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SECURITIES AND EXCHANGE COMMISSION

FORM 10-K

Commission file number 000-22001

DELTEK SYSTEMS, INC.

Registrant’s telephone number, including area code: (703) 734-8606

Securities registered pursuant to Section 12(b) of the Act:

Securities registered pursuant to Section 12(g) of the Act: None

      Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes  [X]     No  [   ]

      Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  [X]

      The aggregate market value of the voting stock held by non-affiliates of the registrant as of March 24, 2000, was $92,736,051, based on a total of 5,982,971 shares held by non-affiliates on that date and computed by reference to the closing price reported on the Nasdaq National Market on that date, which was $15.50 per share.

      The Company had 16,717,840 shares of Common Stock, $.001 par value, outstanding as of March 24, 2000.

DOCUMENTS INCORPORATED BY REFERENCE

      Certain information to be contained in the registrant’s proxy statement for the 1999 annual meeting of the registrant’s shareholders, which is to be filed pursuant to Regulation 14A within 120 days after the end of the fiscal year covered by this Form 10-K, is incorporated into Part III of this report by reference to such proxy statement.

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FORWARD-LOOKING STATEMENTS

      In addition to historical information, this Annual Report includes certain “forward-looking statements.” 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. Readers are cautioned not to place undue reliance on these forward-looking statements as 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 “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Factors that May Affect Future Results and Market Price” and elsewhere in this Annual Report. Deltek undertakes no obligation and does not intend to update, 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.

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PART I

      Deltek Systems, Inc. (“Deltek” or the “Company”) is a leading provider of enterprise software products that enable project-oriented professional service firms to more effectively manage, operate and grow their operations. Our 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. We also provide a full range of services, including implementation and consulting, training and ongoing support. In the year ended December 31, 1999, 30% of our total revenues were derived from software license fees and 67% of our total revenues were generated from services. Since our inception, we have licensed our products to over 5,000 project-oriented organizations across a spectrum of industries, including IT services and consulting, 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 organizations provide products and services under federal government contracts.

      From 1995 through 1999, total revenues increased from $34.3 million to $98.2 million, representing compound annual growth of 30.5%, and income from operations, exclusive of non-recurring charges, increased from $9.8 million to $26.9 million, representing compound annual growth of 29.3%. For the year ended December 31, 1999, total revenues increased 18.3% from the comparable prior year period to $98.2 million, and income from operations, excluding non-recurring charges, increased 19.9% from the comparable prior year period to $26.9 million.

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. In addition, organizations are recognizing the need to deploy front-office solutions as a means of better managing customer relationships to ensure survivability as competitive pressures increase.

      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 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 organizations 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 and professional service 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 revenues and costs. Therefore, as the shift from a manufacturing-based economy to a service-based economy continues, the market for project-oriented organizations is expanding. Furthermore, the trend towards outsourcing an increasing range of activities broadens the market for project-oriented organizations 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.

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      As the number and type of project-oriented organizations 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 organizations. 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 is a leading provider of enterprise software products that enable project-oriented and professional service firms to more effectively manage, operate and grow their operations. Our 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. We also provide a full range of services, including implementation and consulting, training and ongoing support.

      Since our inception, we have focused exclusively on developing and providing products and services designed to meet the needs of project-oriented organizations. We believe that this focus is a competitive advantage in serving project-oriented markets relative to companies that offer more general-purpose enterprise software. We believe that our solutions generally are better suited, require shorter implementation times and cost less to install and maintain than general-purpose enterprise solutions. The primary software product suites that we currently market consist of Project Workplace™, a web-enabled, front-office and customer relationship management solution for project-based environments; Costpoint®, an advanced client/ server-based business software system designed for all types of complex project-oriented organizations; Advantage, an integrated, project-focused accounting system designed for professional services firms; GCS Premier™, project accounting software for small-to mid-sized organizations providing products or services under contracts with the federal government; and ET Enterprise™, an advanced employee timekeeping system.

      We also provide implementation and consulting, training and ongoing support services as an integral part of our solution. In contrast to general-purpose software vendors that often rely on third-party providers, we have a staff of over 178 experienced system consultants who directly assist our customers with system implementation. Beyond implementation, we provide training either on site or at one of our four training centers. We also provide to our customer’s ongoing product maintenance and technical support, which is a significant source of recurring revenues.

Strategy

      Our objective is to strengthen our position as a leading provider of enterprise software products to project-oriented organizations and to become a recognized leading provider of professional services automation solutions by pursuing a strategy that includes the following elements:

      Maintain Focus on Project-Oriented Markets. Since our inception, we have focused on addressing the unique business needs of project-oriented organizations. We believe that our 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. We believe that our solutions generally are better suited for project-oriented organizations, require shorter implementation times and cost less to install and maintain than general-purpose enterprise solutions. We intend to capitalize on the expertise that we have developed by continuing to market to project-oriented organizations, including those operating under federal government contracts, architecture and engineering firms and other professional and technical organizations.

      Deliver End-to-End Professional Services Automation. In recent months, industry analysts have focused on the strengths and merits of applications called professional services automation (PSA). PSA applications include our current front-office solutions in Project Workplace and ET Enterprise as well as some of the

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      Expand Comprehensive, Technologically Advanced Product Line. We have developed a family of complementary products with broad-based functionality, usable in a variety of technology environments, which we offer to project-oriented organizations. We intend to continue to expand the breadth of our product offerings and to enhance the features and functionality of each of our currently marketed applications. Our primary development initiatives include the completion of additional modules and e-business capabilities within our Project Workplace front-office CRM product suite, final completion of remaining GCS Premier modules, and a new software application for planning and budgeting. The primary focus with these additional modules and capabilities will be to enable a better end-to-end solution for the delivery of PSA. In addition, the Company has identified the market need to add a web interface to its back-office accounting products, Costpoint, Advantage and GCS Premier. While web-based reporting tools were added over the past year, there is still a need to provide core functionality through a standard web browser interface. Development of completely new, web-based versions of the back office products may take several years.

      Deliver e-Business Solutions for Project Businesses. A key aspect of our strategy is to provide solutions that enable our customers to do “e-project business”. To accomplish this, we have recently introduced a web-based, add-on product to Project Workplace called MyProjectWorkplace.com. This new product will provide e-business software to our customers to enable them to set up project websites for their own customers that allow their customers to keep up to date on real-time project activities and financial data and to collaborate on project issues. By integrating these e-business components into our software, we will provide our customers with solutions that can be more easily implemented and maintained.

