<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1997
(mark one)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
____ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES AND
EXCHANGE ACT OF 1934
For the transition period from _______________ to __________________
Commission File Number 0-23852
PROJECT SOFTWARE & DEVELOPMENT, INC.
Exact name of registrant as specified in its charter)
MASSACHUSETTS 04-2448516
(State or other jurisdiction (I.R.S employer
incorporation or organization) identification number)
20 UNIVERSITY ROAD, CAMBRIDGE, MASSACHUSETTS 02138
Address of principal executive offices, including zip code)
(617) 661-1444
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
Number of shares outstanding of the Registrant's common stock as of the latest
practicable date: 9,842,383 shares of common stock, $.01 par value per share, as
of July 31, 1997.
1
<PAGE> 2
PROJECT SOFTWARE & DEVELOPMENT, INC.
10-Q INDEX
<TABLE>
<CAPTION>
PAGE
<S> <C>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS PAGE
Consolidated Balance Sheets as of June 30, 3
1997 (unaudited) and September 30, 1996.
Consolidated Statements of Operations 4
(unaudited) for the three and nine months
ended June 30, 1997 and 1996.
Consolidated Statements of Cash Flows 5
(unaudited) for the nine months ended June
30, 1997 and 1996.
Notes to Consolidated Financial Statements. 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL 9
CONDITION AND RESULTS OF OPERATIONS
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 18
SIGNATURE 19
</TABLE>
2
<PAGE> 3
PROJECT SOFTWARE & DEVELOPMENT, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS June 30, September 30,
1997 1996
---- ----
(IN THOUSANDS,EXCEPT SHARE DATA) (Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $20,786 $ 9,097
Marketable securities 37,175 36,798
Accounts receivable, trade, less allowance
for doubtful accounts of $2,277 in 1997 and
$1,954 in 1996 22,784 27,030
Prepaid expenses 1,457 1,410
Other assets 724 748
Deferred income taxes 1,054 892
------- -------
Total current assets 83,980 75,975
------- -------
Property and equipment, net 5,491 4,174
Computer software costs, net 345 787
Goodwill, net 1,555 1,832
Deferred income taxes 655 675
Other assets 48 33
------- -------
Total assets $92,074 $83,476
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 7,350 $ 8,389
Accrued compensation 3,149 5,007
Income taxes payable 1,050 248
Deferred revenue 10,196 9,042
------- -------
Total current liabilities 21,745 22,686
------- -------
Deferred income taxes 379 168
Deferred rent 34 85
Deferred revenue 127 375
Commitments and contingencies
Preferred stock, $.01 par value;1,000,000 authorized,
none issued and outstanding -- --
Common stock, $.01 par value;15,350,000 authorized;
issued and outstanding 9,841,693 and 9,702,579 for 1997 and 1996,
respectively 98 97
Additional paid-in capital 47,901 45,324
Retained earnings 22,093 14,538
Cumulative translation adjustment (497) 49
Net unrealized gain on marketable securities 194 154
------- -------
Total stockholders' equity 69,789 60,162
------- -------
Total liabilities and stockholders' equity $92,074 $83,476
======= =======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
3
<PAGE> 4
PROJECT SOFTWARE & DEVELOPMENT, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
June 30, June 30,
------------------------------- -------------------------------
1997 1996 1997 1996
---------- ----------- ----------- -----------
(in thousands, except share and per share data)
<S> <C> <C> <C> <C>
Revenues:
Software $ 11,277 $ 10,679 $ 36,165 $ 29,489
Support and services 12,375 7,472 33,052 21,226
---------- ----------- ----------- -----------
Total revenues 23,652 18,151 69,217 50,715
---------- ----------- ----------- -----------
Cost of revenues:
Software 747 667 1,998 2,267
Support and services 6,293 3,837 17,475 10,546
---------- ----------- ----------- -----------
Total cost of revenues 7,040 4,504 19,473 12,813
ww ---------- ----------- ----------- -----------
Gross margin 16,612 13,647 49,744 37,902
Operating expenses:
Sales and marketing 8,337 5,999 23,908 16,549
Product development 2,873 1,942 8,247 5,402
General and administrative 2,129 1,986 7,088 5,376
Merger expenses -- -- -- 965
---------- ----------- ----------- -----------
Total operating expenses 13,339 9,927 39,243 28,292
---------- ----------- ----------- -----------
Income from operations 3,273 3,720 10,501 9,610
Interest income 754 424 1,702 1,280
Interest expense (2) (6) (4) (36)
Other income (expense), net (122) 69 (263) (20)
---------- ----------- ----------- -----------
Income before income taxes 3,903 4,207 11,936 10,834
Provision for income taxes 1,413 1,457 4,381 4,509
---------- ----------- ----------- -----------
Net income $ 2,490 $ 2,750 $ 7,555 $ 6,325
========== =========== =========== ===========
Net income per share $ 0.25 $ 0.27 $ 0.75 $ 0.63
---------- ----------- ----------- -----------
Weighted number of common
and common equivalent shares 9,971,731 10,055,455 10,077,804 10,041,184
---------- ----------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
4
<PAGE> 5
PROJECT SOFTWARE & DEVELOPMENT, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine months ended Nine months ended
June 30, June 30,
1997 1996
----------------- -----------------
(in thousands)
<S> <C> <C>
Cash flows from operating activities:
Net income $ 7,555 $ 6,325
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 2,521 1,992
Loss on sale and disposal of property
and equipment 37 29
Amortization of discount on marketable securities 315 234
Deferred rent (51) (56)
Deferred taxes 54 (303)
Changes in operating assets and liabilities,
net of effect of acquisitions:
Accounts receivable 4,306 (7,414)
Prepaid expenses (55) (293)
Other assets (548) (1,690)
Accounts payable (640) 660
Accrued expenses (76) (589)
Accrued compensation (1,901) (970)
Income taxes payable 813 218
Deferred revenue 1,018 1,312
-------- -------
Net cash provided by/(used in) operating activities 13,348 (545)
-------- -------
Cash flows from investing activities:
Acquisitions of businesses, net of cash -- 108
Acquisitions of property and equipment (3,049) (1,703)
Proceeds from sale of property and equipment -- 6
Additions to computer software costs (88) (1,002)
Purchase of marketable securities (102,525) (36,056)
Sale of marketable securities 101,874 36,049
-------- -------
Net cash used in investing activities (3,788) (2,598)
-------- -------
Cash flows from financing activities:
Payments on leased equipment -- (25)
Payments on bank loan -- (450)
Proceeds from exercise of stock options 2,580 744
including related tax benefit
-------- -------
Net cash provided by financing activities 2,580 269
-------- -------
Effect of exchange rate changes on cash (451) (92)
-------- -------
Net increase (decrease) in cash and cash equivalents 11,689 (2,966)
Cash and cash equivalents, beginning of period 9,097 9,346
-------- -------
Cash and cash equivalents, end of period $ 20,786 $ 6,380
======== =======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
5
<PAGE> 6
PROJECT SOFTWARE & DEVELOPMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
A. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements include the
accounts of Project Software & Development, Inc. (PSDI) and its majority-owned
subsidiaries (collectively, the "Company"), as of June 30, 1997 and have been
prepared by the Company in accordance with generally accepted accounting
principles for interim reporting and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. All intercompany accounts and transactions have
been eliminated. In the opinion of management, the accompanying unaudited
consolidated financial statements contain all adjustments, consisting only of
those of a normal recurring nature, necessary for a fair presentation of the
Company's financial position, results of operations and cash flows at the dates
and for the periods indicated. The results of operations for the periods
presented herein are not necessarily indicative of the results of operations to
be expected for the entire fiscal year, which ends on September 30, 1997, or for
any other future period.
These consolidated financial statements should be read in conjunction with
the consolidated financial statements and notes thereto for the year ended
September 30, 1996 included in the Company's Annual Report on Form 10-K filed
with the Securities and Exchange Commission on December 30, 1996.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
B. INCOME PER SHARE
Income per share is computed for each period based upon the weighted average
number of common shares outstanding and dilutive common stock equivalents (using
the treasury stock method). For purposes of this calculation, stock options are
considered common stock equivalents in the periods in which they have a dilutive
effect. Fully diluted and primary income per share data are the same for each
period presented.
