, operate and grow their operations. The Company's software products have
been specifically designed to fulfill the needs of project-oriented companies
and include both enterprise-wide systems as well as application software
products that can be used either as a stand-alone application or as an
integrated part of the Company's enterprise-wide systems. Deltek's
enterprise-wide products consist of Costpoint, an advanced client/server
business software system designed for all types of project-oriented
organizations; Advantage, a client/server accounting system designed for
professional service firms; System 1, a character-based accounting system
designed primarily for organizations providing products or services under
contracts with the federal government; and CFMS, a family of older-generation
project-based accounting systems used primarily by architecture and engineering
firms. Deltek's stand-alone application software products, which also can be
integrated with the Company's enterprise-wide systems, consist of Electronic
Timesheet, an advanced employee timekeeping system, and Allegro, a project
budgeting and resource management tool.

Interim Financial Statements

The financial statements for the six months ended June 30, 1997 and 1998
included herein have been prepared by the Company, without audit, pursuant to
the rules and regulations of the Securities and Exchange
F-7
<PAGE> 50
DELTEK SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

2. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED):
Commission. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations. However, the Company believes that the disclosures are adequate to
make the information presented not misleading.

Consolidation Policy

The accompanying consolidated financial statements are prepared in
accordance with generally accepted accounting principles and include the
accounts of the Company and all of its wholly-owned subsidiaries. All
significant intercompany accounts and transactions have been eliminated in
consolidation.

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.

Net Income Per Common Share

Effective December 31, 1997, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 128, "Earnings Per Share." This statement
replaces the previously reported primary and fully diluted net income per share
with basic and diluted net income per share. Unlike primary net income per
share, basic net income per share excludes any dilutive effects of stock
options. Diluted net income per share is based on the weighted average
equivalent shares outstanding during the period and assumes the dilutive effect
of all options using the treasury stock method. No reconciling items existed
between the net income used for basic and diluted net income per share. All net
income per share amounts have been restated to conform to SFAS No. 128.

Pro forma net income is based on the assumption that the Company's S
Corporation status was terminated at the beginning of each year.

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.

Revenue Recognition

The Company grants perpetual licenses under a standard license agreement.
For certain of its software products, the Company typically grants its customers
a right of return for a full or partial refund of the license fee during a
refund period which is generally 60 to 90 days from the date of the initial
software delivery, although the Company occasionally has provided, and may in
the future provide, longer refund periods for larger, more complex Costpoint
installations. The Company generally recognizes license fees from its System 1,
Electronic Timesheet and Advantage products upon delivery, whereas Costpoint and
Allegro license fees are recognized upon the expiration of the applicable refund
period and are recorded as deferred revenue until recognized (Note 7). 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
F-8
<PAGE> 51
DELTEK SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

2. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED):
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 issued Statement of Position ("SOP") 97-2, Software Revenue
Recognition, which superseded SOP 91-1, Software Revenue Recognition. SOP 97-2
provides additional guidance to multiple elements; returns, exchanges, and
platform transfer rights; resellers; services; funded software-development
arrangements; and contract accounting. Implementation of SOP 97-2 is required
for transactions entered into beginning after December 15, 1997.

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 seven years. Leasehold improvements are amortized over the
shorter of the useful life of the asset or the lease term.

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 $276,000,
$579,000, and $698,000 was recorded related to these costs during 1995, 1996,
and 1997, respectively, and is included in cost of software.

Marketable Securities

The Company accounts for its debt and equity securities under SFAS No. 115,
Accounting for Certain Investments in Debt and Equity Securities. 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, 1997 are marketable
securities of approximately $14,949,000 that consist of investments in municipal
bonds, money market accounts and short-term floating rate bonds and are
classified as available-for-sale and recorded at fair value. No unrealized gains
or losses were incurred in 1997. 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 investments in municipal bonds, money market
accounts and floating rate bonds 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

F-9
<PAGE> 52
DELTEK SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

2. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED):
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

Prior to February 1997, the majority of the Company's operations had
elected to be treated as an S Corporation for federal income tax purposes.
Accordingly, income or loss was prorated among the shareholders and reported on
their individual income tax returns. The accompanying statements include a
provision for income taxes prior to February 1997 related to certain states that
do not recognize S Corporation status for state income tax purposes and for
federal income taxes of H&S. Upon Deltek's initial public offering, the entire
Company became a C Corporation for federal and 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 and are measured by applying enacted tax rates and
laws for the taxable years in which those differences are expected to reverse.