      Expand Services Offerings. An integral part of our solution is to provide superior services, including implementation and consulting, training and ongoing support, directly to our customers. Services represented 67% of our total revenues for the year ended December 31, 1999. We believe that our reputation for providing high quality services and our approach of working directly with customers are significant competitive advantages that result in a high level of customer loyalty. Almost all of these current services are provided in conjunction with or relation to the implementation of our software products. To broaden our services offerings with a more proactive role in the business success of our customers, we intend to provide additional consulting and training services to our customers related to areas such as human resource management, business intelligence, IT consulting and solutions, and government contract consulting that are not necessarily related to our software products.

      Leverage Large Installed Customer Base. Our large installed customer base enables us to generate revenues from ongoing services and product enhancements provided to these customers. Our strategy is to (i) maintain and strengthen relationships with our existing customers by providing ongoing support services; and (ii) derive additional revenues by migrating clients to more advanced products within our product line, licensing add-on application software products and offering our customers additional consulting and training services. An important element of our strategy is to license our Project Workplace, ET Enterprise, Costpoint, Advantage and GCS Premier products to existing users as these customers migrate to client/server environments or otherwise update their technology systems.

Products

      Our currently marketed software product suite consists of Project Workplace, Costpoint, Advantage, GCS Premier, and ET Enterprise. These products are generally marketed together with industry standard business intelligence tools and database software.

      Project Workplace™. Project Workplace is a suite of web-enabled, employee-facing applications designed to address critical customer relationship management, project management, and resource management functions in a project-based, professional services organization. It integrates a number of applications including opportunity management, project administration, recruiting and project financials. The applications are designed to promote teamwork and create a common synergy and to drive the focus of an entire

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      Project Workplace consists of the following applications:

	•	Project CRM: This core application provides a wide array of customer relationship management (CRM), lead tracking, opportunity management, and resource management capabilities specially designed for project-based, professional services organizations. The application organizes key project information across the business by customer, employee assignment, project communications, and other categories, and allows team members to view project information when and how they need it. Using this application, project managers, salespeople, and marketing professionals will have the tools they need to have a higher awareness of the customer, to allow for better communication across teams, and identify and win new and “add-on” project opportunities. It also features threaded collaboration to help identify customer and project issues, develop action plans, and reach resolutions.
	•	Project Financials: Integrates with back office financial systems to provide key financial information to project managers, and empowers project managers with high-level accounting and financial information. This module is currently in beta release.
	•	Team Recruiting: Streamlines the recruiting process by providing a quick path for recruiting, hiring, and retaining the right personnel for project needs. The centralized database enables project managers, business development managers, proposal personnel, and human resources staff to access and track both internal and external applicants along with their skills, education, and experience. This module is currently in beta release.
	•	MyProjectWorkplace.com™: MyProjectWorkplace.com is an Internet-based solution designed to help professional services firms strengthen their customer relationships through better project communication and teamwork and to enable “e-project business.” MyProjectWorkplace.com enables our customers to establish unique, project-focused web sites for their customers and partners to enhance client satisfaction and project success. Project businesses that deploy this product will enable their customers to have full-time, web access to review and analyze project status, profiles, calendars, events, milestones, project documents, billings and financial performance. It also includes complete project collaboration features allowing project customers to post and review issues, questions and answers relating to the project. Information can also be made available on each member of the project resource team, including billable hours-to-date and profiles of each staff member’s skills, experience and qualifications. In addition, this application provides features to establish and track project success factors and to insure the visibility of these success factors and performance against the established evaluation criteria. MyProjectWorkplace.com will be released in beta during the second quarter of 2000.

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      The following table lists the principal Project Workplace applications and features:

      Costpoint®. Costpoint is an advanced client/server-based, enterprise-wide business software system, consisting of over 25 integrated module applications encompassing the following areas:

	Financial Accounting Project Accounting Materials Management Human Resource and Payroll   Administration

      In addition to financial accounting, Costpoint is designed to meet the specialized needs of project-oriented businesses, including:

	Project Costing Indirect Cost Allocation Revenue Recognition Project Budgeting Project Reporting

      Costpoint also meets the common 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 organizations. 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.

      Costpoint utilizes an open, relational database architecture on the server and Microsoft Windows operating systems on the desktop client PC. It 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 employs 32-bit technology and 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 three to 300 concurrent users.

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      We began development of Costpoint in 1992 and commercially released the product in June 1995. Through December 31, 1999, we had licensed approximately 718 Costpoint systems. License fees for Costpoint systems vary depending on the number of users and sites and the number and types of modules licensed.

      The following table lists the principal Costpoint application areas and modules:

      Advantage. Advantage, an integrated, project-focused accounting system for professional services firms, was designed and developed by Harper and Shuman, which we acquired in May 1998. The Advantage product currently includes the comprehensive modules:

	Project Control Accounting Billing Accounts Payable Payroll Profit Center Reporting Timekeeper Multi-User Expensekeeper

      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.

      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 markets Advantage primarily to small and mid-sized professional services firms with relatively less complex requirements.

      We began development of Advantage in 1995 in response to the technical maturation of the CFMS product line. Advantage was commercially released in December 1996. Through December 31, 1999, it had been licensed to approximately 2,551 organizations, primarily architecture and engineering firms. 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.

      GCS Premier™. GCS Premier is Deltek’s new, Windows-based enterprise accounting solution for small to mid-sized businesses that earn revenue from government contracts. The product was released in Beta form to select customers in August 1999. General release occurred in March 2000. In addition to its Windows-based interface, it features flexible, state-of-the-art component based software construction achieved with MS Visual Basic 6.0 and ActiveX controls. GCS Premier was designed specifically to ensure that our System1 customers could easily migrate to GCS without the necessity of data conversion while preserving System1’s

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      ET Enterprise™. ET Enterprise is a highly scaleable, comprehensive timesheet software application that allows employees to enter their timesheets on a daily basis on their desktop PC. ET Enterprise utilizes either Windows or web-based browser on the desktop PC and provides a graphical, point and click interface. ET Enterprise enables employees to select from a list of authorized charges rather than having to enter complicated account and project numbers. This feature serves to 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. ET Enterprise allows managers to view information about employees’ activities and helps them to better manage their employees. It operates on various relational database management systems platforms, such as Oracle, Microsoft, SQL Server, and Centura SQL base database systems.

      The majority of our ET Enterprise licensees are also licensees of Costpoint, System1, or Advantage, although the product is also sold on a stand-alone basis to users of other accounting systems. It interfaces with all Deltek products as well as enterprise applications from Oracle, Peoplesoft, JD Edwards, ADP, Pay America, and others.