6
<PAGE> 7
C. ACCOUNTING STANDARDS
Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting
for Stock-Based Compensation" is effective for fiscal years beginning after
December 15, 1995. SFAS No. 123 prescribes accounting and reporting standards
for all stock-based compensation plans, including employee stock options,
restricted stock, and stock appreciation rights. SFAS No. 123 does not require
companies to change their existing accounting for employee stock options under
Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued
to Employees" (the intrinsic value method) but requires pro forma disclosures of
what net income and earnings per share would have been had the new fair value
method been used. The Company has elected to continue following present
accounting rules under APB Opinion No. 25 and will disclose all the required pro
forma information in its Annual Report on Form 10-K for the fiscal year ended
September 30, 1997.
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per
Share" is effective for financial statements issued for periods ending after
December 15, 1997. SFAS No. 128 replaces APB Opinion No. 15, Earnings Per Share.
SFAS No. 128 simplifies the computation of EPS by replacing the presentation of
primary EPS with a presentation of basic EPS. It requires dual presentation of
basic and diluted EPS by entities with complex capital structures. The Company
will adopt SFAS No. 128 per the effective date for the periods ended after
December 15, 1997.
Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting
Comprehensive Income" is effective for financial statements beginning after
December 15, 1997. SFAS No. 130 requires that changes in comprehensive income be
shown in a financial statement that is displayed with the same prominence as
other financial statements. The Company will adopt SFAS No. 130 beginning in the
first quarter of the fiscal year ended September 30, 1998.
Statement of Financial Accounting Standards ("SFAS") No. 131, "Disclosures
about Segments of an Enterprise and Related Information" is effective for fiscal
years beginning after December 15, 1997. This statement will change the way
companies report annual financial statements and requires them to report
selected segment information in their quarterly reports issued to shareholders.
It also requires entity-wide disclosures about the products and services an
entity provides, the material countries in which it holds assets and reports
revenues, and its major customers. The Company will adopt SFAS No. 130 in the
fiscal year ended September 30, 1998.
7
<PAGE> 8
D. COMPUTER SOFTWARE COSTS
There were no internally developed software costs capitalized for the three
and nine months ended June 30, 1997. Internally developed software costs
capitalized for the three and nine months ended June 30, 1996 were $0 and
$634,000, respectively. Amortization expense was $106,000 and $127,000 for the
three months ended June 30, 1997 and 1996, respectively, and $360,000 and
$822,000 for the nine months ended June 30, 1997 and 1996. For the three months
ended December 31, 1995, the Company changed the estimated useful life of its
internally developed software related to the client/server version of MAXIMO
from three years to fifteen months. This change in estimate resulted in
additional amortization expense of $565,000 in the three months ended
December 31, 1995.
8
<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
General.
The Company develops, markets and supports applications software used by
businesses, government and other organizations to improve the productivity of
facilities, plants and production equipment. The Company's revenues are derived
primarily from two sources: software licenses and fees for services, including
support contracts and training and consulting services. The Company has
experienced a significant shift in the sources of its revenues as a result of
its decision to concentrate its resources on the development and marketing of
enterprise-wide asset maintenance management systems operating in a
client/server environment. Prior to 1991, the Company's revenues were derived
primarily from licenses of its project management software (consisting of
character-based software designed to run on mainframe, minicomputers and
personal computers), and, to a lesser extent, from sales of computer hardware.
The Company acquired Maintenance Automation Corporation ("MAC") on March 1,
1996. MAC is a developer of maintenance management software for the single-user,
PC LAN segment.
The Company released MAXIMO, its first client/server product, in 1991, and
released P/X, its second client/server product, in 1992. In fiscal year ended
September 30, 1996, revenues from client/server software accounted for 89% of
software revenues, of which 93% was attributable to the client/server versions
of MAXIMO.
In fiscal 1996, the Company introduced a new suite of MAXIMO products:
MAXIMO Enterprise, MAXIMO Workgroup and MAXIMO ADvantage. MAXIMO Enterprise, a
new version of which was released in March 1996, is a client/server product,
which runs on Oracle7 and SYBASE platforms and is intended for the high
function, high usage segment of the maintenance management market. MAXIMO
Workgroup, released in July 1996, is also a client/server product and runs on
SQLBase and Oracle Workgroup and is intended for the mid-range segment of the
maintenance management market.
In March 1997, the Company released a new SQL Server version of MAXIMO
Enterprise and MAXIMO Workgroup for the Microsoft SQL Server database. The new
SQL Server version is available for Windows NT servers, including NT 3.5.1 and
NT 4.0, supporting Windows95, Windows 95B, all Windows 3.x systems, and NT 3.5.1
and NT 4.0 clients.
The product acquired as a result of the acquisition of MAC on March 1, 1996,
MAXIMO ADvantage, is intended for the lower-end maintenance market. MAXIMO
ADvantage supports Microsoft Access for the single user, PC LAN segment. The
Company incurred
9
<PAGE> 10
significant additional and unexpected costs in developing a new release of
MAXIMO ADvantage due to a delay in excess of six months in completing the new
release of this product. The delay was necessary to meet both the quality
expectations and functionality demanded by the Company. Further effecting MAXIMO
ADvantage sales was the delay in availability of a CD-Rom based multi-media
evaluation kit. This evaluation kit generally became available in December 1996.
The first significant version of MAXIMO ADvantage released since the acquisition
of MAC, version 3.4, was released in March 1997. The Company has not realized
any significant revenues from this new release despite opening a new tele-sales
operation in Atlanta in March 1997. Accordingly, expenses related to this
product are being reduced to a level commensurate with the lower revenue
expectations.
The sources of the Company's revenues from support and services have also
shifted since the introduction of the Company's new generation of client/server
products. Revenues from support and services relating to the Company's MAXIMO
products have increased, while those relating to the Company's P/X and mainframe
and other project management software have declined.
Revenues from licenses of P/X have declined sharply, dropping to 2% of total
license revenues in the fiscal year ended 1996. The Company no longer actively
markets its P/X product as a stand alone solution. Revenues from licenses of
mainframe and other project management software have also declined sharply,
dropping to 1% of total license revenues in the fiscal year ended 1996. The
Company no longer actively markets its mainframe and other project management
software products, although it provides technical support and other services to
their installed customer base.
The Company's revenues attributable to its operations outside the United
States are a significant portion of revenues. The Company expects that
international revenues will continue to be a significant percentage of total
revenues. As the percentage of the Company's total revenues which are derived
from international operations and are conducted in foreign currencies grows,
changes in the values of these foreign currencies relative to the United States
dollar will affect the Company's results of operations, and may contribute to
fluctuations in the Company's results of operations. The functional currencies
of the Company's international subsidiaries include the pound sterling, the
French franc, the German deutschemark, the Dutch guilder, the Swedish krona, the
Japanese yen, and the Australian and Canadian dollars, each of which has
fluctuated significantly in relation to the United States dollar. In addition,
the Company is exposed to potential losses as a result of transactions giving
rise to accounts receivable in currencies other than the United States dollar or
the functional currencies of its international subsidiaries. When the value of a
foreign currency in which the
10
<PAGE> 11
accounts receivable of the Company are denominated changes between the date the
account receivable is accrued and the date on which it is settled, the resulting
gain or loss is recorded as a foreign currency transaction adjustment. The
Company recorded foreign currency transaction losses of $307,000 and $125,000
for the nine months ended June 30, 1997 and 1996, respectively. The Company may
in the future undertake currency hedging, although there can be no assurance
that hedging transactions, if entered into, would materially reduce the effects
of fluctuations in foreign currency exchange rates on the Company's results of
operations.
To date, inflation has not had a material impact on the Company's financial
results. There can be no assurance, however, that inflation may not adversely
affect the Company's financial results in the future.
RESULTS OF OPERATIONS
Revenues.
Total revenues increased 30% to $23,652,000 from $18,151,000 for the three
months ended June 30, 1997 and 1996, respectively, and 36% to $69,217,000 from
$50,715,000 for the nine months ended June 30, 1997 and 1996, respectively. The
growth in revenues is generated from the Company's client/server versions of
MAXIMO software and related support and services. A significant portion of the
Company's total revenues are derived from operations outside the United States.
Revenues generated outside the United States increased 51% to $10,024,000 or 42%
of total revenues in the three months ended June 30, 1997 from $6,653,000 or 37%
of total revenues in the three months ended June 30, 1996 and increased 46% to
$29,509,000 or 43% of total revenues in the nine months ended June 30, 1997 from
$20,281,000 or 40% of total revenues in the nine months ended June 30, 1996.