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
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.

Accounting Pronouncements Not Yet Effective

In 1997 the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income" (SFAS
130) and Statement of Financial Accounting Standards No. 131, "Disclosures about
Segments of an Enterprise and Related Information" (SFAS 131). SFAS 130 requires
that an enterprise display comprehensive income, which for the Company is the
total of net income and the current year foreign currency translation
adjustment, in its financial statements. SFAS 131 requires that a public
business enterprise report financial and descriptive information about its
reportable operating segments. Application of these new standards is required in
financial statements for fiscal years beginning after December 15, 1997.

Reclassifications

Certain amounts in prior years' financial statements have been reclassified
to conform to the 1997 presentation.

F-10
<PAGE> 53
DELTEK SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

3. ALLEGRO AND SALESKIT ACQUISITIONS:

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 revenues.

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.

SalesKit Acquisition

Subsequent to year-end, in April 1998, the Company acquired substantially
all of the assets of SalesKit Software Corporation ("SalesKit"), and assumed
certain related liabilities. The purchase price consisted of cash for $6,054,000
and stock warrants with an estimated fair value of $932,000. The stock warrants
allow the holder to purchase 130,000 shares of Deltek common stock at an
exercise price of $22 per share, exercisable over a three-year period.

Upon evaluation, at closing the Company assigned approximately $644,000 to
intangible assets and existing technology and is amortizing this amount over
five years. The Company assigned $6,810,000 to in-process research and
development and expensed this amount in 1998. In the opinion of management, the
acquired in-process research and development had not yet reached technological
feasibility and had no alternative future uses. At closing, the Company recorded
approximately $468,000 in assumed liabilities of SalesKit, primarily related to
accrued liabilities and deferred revenue.

4. 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 $1,837,000 and $3,470,000 at December 31,
1996 and 1997, respectively. Installment plans extending longer than four months
are generally interest-bearing.

5. ACCOUNTS PAYABLE AND ACCRUED EXPENSES:

Accounts payable and accrued expenses consist of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1996 1997
------ ------
(IN THOUSANDS)
<S> <C> <C>
Accrued wages and other employee benefits........ $1,211 $2,249
Deferred rent credits............................ 47 110
Accounts payable and other accrued expenses...... 1,422 2,626
------ ------
$2,680 $4,985
====== ======
</TABLE>

F-11
<PAGE> 54
DELTEK SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

6. INCOME TAXES:

In conjunction with Deltek's initial public offering in February 1997, the
Company (prior to the combination with H&S) changed from an S Corporation to a C
Corporation for federal and state income tax purposes. H&S reported as a C
Corporation for federal and state income tax purposes for all years presented.
As of December 31, 1995 and 1996, differences between the financial statement
and tax basis of assets and liabilities were insignificant. The provision for
income taxes is summarized as follows:

<TABLE>
<CAPTION>
1997 1996 1995
------ ---- ----
<S> <C> <C> <C>
Current:
Federal................................... $4,919 $-- $ 47
State..................................... 821 96 65
------ ---- ----
5,740 96 112
------ ---- ----
Deferred:
Federal................................... 136 (34) (9)
State..................................... 22 (8) (1)
------ ---- ----
158 (42) (10)
------ ---- ----
Tax provision........................ $5,898 $ 54 $102
====== ==== ====
</TABLE>

The income tax provision for continuing operations differs from that
computed using the statutory federal income tax rate of 35% in 1997 for the
following reasons:

<TABLE>
<S> <C>
Computed Statutory Amount................................... $6,162
Tax Exempt Income........................................... (187)
State Income Taxes, net of federal tax benefit.............. 534
Non-taxable income during S Corporation status.............. (644)
Other....................................................... 33
------
$5,898
======
</TABLE>

F-12
<PAGE> 55
DELTEK SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

6. INCOME TAXES -- (CONTINUED):
The following table is a summary of the significant components of the
Company's deferred tax assets and liabilities, and deferred provision for 1997.