      As of December 31, 1999, ET Enterprise and its predecessor product, Electronic Timesheet, had been licensed to a total of approximately 475 customers representing over 150,000 end users, many of whom use the product through a web browser. License fees for ET Enterprise vary depending on the number of employees.

      Recently, we have teamed with Call Technologies, Inc. to develop a telephony interface to ET Enterprise. This interface will allow any user with access to a home, business, pay or cellular phone to enter a timesheet. This Interactive Voice Response (IVR) add-on product to ET Enterprise is now in beta release.

      Other Legacy Software Products. In addition to the above products currently marketed, we also maintain and support two legacy product lines that we no longer market. These include System1 and CFMS. System1 was our original accounting system for government contractors. We estimate that approximately 2,000 companies have licensed System1 since it was commercially released in 1985. As of December 31, 1999, approximately 1,127 licensees were continuing to pay for ongoing support services related to System1. Since our introduction of our more advanced Costpoint system, the majority of our new customers have licensed Costpoint systems, and new System1 sales have decreased in number and system size. Our strategy is to migrate as many of these System1 users to our newly introduced GCS Premier product, which delivers similar functionality with modern technology and updated feature sets. We presently provide significant discounts to customers migrating from System1 to GCS Premier.

      The CFMS product line includes three older-generation accounting systems designed and developed for architecture and engineering firms by Harper and Shuman. Through December 31, 1999, CFMS systems have been licensed to over 2,700 organizations. We intend to seek migration of CFMS users to Advantage or Costpoint. To date, 1,500 CFMS users have migrated to the Advantage product.

      We plan to continue to offer maintenance updates and telephone support services to System1 and CFMS/ RD users for the foreseeable future but do not plan to make significant software enhancements to these products.

      Third-Party Products. We incorporate into our software products certain application software licensed from third parties. The Business Intelligence Tools, Impromptu and Power Play, are both licensed from Cognos Corporation, and the System1 report-writer, Intelligent Query, is also licensed from a third party. These Business Intelligence Tools are an enterprise solution for database query and reporting on the desktop and over the web. The tools enable the user to quickly and easily create any query and report, while providing administrators with flexibility, scheduling and distribution capabilities. In order to support Oracle, Sybase and Centura relational databases, Costpoint contains certain native “router” software licensed from Centura. In

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Customer Service and Support

      An integral part of our solution is to provide superior services and support directly to our customers. These services include comprehensive implementation and consulting, training and ongoing support. We believe that our reputation for providing high quality services and our ability to work directly with our customers, rather than through third-party resellers and system implementers, are significant competitive advantages.

      Implementation and Consulting Services. We typically provide a full range of consulting and technical services to customers both during and after implementation of Deltek software. Our 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 two- to 12-month period just before and after the “going live” date. After the implementation is completed, our consultants typically maintain an ongoing relationship with the customer and assist the customer in refining their systems and adding functionality as their business grows and requirements change. Our implementation and consulting services are generally charged on a time and materials basis.

      Ongoing Support Services. We provide comprehensive telephone support during business hours as well as supplemental emergency support after hours and on weekends. We utilize a sophisticated in-house support tracking system that enables call, problem and resolution tracking. We also maintain an “open phone” policy whereby customers are encouraged to contact any supervisor or senior manager at Deltek for any reason. We typically handle between 450 and 650 support calls per day. We provide periodic updates and enhancements to each of our software products. Typically, we provide 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. Our training facilities are located at our McLean, Virginia headquarters and at our offices in San Jose, California, St. Louis, Missouri and Cambridge, Massachusetts, where we provide regularly scheduled training classes on approximately 40 topics related to our products. We maintain system laboratories at our training facilities, which are available for customer testing, benchmarking and troubleshooting. We also offer custom, on-site training classes. Training is billed hourly or on a per class basis.

Customers

      Since inception, we have licensed our products to over 5,000 project-oriented organizations, predominantly in the United States, across a spectrum of industries. Project-oriented industries that we currently serve include IT services and consulting, architectural, engineering, 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 government contracts. No customer accounted for more than 10% of the Company’s total revenues in 1997, 1998 or 1999.

Sales and Marketing

      We sell our products and services primarily through our direct sales force. As of December 31, 1999, we had 36 full-time sales personnel and 16 full-time marketing personnel at our offices in McLean, Virginia, St. Louis, Missouri, Cambridge, Massachusetts and San Jose, California. In January 1999 we established a sales and marketing office in London, England.

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      Our 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. Our 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, we target project managers in addition to accounting managers. When the prospective customer is ready for a product demonstration, we utilize specially trained and industry-experienced professionals to provide the product presentation. We provide prospective customers with information to explain the capabilities and benefits of our products and to assist in planning for the system implementation. The licensing and implementation of our 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 three to 18 months. Accordingly, our sales process is subject to delays associated with a lengthy evaluation and approval process, including delays over which we have little or no control.

      Our strategy is to expand our sales and marketing activities by targeting organizations in additional project-oriented and professional services industries, in both domestic and international markets. Additionally, a significant source of business for us is migrating existing customers to other systems. In support of our marketing efforts for existing customers, we conduct ongoing customer communications programs and an annual user conference.

Product Development

      Our product development is generally organized into teams of six 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 our 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. Our product architecture group supports many of our product development groups and focuses on development, enhancement and maintenance of the object-oriented product development tools used throughout the development process. We utilize 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 we license from Centura. In order to optimize performance for process-intensive functions in Costpoint, such as project costing and billing applications, we make 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 performance and functionality. Microsoft Visual Basic 5.0 as the primary development tool for many of our new software products, including Project Workplace. Using the above development tools, we have developed a number of reusable objects and classes to better facilitate development.

      Our primary development initiatives include the completion of additional modules and e-business capabilities within our Project Workplace, front-office CRM product suite, final completion of remaining GCS Premier modules, and a new software application for planning and budgeting. The primary focus with these additional modules and capabilities will be to enable a better end-to-end solution for the delivery of PSA. In addition, the Company has identified the market need to add a web interface to its back-office accounting products, Costpoint, Advantage and GCS Premier. While web-based Business Intelligence reporting tools were added over the past year, there is still a need to provide core functionality through a standard web browser interface. Development of completely new, web-based versions of the back office products may take several years.

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      In addition to the above development efforts, our product development groups are continually focused on enhancements and customary error corrections to existing versions, and development of future versions of Project Workplace, Costpoint, Advantage, ET Enterprise and GCS Premier.