The Company's software revenues increased 6% to $11,277,000 from $10,679,000
for the three months ended June 30, 1997 and 1996, respectively, and increased
23% to $36,165,000 from $29,489,000 for the nine months ended June 30, 1997 and
1996, respectively. The Company's MAXIMO client/server software revenues
increased 15% to $10,448,000 from $9,109,000 for the three months ended June 30,
1997 and 1996, respectively, and increased 35% to $34,067,000 from $25,323,000
for the nine months ended June 30, 1997 and 1996, respectively. The Company's
MAXIMO ADvantage software revenues decreased 41% to $763,000 from $1,291,000 for
the three months ended June 30, 1997 and 1996, respectively, and decreased 47%
to $1,723,000 from $3,238,000 for the nine months ended June 30, 1997 and 1996,
respectively. The Company's P/X software revenues decreased 96% to $12,000 from
$280,000 for the three months ended June 30, 1997 and 1996, respectively, and
decreased 54% to $290,000 from $628,000 for the
11
<PAGE> 12
nine months ended June 30, 1997 and 1996, respectively. The increases in MAXIMO
client/server software revenues for the three and nine months ended June 30,
1997 can be attributed to increases in the average selling price, as well as,
increases in the number of licenses. In the three months ended June 30, 1996,
the Company recognized one large software license agreement of approximately
$1.8 million dollars. There were no software licenses above one million dollars
in the three months ended June 30, 1997. Software revenues as a percentage of
total revenues decreased to 48% from 59% for the three months ended June 30,
1997 and 1996, respectively, and decreased to 52% from 58% for the nine months
ended June 30, 1997 and 1996, respectively. The decreases for the three and nine
months ended June 30, 1997 are largely attributable to a decline in MAXIMO
client/server software license revenue in Europe and a shortfall in MAXIMO
ADvantage revenues. Partially offsetting the software decline in Europe is an
increase in European services revenue. European MAXIMO services revenues have
increased 89% and 108% for the three and nine months ended June 30, 1997,
respectively. European services revenues as a percentage of European revenues
were 51% and 46% for the three and nine months ended June 30, 1997,
respectively, in comparison to 41% and 32% for the three and nine months ended
June 30, 1996, respectively.
Revenues from MAXIMO client/server licenses and from related support and
services increased 47% to $21,405,000 from $14,519,000 or 90% and 80% of total
revenues for the three months ended June 30, 1997 and 1996, respectively, and
increased 57% to $62,693,000 from $39,964,000 or 91% and 79% of total revenues
for the nine months ended June 30, 1997 and 1996, respectively. Revenues from
MAXIMO ADvantage licenses and from related support and services decreased 22% to
$1,477,000 from $1,902,000 or 6% and 4% of total revenues for the three months
ended June 30, 1997 and 1996, respectively, and decreased 29% to $3,921,000 from
$5,540,000 or 6% and 11% of total revenues for the nine months ended June 30,
1997 and 1996, respectively. Revenues from licenses and related support and
services of P/X decreased 59% to $551,000 from $1,356,000 or 2% and 7% of total
revenues for the three months ended June 30, 1997 and 1996, respectively, and
decreased 50% to $1,871,000 from $3,775,000 or 3% and 7% of total revenues for
the nine months ended June 30, 1997 and 1996, respectively. The Company no
longer actively markets its P/X product as a stand alone solution.
Revenues from the Company's mainframe and other project management software
and related support and services decreased 41% to $219,000 from $374,000 for the
three months ended June 30, 1997 and 1996, respectively, and decreased 49% to
$732,000 from $1,435,000 for the nine months ended June 30, 1997 and 1996,
respectively. The Company no longer actively markets its mainframe and other
project management software products.
12
<PAGE> 13
Revenues from support and services increased 66% to $12,375,000 from
$7,472,000 for the three months ended June 30, 1997 and 1996, respectively, and
increased 56% to $33,052,000 from $21,226,000 for the nine months ended June 30,
1997 and 1996, respectively. Support and services revenues as a percentage of
total revenues increased to 52% from 41% for the three months ended June 30,
1997 and 1996, respectively, and 48% from 42% for the nine months ended June 30,
1997 and 1996, respectively. The increases are due primarily to consulting and
training services generated by the Company's MAXIMO Enterprise software. The
Company anticipates that services revenues will continue to be a larger portion
of total revenues than has been experienced in the past due to customers
requiring high end domain implementation expertise including customization and
integration to Enterprise Resource Planning projects. Also contributing to the
increases are sales of support contracts in connection with licenses of the
Company's MAXIMO client/server software, partially offset by declines in sales
of support contracts relating to the Company's mainframe and other project
management software.
Cost of Revenues.
The total cost of revenues increased 56% to $7,040,000 from $4,504,000 for
the three months ended June 30, 1997 and 1996, respectively, and increased 52%
to $19,473,000 from $12,813,000 for the nine months ended June 30, 1997 and
1996, respectively. The total cost of revenues as a percentage of total revenues
was 30% and 25% for the three months ended June 30, 1997 and 1996, respectively,
and 28% and 25% for the nine months ended June 30, 1997 and 1996, respectively
and can be attributed primarily to the third party consulting costs and
additional in house consultants hired in relation to increases in MAXIMO
services revenue.
Cost of software revenues increased 12% to $747,000 from $667,000 for the
three months ended June 30, 1997 and 1996, respectively, and decreased 12% to
$1,998,000 from $2,267,000 for the nine months ended June 30, 1997 and 1996,
respectively. The cost of software revenues increased as a percentage of
software revenues to 7% from 6% for the three months ended June 30, 1997 and
1996, respectively, and decreased to 6% from 8% for the nine months ended June
30, 1997 and 1996. The increase as a percentage of revenues for the three months
ended June 30, 1997 is attributable to royalties paid to third party vendors and
software purchased for resale. The decrease as a percentage of software revenues
for the nine months ended June 30, 1997 is primarily attributable to a decrease
in amortization expense of internally developed software as compared to the
prior period and an increase in the revenue base for the nine months ended June
30, 1997. In the three months ended December 31, 1995, the Company changed the
estimated useful life of its MAXIMO Enterprise product from three years to
fifteen months to accurately reflect the lifecycles for major new
13
<PAGE> 14
releases of this product. This change resulted in a one-time charge of an
additional amortization expense of $565,000 for this three month period.
Cost of support and services revenues consists primarily of personnel costs
for employees and the related costs of benefits and facilities and costs for
third party consultants. Cost of support and services revenues increased by 64%
to $6,293,000 from $3,837,000 for the three months ended June 30, 1997 and 1996,
respectively, and increased by 66% to $17,475,000 from $10,546,000 for the nine
months ended June 30, 1997 and 1996, respectively. The increase for the three
months ended June 30, 1997 is attributable to costs for third party consultants
and the hire of employees to perform services. Cost of support and services as a
percentage of support and services revenues was 51% for both the three months
ended June 30, 1997 and 1996, respectively, and increased to 53% from 50% for
the nine months ended June 30, 1997 and 1996, respectively. The increase for the
nine months ended June 30, 1997 is attributable to costs for third party
consultants whose effective hourly rate is higher than that of employees
performing similar services. Third party consultants are utilized to perform
services when the Company does not have adequate internal resources to complete
services within acceptable time frames.
Sales and Marketing Expenses.
Sales and marketing expenses increased 39% to $8,337,000 from $5,999,000 for
the three months ended June 30, 1997 and 1996, respectively, and increased 44%
to $23,908,000 from $16,549,000 for the nine months ended June 30, 1997 and
1996, respectively. The increases are primarily due to increases in the number
of sales personnel, sales commissions, travel and lodging expenses attributable
to growth and expansion, and an increase in advertising costs. Sales and
marketing expenses as a percentage of total revenues were 35% and 33% for the
three months ended June 30, 1997 and 1996, and 35% and 33% for the nine months
ended June 30, 1997 and 1996, respectively. The increases as a percentage of
revenues are due primarily to increased sales and marketing staffs and an
increase in advertising costs to promote the Company's MAXIMO products, and
expense levels that were established to achieve a higher level of revenues.
Product Development Expenses.
Product development expenses increased 48% to $2,873,000 from $1,942,000 for
the three months ended June 30, 1997 and 1996, respectively, and increased 53%
to $8,247,000 from $5,402,000 for the nine months ended June 30, 1997 and 1996,
respectively. The increases are attributable to costs for third party
consultants and additional employees to work on upgrades of the MAXIMO product
and investments in future technology.