<TABLE>
<CAPTION>
1997
DEFERRED
DECEMBER 31, (PROVISION)
1997 BENEFIT
------------ -----------
<S> <C> <C>
Deferred tax asset:
Cash to accrual change in tax accounting
method......................................... $ 124 $ 124
Employee compensation & benefits................. 226 226
Inventory........................................ 300 300
Accrued expenses................................. 277 177
Non-cash compensation............................ 181 181
Other............................................ 50 50
------- -------
Total deferred tax asset.................... 1,158 1,058
------- -------
Deferred tax liabilities:
Depreciation..................................... (162) (162)
Computer software development costs.............. (1,032) (1,032)
Other............................................ (29) (22)
------- -------
Total deferred tax liabilities.............. (1,223) (1,216)
------- -------
Net deferred tax liability.................. $ (65) $ (158)
======= =======
</TABLE>

7. DEFERRED REVENUE:

The Company had deferred revenues of approximately $3,196,000 and
$6,222,000 as of December 31, 1996 and 1997, respectively, attributable to the
sales of licenses of Costpoint, related Electronic Timesheet and Allegro
software. The revenues related to Costpoint will be recognized upon the
expiration of the refund period and right of return, generally 60 to 90 days
from the date of delivery, and the fulfillment of any significant vendor
obligations (Note 2). Also included in deferred revenues is ongoing software
support and consulting and training services.

8. COMMITMENTS AND CONTINGENCIES:

Office Space Lease

The Company leases office space under noncancellable 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
$1,348,000 and $1,810,000 for the years ended December 31, 1996 and 1997,
respectively. The Company's primary leases expire in 2002.

F-13
<PAGE> 56
DELTEK SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

8. COMMITMENTS AND CONTINGENCIES -- (CONTINUED):
As of December 31, 1997, the future minimum lease payments are as follows:

<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31, AMOUNT
------------------------ --------------
(IN THOUSANDS)
<S> <C>
1998................................................... $1,923
1999................................................... 2,128
2000................................................... 2,540
2001................................................... 2,471
2002................................................... 653
Thereafter............................................. --
------
$9,715
======
</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 4% of eligible compensation for
1996 and 1997, respectively. The Company's contribution for 1996 was
approximately $418,000. As of December 31, 1997, the Company had accrued
$454,000 for the 1997 profit-sharing contribution.

Other Matters

The Company's continuing operations are involved in various claims
incidental to its business. The Company is contesting these matters and in the
opinion of management, the ultimate resolution of the legal proceedings will not
have a material adverse effect on the financial condition or the future
operating results of the Company.

9. PREFERRED STOCK:

The Company's Board of Directors has the authority, without further action
by the shareholders, to issue 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.

10. EMPLOYEE STOCK OWNERSHIP PLAN AND OPTION PLANS:

Employee Stock Ownership Plan

Prior to the business combination with H&S, H&S qualified employees could
participate in an Employee Stock Ownership Plan ("ESOP"). Under the plan, H&S
made annual contributions of cash at the discretion of the H&S Board of
Directors, except that the minimum amount must be sufficient to enable the trust
to meet its current obligations. Contributed compensation costs were $2,500 for
1996 and $10,500 for 1997.

As of December 31, 1997 and 1996, the ESOP had no outstanding borrowings
and had no unallocated shares.

F-14
<PAGE> 57
DELTEK SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

10. EMPLOYEE STOCK OWNERSHIP PLAN AND OPTION PLANS -- (CONTINUED):
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. 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.