      Our software development expenses, exclusive of certain development costs which have been capitalized, were $11.2 million, $15.0 million and $16.7 million in 1997, 1998 and 1999, respectively. As of December 31, 1999, we had 247 employees engaged in product development and quality assurance activities, including 21 employees at our development office in Manila, the Philippines.

Competition

      The market for client/server-based business and web-based application software is highly competitive and rapidly changing. Our products are targeted toward a wide range of project-oriented organizations, and the competition that we encounter varies depending upon the customer’s size, industry and specific system requirements. For larger implementations of our enterprise-wide products, our principal competitors include Oracle, PeopleSoft, Inc., J.D. Edwards, and SAP AG. For smaller implementations of our enterprise-wide products, our 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. ET Enterprise competes with electronic timekeeping systems offered by vendors including Executive Partners Software, Automatic Data Processing, Inc. and Oracle. Our front-office applications face competition from well-known companies such as Siebel Systems, Inc. and Goldmine Software Corporation. We also face indirect competition from the internal MIS departments of our potential customers.

      We believe 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. We believe that we have competed effectively to date by developing products and services that meet the unique needs of project-oriented organizations. We also believe that our 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.

      The front-office systems market faces competition from customer’s internal information technology departments, systems integrators, as well as from other application software providers that offer a variety of products and services to address this market. Many of our customers and potential customers have attempted to develop front office systems in-house, either alone or with the help of systems integrators. We may not be able to compete successfully in this market.

      Many of our competitors have significantly greater financial, technical, marketing and other resources than Deltek. As our larger competitors, such as Oracle and Peoplesoft, begin to experience a deceleration in their core business and refocus their marketing and sales efforts to the middle market in which we actively market our products, we expect such competitors to implement increasingly aggressive pricing programs. In addition, certain competitors, particularly Oracle, PeopleSoft, and Siebel, have well-established relationships with many of our current and prospective customers and with major accounting and consulting firms that may have an incentive to recommend such competitors over us. Moreover, as we attempt to penetrate other strategic vertical and PSA markets, we will likely encounter competitors with substantially more experience in those markets.

Employees

      As of December 31, 1999, we had 654 full-time employees, including 247 employees primarily engaged in product development and quality assurance, 130 in customer support and training activities, 178 in consulting, 61 in sales and marketing, and 38 in finance and administration. None of our employees is represented by a labor union or is subject to a collective bargaining agreement.

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      Our corporate headquarters, our principal administrative, product development, sales and marketing operations and our principal customer training center are located in 85,000 square feet of office space in a building in McLean, Virginia, which we occupy under leases expiring in March 2002, subject to our right to extend the lease term by one or three years. We also lease approximately 4,124 square feet in Denver, Colorado, under a lease expiring on January 31, 2001, which has been subleased to a third party, and 4,855 square feet in San Jose, California, under a lease expiring in January 2002. We lease approximately 20,134 square feet in Cambridge, Massachusetts under leases expiring in 2002, and 5,162 square feet in St. Louis, Missouri under a lease expiring in 2003. We believe that our existing facilities and offices are adequate to meet our current needs and that, should it be needed, suitable additional or alternative space will be available in the future on commercially reasonable terms. See Notes to Consolidated Financial Statements for information regarding our obligations under facilities leases.

      We are not a party to any material pending legal proceedings, other than ordinary and routine litigation incidental to our business.

      No matter was submitted to a vote of our shareholders during the fourth quarter of the fiscal year covered by this report.

PART II

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

      On March 24, 2000, the closing price for our Common Stock was $15.50 per share and we had approximately 72 shareholders of record. Management believes there are approximately 2,700 beneficial holders of our Common Stock and has been advised that there are 121 individual participants holding approximately 51% of the outstanding Common Stock pursuant to security position listings furnished by Cede & Co., New York, New York, registered clearing agency and depository.

      As a former S Corporation, we made cash distributions to our shareholders, including in connection with the termination of the Company’s S Corporation status in February 1997. In 1997, 1998 and 1999, we paid

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      The following selected financial data should be read in conjunction with the consolidated financial statements and the notes thereto included elsewhere herein or incorporated herein by reference. The statement of operations data set forth below with respect to the years ended December 31, 1997, 1998 and 1999 and the balance sheet data as of December 31, 1998 and 1999 are derived from, and are qualified by reference to, the audited financial statements of the Company included elsewhere in this Annual Report. The statement of operations data set forth below with respect to the years ended December 31, 1995 and the balance sheet data as of December 31, 1995 are derived from unaudited financial statements not included in this Annual Report. All amounts for all periods have been restated to reflect the acquisition of Harper and Shuman in May 1998, which was accounted for using the pooling-of-interests method of accounting. The unaudited pro forma statement of operations data set forth below do not purport to be indicative of the results of operations that would have occurred had the termination of the Company’s S Corporation status occurred at December 31, 1994.

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(3)	In 1998, the Company incurred non-recurring, non-cash charges of $1.5 million for acquisition costs and $2.5 million for purchased in-process research and development. Exclusive of these charges, income from operations and net income for 1998 would have been $22.5 million and $15.7 million, respectively.
(4)	Prior to February 25, 1997, Deltek (excluding Harper and 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.

      The following information should be read in conjunction with the financial statements and the notes thereto included elsewhere herein. Except for historical information, certain statements in this Management’s Discussion and Analysis of Financial Condition and Results of Operations are forward-looking. These forward-looking statements are subject to various risks and uncertainties, including the demand for products, the size and timing of specific sales, the level of product and price competition, the length of sales cycles, economic conditions, and the Company’s ability to develop and market new products and control costs. The Company undertakes no obligation and does not intend to update, 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.

Overview

      Deltek is a leading provider of enterprise software products that enable project-oriented organizations and professional service firms to more effectively manage, operate and grow their operations. From 1985 through 1994, without considering revenues from the Company’s 1998 acquisition of Harper and Shuman, substantially all of the Company’s revenues were derived from licenses of its System1 business software, designed primarily for organizations providing products or services under contracts with the federal government, and services related to System1. 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 55.5% of the Company’s license fees for the year ended December 31, 1999. In addition to the above, the primary software product suites we currently market consist of Project Workplace, a web-enabled, front-office and customer relationship management solution for project-based environments; Advantage, an integrated, project-focused accounting system designed for professional services firms; GCS Premier, project accounting software for small-to mid-sized organizations providing products or services under contracts with the federal government; and ET Enterprise, an advanced employee timekeeping system.