14
<PAGE> 15
Product development expenses increased to 12% from 11% of total revenues for
the three months ended June 30, 1997 and 1996, respectively, and increased to
12% from 11% of total revenues for the nine months ended June 30, 1997 and 1996,
respectively. Over the past two years, the Company has spent the majority of its
development dollars on the MAXIMO product line and anticipates to continue to do
so in the near future. The increases as a percentage of revenues are
attributable to the capitalization of internal software developments costs in
the prior period versus no capitalization of expenses in the current period. The
increases are also attributable to increases in the number of developers hired
and third party contractors.
General and Administrative Expenses.
General and administrative expenses include the cost of the Company's
finance, human resources, information services and administrative operations.
General and administrative expenses increased 7% to $2,129,000 from $1,986,000
for the three months ended June 30, 1997 and 1996, respectively, and increased
32% to $7,088,000 from $5,376,000 for the nine months ended June 30, 1997 and
1996, respectively. The increase for the three months ended June 30, 1997 is
attributable to increases in personnel to support the increase in the revenue
base offset by a decrease in the provision for bad debts. The increase for the
nine months ended June 30, 1997 is attributable to increases in the provision
for bad debt expenses, professional fees related to growth and expansion and
goodwill amortization. Also contributing to the increases for both the three and
nine months ended June 30, 1997 are increases in personnel to support the
increase in the revenue base. General and administrative expenses as a
percentage of total revenues decreased to 9% from 11% in the three months ended
June 30, 1997 and 1996, respectively, and to 10% from 11% in the nine months
ended June 30, 1997 and 1996, respectively. The decreases as a percentage of
revenues for both periods demonstrates an ability to manage a larger revenue
base without a commensurate increase in general and administrative expenses.
Other Income/Expense.
Interest income for the three months ended June 30, 1997 and 1996 was
$754,000 and $424,000, respectively, and $1,702,000 and $1,280,000 for the nine
months ended June 30, 1997 and 1996. The increases are due to interest earned on
certain cash equivalents and marketable securities.
Provision for Income Taxes.
The Company's effective tax rate was 36% and 35% for the three months ended
June 30, 1997 and 1996, respectively and 37% and 42% for the nine months ended
June 30, 1997 and 1996,
15
<PAGE> 16
respectively. The decrease for the nine months ended June 30, 1997 is
attributable to tax-exempt income, research and development credits and
utilization of a Foreign Sales Corporation. Also, in during the nine months
ended June 30, 1996, the effective rate was high due to merger expenses of
$965,000, which are not deductible for income tax purposes.
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 1997, the Company had cash and cash equivalents of
approximately $20,786,000 and working capital of $62,235,000. The Company's
favorable cash position is attributable to an increased effort in accounts
receivable collections and a significant improvement in the days sales
outstanding. The days sales outstanding is likely to increase due to economic
climate, exchange rate fluctuations, components of revenues and geographic
sources of revenues. Cash provided by operations for the nine months ended
June 30, 1997 was $13,348,000 generated by income earned for the period,
depreciation and amortization, and receivables collected for the period, offset
by the payout of fiscal 1996 employee bonuses. Cash used in investing
activities totaled $3,788,000 and was primarily used for the purchase of
computer equipment, office furniture and leasehold improvements. Cash provided
by financing activities was $2,580,000 and is attributable to exercises of
employee stock options.
The Company's principal commitments as of June 30, 1997 consisted primarily
of an office lease for its headquarters. The Company leases its facilities under
non-cancelable operating lease agreements which expire at various dates through
February 2007. The Company will be relocating its corporate headquarters in
November 1997. The Company expects to spend $2.5 million dollars for
construction and buildout in connection with the relocation. It also plans to
spend approximately $1 million on furniture, fixtures and equipment.
The Company elected not to renew its $5,000,000 unsecured line of credit
with Chase Manhattan Bank, N.A., which expired on March 31, 1997. The Company
believes that its current liquidity and cash flows expected to be generated by
operations will be sufficient to meet its cash needs for working capital,
capital expenditures and market expansion through at least June 30, 1998.
FLUCTUATIONS IN QUARTERLY OPERATING RESULTS;SEASONALITY
The Company generally ships its products upon receipt of orders and
maintains no significant backlog. As a result, revenues from license fees in any
quarter are substantially dependent on orders booked and shipped in that
quarter. A delay in or loss of orders can cause significant variations in
quarterly operating results. In addition, the Company's revenues and operating
results have fluctuated historically, due to the
16
<PAGE> 17
number and timing of product introductions and enhancements, the budgeting and
purchasing cycles of customers and the timing of large orders, the timing of
product shipments and the timing of marketing and product development
expenditures. Large software license contracts, if any, may have a significant
impact on revenues for any quarter and could therefore result in significant
fluctuations in quarterly revenues and operating results. The Company's revenues
and income from operations typically grow at a lower rate or decline in the
first quarter of each fiscal year. In addition, revenues are typically higher in
the fourth quarter than in other quarters of the year reflecting the Company's
fiscal year end and a sales commission policy that bases rewards on achievement
of annual quotas. As a result of these factors, the Company has experienced, and
may in the future experience, significant period-to-period fluctuations in
revenues and operating results.
FACTORS AFFECTING FUTURE PERFORMANCE
Further information on factors that could affect the Company's business and
financial results are included in the Company's Annual Report on Form 10-K filed
with the Securities and Exchange Commission on December 30, 1996.
Forward-looking statements of the Company are subject to the risk that
assumptions made by management of the Company concerning future general economic
conditions such as recession, inflation, interest rates, tax rates, consumer
spending and credit and other future conditions having an impact on software
markets and the Company's business may prove to be incorrect. Adverse changes in
such future economic conditions could have an adverse effect on the Company's
business.
17
<PAGE> 18
Part II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
3. Instruments Defining the Rights of Security-Holders
3.1 Amended and Restated Articles of Organization of the
Company (included as Exhibit 3.3 to the Company's Registration
Statement on Form S-1, Registration No. 33-76420, and
incorporated herein by reference)
3.2 Restated By-Laws of the Company, as amended (included
as Exhibit 3.2 to the Company's Annual Report on Form 10-K for
the fiscal year ended September 30, 1996,) and incorporated
herein by reference)
10.1 Amended and Restated 1994 Incentive and NonQualified Stock
Option Plan, as amended, as approved by the stockholders of
the Company by written consent dated April 15, 1994.
11.1 Statement re computation of per share earnings
27. Financial Data Schedule
(b) Reports filed on Form 8-K
The Company filed no current reports on Form 8-K during the
three months ended June 30, 1997.
18
<PAGE> 19
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PROJECT SOFTWARE & DEVELOPMENT, INC.
Date: August 13, 1997 By: /s/ Paul D. Birch
--------------- ------------------------------
Paul D. Birch
Authorized Officer
Executive Vice President Finance &
Administration,Chief Financial
Officer and Treasurer
(Principal Financial Officer)
19
<PAGE> 20
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION PAGE
- --- ----------- ----
<S> <C>
3.1 Amended and Restated Articles of
Organization of the Company (included
as Exhibit 3.3 to the Company's Registration
Statement on Form S-1, Registration No.
33-76420, and incorporated herein by reference)
3.2 Restated By-Laws of the Company, as amended included as
Exhibit 3.2 to the Company's Annual Report on Form 10-K for
the fiscal year ended September 30, 1996,) and incorporated
herein by reference)
10.1 Amended and Restated 1994 Incentive and NonQualified Stock
Option Plan, as amended, as approved by the stockholders of
the Company by written consent dated April 15, 1994.
11.1 Statement re computation of per share earnings
27 Financial Data Schedule
</TABLE>
<PAGE> 1
Exhibit 10.1
PROJECT SOFTWARE & DEVELOPMENT, INC.
1994 INCENTIVE AND NONQUALIFIED STOCK OPTION PLAN
-------------------------------------------------
SECTION 1. PURPOSE
This Amended and Restated 1994 Incentive and Nonqualified Stock Option
Plan (the "Plan") of Project Software & Development, Inc. (the "Company"), is
designed to provide additional incentive to executives and other key employees
of the Company, and any parent or subsidiary of the Company, and to certain
other individuals providing services to or acting as directors of the Company or
any such parent or subsidiary. The Company intends that this purpose will be
effected by the granting of incentive stock options ("Incentive Stock Options")
as defined in Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code"), and nonqualified stock options ("Nonqualified Options") under the Plan
which afford such executives, key employees or other individuals an opportunity
to acquire or increase their proprietary interest in the Company through the
acquisition of shares of its Common Stock. The Company intends that Incentive
Stock Options issued under the Plan will qualify as "incentive stock options" as
defined in Section 422 of the Code and the terms of the Plan shall be
interpreted in accordance with this intention. As used in the Plan the terms
"parent" and "subsidiary" shall have the respective meanings set forth in
Section 424 of the Code.