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 required 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 declined 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, $217,000 during the year
ended December 31, 1997, and up to an additional $251,000 of such charges will
be recorded in future periods, 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 were 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
was 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. Originally these options vested 100% on January 1, 2004. However,
upon the initial public offering of the Company's common stock, these options
began vesting ratably over a five year period from the date of grant. 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 offering price in the Company's initial public offering. The
Company recorded $51,000 in compensation charges during 1997. 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. At December 31, 1997,
571,084 options were outstanding and 106,684 options were exercisable under the
Accelerated Plan.

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 were granted under the 1996 Option Plan during
the 1996 fiscal year. At December 31, 1997, 340,000 options were outstanding and
no options were exercisable. The 1996 Option Plan provides for grants of
incentive stock options to employees (including
F-15
<PAGE> 58
DELTEK SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

10. EMPLOYEE STOCK OWNERSHIP PLAN AND OPTION PLANS -- (CONTINUED):
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.

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.
At December 31, 1997, 29,195 shares of common stock have been issued under the
Purchase Plan.

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, 1994............ 323,500 $ 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............ 412,000 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............ 1,063,000 0.249- 4.000
---------
Options granted.............................. 347,000 8.000-22.500
Options canceled............................. (74,800) 0.392-11.000
Options exercised............................ (202,716) 0.304- 4.000
---------
Shares under option, December 31, 1997............ 1,132,484 0.249-22.500
=========
</TABLE>

Of the options outstanding under the Book Value Plan at December 31, 1997,
options to purchase 156,200 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
F-16
<PAGE> 59
DELTEK SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

10. EMPLOYEE STOCK OWNERSHIP PLAN AND OPTION PLANS -- (CONTINUED):
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 1997
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Net income before taxes, as reported............. $10,228 $10,507 $17,607
Pro forma income tax provision................... 3,881 4,029 6,777
Pro forma compensation expense................... 9 162 896
------- ------- -------
Pro forma net income........................ $ 6,338 $ 6,316 $ 9,934
======= ======= =======
Diluted earnings per share, as reported.......... $ 0.39 $ 0.39 $ 0.61
======= ======= =======
Diluted earnings per share, pro forma............ $ 0.39 $ 0.39 $ 0.56
======= ======= =======
</TABLE>

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, 1996, and 1997, respectively; no dividend yield, expected
volatility of 50%, 50% and 70%, risk-free interest rates of approximately 6.6%,
6.0% and 5.9%, respectively, and expected lives of seven years. The volatility
was based on the volatility percentage of Deltek and comparable publicly traded
companies since the 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 that 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.

F-17
<PAGE> 60
DELTEK SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

11. QUARTERLY FINANCIAL DATA (UNAUDITED):

The following unaudited quarterly data has been prepared from the financial
records of the Company without audit, and reflects all adjustments which, in the
opinion of management, were of a normal recurring nature and necessary for a
fair presentation of the results of operations for the interim periods
presented.

<TABLE>
<CAPTION>
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
1996 1996 1996 1996
--------- -------- ------------- ------------
<S> <C> <C> <C> <C>
Net sales........................ $ 9,434 $ 8,855 $10,618 $12,804
Gross profit..................... 6,146 5,452 7,133 9,043
Net income....................... 2,462 928 2,724 4,339
Pro forma net income............. 1,553 518 1,637 2,707
Pro forma basic net income per
common share................... $ .10 $ .03 $ .10 $ .17
Pro forma diluted net income per
common share................... $ .10 $ .03 $ .10 $ .17

MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
1997 1997 1997 1997
------- ------- ------- -------
Net sales........................ $12,763 $13,603 $14,501 $16,779
Gross profit..................... 8,847 8,922 9,527 11,265
Net income....................... 3,274 2,458 2,682 3,295
Pro forma net income............. 2,392 2,458 2,682 3,295
Pro forma basic net income per
common share................... $ .14 $ .14 $ .15 $ .19
Pro forma diluted net income per
common share................... $ .14 $ .14 $ .15 $ .18
</TABLE>

F-18
<PAGE> 61

[INSIDE BACK COVER]

Collage of names of project-oriented industries together with pictures
representing several of the industries.
<PAGE> 62

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

NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED IN CONNECTION WITH
THE OFFERING MADE HEREBY TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION
NOT CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY,
ANY SELLING SHAREHOLDER OR ANY UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE
AN OFFER TO SELL OR A SOLICITATION TO BUY ANY OF THE SECURITIES OFFERED HEREBY
TO ANY PERSON OR BY ANYONE IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE
SUCH OFFER OR SOLICITATION. 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 DATE SUBSEQUENT TO THE DATE
HEREOF.

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

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

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 3
Risk Factors.......................... 6
Information Concerning Forward-Looking
Statements.......................... 11
Use of Proceeds....................... 13
Price Range of Common Stock and
Dividends........................... 13
Selected Consolidated Financial
Data................................ 14
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 15
Business.............................. 25
Management............................ 35
Principal and Selling Shareholders.... 37
Underwriting.......................... 39
Legal Matters......................... 40
Experts............................... 40
Additional Information................ 40
Incorporation of Certain Documents by
Reference........................... 41
Index to Consolidated Financial
Statements.......................... F-1
</TABLE>

- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
3,400,000 SHARES

DELTEK SYSTEMS, INC.
[LOGO]

COMMON STOCK
--------------------

PROSPECTUS
, 1998
--------------------
WILLIAM BLAIR & COMPANY
NATIONSBANC MONTGOMERY
SECURITIES LLC
BEAR, STEARNS & CO. INC.
FRIEDMAN, BILLINGS, RAMSEY
& CO., INC.
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 63

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

The following sets forth the various expenses expected to be incurred by
the Registrant in connection with the sale and distribution of the securities
being registered hereby other than underwriting discounts and commissions. All
amounts are estimated except the Securities and Exchange Commission registration
fee, the National Association of Securities Dealers, Inc. filing fee and the
Nasdaq listing fee.

<TABLE>
<S> <C>
SEC registration fee........................................ $ 26,674
NASD filing fee............................................. 9,542
Nasdaq listing fee.......................................... 10,000
Printing and engraving expenses............................. *
Legal fees and expenses..................................... *
Accounting fees and expenses................................ *
Miscellaneous............................................... *
--------
Total............................................. $425,000
========
</TABLE>

--------------------
* To be provided by amendment.

ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS

Section 10 of the Virginia Stock Corporation Act (the "VSCA") allows 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, director, officer, employee or agent of such
corporation. The Registrant's Articles of Incorporation (Exhibit 3.1) provide
for mandatory indemnification of its directors and officers and for
discretionary indemnification of any employee or agent to the full extent
permitted by the VSCA, including in circumstances in which indemnification is
otherwise discretionary under the VSCA. In addition, the Registrant has entered
into separate indemnification agreements with its directors and officers which
require the Registrant, among other things, to indemnify them against certain
liabilities which may arise by reason of their status or service (other than
liabilities arising from willful misconduct or knowing violation of the criminal
law). These indemnification provisions may be sufficiently broad to permit
indemnification of the Registrant's officers and directors for liabilities
(including reimbursement of expenses incurred) arising under the Securities Act
of 1933, as amended (the "Securities Act").

The Company maintains a policy of directors and officers liability
insurance.

The Underwriting Agreement (Exhibit 1) provides for indemnification by the
Underwriters of the Registrant and its officers and directors for certain
liabilities arising under the Securities Act, or otherwise.

At present, there is no pending litigation or proceeding involving a
director, officer, employee or other agent of the Registrant in which
indemnification is being sought nor is the Registrant aware of any threatened
litigation that may result in a claim for indemnification by any director,
officer, employee or other agent of the Registrant.

II-1
<PAGE> 64

ITEM 16. EXHIBITS

a. Exhibits

<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
------- ----------------------
<S> <C>
1* Form of Underwriting Agreement.
2.1(2) Asset Purchase Agreement dated February 12, 1998 between
SalesKit Software Corporation, Arch Acquisition Corp. and
the Company.
2.2(3) Agreement and Plan of Reorganization among Deltek Systems,
Inc., Turtledove Acquisition Corp., Harper & Shuman, Inc.,
Chester A. Shuman, The Harper & Shuman Employee Stock
Ownership Plan and Trust and the other shareholders of
Harper & Shuman, Inc.
3.1(1) Amended and Restated Articles of Incorporation of the
Registrant.
3.2(1) Amended and Restated Bylaws of the Registrant.
4.1(4) Specimen Common Stock certificate of the Registrant.
5* Opinion of Hazel & Thomas, P.C.
23.1 Consent of Arthur Andersen LLP.
23.2 Consent of Tofias, Fleishman Shapiro & Co., P.C.
23.3* Consent of Hazel & Thomas, P.C. included in Exhibit 5.
24 Power of Attorney (contained on the signature page hereto).
27 Financial Data Schedule.
</TABLE>

- ---------------
* To be filed by amendment.

(1) Incorporated by reference to the Company's Registration Statement on Form
S-1 filed on December 19, 1996 (File No. 333-18247).

(2) Incorporated by reference to the Company's Current Report on Form 8-K dated
May 13, 1998 (File No. 0-22001).

(3) Incorporated by reference to the Company's Current Report on Form 8-K dated
June 12, 1998 (File No. 0-22001).

(4) Incorporated by reference to the Company's Amendment No. 1 to Registration
Statement on Form S-1 filed on January 28, 1997 (File No. 333-18247).

b. Financial Statement Schedules.

SCHEDULE I -- VALUATION AND QUALIFYING ACCOUNTS

All other financial statement schedules are omitted because the information
is not required, is not material or is otherwise included in the Consolidated
Financial Statements, and related Notes thereto, of the Company.

ITEM 17. UNDERTAKINGS

The undersigned registrant hereby undertakes:

(a) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
registrant's annual report pursuant to section 13(a) or section 15(d) of
the Exchange Act (and, where applicable, each filing of an employer benefit
plan's annual report pursuant to section 15(d) of the Exchange Act) that is
incorporated by reference in the registration statement shall be deemed to
be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.

(b) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or
otherwise, the registrant has been advised that in the opinion of the
Commission such indemnification is

II-2
<PAGE> 65

against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in
the successful defense of any action, suit or proceeding) is asserted by
such director, officer or controlling person in connection with the
securities being registered, the registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit to
a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such
issue.

(c) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.

(d) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.

II-3
<PAGE> 66

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunder authorized,
in the City of McLean, Commonwealth of Virginia, on this 31st day of July, 1998.

DELTEK SYSTEMS, INC

By: /s/ KENNETH E. DELASKI

------------------------------------
Kenneth E. deLaski
President and Chief Executive
Officer

POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints, jointly and severally, Kenneth E.
deLaski and Alan R. Stewart, and each one of them, his true and lawful
attorneys-in fact and agents, each with full power of substitution, for him and
in his name, place and stead, in any and all capacities, to sign any and all
amendments (including post-effective amendments) to this Registration Statement,
and to sign any registration statement for the same offering covered by this
Registration Statement that is to be effective upon filing pursuant to Rule
462(b) promulgated under the Securities Act of 1933, and all post-effective
amendment thereto, and to file the same, with all exhibits thereto and all
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents, and each of them full power and
authority to do and perform each and every act and thing requisite and necessary
to be done in and about the premises, as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming that each of said
attorneys-in-fact and agents or any of them, or his or their substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.

<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
--------- -------- ----
<S> <C> <C>

/s/ KENNETH E. DELASKI President, Chief Executive Officer July 31, 1998
- ----------------------------------------------------- and Director
Kenneth E. deLaski (Principal Executive Officer)

/s/ DONALD DELASKI Chairman of the Board July 31, 1998
- ----------------------------------------------------- and Treasurer
Donald deLaski

/s/ ALAN R. STEWART Chief Financial Officer and Secretary July 31, 1998
- ----------------------------------------------------- (Principal Financial Officer and
Alan R. Stewart Principal Accounting Officer)

/s/ DARRELL J. OYER Director July 31, 1998
- -----------------------------------------------------
Darrell J. Oyer

/s/ CHARLES W. STEIN Director July 31, 1998
- -----------------------------------------------------
Charles W. Stein

/s/ ROBERT E. GREGG Director July 31, 1998
- -----------------------------------------------------
Robert E. Gregg
</TABLE>

II-4
<PAGE> 67

EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
23.1 Consent of Arthur Andersen LLP
23.2 Consent of Tofias, Fleishman Shapiro & Co., P.C.
24 Power of Attorney (contained on the signature page hereto)
27 Financial Data Schedule
</TABLE>

II-5
<PAGE> 68

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Deltek Systems, Inc.:

We have audited in accordance with generally accepted auditing standards
the financial statements of Deltek Systems, Inc. included herein and have issued
our report thereon dated May 29, 1998. Our audit was made for the purpose of
forming an opinion on the basic financial statements taken as a whole. The
schedule listed in the index is the responsibility of the Company's management
and is presented for the purpose of complying with the Securities and Exchange
Commission's rules and is not a part of the basic financial statements. This
schedule has been subjected to the auditing procedures applied in the audits of
the basic financial statements and, in our opinion, fairly states, in all
material respects, the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.

ARTHUR ANDERSEN LLP

Washington, D.C.
May 29, 1998

S-1
<PAGE> 69

SCHEDULE I

DELTEK SYSTEMS, INC.

VALUATION AND QUALIFYING ACCOUNTS

<TABLE>
<CAPTION>
BEGINNING AMOUNTS CHARGED TO ENDING
BALANCE WRITTEN OFF EXPENSE BALANCE
--------- ----------- ---------- -------
<S> <C> <C> <C> <C>
December 31, 1995:
Bad-debt reserves................................ 328 (505) 590 413
December 31, 1996:
Bad-debt reserves................................ 413 (447) 500 466
December 31, 1997:
Bad-debt reserves................................ 466 (174) 281 573
</TABLE>

S-2

<PAGE> 1

EXHIBIT 23.1

CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS

As independent public accountants, we hereby consent to the use in this
Form S-3 Registration Statement of our report dated May 29, 1998 relating to the
December 31, 1997 financial statements of Deltek Systems, Inc. included herein
and to all references to our Firm included in this Form S-3 Registration
Statement to register Deltek Systems, Inc. Common Stock.

/s/ ARTHUR ANDERSEN LLP
Washington, D.C.
July 30, 1998

<PAGE> 1

EXHIBIT 23.2

CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS

As independent public accountants, we hereby consent to the incorporation
by reference in this Form S-3 Registration Statement of our report dated May 15,
1998 relating to the December 31, 1997 financial statements of Harper & Shuman,
Inc. included in the Deltek Systems, Inc. Form 8-K file number 0-22001 and to
all references to our Firm included in this Form S-3 Registration Statement to
register Deltek Systems, Inc. Common Stock.

/s/ TOFIAS, FLEISHMAN, SHAPIRO & CO., P.C.
Boston, Massachusetts
July 30, 1998

<ARTICLE> 5
<MULTIPLIER> 1,000

<S> <C> <C> <C> <C> <C>
<PERIOD-TYPE> 12-MOS 12-MOS 12-MOS 6-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1995 DEC-31-1996 DEC-31-1997 DEC-31-1997 DEC-31-1998
<PERIOD-END> DEC-31-1995 DEC-31-1996 DEC-31-1997 JUN-30-1997 JUN-30-1998
<CASH> 0 9,381 10,883 0 4,202
<SECURITIES> 0 0 0 0 0
<RECEIVABLES> 0 7,529 10,502 0 13,519
<ALLOWANCES> 0 (466) (573) 0 (589)
<INVENTORY> 0 0 0 0 0
<CURRENT-ASSETS> 0 18,042 38,359 0 42,011
<PP&E> 0 6,669 8,325 0 9,741
<DEPRECIATION> 0 (4,500) (5,349) 0 (5,907)
<TOTAL-ASSETS> 0 22,966 44,041 0 50,919
<CURRENT-LIABILITIES> 0 10,733 18,227 0 20,959
<BONDS> 0 0 0 0 0
0 0 0 0 0
0 0 0 0 0
<COMMON> 0 16 18 0 18
<OTHER-SE> 0 12,217 25,796 0 29,942
<TOTAL-LIABILITY-AND-EQUITY> 0 22,966 44,041 0 50,919
<SALES> 34,306 41,711 57,646 26,366 37,702
<TOTAL-REVENUES> 34,306 41,711 57,646 26,366 37,702
<CGS> 0 0 0 0 0
<TOTAL-COSTS> 24,462 31,596 40,820 18,791 35,478
<OTHER-EXPENSES> 0 0 0 0 0
<LOSS-PROVISION> 0 0 0 0 0
<INTEREST-EXPENSE> 0 0 0 0 0
<INCOME-PRETAX> 10,228<F1> 10,507<F4> 17,607<F7> 7,889<F13> 2,724<F10>
<INCOME-TAX> 0 0 0 0 0
<INCOME-CONTINUING> 9,844 10,115 16,826 7,575 2,224
<DISCONTINUED> 0 0 0 0 0
<EXTRAORDINARY> 0 0 0 0 0
<CHANGES> 0 0 0 0 0
<NET-INCOME> 10,126<F2> 10,453<F5> 11,709<F8> 5,732<F11> 1,370
<EPS-PRIMARY> 0.64<F3> 0.66<F6> 0.67<F9> 0.34<F12> 0.08
<EPS-DILUTED> 0 0 0 0 0

<FN>
<F1>INCLUDES INTEREST INCOME OF $384.
<F2>THE PRO FORMA INCOME TAX PROVISION AND NET INCOME, AFTER TAKING EFFECT FOR A
PROFORMA INCOME TAX PROVISION, WOULD BE $3,884 AND $6,344, RESPECTIVELY.
<F3>THE PRO FORMA NET INCOME PER SHARE ON A FULLY DILUTED BASIS WOULD HAVE BEEN
$0.39.
<F4>INCLUDES INTEREST INCOME OF $392.
<F5>THE PRO FORMA INCOME TAX PROVISION AND NET INCOME, AFTER TAKING EFFECT FOR A
PROFORMA INCOME TAX PROVISION, WOULD BE $4,092 AND $6,415, RESPECTIVELY.
<F6>THE PRO FORMA NET INCOME PER SHARE ON A FULLY DILUTED BASIS WOULD HAVE BEEN
$0.39.
<F7>INCLUDES INTEREST INCOME OF $781.
<F8>THE PRO FORMA INCOME TAX PROVISION AND NET INCOME, AFTER TAKING EFFECT FOR A
PROFORMA INCOME TAX PROVISION, WOULD BE $6,780 AND $10,827, RESPECTIVELY.
<F9>THE PROFORMA NET INCOME PER SHARE ON A FULLY DILUTED BASIS WOULD HAVE BEEN
$0.61.
<F10>INCLUDES INTEREST INCOME OF $314.
<F11>THE PRO FORMA INCOME TAX PROVISION AND NET INCOME, AFTER TAKING EFFECT FOR A
PROFORMA INCOME TAX PROVISION, WOULD BE $3,039 AND $4,850, RESPECTIVELY.
<F12>THE PRO FORMA NET INCOME PER SHARE ON A FULLY DILUTED BASIS WOULD HAVE BEEN
$0.28.
<F13>INCLUDES INTEREST INCOME OF $500.
</FN>

</TABLE>