      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 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, System1 and ET Enterprise products upon delivery. Implementation and other consulting services are provided on a time and materials basis, billed 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

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      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 $2.5 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 and Shuman by exchanging approximately 686,000 shares of its Common Stock for all of the common stock of Harper and 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 and Shuman as though it had always been a part of Deltek.

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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.

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Year Ended December 31, 1999 Compared to Year Ended December 31, 1998

      License Fees. License fees for the year ended December 31, 1999 increased by 5.9% to $29.8 million from $28.1 million for the same period in 1998. The increase in license fees was attributable to ET Enterprise and Advantage license fees, which increased by 26.2% and 22.3% to $3.8 and $6.7 million, respectively, for the year ended December 31, 1999. License fees from System1 products were $2.5 million for the year ended December 31, 1999 compared to $2.4 million for the year ended December 31, 1998, an increase of 2.0%. Costpoint license fees decreased by .6% to $16.6 million for the year ended December 31, 1999 as compared to $16.7 million for the same period in 1998. We believe that the decline of Costpoint license fees was due to the saturation of the Y2K upgrade market as compared to 1998. License fees comprised 30.4% of the Company’s total revenues for 1999, compared to 33.9% for the comparable prior year period.

      Services. Service revenues for the year ended December 31, 1999 increased by 28.4% to $65.3 million from $50.9 million for the same period in 1998. The increase in service revenues was principally attributable to increased consulting services related to the demand to have systems such as Advantage and Costpoint implemented before January 1, 2000. Consulting service revenues increased by 39.0% to $31.9 million for the year ended December 31, 1999 from $22.9 million for the same period in 1998. Other service revenues increased by 19.0% to $33.4 million for the year ended December 31, 1999 from $28.0 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. Service revenues comprised 66.5% of the Company’s total revenues for 1999, compared to 61.2% for the same period in 1998.

      Third-Party Equipment and Software. Revenues from third-party equipment and software for the year ended December 31, 1999 decreased by 23.6% to $3.1 million from $4.0 million for the comparable period in 1998. These revenues comprised 3.1% and 4.9% of total revenues for 1999 and 1998, 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 year ended December 31, 1999 was $2.6 million, an increase of 4.0% from $2.5 million for the same period in 1998. This change was due to an increase in software supplies and licensing activity.

      Cost of Services. Cost of services is comprised primarily of personnel costs for implementation and consulting services, user training, the International User Conference and ongoing maintenance and support. Cost of services for the year ended December 31, 1999 increased by 24.6% to $30.9 million from $24.8 million for the same period in 1998. The increase in cost of services was primarily due to increases in services personnel and the related costs associated with additional personnel, such as training and payroll overhead. Cost of services represented 47.2% and 48.7% of service revenues for the year ended December 31, 1999 and 1998, respectively. The decrease in cost of services as a percentage of service revenues was due to increased personnel utilization. Improved training and tenure of consultants, decreased cost and time per engagement. Exclusive of the users conference and reimbursable travel expenses which are billed at cost, cost of services represented 37.2% and 42.3% of related service revenue for the years ended December 31, 1999 and 1998, respectively.

      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 year ended December 31, 1999 decreased to $2.6 million from $3.1 million for the same period in the prior year. As a percentage of related revenues, cost of third-party equipment and software products represented 85.5% and 77.9% for the year ended December 31, 1999 and 1998, respectively. The increase in these costs as a percentage of related revenues was the result of reduced margins on third party equipment sales.

      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 year ended December 31, 1999 increased by 11.0% to $16.7 million from $15.0 million for the same period in 1998. This increase was due primarily to

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      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. Commission expense also increased significantly. Sales and marketing expenses for the year ended December 31, 1999 increased by 12.0% to $11.6 million from $10.4 million for the same period in 1998. While sales and marketing expenses increased in total, as a percentage of total revenues they decreased by .7%. Sales and marketing expenses represented 11.8% of the Company’s total revenues for the year ended December 31, 1999, compared to 12.5% for the same period in 1998.

      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 year ended December 31, 1999 increased by 42.7% to $6.0 million from $4.2 million for the same period in 1998. This increase was due first and foremost to the Company’s overall growth and an increase in general and administrative personnel. To a lesser extent, an increase in bad debt expense for 1999 contributed. General and administrative expenses represented 6.0% of the Company’s total revenues for the year ended December 31, 1999, compared to 5.0% for the same period in 1998.

      Acquisition & Offering Costs. There were no acquisition and offering costs in 1999. A charge of $1.5 million was recorded for the year ended December 31, 1998 for the transaction costs related to the acquisition of Harper and Shuman which included the offering costs to register the shares and warrants for the acquisition of Harper and Shuman and SalesKit Software Corporation. The acquisition of Harper and Shuman was accounted for as a pooling-of-interests. See “— Overview.”

      Purchased In-Process Research and Development. There were no purchased in-process research and development expenses in 1999. A charge of $2.5 million was recorded during the year ended December 31, 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 year ended December 31, 1999 increased by 9.4% to $1.2 million from $1.1 million for the same period in 1998. This increase is due to better returns on marketable securities.

      Income Tax Provision. The Company’s effective tax rate for the year ended December 31, 1999 was 38.7%, as compared to the pro forma effective tax rate of 39.9% for the same period in 1998. The tax rate for the year ended December 31, 1998 was affected by the nondeductible nature of a majority of the transaction costs for the acquisition of Harper and Shuman.

Year Ended December 31, 1998 Compared to Year Ended December 31, 1997

      License Fees. License fees for the year ended December 31, 1998 increased by 33.8% to $28.2 million from $21.0 million for the same period in 1997. The increase in license fees was principally attributable to Costpoint license fees, which increased by 41.4% to $16.7 million for the year ended December 31, 1998 from $11.7 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 51.1% to $5.5 million for the year ended December 31, 1998 as compared to $3.6 million for the same period in 1997. License fees from System1 products were $2.4 million for the year ended December 31, 1998 compared to $3.5 million for the year ended December 31, 1997, a decrease of 31.3%. The decline in System1 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 61.2% to $3.0 million for the year ended December 31, 1998 from $1.8 million for the

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      Services. Service revenues for the year ended December 31, 1998 increased by 53.1% to $50.9 million from $33.2 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 102.3% to $22.9 million for the year ended December 31, 1998 from $11.3 million for the same period in 1997. Other service revenues increased by 27.7% to $28.0 million for the year ended December 31, 1998 from $21.9 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 61.2% of the Company’s total revenues for 1998, compared to 57.6% for the same period in 1997.