<PAGE> 2
SECTION 2. ADMINISTRATION
2.1 THE COMMITTEE. The Plan shall be administered by a Committee (the
"Committee") consisting of at least two "Outside Directors." As used herein, the
term "Outside Director" means any director of the Company who (i) is not an
employee of the Company or of an "affiliated group," as such term is defined in
Section 1504(a) of the Code, which includes the Company (an "Affiliate"), (ii)
is not a former employee of the Company or any Affiliate who is receiving
compensation for prior services (other than benefits under a tax-qualified
retirement plan) during the Company's or any Affiliate's taxable year, (iii) has
not been an officer of the Company or any Affiliate and (iv) does not receive
remuneration from the Company or any Affiliate, either directly or indirectly,
in any capacity other than as a director. None of the members of the Committee
shall be an officer or other employee of the Company. It is the intention of the
Company that the Plan shall be administered by "Non-Employee Directors" within
the meaning of Rule 16b-3 under the Securities Exchange Act of 1934 as amended
(the "1934 Act"), but the authority and validity of any act taken or not taken
by the Committee shall not be affected if any person administering the Plan is
not a disinterested person. Except as specifically reserved to the Board of
Directors of the Company (the "Board") under the terms of the Plan, the
Committee shall have full and final authority to operate, manage and administer
the Plan on behalf of the Company. Action by the Committee shall require the
affirmative vote of a majority of all members thereof.
-2-
<PAGE> 3
2.2 POWERS OF THE COMMITTEE. Subject to the terms and conditions of
the Plan, the Committee shall have the power:
(a) To determine from time to time the persons eligible to
receive options and the options to be granted to such persons under the
Plan and to prescribe the terms, conditions, restrictions, if any, and
provisions (which need not be identical) of each option granted under the
Plan to such persons;
(b) To construe and interpret the Plan and options granted
thereunder and to establish, amend, and revoke rules and regulations for
administration of the Plan. In this connection, the Committee may correct
any defect or supply any omission, or reconcile any inconsistency in the
Plan, or in any option agreement, in the manner and to the extent it
shall deem necessary or expedient to make the Plan fully effective. All
decisions and determinations by the Committee in the exercise of this
power shall be final and binding upon the Company and optionees;
(c) To make, in its sole discretion, changes to any outstanding
option granted under the Plan, including: (i) to reduce the exercise
price, (ii) to accelerate the vesting schedule or (iii) to extend the
expiration date; and
(d) Generally, to exercise such powers and to perform such acts
as are deemed necessary or expedient to promote the best interests of the
Company with respect to the Plan.
-3-
<PAGE> 4
SECTION 3. STOCK
3.1 STOCK TO BE ISSUED. The stock subject to the options granted under
the Plan shall be shares of the Company's authorized but unissued common stock,
$.01 par value (the "Common Stock"), or shares of the Company's Common Stock
held in treasury. The total number of shares that may be issued pursuant to
options granted under the Plan shall not exceed an aggregate of 1,800,000 shares
of Common Stock; provided, however, that the class and aggregate number of
shares which may be subject to options granted under the Plan shall be subject
to adjustment as provided in Section 8 hereof.
3.2 EXPIRATION, CANCELLATION OR TERMINATION OF OPTION. Whenever any
outstanding option under the Plan expires, is cancelled or is otherwise
terminated (other than by exercise), the shares of Common Stock allocable to the
unexercised portion of such option may again be the subject of options under the
Plan, and shares of Common Stock issuable under options that expire, are
cancelled or are otherwise terminated shall not count against the limitation on
grants set forth in Section 3.3 hereof.
3.3 LIMITATION ON GRANTS. In no event may any Plan participant be
granted options with respect to more than 150,000 shares of Common Stock in any
calendar year.
SECTION 4. ELIGIBILITY
4.1 PERSONS ELIGIBLE. Incentive Stock Options under the Plan may be
granted only to officers and other employees of the Company or any parent or
subsidiary of the Company. Nonqualified
-4-
<PAGE> 5
Options may be granted to officers or other employees of the Company or any
parent or subsidiary of the Company, and to members of the Board and consultants
or other persons who render services to the Company or any such parent or
subsidiary (regardless of whether they are also employees), provided, however,
that options may be granted to members of the Board who are not employees of the
Company or any such parent or subsidiary ("Outside Directors") only as provided
in Section 4.4.
4.2 GREATER-THAN-TEN-PERCENT STOCKHOLDERS. Except as may otherwise be
permitted by the Code or other applicable law or regulation, no Incentive Stock
Option shall be granted to an individual who, at the time the option is granted,
owns (including ownership attributed pursuant to Section 425 of the Code) more
than ten percent of the total combined voting power of all classes of stock of
the Company or any parent or subsidiary (a "greater-than-ten-percent
stockholder"), unless such Incentive Stock Option provides that (i) the purchase
price per share shall not be less than one hundred ten percent of the fair
market value of the Common Stock at the time such option is granted, and (ii)
that such option shall not be exercisable to any extent after the expiration of
five years from the date it is granted.
4.3 MAXIMUM AGGREGATE FAIR MARKET VALUE. The aggregate fair market
value (determined at the time the option is granted) of the Common Stock with
respect to which Incentive Stock Options are exercisable for the first time by
any optionee during any calendar year (under the Plan and any other plans of the
Company or any parent or subsidiary for the issuance of incentive stock
-5-
<PAGE> 6
options) shall not exceed $100,000 (or such greater amount as may from time to
time be permitted with respect to incentive stock options by the Code or any
other applicable law or regulation).
4.4 OPTION GRANTS TO OUTSIDE DIRECTORS.
(a) GRANT OF OPTIONS UPON ELECTION TO BOARD. Each Outside
Director joining the Board at or subsequent to the meeting of the
Company's stockholders at which this Section 4.4(a) in this form is
approved (the "Approval Meeting") shall automatically be granted, upon
such Outside Director so joining the Board, an initial Nonqualified
Option to purchase 12,000 shares of Common Stock. Such Nonqualified
Option shall vest and become exercisable in three equal annual
installments cumulatively beginning on the first anniversary of the date
the option was granted.
(b) GRANT OF OPTIONS UPON RE-ELECTION TO BOARD OR CONTINUATION
ON THE BOARD. Each Outside Director who is re-elected by the stockholders
of the Company to the Board at or subsequent to the Approval Meeting
shall automatically be granted, immediately following the meeting of
stockholders at which such Outside Director is re-elected, a Nonqualified
Option to purchase 4,000 shares of Common Stock. In addition, each
Outside Director whose term of office does not expire at any annual
meeting of stockholders or special meeting in lieu thereof subsequent to
the Approval Meeting and who shall remain an Outside Director after such
meeting shall automatically be granted, immediately following such
meeting, a Nonqualified Option to purchase 4,000 shares of
-6-
<PAGE> 7
Common Stock. Each Nonqualified Option described in this Section 4.4(b)
shall vest and become exercisable in full on the last day of December in
the year in which the Nonqualified Option was granted.
(c) PURCHASE PRICE. The purchase price per share of Common
Stock under each Nonqualified Option granted pursuant to this Section 4.4
shall be equal to the fair market value of the Common Stock on the date
the Nonqualified Option is granted, such fair market value to be
determined in accordance with the provisions of Section 6.3(b).
(d) EXPIRATION. Each Nonqualified Option granted to an Outside
Director under this Section 4.4 shall expire on the fifth anniversary of
the date of grant.
SECTION 5. TERMINATION OF EMPLOYMENT OR DEATH OF OPTIONEE
5.1 TERMINATION OF EMPLOYMENT. Except as may be otherwise expressly
provided herein, options shall terminate on the earlier of:
(a) the date of expiration thereof;
(b) immediately upon the termination of the optionee's
employment with or performance of services for the Company (or any parent
or subsidiary of the Company) by the Company (or any such parent or
subsidiary) for cause (as determined by the Company or such parent or
subsidiary); or
(c) thirty days after the date of termination of the optionee's
employment with or performance of services for the Company (or any parent
or subsidiary of the Company)
-7-
<PAGE> 8
by the Company (or any such parent or subsidiary) without cause or
voluntarily by the optionee;
PROVIDED, HOWEVER, that Nonqualified Options granted to persons who are not
employees of the Company (or any parent or subsidiary of the Company) need not,
unless the Committee determines otherwise, be subject to the provisions set
forth in clauses (b) and (c) above.