      Third-Party Equipment and Software. Revenues from third-party equipment and software for the year ended December 31, 1998 increased by 19.3% to $4.0 million from $3.4 million for the comparable period in 1997. These revenues comprised 4.9% and 5.9% of total revenues for 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 year ended December 31, 1998 was $2.5 million, an increase of 21.3% from $2.1 million 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 year ended December 31, 1998 increased by 72.3% to $24.8 million from $14.4 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 48.7% and 43.3% of service revenues for the year ended December 31, 1998 and 1997, 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. 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. Exclusive of the users conference and reimbursable travel expenses which are billed at cost, cost of services represented 42.3% and 37.3% of related service revenue for the years ended December 31, 1998 and 1997, respectively.

      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 year ended December 31, 1998 increased to $3.1 million from $2.6 million for the same period in the prior year. As a percentage of related revenues, cost of third-party equipment and software products represented 77.9% and 77.7% for the year ended December 31, 1998 and 1997, respectively. The slight increase 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 year ended December 31, 1998 increased by 33.9% to $15.0 million from $11.2 million for the same period in 1997. This increase was due primarily to hiring additional personnel. Software development costs represented 18.1% and 19.5% of total revenues for the year ended December 31, 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 year ended December 31, 1998 increased by 55.8% to $10.4 million from $6.6 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

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      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 year ended December 31, 1998 increased by 17.0% to $4.2 million from $3.6 million for the same period in 1997. This increase was due primarily to the Company’s overall growth. General and administrative expenses represented 5.0% of the Company’s total revenues for the year ended December 31, 1998, compared to 6.2% for the same period in 1997.

      Acquisition & Offering Costs. A charge of $1.5 million was recorded for the year ended December 31, 1998 for the transaction costs related to the acquisition of Harper and Shuman and the offering costs to register the shares and warrants for the acquisition of Harper and Shuman and SalesKit Software Corporation. The acquisition of Harper and Shuman was accounted for as a pooling-of-interests. See “— Overview.”

      Purchased In-Process Research and Development. A charge of $2.5 million was recorded during the year ended December 31, 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 year ended December 31, 1998 increased by 36.5% to $1,066,000 from $781,000 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 year ended December 31, 1998 was 39.9%, as compared to the pro forma effective tax rate of 38.5% for the same period in 1997. The tax rate for the year ended December 31, 1998 was affected by the nondeductible nature of a majority of the transaction costs for the acquisition of Harper and Shuman.

Liquidity and Capital Resources

      The Company has financed its operations almost exclusively from cash flow from its operations. As of December 31, 1999, the Company had cash and cash equivalents of $6.0 million, marketable securities of $23.3 million and working capital of $32.2 million.

      For the year ended December 31, 1999, the Company’s net cash provided by operating activities was $14.9 million. Accounts receivable, net of the allowance for doubtful accounts, were $13.4 million as of December 31, 1999, compared to $11.8 million as of December 31, 1998. Accounts receivable days sales outstanding was 56 days as of December 31, 1999, compared to 60 days as of December 31, 1998.

      Investing activities utilized $6.4 million for the year ended December 31, 1999. This amount included $605,000 in acquired marketable securities, $3.9 million in purchased property and equipment and $3.0 million of capitalized software production costs.

      Financing activities for the year ended December 31, 1999 consisted primarily of $497,000 in proceeds from the exercise of stock options and $689,000 from the issuance of stock under the Company’s employee stock purchase plan. This was offset by $13.3 million of common stock purchased and retired.

      The Company believes that its current liquidity, together with anticipated cash flow from operations, 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. The Company may consider additional appropriate acquisitions should such opportunities present themselves. 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.

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Factors That May Affect Future Results and Market Price of Stock

      We may not be able to overcome loss of growth previously attributable to businesses that purchased software in order make their systems Y2K compliant. Management believes that the growth in demand for the Company’s products over the past several years was due in part to its customers’ needs to update their IT systems in preparation for the year 2000. By the middle of 1999, most project-oriented companies that needed to convert to year 2000 compliant systems (and thus were potential customers for the Company’s products) likely had purchased year 2000 compliant systems. Management believes that the future growth in demand for the Company’s products will depend in part upon the Company’s ability to offset the loss of any growth attributable to its customers’ needs to update their IT systems in preparation for the year 2000. There can be no assurance that the growth in demand for the Company’s products experienced over the past several years can be sustained. If such growth is not sustainable, the Company’s business, operating results and financial condition could be materially adversely impacted. Accordingly, the Company’s business, operating results and financial condition could be materially adversely impacted if the rate of sales for the Company’s products are delayed or substantially reduced.

      We may experience a downturn in sales from several of our core back office software products due to our inability to move their related technologies to a completely web-based architecture. IT directors of many companies now believe that all of their enterprise software applications should be deployable over the web. Other than Project Workplace, ET Enterprise, and the Business Intelligence reporting tools components of Costpoint, many of our software applications can not be operated over the Internet without the use of remote control software technology. It may take several years to rebuild many of these application products in technologies that will fully support a web-based, thin client architecture.

      We may experience fluctuations in quarterly operating results that may adversely impact the price of our stock. Our future results may vary from quarter to quarter depending upon a number of factors including the following:

	•	the discretionary nature of our customers’ purchase and budget cycles;
	•	demand for our products;
	•	the size and timing of specific sales;
	•	the delay or deferral of customer implementations;
	•	the level of product and price competition that we encounter;
	•	the length of our sales cycles;
	•	our ability to attract and retain personnel;
	•	the timing of new hires;
	•	the timing of our new product introductions and product enhancements and of our competitors;
	•	the mix of products and services we sell;
	•	the activities of and acquisitions by our competitors;
	•	the timing of our national user conference;
	•	general economic conditions;
	•	our ability to develop and market new software products and enhancements;
	•	our ability to control costs; and
	•	our ability to collect receivables.

      Our operating results, particularly our quarterly results could be significantly affected by the loss or delay of individual orders. Our revenues from license fees are difficult to predict because of the length and variability of our sales cycles (typically three to 18 months). Our operating expenses, on the other hand, are based on anticipated revenue trends. A high percentage of our operating expenses are relatively fixed. A delay in operating results from quarter to quarter. To the extent we incur expenses before obtaining anticipated revenues, our operating results could be materially adversely affected.

      For most of our software products, we typically grant customers a right of return for a full or partial refund of the license fee during the refund period. This is in part done to provide additional comfort to the Company’s prospective customers as well as to demonstrate the Company’s growing confidence in the reliability and stability of its core products. Refund periods generally range from 60 to 90 days from the date of

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      Our operating results for any quarter are subject to significant variation, and we believe that period-to-period comparisons of our operating results are not necessarily meaningful and should not be relied upon as indications of future performance. We also believe that many of our potential customers will continue to defer additional software expenditures beyond the final quarter of 1999 and we cannot predict when customer resources will again be available for the improvement of internal business systems. Our future quarterly operating results from time to time may not meet the expectations of market analysts or investors. In that event, the price of our common stock would likely be materially adversely affected.

      Future revenue growth is dependent in part on our successful introduction of Project Workplace. During 1999, we continued development on and released beta versions of Project Workplace, a front-office, customer relationship management (CRM) software application designed for project-oriented businesses, in August 1999. The general release was on March 10, 2000. Our future revenue growth from software sales is dependent, in part, on our ability to successfully launch this and additional new products. CRM applications are, by their nature, difficult to develop, implement and market and may require substantial customization at customer sites.

      Internet-enabled products present unique risks. Our newest product, Project Workplace, released in March 2000, is an internet-enabled software product. The increased commercial use of the Internet could require substantial modification and customization of our products and the introduction of new products. We may not be able to effectively compete in the Internet-related products and services market. In addition, critical issues concerning the commercial use of the Internet, including security, demand, reliability, cost, ease of use, accessibility, quality of service and potential tax or other government regulation, remain unresolved and may affect the use of the Internet as a medium to support the functionality of our products and distribution of our software. If these critical issues are not favorably resolved, our business, operating results and financial condition could be materially and adversely affected.

      We compete with a number of companies, many of which have significantly greater financial, technical, marketing and other resources than the Company. As our larger competitors, such as Oracle, Peoplesoft and SAP, begin to experience a deceleration in their core business and refocus their marketing and sales efforts to the middle market in which we actively markets its products, we expect such competitors to implement increasingly aggressive pricing programs. In addition, certain competitors such as Oracle, Peoplesoft, SAP and Siebel, have well-established relationships with our current and prospective customers and with major accounting and consulting firms that may have an incentive to recommend such competitors over us. We also face indirect competition from the internal MIS departments of our potential customers. In the front-office systems market we face competition from customer’s internal information technology departments, systems integrators, as well as from other application software providers such as Siebel and Goldmine, that offer a variety of products and services to address this market. Many of our customers and potential customers have attempted to develop front office systems in-house, either alone or with the help of systems integrators. We may not be able to compete successfully in this market.

      There can be no assurance that our products will continue to compete favorably or that we 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 our business, operating results and financial condition. See “Business — Competition.”

      Our future success is dependent upon our ability to hire and retain employees. Our success is dependent upon our ability to attract and retain highly skilled managerial, research and development, consulting, customer service, sales and marketing personnel. Although we currently are investing, and plan to continue to invest, significant resources to expand our direct sales force and our technical and customer support staff, we have at times experienced difficulties in recruiting and retaining qualified personnel. We could be adversely affected if we are unable to recruit qualified personnel or if senior managers or other such personnel were to leave our employ and qualified replacements were not available. Competition for skilled personnel in the

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      Our success will also depend in part on the continued services of our key employees, particularly our senior management personnel. We do not have employment agreements with any of our key employees and do not maintain any key-person life insurance. The resignation or loss of Kenneth E. deLaski, the Company’s President and Chief Executive Officer, could have a material adverse effect on our business, operating results and financial condition.

      Our success will depend on our ability to shift revenue composition from our back-office products to our front-office products. For the years ended December 31, 1998 and 1999, 78.6% and 77.9%, respectively, of our software revenues were derived from licenses of our Costpoint and Advantage software products. In addition, we generate service revenues related to its Costpoint and Advantage products. However, it is the Company’s belief that our customers and prospects will have a significant interest in the new front-office applications.

      We face risks associated with new product development, rapid technology change, risks associated with new product development, and 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. Our future success will depend, to a substantial degree, upon our ability to enhance our 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. There can be no assurance that we 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 us to manage the transition from or integration with older products in order to minimize disruption in sales of existing products. There can be no assurance that our development efforts will progress satisfactorily or keep pace with industry developments. We allocate resources for research and development projects based on planned product introductions and enhancements; however, actual expenditures may significantly differ from amounts allocated. We have experienced, and may experience in the future, delays in the introduction of our products, due to factors internal and external to us. Additionally, because our 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. The sale and support of our software products entails the risk of product liability claims. In addition, the failure to perform services to a customer’s expectations may result in our not being paid for services rendered, may damage our reputation and may result in a claim being brought against us. We maintain errors and omissions insurance; however, a successful claim for product or service liability brought against us could have a material adverse effect upon our business, operating results and financial condition. See “Business — Products” and “— Product Development.”

      We may be subject to risks from acquisition activities. As part of our growth strategy, we have acquired or invested in, and from time to time may acquire or invest in, complementary businesses, technologies and product lines. In order to successfully integrate acquired products into our sales and marketing channels, we must train our 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. Additional risks from acquisitions include disruption of our ongoing business; diversion of management from day-to-day operations; amortization of acquired intangible assets; impairment of relationships with customers, employees and strategic partners; loss of personnel; difficulty of maintaining uniform standards, controls, procedures and policies; and potential

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      Our continued success depends upon our ability to manage growth. We are currently experiencing growth and expansion, internally and through acquisitions, which have placed, and will continue to place, a strain on our administrative, operational and financial resources and demands on our systems and controls. This growth has resulted in an increasing level of responsibility for our management personnel. Our ability to manage our growth successfully will also require us to continue to expand and improve our operational, management and financial systems and controls on a timely basis. If our management is unable to manage growth effectively, our business, operating results and financial condition could be materially adversely affected.

      We face the uncertainty of expansion into new markets. We believe that our future success is dependent, in part, on our ability to successfully penetrate new project-oriented markets and , to adapt our product-development and marketing strategies to meet the developing needs of our marketplace, and to expand internationally. Although we have an ongoing program to further customize and add functionality to our products in order to address the specific needs of customers in new markets, our limited resources may restrict our ability to track developments in these markets, to develop appropriate products, and to effectively pursue product-development and marketing activities and strategies in multiple markets simultaneously. There can be no assurance that our products will be accepted in new markets. Our inability to successfully expand the markets for our products or develop marketing strategies could have a material adverse effect on our business, operating results and financial condition.

      We are partially dependent upon organizations with federal government contracts. A significant portion of our total revenues is derived from customers that provide products and services under federal government contracts. We believe that, at least in the near term, such organizations will continue to represent a large percentage of our customers and account for a significant percentage of our 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 our business, operating results and financial condition.