An employment relationship between the Company (or any parent or
subsidiary of the Company) and the optionee shall be deemed to exist during any
period in which the optionee is employed by the Company (or any such parent or
subsidiary). Whether authorized leave of absence, or absence on military or
government service, shall constitute termination of the employment relationship
between the Company (or any parent or subsidiary of the Company) and the
optionee shall be determined by the Committee at the time thereof.
As used herein, "cause" shall mean (x) any material breach by the
optionee of any agreement to which the optionee and the Company (or any parent
or subsidiary of the Company) are both parties, (y) any act or omission to act
by the optionee which may have a material and adverse effect on the business of
the Company (or any such parent or subsidiary) or on the optionee's ability to
perform services for the Company (or any such parent or subsidiary), including,
without limitation, the commission of any crime (other than ordinary traffic
violations), or (z) any material misconduct or material neglect of duties by the
optionee in connection with the business or affairs of the Company (or any
-8-
<PAGE> 9
such parent or subsidiary) or any affiliate of the Company (or any such parent
or subsidiary).
5.2 DEATH OR RETIREMENT OF OPTIONEE. In the event of the death of the
holder of an option that is subject to clause (b) or (c) of Section 5.1 above
prior to termination of the optionee's employment with or performance of
services for the Company (or any parent or subsidiary of the Company) and before
the date of expiration of such option, such option shall terminate on the
earlier of such date of expiration or one year following the date of such death.
After the death of the optionee, his executors, administrators or any person or
persons to whom his option may be transferred by will or by the laws of descent
and distribution, shall have the right, at any time prior to such termination,
to exercise the option to the extent the optionee was entitled to exercise such
option at the time of his death.
If, before the date of the expiration of an option that is subject to
clause (b) or (c) of Section 5.1 above, the optionee shall be retired in good
standing from the Company for reasons of age or disability under the then
established rules of the Company, the option shall terminate on the earlier of
such date of expiration or ninety (90) days after the date of such retirement.
In the event of such retirement, the optionee shall have the right prior to the
termination of such option to exercise the option to the extent to which he was
entitled to exercise such option immediately prior to such retirement.
SECTION 6. TERMS OF THE OPTION AGREEMENTS
-9-
<PAGE> 10
Each option agreement shall be in writing and shall contain such terms,
conditions, restrictions, if any, and provisions as the Committee shall from
time to time deem appropriate. Such provisions or conditions may include,
without limitation, restrictions on transfer, repurchase rights, or such other
provisions as shall be determined by the Committee; PROVIDED, HOWEVER, THAT such
additional provisions shall not be inconsistent with any other term or condition
of the Plan and such additional provisions shall not cause any Incentive Stock
Option granted under the Plan to fail to qualify as an incentive option within
the meaning of Section 422 of the Code. The shares of stock issuable upon
exercise of an option by any executive officer, director or beneficial owner of
more than ten percent of the Common Stock of the Company may not be sold or
transferred (except that such shares may be issued upon exercise of such option)
by such officer, director or beneficial owner for a period of six months
following the grant of such option.
Option agreements need not be identical, but each option agreement by
appropriate language shall include the substance of all of the following
provisions:
6.1 EXPIRATION OF OPTION. Notwithstanding any other provision of the
Plan or of any option agreement, each option shall expire on the date specified
in the option agreement, which date shall not, in the case of an Incentive Stock
Option, be later than the tenth anniversary (fifth anniversary in the case of a
greater-than-ten-percent stockholder) of the date on which the option was
granted or as specified in Section 5 of this Plan.
-10-
<PAGE> 11
6.2 EXERCISE. Each option may be exercised, so long as it is valid and
outstanding, from time to time in part or as a whole, subject to any limitations
with respect to the number of shares for which the option may be exercised at a
particular time and to such other conditions as the Committee in its discretion
may specify upon granting the option.
6.3 PURCHASE PRICE. The purchase price per share under each option
shall be determined by the Committee at the time the option is granted;
provided, however, that the option price of any Incentive Stock Option shall
not, unless otherwise permitted by the Code or other applicable law or
regulation, be less than the fair market value of the Common Stock on the date
the option is granted (110% of the fair market value in the case of a
greater-than-ten-percent stockholder) and the option price of any Nonqualified
Option shall not be less than 85% of the fair market value of the Common Stock
on the date the option is granted. For the purpose of the Plan the fair market
value of the Common Stock shall be (i) in the case of the Nonqualified Options
granted to Outside Directors in connection with the Company's initial public
offering, the initial public offering price and (ii) in all other cases, the
closing price per share on the date of grant of the option as reported by a
nationally recognized stock exchange, or, if the Common Stock is not listed on
such an exchange, as reported by the National Association of Securities Dealers
Automated Quotation System ("Nasdaq") National Market System or, if the Common
Stock is not listed on the Nasdaq National Market System, the mean of the bid
and asked prices per share on the
-11-
<PAGE> 12
date of grant of the option or, if the Common Stock is not traded
over-the-counter, the fair market value as determined by the Committee.
6.4 TRANSFERABILITY OF OPTIONS. Options shall not be transferable by
the optionee otherwise than by will or under the laws of descent and
distribution, and shall be exercisable, during his lifetime, only by the
optionee.
6.5 RIGHTS OF OPTIONEES. No optionee shall be deemed for any purpose
to be the owner of any shares of Common Stock subject to any option unless and
until the option shall have been exercised pursuant to the terms thereof, and
the Company shall have issued and delivered certificates representing such
shares to the optionee.
6.6 CERTAIN RIGHTS OF THE COMPANY. The Committee may in its discretion
provide upon the grant of any option hereunder that the Company shall have an
option to repurchase upon such terms and conditions as determined by the
Committee all or any number of shares purchased upon exercise of such option or
a right of first refusal in connection with subsequent transfer of any or all of
such shares. The repurchase price per share payable by the Company shall be such
amount or be determined by such formula as is fixed by the Committee at the time
the option for the shares subject to repurchase is granted. In the event the
Committee shall grant options subject to the Company's repurchase option or
right of first refusal, the certificates representing the shares purchased
pursuant to such option shall
-12-
<PAGE> 13
carry a legend satisfactory to counsel for the Company referring to the
Company's repurchase option or right of first refusal.
6.7 "LOCKUP" AGREEMENT. The Committee may in its discretion specify
upon granting an option that upon request of the Company or the underwriters
managing any underwritten offering of the Company's securities, the optionee
shall agree in writing that for a period of time (not to exceed 180 days) from
the effective date of any registration of securities of the Company, the
optionee will not sell, make any short sale of, loan, grant any option for the
purchase of, or otherwise dispose of any shares issued pursuant to the exercise
of such option, without the prior written consent of the Company or such
underwriters, as the case may be.
SECTION 7. METHOD OF EXERCISE; PAYMENT OF PURCHASE PRICE
7.1 METHOD OF EXERCISE. Any option granted under the Plan may be
exercised by the optionee by delivering to the Company on any business day a
written notice specifying the number of shares of Common Stock the optionee then
desires to purchase and specifying the address to which the certificates for
such shares are to be mailed (the "Notice"), accompanied by payment for such
shares.
7.2 PAYMENT OF PURCHASE PRICE. Payment for the shares of Common Stock
purchased pursuant to the exercise of an option shall be made either by (i) cash
or check equal to the option price for the number of shares specified in the
Notice, or (ii) with the consent of the Committee, other shares of Common
-13-
<PAGE> 14
Stock which (a) either have been owned by the optionee for more than six (6)
months on the date of surrender or were not acquired, directly or indirectly,
from the Company, and (b) have a fair market value on the date of surrender not
greater than the aggregate option price of the shares as to which such option
shall be exercised, (iii) with the consent of the Committee, delivery of such
documentation as the Committee and the broker, if applicable, shall require to
effect an exercise of the option and delivery to the Company of the sale or loan
proceeds required to pay the option price, (iv) with the consent of the
Committee, such other consideration which is acceptable to the Committee and
which has a fair market value equal to the option price of such shares, or (v)
with the consent of the Committee, a combination of (i), (ii), (iii), (iv)
and/or (v). For the purpose of the preceding sentence, the fair market value per
share of Common Stock so delivered to the Company shall be determined in the
manner specified in Section 6.3. As promptly as practicable after receipt of the
Notice and accompanying payment, the Company shall deliver to the optionee
certificates for the number of shares with respect to which such option has been
so exercised, issued in the optionee's name; provided, however, that such
delivery shall be deemed effected for all purposes when the Company or a stock
transfer agent of the Company shall have deposited such certificates in the
United States mail, addressed to the optionee, at the address specified in the
Notice.
-14-
<PAGE> 15
SECTION 8. CHANGES IN COMPANY'S CAPITAL STRUCTURE
8.1 RIGHTS OF COMPANY. The existence of outstanding options shall not
affect in any way the right or power of the Company or its stockholders to make
or authorize, without limitation, any or all adjustments, recapitalizations,
reorganizations or other changes in the Company's capital structure or its
business, or any merger or consolidation of the Company, or any issue of Common
Stock, or any issue of bonds, debentures, preferred or prior preference stock or
other capital stock ahead of or affecting the Common Stock or the rights
thereof, or the dissolution or liquidation of the Company, or any sale or
transfer of all or any part of its assets or business, or any other corporate
act or proceeding, whether of a similar character or otherwise.
8.2 RECAPITALIZATIONS, STOCK SPLITS AND DIVIDENDS. If the Company
shall effect a subdivision or consolidation of shares or other capital
readjustment, the payment of a stock dividend, or other increase or reduction of
the number of shares of the Common Stock outstanding, in any such case without
receiving compensation therefor in money, services or property, then (i) the
number, class, and price per share of shares of stock subject to outstanding
options hereunder shall be appropriately adjusted in such a manner as to entitle
an optionee to receive upon exercise of an option, for the same aggregate cash
consideration, the same total number and class of shares as he would have
received as a result of the event requiring the adjustment had he exercised his
option in full immediately prior
-15-
<PAGE> 16
to such event; (ii) the number and class of shares with respect to which options
may be granted under the Plan; and (iii) the number and class of shares set
forth in Sections 3.3 and 4.4 shall be adjusted by substituting for the total
number of shares of Common Stock then reserved for issuance under the Plan that
number and class of shares of stock that the owner of an equal number of
outstanding shares of Common Stock immediately prior to the event requiring
adjustment would own as the result of such event.
8.3 MERGER WITHOUT CHANGE OF CONTROL. After a merger of one or more
corporations with or into the Company or after a consolidation of the Company
and one or more corporations in which the stockholders of the Company
immediately prior to such merger or consolidation own after such merger or
consolidation shares representing at least fifty percent (50%) of the voting
power of the Company or the surviving or resulting corporation, as the case may
be, each holder of an outstanding option shall, at no additional cost, be
entitled upon exercise of such option to receive in lieu of the shares of Common
Stock as to which such option was exercisable immediately prior to such event,
the number and class of shares of stock or other securities, cash or property
(including, without limitation, shares of stock or other securities of another
corporation or Common Stock) to which such holder would have been entitled
pursuant to the terms of the agreement of merger or consolidation if,
immediately prior to such merger or consolidation, such holder had been the
holder of
-16-
<PAGE> 17
record of a number of shares of Common Stock equal to the number of shares for
which such option shall be so exercised.
8.4 CHANGE OF CONTROL.
(a) Upon the occurrence of a Change of Control (as defined
below) the time for exercise of each unvested installment of any then
outstanding option shall be accelerated, such that:
(i) immediately upon such Change of Control, twenty-five
percent (25%) of any such unvested installment shall be exercisable;
(ii) on the date that is nine months after such Change in
Control, one third (33 1/3%) of any installment of such option that has not yet
vested in accordance with its original terms or by virtue of this Section 8.4
shall become exercisable;
(iii) on the date that is eighteen months after such
Change in Control, fifty percent (50%) of any installment of such option that
has not yet vested in accordance with its original terms or by virtue of this
Section 8.4 shall become exercisable; and
(iv) on the second anniversary of such Change in Control,
any remaining installment of such option that has not yet vested in accordance
with its original terms or by virtue of this Section 8.4 shall become
exercisable.
The foregoing clauses (i) through (iv) are intended
to provide for vesting that is additive to, and not in lieu of, the vesting
schedule originally provided in any option outstanding at the time of a Change
in Control, and, except to
-17-
<PAGE> 18
the extent accelerated by such clauses, each such option shall continue to vest
in accordance with its original terms.
(b) If the Company is merged with or into or consolidated with
another corporation, other than a merger or consolidation which would result in
the voting securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being converted
into voting securities of the surviving entity) more than fifty percent (50%) of
the combined voting power of the voting securities of the Company or such
surviving entity outstanding immediately after such merger or consolidation; or
if the Company is liquidated, or sells or otherwise disposes of substantially
all of its assets to another corporation while unexercised options remain
outstanding under the Plan, then either in such event:
(i) subject to the provisions of clause (iii) below,
after the effective date of such merger, consolidation, liquidation, sale or
disposition, as the case may be, each holder of an outstanding option shall be
entitled, upon exercise of such option, to receive, in lieu of the shares of
Common Stock as to which such option was exercisable immediately prior to such
event, the number and class of shares of stock or other securities, cash or
property (including, without limitation, shares of stock or other securities of
another corporation or common stock) to which such holder would have been
entitled pursuant to the terms of the merger, consolidation, liquidation, sale
or disposition if, immediately prior to such event, such
-18-
<PAGE> 19
holder had been the holder of a number of shares of Common Stock equal to the
number of shares as to which such option shall be so exercised;
(ii) the Committee may accelerate the time for exercise
of some or all unexercised and unexpired options so that from and after a date
prior to the effective date of such merger, consolidation, liquidation, sale or
disposition, as the case may be, specified by the Committee such accelerated
options shall be exercisable in full; or
(iii) all outstanding options may be cancelled by the
Committee as of the effective date of any such merger, consolidation,
liquidation, sale or disposition provided that (x) notice of such cancellation
shall be given to each holder of an option and (y) each holder of an option
shall have the right to exercise such option to the extent that the same is then
exercisable or, if the Committee shall have accelerated the time for exercise of
all unexercised and unexpired options, in full during the 10-day period
preceding the effective date of such merger, consolidation, liquidation, sale or
disposition.
(c) If, within two years following a Change in Control, the
employment of any optionee who immediately prior to such Change in Control was
employed by the Company in a capacity designated by the Board of Directors of
the Company as that of an "executive officer" within the meaning of Rule
16a-1(f) promulgated under the 1934 Act (each such optionee being hereafter
referred to as a "Designated Executive") shall be terminated by the Company
other than for cause, or shall be
-19-
<PAGE> 20
terminated by the Designated Executive for good reason, then in such event all
unvested, unexercised and unexpired options held by such Designated Executive at
the date of such termination shall thereupon immediately become exercisable in
full. For purposes of this paragraph, "good reason" for termination by a
Designated Executive of his employment shall be deemed to have existed only if
(i) within two years after a Change in Control, the Company, or any successor
entity then employing the Designated Executive, shall materially diminish the
responsibilities and authority of the Designated Executive or, shall materially
reduce the rate of compensation of the Designated Executive (including by way of
a change in the method of determining the eligibility of such Designated
Executive to earn bonus or incentive compensation), in either case as compared
with his responsibilities and authority or rate of compensation, as the case may
be, in effect immediately prior to such Change in Control, and (ii) within
thirty (30) days following such diminution or reduction the Designated Executive
shall resign from his employment by the Company or such successor entity.
(d) "Change of Control" shall mean the occurrence of any one of
the following events:
(i) any "person" (as such term is used in Sections 13(d)
and 14(d)(2) of the 1934 Act) becomes a "beneficial owner" (as such term is
defined in Rule 13d-3 promulgated under the 1934 Act) (other than the Company,
any trustee or other fiduciary holding securities under an employee benefit plan
of the Company, or any corporation owned, directly
-20-
<PAGE> 21
or indirectly, by the stockholders of the Company in substantially the same
proportions as their ownership of stock of the Company), directly or indirectly,
of securities of the Company representing fifty percent (50%) or more of the
combined voting power of the Company's then outstanding securities; or
(ii) persons who, as of March 1, 1997, constituted the
Company's Board (the "Incumbent Board") cease for any reason, including, without
limitation, as a result of a tender offer, proxy contest, merger or similar
transaction, to constitute at least a majority of the Board, provided that any
person becoming a director of the Company subsequent to March 1, 1997 whose
election was approved by, or who was nominated with the approval of, at least a
majority of the directors then comprising the Incumbent Board shall, for
purposes of this Plan, be considered a member of the Incumbent Board; or
(iii) the stockholders of the Company approve a merger or
consolidation of the Company with any other corporation or other entity, other
than a merger or consolidation which would result in the voting securities of
the Company outstanding immediately prior thereto continuing to represent
(either by remaining outstanding or by being converted into voting securities of
the surviving entity) more than fifty percent (50%) of the combined voting power
of the voting securities of the Company or such surviving entity outstanding
immediately after such merger or consolidation; or
(iv) the stockholders of the Company approve a plan of
complete liquidation of the Company or an agreement for
-21-
<PAGE> 22
the sale or disposition by the Company of all or substantially all of the
Company's assets.
8.5 ADJUSTMENTS TO COMMON STOCK SUBJECT TO OPTIONS. Except as
hereinbefore expressly provided, the issue by the Company of shares of stock of
any class, or securities convertible into shares of stock of any class, for cash
or property, or for labor or services, either upon direct sale or upon the
exercise of rights or warrants to subscribe therefor, or upon conversion of
shares or obligations of the Company convertible into such shares or other
securities, shall not affect, and no adjustment by reason thereof shall be made
with respect to, the number or price of shares of Common Stock then subject to
outstanding options.
8.6 MISCELLANEOUS. Adjustments under this Section 8 shall be
determined by the Committee, and such determinations shall be conclusive. No
fractional shares of Common Stock shall be issued under the Plan on account of
any adjustment specified above.
SECTION 9. GENERAL RESTRICTIONS
9.1 INVESTMENT REPRESENTATIONS. The Company may require any person to
whom an option is granted, as a condition of exercising such option, to give
written assurances in substance and form satisfactory to the Company to the
effect that such person is acquiring the Common Stock subject to the option for
his own account for investment and not with any present intention of selling or
otherwise distributing the same, and to such other effects as the Company deems
necessary or appropriate in order to comply with federal and applicable state
securities laws.
-22-
<PAGE> 23
9.2 COMPLIANCE WITH SECURITIES LAWS. The Company shall not be required
to sell or issue any shares under any option if the issuance of such shares
shall constitute a violation by the optionee or by the Company of any provision
of any law or regulation of any governmental authority. In addition, in
connection with the Securities Act of 1933, as now in effect or hereafter
amended (the "Act"), upon exercise of any option, the Company shall not be
required to issue such shares unless the Committee has received evidence
satisfactory to it to the effect that the holder of such option will not
transfer such shares except pursuant to a registration statement in effect under
such Act or unless an opinion of counsel satisfactory to the Company has been
received by the Company to the effect that such registration is not required.
Any determination in this connection by the Committee shall be final, binding
and conclusive. In the event the shares issuable on exercise of an option are
not registered under the Act, the Company may imprint upon any certificate
representing shares so issued the following legend or any other legend which
counsel for the Company considers necessary or advisable to comply with the Act
and with applicable state securities laws:
The shares of stock represented by this
certificate have not been registered under the
Securities Act of 1933 or under the securities
laws of any State and may not be pledged,
hypothecated, sold or otherwise transferred
except upon such registration or upon receipt
by the Corporation of an opinion of counsel
satisfactory to the Corporation, in form and
substance satisfactory to the Corporation,
that registration is not required for such
sale or transfer.
-23-
<PAGE> 24
The Company may, but shall in no event be obligated to, register any
securities covered hereby pursuant to the Act; and in the event any shares are
so registered the Company may remove any legend on certificates representing
such shares. The Company shall not be obligated to take any other affirmative
action in order to cause the exercise of an option or the issuance of shares
pursuant thereto to comply with any law or regulation of any governmental
authority.
9.3 EMPLOYMENT OBLIGATION. The granting of any option shall not impose
upon the Company (or any parent or subsidiary of the Company) any obligation to
employ or continue to employ any optionee; and the right of the Company (or any
such parent or subsidiary) to terminate the employment of any officer or other
employee shall not be diminished or affected by reason of the fact that an
option has been granted to him/her.
9.4 WITHHOLDING TAX. Whenever under the Plan shares of Common Stock
are to be delivered upon exercise of an option, the Company shall be entitled to
require as a condition of delivery that the optionee remit an amount sufficient
to satisfy all federal, state and other governmental withholding tax
requirements related thereto.
SECTION 10. AMENDMENT OR TERMINATION OF THE PLAN
The Board of Directors may modify, revise or terminate this Plan at any
time and from time to time, except that (i) the class of persons eligible to
receive options and the aggregate number
-24-
<PAGE> 25
of shares issuable pursuant to this Plan shall not be changed or increased,
other than by operation of Section 8 hereof, without the consent of the
stockholders of the Company and (ii) the provisions of Section 4.4 shall not be
amended more than once every six (6) months, other than to comport with changes
in the Code, the Employee Retirement Income Security Act of 1974, or the rules
thereunder.
SECTION 11. NONEXCLUSIVITY OF THE PLAN
Neither the adoption of the Plan by the Board of Directors nor the
submission of the Plan to the stockholders of the Company for approval shall be
construed as creating any limitations on the power of the Board of Directors to
adopt such other incentive arrangements as it may deem desirable, including,
without limitation, the granting of stock options otherwise than under the Plan,
and such arrangements may be either applicable generally or only in specific
cases.
SECTION 12. EFFECTIVE DATE AND DURATION OF PLAN
The Plan shall become effective upon its adoption by the Board of
Directors. No option may be granted under the Plan after the tenth anniversary
of the effective date. The Plan shall terminate (i) when the total amount of
Common Stock with respect to which options may be granted shall have been issued
upon the exercise of options or (ii) by action of the Board of Directors
pursuant to Section 10 hereof, whichever shall first occur.
* * * * * * * *
-25-
<PAGE> 1
EXHIBIT 11.1
PROJECT SOFTWARE & DEVELOPMENT, INC.
STATEMENT RE COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
Three months Three months Nine months Nine months
ended ended ended ended
PRIMARY: 06/30/97 06/30/96 06/30/97 06/30/96
------------ ------------ ----------- -----------
<S> <C> <C> <C> <C>
Weighted average common shares 9,826,396 9,608,676 9,767,357 9,583,645
outstanding ..................
Common stock equivalents ..... 145,335 446,779 310,447 457,539
---------- ----------- ----------- -----------
9,971,731 10,055,455 10,077,804 10,041,184
---------- ----------- ----------- -----------
Net income ................... $2,490,478 $ 2,749,896 $ 7,555,034 $ 6,324,634
Net income per share ......... $ 0.25 $ 0.27 $ 0.75 $ 0.63
FULLY DILUTED:
Weighted average common shares 9,826,396 9,608,676 9,767,357 9,583,645
outstanding ..................
Common stock equivalents ..... 145,886 476,853 322,716 488,986
---------- ----------- ----------- -----------
9,972,282 10,085,529 10,090,073 10,072,631
---------- ----------- ----------- -----------
Net income ................... $2,490,478 $ 2,749,896 $ 7,555,034 $ 6,324,634
Net income per share ......... $ 0.25 $ 0.27 $ 0.75 $ 0.63
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> JUN-30-1997
<EXCHANGE-RATE> 1
<CASH> 20,786
<SECURITIES> 37,175
<RECEIVABLES> 25,061
<ALLOWANCES> 2,277
<INVENTORY> 0
<CURRENT-ASSETS> 83,980
<PP&E> 16,890
<DEPRECIATION> 11,399
<TOTAL-ASSETS> 92,074
<CURRENT-LIABILITIES> 21,745
<BONDS> 0
0
0
<COMMON> 98
<OTHER-SE> 69,691
<TOTAL-LIABILITY-AND-EQUITY> 92,074
<SALES> 36,165
<TOTAL-REVENUES> 69,217
<CGS> 1,998
<TOTAL-COSTS> 19,473
<OTHER-EXPENSES> 39,243
<LOSS-PROVISION> 809
<INTEREST-EXPENSE> 4
<INCOME-PRETAX> 11,936
<INCOME-TAX> 4,381
<INCOME-CONTINUING> 7,555
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,555
<EPS-PRIMARY> .75
<EPS-DILUTED> .75
</TABLE>