      We continue to rely on third-party software development tools. We license from third parties certain software development tools that we utilize in the development of our products. Accordingly, we are dependent upon such third parties’ abilities to deliver quality products, correct errors, ensure year 2000 functionality, 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, we would be required to establish relationships with alternative third-party providers and to rewrite our products using different development tools. Although we believe 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 we could successfully rewrite our products using different development tools or that it would not encounter substantial delays in doing so. Our inability to rewrite our products using different development tools on a timely and cost-effective basis could have a material adverse effect on our business, operating results and financial condition. See “Business — Products” and “— Product Development.”

      We may be unable to adequately protect our proprietary rights and be subject to risks of infringement. Our success and ability to compete is dependent in part upon its our proprietary software. We rely on a combination of copyright and trademark laws, trade secrets, confidentiality procedures and contractual provisions to establish and protect our rights in our software. Despite our efforts to protect our proprietary rights, unauthorized parties may attempt to copy, design around or reverse engineer aspects of our products or to obtain and use information that we regard as proprietary. Furthermore, we have no patents, and existing copyright law affords only limited protection. In addition, the laws of some countries do not protect our

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      There are currently no claims pending against us 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 us of their intellectual property rights. We expect that software product developers will increasingly be subject to infringement claims as the number of products and competitors in our 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 our products. In addition, such claims could require us to discontinue the use of certain software codes or processes, cease the manufacture, use and sale of infringing products, and develop non-infringing technology or to obtain licenses to the alleged infringing technology. There can be no assurance we 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 us. In the event of a successful claim of product infringement against us and our failure or inability to license the infringed or similar technology, our business, operating results and financial condition could be materially adversely affected.

      Our principal shareholders have the ability to exercise control. Our principal shareholders, Kenneth E. deLaski, our President and Chief Executive Officer, and Donald deLaski, our Chairman, together with their affiliates, in the aggregate own approximately 50.4% of the outstanding shares of the Common Stock as of March 24, 2000. As a result, these shareholders, acting together, are able to effectively control substantially all matters requiring approval by our shareholders 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, impede a merger, consolidation, takeover or other business combination involving us, or discourage a potential acquirer from making a tender offer or otherwise attempting to obtain control of us.

      A substantial number of our shares are eligible for resale, which could adversely affect the market price. Substantially all of our 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. In October 1998, pursuant to contractual obligations to do so, we registered an aggregate of 516,751 shares of Common Stock and 130,000 shares of Common Stock issuable pursuant to outstanding warrants under the Securities Act. Sales of substantial amounts of such restricted or registered securities could adversely affect prevailing market prices for the Common Stock.

      The market price of our common stock is volatile which could materially impact your investment. The market price of our Common Stock has historically been volatile. We believe factors such as quarterly fluctuations in results of operations, announcements of new products and acquisitions by us or by our 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 our Common Stock also may be affected by our ability to meet market analysts’ expectations, and any failure to meet such expectations could have a material adverse effect on the market price of our 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 our 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 us 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 our business, operating results and financial condition. See “Market for Registrant’s Common Equity and Related Stockholder Matters.”

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      See Item 7 for discussion.

      Information required by this Item is set forth below beginning on page F-1, and is incorporated herein by this reference.

      Not applicable.

PART III

      The information required by this item is incorporated by reference to the registrant’s definitive proxy statement to be filed with the Securities and Exchange Commission pursuant to Regulation 14A not later than 120 days after the end of the fiscal year covered by this Form 10-K.

      The information required by this item is incorporated by reference to the registrant’s definitive proxy statement to be filed with the Securities and Exchange Commission pursuant to Regulation 14A not later than 120 days after the end of the fiscal year covered by this Form 10-K.

      The information required by this item is incorporated by reference to the registrant’s definitive proxy statement to be filed with the Securities and Exchange Commission pursuant to Regulation 14A not later than 120 days after the end of the fiscal year covered by this Form 10-K.

      The information required by this item is incorporated by reference to the registrant’s definitive proxy statement to be filed with the Securities and Exchange Commission pursuant to Regulation 14A not later than 120 days after the end of the fiscal year covered by this Form 10-K.

PART IV

      (a)  Documents filed as a part of this report:

	1.  Financial Statements: The financial statements listed in the accompanying Index to Financial Statements and Schedule are filed as part of this report and incorporated herein by reference.
	2.  Financial Statement Schedules: The financial statement schedules listed in the accompanying Index to Financial Statements and Schedules are filed as part of this report and incorporated herein by reference.
	3.  Exhibits: The exhibits listed in the following Exhibit Index are incorporated herein by reference.

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EXHIBIT INDEX

(1)	Incorporated by reference to the Company’s Current Report on Form 8-K filed on May 13, 1998 (File No. 000-22001).
(2)	Incorporated by reference to the Company’s Current Report on Form 8-K filed on June 12, 1998 (File No. 000-22001).
(3)	Incorporated by reference to the Company’s Form S-1 filed on December 19, 1996 (File No. 333-18247).
(4)	Incorporated by reference to the Company’s Amendment No. 1 to Form S-1 filed on January 28, 1997 (File No. 333-18247).
(5)	Incorporated by reference to the Company’s Amendment No. 2 to Form S-1 filed on February 24, 1997 (File No. 333-18247).

      (b)  Reports on Form 8-K

(6)	Incorporated by reference to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 1998 (File No.  000-22001).

      No reports on Form 8-K were filed during the last quarter of the period covered by this report.

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SIGNATURES

      Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	DELTEK SYSTEMS, INC.
	(Registrant)

March 29, 2000

	By:	/s/ KENNETH E. DELASKI _______________________________________ Kenneth E. deLaski, Chief Executive Officer

	Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

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DELTEK SYSTEMS, INC.

FINANCIAL STATEMENTS

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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, 1998 and 1999, and the related consolidated statements of operations, changes in shareholders’ equity, and cash flows for each of the three years in the period ended December 31, 1999. 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 auditing standards generally accepted in the United States. 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, 1998 and 1999 and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1999, in conformity with accounting principles generally accepted in the United States.

/s/ Arthur Andersen LLP

Vienna, Virginia

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DELTEK SYSTEMS, INC.

TABLE OF CONTENTS

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DELTEK SYSTEMS, INC.

CONSOLIDATED BALANCE SHEETS

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

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DELTEK SYSTEMS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

The accompanying notes are an integral part of these consolidated statements.

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DELTEK SYSTEMS, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

The accompanying notes are an integral part of these consolidated statements.

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DELTEK SYSTEMS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS