1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------------
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
------------------------------
Date of Report (date of earliest event reported): April 30, 1998
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DELTEK SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
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VIRGINIA 0-22001 54-1252625
(State or other jurisdiction of incorporation) (Commission File Number) (I.R.S. Employer Identification No.)
8280 GREENSBORO DRIVE, MCLEAN, VIRGINIA 22102
(Address of principal executive offices)
Registrant's telephone number, including area code: (703)-734-8606
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ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
Pursuant to the terms of the Asset Purchase Agreement dated February 25,
1998 (the "Agreement"), Deltek Systems, Inc. (the "Company") acquired certain
assets from SalesKit Software Corporation ("SalesKit") for total consideration
of approximately $6 million in cash and Warrants to purchase 130,000 shares of
common stock (the "Transaction"). The assets acquired included tangible and
intangible assets previously used in the business conducted by SalesKit, such as
inventories, software and related documentation and contracts, office equipment,
intellectual property and the like. The assets are expected to be utilized by
the Company to support its long-term strategy of providing customer
relationship, opportunity, management and project information capabilities to
customers. A portion of the net proceeds of the Company's initial public
offering completed in February 1997 was used for such cash payment. The Warrants
are exercisable at any time prior to April 30, 2001, at an exercise price of $22
per share, subject to adjustment. The purchase price was determined based on
arms-length negotiation. The acquisition will be accounted for as an asset
purchase.
There was no affiliation or relationship between the Company, its
affiliates, officers or directors or associates of such persons and the Company
or any of its officers, directors or stockholders prior to the execution of the
Agreement.
The above descriptions of the agreements entered into by the Company
relating to the acquisition are not complete. Reference is made to the
respective executed agreements, copies of which are filed as exhibits to this
report and incorporated herein by reference.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements
The financial statements of Deltek Systems, Inc. and notes to financial
statements and auditors report are incorporated herein by reference from the
Company's Annual Report on Form 10-K (File No. 0-22001) for the year ended
December 31, 1997 filed with the Securities and Exchange Commission on March 30,
1998.
The financial statements of SalesKit Software Corporation ("SalesKit") and
notes to financial statements and auditors report for the year ended December
31, 1997, are submitted herewith in connection with the Company's acquisition of
certain assets of SalesKit.
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[ARTHUR ANDERSEN LLP LETTERHEAD]
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
SalesKit Software Corporation:
We have audited the accompanying balance sheet of SalesKit Software Corporation
(a Missouri corporation) as of December 31, 1997, and the related statements of
operations, stockholders' deficit and cash flows for the year then ended. 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 audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides 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 SalesKit Software Corporation
as of December 31, 1997, and the results of its operations and its cash flows
for the year then ended in conformity with generally accepted accounting
principles.
/s/ ARTHUR ANDERSEN LLP
St. Louis, Missouri
April 30, 1998
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SALESKIT SOFTWARE CORPORATION
BALANCE SHEET AS OF DECEMBER 31, 1997
ASSETS
Current assets:
Cash $ 13,333
Accounts receivable 177,131
Other 26,944
------------
Total current assets 217,408
Property and equipment, net 281,643
Other assets 24,081
Total assets $ 523,132
============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Notes payable to banks $ 2,710,000
Notes payable to investors 8,058,868
Current portion of capital lease obligations 154,906
Accounts payable and accrued liabilities 911,591
Accrued interest on notes payable 10,417
Deferred revenues 351,354
------------
Total current liabilities 12,197,136
Capital lease obligations, less current portion 1,758
Notes payable to investors 369,522
------------
Total liabilities 12,568,416
Stockholders' deficit:
Common stock, $.10 par value, 25,000,000 shares authorized,
5,711,915 shares issued and outstanding 571,192
Preferred stock, $.10 par value, 1,000,000 shares authorized,
0 shares issued and outstanding -
Additional paid-in capital 13,024,847
Accumulated deficit (25,641,323)
------------
Total stockholders' deficit (12,045,284)
Total liabilities and stockholders' deficit $ 523,132
============
The accompanying notes are an integral part of this statement.
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SALESKIT SOFTWARE CORPORATION
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
Revenues $ 896,937
Cost of revenues 624,697
-----------
Gross profit 272,240
-----------
Operating expenses:
Product development 1,714,908
Sales and marketing 1,039,955
General and administrative 1,496,557
-----------
Total operating expenses 4,251,420
-----------
Loss from operations (3,979,180)
Interest expense, net (1,425,926)
-----------
Net loss $(5,405,106)
===========
The accompanying notes are an integral part of this statement.
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SALESKIT SOFTWARE CORPORATION
STATEMENT OF STOCKHOLDERS' DEFICIT
FOR THE YEAR ENDED DECEMBER 31, 1997
Common Stock Additional Total
------------------------------ Paid-In Accumulated Stockholders'
Shares Amount Capital Deficit Deficit
----------- ------------ ------------ ------------ --------------
Balances, December 31, 1996 3,644,475 $ 364,448 $ 11,548,084 $(20,236,217) $ (8,323,685)
Issuance of common stock 97,826 9,783 57,881 - 67,664
Conversion of stockholder notes
to common stock 64,040 6,404 121,676 - 128,080
Conversion of accrued interest
to common stock 1,905,574 190,557 1,297,206 - 1,487,763
Net loss - - - (5,405,106) (5,405,106)
------------ ------------ ------------ ------------ ------------
Balances, December 31, 1997 5,711,915 $ 571,192 $ 13,024,847 $(25,641,323) $(12,045,284)
============ ============ ============ ============ ============
The accompanying notes are an integral part of this statement.
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SALESKIT SOFTWARE CORPORATION
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1997
Cash used in operating activities:
Net loss $(5,405,106)
Adjustments to reconcile net loss to net cash used in operating activities-
Depreciation and amortization 239,618
Loss on disposition of assets 25,263
Interest on convertible notes 1,487,763
Changes in operating assets and liabilities-
Accounts receivable 45,220
Other assets (15,611)
Accounts payable and accrued liabilities (206,118)
Accrued interest on notes payable (444,023)
Unearned revenues 351,354
-----------
Net cash used in operating activities (3,921,640)
-----------
Cash used in investing activities-purchases of property and equipment (104,728)
-----------
Cash flows from financing activities:
Proceeds from line of credit 60,000
Proceeds from issuance of notes payable to investors 4,181,124
Proceeds from issuance of common stock 67,664
Repayments of notes payable to investors (10,000)
Repayments of capital lease obligations (264,339)
-----------
Net cash provided by financing activities 4,034,449
-----------
Net increase in cash 8,081
Cash, beginning of year 5,252
-----------
Cash, end of year $ 13,333
===========
Supplemental cash flow information:
Cash paid:
Cash paid during the year for interest $ 361,461
Noncash investing and financing activities:
Exchange of notes payable to investors into common stock $ 128,080
Exchange of interest payable to investors into common stock $ 1,487,763
The accompanying notes are an integral part of this statement.
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SALESKIT SOFTWARE CORPORATION
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
1. BUSINESS DESCRIPTION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS DESCRIPTION
SalesKit Software Corporation ("the Company") is a provider of enterprise-wide
sales and marketing information software. The Company designs, develops,
markets, implements and supports the SalesKit OPEN software suite of
applications which automates distributed computing environments, especially
field sales and field service. The Company's products are based on a foundation
of Microsoft-centric tools and technology and are constructed within an
object-oriented, data-driven architecture. The Company targets medium-to-large
sized organizations through both a direct sales force and vertically focused
value-added resellers. In addition to software licensing, the Company provides
services for its customers in the areas of business consulting, requirements
mapping, implementation, consulting, training, data center operations and
customer help desk. The company is headquartered in St. Louis, Missouri.
REVENUE RECOGNITION
Revenues, consisting of software license fees and service revenues, are
recognized in accordance with Statement of Position No. 97-2, Software Revenue
Recognition. Software license fees are recognized upon the execution of a
license agreement, the delivery of the software to the customer, probable
collection of the receivable, and satisfaction of all significant vendor
obligations. Service revenues result from consulting rendered during the
customization and implementation of software for the customer, as well as from
maintenance and data center support services. These revenues are recognized as
services are performed. Maintenance revenues are recognized ratably over the
term of the maintenance contract, which is typically one year.
COST OF REVENUES
Cost of revenues represents expenses to customize and install the Company's
software and are expensed as incurred.
PRODUCT DEVELOPMENT COSTS
Product development costs incurred in the research and development of new
software products and enhancements to existing software products are expensed as
incurred until technological feasibility in the form of a working model has been
established. To date, the Company's software development has been completed
concurrent with the establishment of technological feasibility, and accordingly,
no costs have been capitalized.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost less accumulated depreciation.
Depreciation is recorded using a straight-line basis over the estimated useful
lives of the assets which is generally three to five years. Amortization of
equipment under capital leases is computed using the straight-line method over
the shorter of the remaining lease term or the estimated useful life of the
related asset.
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INCOME TAXES
The Company uses the asset and liability method of accounting for income taxes.
Under this method, deferred tax assets and liabilities are recognized for the
estimated future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred tax assets and liabilities are measured
using enacted tax rates in effect for the year in which those temporary
differences are expected to be recovered or settled. The Company is required to
adjust its deferred tax liabilities in the period when tax rates or the
provisions of the income tax laws change. Valuation allowances are established
and adjusted by management when necessary to reduce deferred tax assets to the
amounts expected to be realized.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from these estimates.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying value of certain of the Company's financial instruments including
cash, accounts receivable, employee receivables, accounts payable and accrued
liabilities approximates fair value due to their short maturities. Based on
market rates for loans with similar terms, the carrying value of its notes
payable and capital lease obligations approximates fair value.
BUSINESS RISKS AND CREDIT CONCENTRATION
All of the Company's revenues have been attributed to SalesKit OPEN, which is
the first of the Company's software products to deploy and which could serve as
a foundation for other applications. Any factor adversely affecting the pricing
of or demand for the SalesKit OPEN product could have a material adverse affect
on the Company's business, financial condition or results of operations.
The Company markets and sells its products to a broad geographic and demographic
base of customers and does not require collateral as the majority of the
Company's customers are large, well established companies. At December 31, 1997,
one customer accounted for 58% of accounts receivable.
2. OPERATING LOSSES AND LIQUIDITY
During 1997, the Company continued to suffer operating losses and negative cash
flows due to the expected demand for the Company's product not materializing. To
fund operations during 1997, the Company collected $240,000 from the remainder
of a debt offering initiated in 1996, initiated two debt offerings for $1.5
million and $2.5 million of subordinated convertible notes, obtained a bank line
of credit for $385,000, and obtained a subordinated, convertible note from a
current investor for $400,000. The $1.5 million debt offering raised $839,500
before the offering was terminated in May, 1997. The $2.5 million debt offering,
which began in May, 1997, was closed in November, 1997, when it had raised
$2,375,102. In October, 1997, management realized that the company would need to
be acquired by a complementary technology company as market forces were
dictating that a stand-alone sales force automation product would not be
successful. Development costs to expand the product line would be prohibitive.
Incorporation into a larger suite of applications was necessary and given the
closing window of opportunity and lack of funding, the Company began searching
for an acquiror. During February 1998, a purchase agreement was signed with
Deltek Systems, Inc. (See Note 11).
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After closing the $2.5 million offering, further funding was needed to offset
operating losses. An intercreditor agreement, which subordinated all existing
investor owned debt to new investments, was signed by all investors holding debt
in the company. All new investments would be protected dollar-for-dollar out of
any acquisition proceeds. Also, a matching dollar of previous debt held by that
investor would also be protected first out of any acquisition proceeds. The new
offering was limited to $1 million and began on November 10,
1997. As of December 31, 1997, it had raised $369,522. Through April 30, 1998,
an additional $590,000 has been raised.
3. PROPERTY AND EQUIPMENT
Property and equipment are as follows at December 31, 1997:
Computers and other equipment $ 888,843
Furniture and fixtures 144,026
-----------
1,032,869
Less accumulated depreciation and amortization (751,226)
$ 281,643
===========
At December 31, 1997, computer equipment and furniture in the amount of $628,467
and $100,841, respectively, with accumulated depreciation of $524,585 and
$57,569, respectively, were capitalized under equipment lease arrangements.
4. NOTES PAYABLE TO STOCKHOLDERS, BANKS AND LINES OF CREDIT
Notes payable consist of the following at December 31, 1997:
Promissory notes issued to investors between June and December, 1995 $ 767,048
Promissory note issued to an investor 100,000
Subordinated convertible notes 7,364,274
Note payable issued to a corporation controlled by a Director 52,523
Two demand notes issued to a Director and officer 144,545
Lines of credit obtained from two banks 2,710,000
-----------
Total notes payable to stockholders, banks and lines of credit $11,138,390
===========
The Company issued promissory notes between June and December, 1995, for
$2,885,501 to various investors which bear interest at 9% and matured between
June 5, 1997, and December 26, 1997. These notes remain unpaid and are currently
due. In addition to the notes, investors received Series 95-B stock warrants for
721,381 shares of common stock exercisable at $4 per share that expire 5 years
from the issue date. During January, 1996, the Company offered investors the
opportunity to convert the notes to common shares at $2 per share. The related
warrants were to be cancelled as part of the conversion. In 1997, notes for
approximately $.128 million were converted to common stock and approximately
32,000 related warrants were cancelled. The notes and related warrants are
convertible into shares of common stock at $4 per share effective January 25,
1996. At December 31, 1997, 191,739 related warrants were outstanding. Interest
on the exchanged notes was paid in common shares at $2 per share at December 31,
1997.
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The Company issued a promissory note to an investor on December 29, 1994, for
$100,000 which bears interest at 1/2% over prime and matured December 31, 1996.
This note remains unpaid and is currently due. In addition to the note, the
investor received a Series 95-A stock warrant for 25,000 shares of common stock
that expires one year after the debt is repaid. The warrant was initially
exercisable at $4, but the exercise price reduces by 5 cents for each full month
the debt is outstanding. The minimum exercise price is fixed at the common stock
par value. Interest on the note was paid in common shares at December 31, 1997.
The Company issued subordinated convertible notes to various investors for
$6,994,752 bear interest at 20% and matured on December 31, 1997. These notes
remain unpaid and are currently due. Investors may convert the notes into common
shares and any conversion must be accompanied by conversion of the outstanding
interest. The notes were initially convertible at $2 per share, but the exercise
price is reduced monthly by 20 cents at the beginning of each month starting
January 1, 1997. The minimum conversion price is fixed at 80 cents per share. In
addition to the notes, investors received Series 96-A stock warrants for 477,475
shares of common stock exercisable at $2 per share that expire on December 31,
2001. Interest was paid in common shares at the company's discretion at December
31, 1997.
The Company issued subordinated convertible promissory notes to various
investors for $369,522 bear interest at 20% and mature on December 31, 1999.
Investors may convert the notes into common shares and any conversion must be
accompanied by conversion of the outstanding interest. The notes are convertible
to common shares at $.50 per share. Interest was paid in common shares at the
company's discretion at December 31, 1997.
The Company issued a note payable on February 1, 1994, for $76,160 to a
corporation controlled by a Director bearing interest at 7% matured on January
31, 1997. The Company made 12 of the 36 payments required under the loan
provisions, and the note has not yet been renewed. The principal balance at
December 31, 1997, is $52,523. This note remains unpaid and is currently due.
Accrued interest at December 31, 1997, is $10,417.
The Company issued two demand notes to a Director and officer on January 1, 1995
and April 1, 1996 for $157,500 and $57,045, respectively, bearing interest at
1/2% over prime matured in October, 1997. Principal payments of $10,000 and
accrued interest are paid quarterly. Aggregate principal balances at December
31, 1997, are $145,545. These notes remain unpaid and are currently due. There
is no accrued interest at December 31, 1997.
The Company entered into lines of credit from January, 1994 to 1995 for
$2,350,000 with two banks which bear interest between 1/2% and 1 1/2% over prime
and mature between January 30, 1998 and March 13, 1998. During September, 1996,
a line of credit was entered into for $300,000 with the same bank which bears
interest between 1/2% and 1 1/2% over prime and matures on March 1, 1998. The
notes are secured by guarantees from ten investors. As consideration for
$2,350,000 of the guarantees provided, these investors received Series 95-A
stock warrants to purchase 587,500 common shares. The warrants were initially
exercisable at $4, but the exercise price reduces by 5 cents for each full month
the debt is outstanding. The minimum exercise price is fixed at the common stock
par value. The warrants expire at the earlier of one year after loan repayment
or release by the bank of the guarantees. Interest is paid monthly and accrued
interest at December 31, 1997 is $24,055. At December 31, 1997, the interest
rate is 9%.
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A line of credit agreement was entered into with a bank on April 1, 1997, which
provided the Company the ability to borrow up to 75% of eligible accounts
receivable. The line of credit agreement provides the bank with a security
interest in the Company's accounts receivable, inventions, intangible assets and
trademarks. The line of credit bears interest at 1/2% over prime and matures
January 1, 1998. A Director of the Company provided a guaranty for the line of
credit. As payment for the guarantee, the Director receives a fee payable in
common shares at $.50 per share equal to 2% of each receivable approved by the
creditor. During 1997, 35,226 common shares were issued in payment of the
guaranty fee. The principal balance at December 31, 1997, is $60,000 and the
interest rate is 9%.
5. DEFERRED REVENUE
The Company had deferred revenue of $351,354 as of December 31, 1997,
attributable to the sales of licenses and consulting services related the sales
of SalesKit OPEN software. The revenue related to SalesKit OPEN will be
recognized upon the expiration of the refund period, which occurs from
September, 1998 through December, 1998.
6. INCOME TAXES
The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets are presented below:
Net operating loss carryforward $ 5,734,081
Valuation allowance (5,734,081)
Net deferred tax assets $ -
===========
The Company has established a valuation allowance against its deferred tax
assets due to the uncertainty surrounding the realization of such assets. At
such time as it is determined that it is more likely than not that deferred tax
assets are realizable, the valuation allowance will be reduced.
The Company's effective tax rate at December 31, 1997, differs from the
statutory federal income tax rate as shown in the following schedule:
Income tax (benefit) provision at statutory rate (34)%
Net operating loss not benefited 34 %
--
Effective tax rate - %
==
As of December 31, 1997, the Company had approximately $16.8 million of net
operating loss carryforwards for federal and state purposes to offset future
taxable income. These federal and state carryforwards expire in the years 2010
through 2012. The Company's ability to recognize these carryforwards may be
limited as a result of future changes in ownership, as defined by tax law.
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7. EMPLOYEE BENEFIT PLANS
The Company maintains a 401(k) plan which covers substantially all employees.
Each eligible employee may elect to contribute up to 15% of their annual
compensation, subject to current statutory limits. The Company, at the
discretion of the Board of Directors, may make matching contributions to the
Plan. No matching contributions have been made through December 31, 1997.
The Company maintains a benefit plan covering substantially all employees. Under
the Plan, the Company allows employees to pay health and dental insurance costs
on a pre-tax basis. The coverage is elective, and the Company bears one-half of
the health and dental premium options chosen by employees. The Company also
provides long-term disability coverage and pays all premiums.
8. STOCKHOLDERS' DEFICIT
AUTHORIZED COMMON STOCK
In November, 1997, the Board of Directors approved an amendment to the Company's
Articles of Incorporation to increase the authorized number of shares of common
stock to 25 million shares.
STOCK ISSUED
During 1997, the Company issued 2,067,440 shares of common stock which includes
the conversion of stockholders notes and accrued interest.
CONVERSION OF INVESTOR LOANS INTO COMMON STOCK
During January, 1996, the Company offered investors the opportunity to convert
promissory notes issued between June and December, 1995, to common shares at $2
per share. The related Series 95-B warrants were to be cancelled as part of the
conversion. In 1997, notes for approximately $128,000 were converted to common
stock and approximately 32,000 related warrants were cancelled.
STOCK OPTION PLANS
During 1996, the Financial Accounting Standards Board issued Statement No. 123
(SFAS 123) "Accounting for Stock-Based Compensation," which establishes a
fair value based method of accounting for stock-based
compensation plans and requires additional disclosures for those companies who
elect not to adopt the new method of accounting. The Company intends to account
for employee stock options under APB Opinion No. 25, "Accounting for Stock
Issued to Employees," and accordingly, has adopted the disclosure-only
provisions of SFAS 123.
The Company maintains two nonstatutory stock option plans that provide certain
officers, directors and key employees options to purchase shares of the
Company's common stock. The number of options granted and the option price per
share are determined by the Board of Directors. The options expire five to ten
years from the date of grant and vest over two to four years. The Board has
reserved 400,000 shares of stock under the 1994 Non-Qualified Stock Option Plan
For Executive Officers and Directors, and 500,000 shares under the 1992
Non-Qualified Stock Option Plan for key employees. On July 23, 1997, the Board
of Directors increased the shares reserved for issuance under the option plans
to 1,150,000 and 750,000 for the 1994 Plan and the 1992 Plan, respectively. On
June 12, 1997, the exercise price of a portion of the outstanding options was
reduced to $.50 per share.
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On June 5, 1997, three management team members were each granted stock options
of 250,000 shares under the 1994 Non-Qualified Stock Option Plan For Officers
and Directors with an exercise price of $.10 per share. These options provide
for 25% quarterly vesting and expire 10 years from date of grant. Compensation
expense in the amount of $300,000 was recorded for these options in accordance
with the provisions of APB 25. Options to purchase 249,000 shares were granted
under the 1992 Non-Qualified Stock Option Plan to other employees on the same
date with an exercise price of $.50 per share. Also, the options of a former
management member and a former employee were extended for a five year period.
The Company has adopted the disclosure-only provisions of SFAS 123. Accordingly,
no compensation cost has been recognized for the stock option plans under SFAS
123. Had compensation costs for the Company's two stock option plans been
determined based on the fair value at the grant date for awards in 1997
consistent with the provisions of this statement, there would be no impact on
the Company's net loss from operations.
The fair value of each option granted is estimated on the date of grant using
the fair value of the Company divided by the total number of shares of stock and
options outstanding as of December 31, 1997. The fair value of the Company is
based upon the selling price as stated in the Purchase Agreement (see Note 11).
A summary of the combined activity and balances for the Company's stock options
for the two plans as of December 31, 1997, and changes during the year ended on
that date are as follows:
Wtd. Avg.
Exercise
Shares Price
------- ---------
Options outstanding, beginning of year 395,000 $ 3.35
Options granted 1,033,500 $ .21
Options exercised (100) $ .73
Options canceled (130,500) $ 2.76
--------- ------
Options outstanding, end of year 1,297,900 $ .74
========== ======
Options exercisable at year-end 974,047 $ .74
Weighted average fair value of options granted during the year $ -
The following table summarizes information about stock options outstanding at
December 31,1997:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
-------------------------------------- --------------------------
WTD. AVG.
NUMBER REMAINING WTD. AVG. NUMBER WTD. AVG.
OUTSTANDING CONTRACTUAL EXERCISE EXERCISE EXERCISABLE
RANGE OF EXERCISE PRICES AT 12/31/97 LIFE PRICE AT 12/31/97 PRICE
- ------------------------ ------------ ------------ --------- ------------ -------------
$ .10 to $ .50 1,290,400 17.55 months $ .69 966,547 $ .74
$ 9.00 7,500 18.68 months $ 9.00 7,500 $ 9.00
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9. RELATED PARTY TRANSACTIONS
The Company currently leases computer equipment from a company formerly
controlled by a director. Payments on the leases totaled $303,996 for the year
ended December 31, 1997.
The Company incurred consulting services from a director of $62,500 in 1997.
The Company has notes payable to two banks guaranteed by investors of $2,710,000
(See Note 4). Also, a Director and Officer of a bank that issued $2.46 million
of the loans is an investor in the Company.
The Company has an investor that is the insurance agent for the Company's
health, dental, disability and life insurance provided to employees. Payments to
insurance companies represented by the insurance agent net of employee
reimbursements totaled $67,220 for the year ended December 31, 1997.
10. CONTINGENCIES AND COMMITMENTS
LEASES
The Company leases certain computer equipment, office equipment and office space
under capital and operating lease arrangements. Minimum, noncancelable lease
payments due under these leases are as follows at December 31, 1997:
Operating Leases
Capital ---------------------
Leases Equipment Office
------- ----------- --------
1998 $170,873 $12,957 $ 95,125
1999 1,873 3,420 -
--------- ------- --------
172,746 $16,377 $ 95,125
======= ========
Less - amount representing interest 16,082
--------
Present value of net minimum lease payments $ 156,664
=========
Long-term obligations $ 1,758
========
Total rent expense for all operating leases was $208,029 for the year ended
December 31, 1997.
11. SUBSEQUENT EVENTS
On February 26, 1998, a purchase agreement was signed with Deltek Systems, Inc.
("Deltek") of McLean, VA whereby substantially all of the assets of the Company
would be acquired by Deltek. According to the terms of the agreement, $500,000
would be paid immediately to the Company as a downpayment, an additional
$5,054,000 will be paid on the closing date of April 30, 1998, and 130,000
options on Deltek stock will be issued to various investors. The options have a
strike price of $22 per share and expire after 3 years. An additional $500,000
will be placed in escrow to indemnify Deltek against possible customer refunds.
Upon contract acceptance by these customers, which may occur at various times
from September, 1998 through December, 1998, these funds will be released to the
Company for liquidation distributions to its investors.
In April, 1998, the Board of Directors approved a plan for the distribution of
the sale proceeds. The initial liquidation distributions to investors are
scheduled to be paid in May, 1998.
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(b) Pro Forma Financial Information
The following unaudited financial statements (the "Pro Forma Financial
Statements") are based on the historical audited financial statements of Deltek
(incorporated herein by reference as noted above) and on the historical audited
financial statements of SalesKit included in this report. The Pro Forma
Financial Statements and accompanying notes should be read in conjunction with
such audited financial statements and notes thereto noted above.
The unaudited pro forma financial statements of operations for the year
ended December 31, 1997 give effect to the Transaction as if it had occurred on
January 1, 1997. The unaudited pro forma balance sheet as of December 31, 1997
has been prepared as if the Transaction had occurred on that date. The Unaudited
Pro Forma Financial Statements are not intended to be indicative of either
future results of operations or results that might have been achieved, and do
not give effect to the net cost savings expected to be achieved by Deltek based
on the negotiations of the purchase agreement. For example, Deltek has
discontinued future sales of the SalesKit products and will only service the
existing seven customers of SalesKit, and did not accept a majority of
SalesKit's debt obligations. Further, the pro formas do not reflect expected
lower payroll costs.
The pro forma adjustments are based upon currently available information
and upon certain assumptions that management believes are reasonable. The
Transaction will be accounted for on the purchase method of accounting. In the
Pro Forma Financial Statements, the total purchase price of the tangible and
intangible assets and liabilities acquired is allocated based upon estimates of
their fair value. The Adjustments included in the unaudited Pro Forma Financial
Statements represent the Company's preliminary determination of these
adjustments based upon available information. There can be no assurance that the
actual adjustments will not differ significantly from the pro forma adjustments
reflected in the Pro Forma Financial Statements.
17
PROFORMA BALANCE SHEET
BALANCE SHEET
DELTEK SYSTEMS, SALESKIT SOFTWARE
INC. CORPORATION PROFORMA
YEAR ENDED YEAR ENDED ADJUST- BALANCE SHEET
ASSETS 12/31/97 12/31/97 MENTS (5) 12/31/97
- ------ -------- ----------- --------- --------
Cash $ 10,272 $ 13 $ (6,153) $ 4,132
Marketable securities 14,949 -- -- 14,949
Accounts receivable 8,825 177 (177) 8,825
Inventories 95 -- -- 95
Deferred income taxes 1,992 2,724 4,716
Prepaid expenses and other
current assets 1,267 27 (27) 1,267
---------------- ------------ ------------ -------------
Total current assets 37,400 217 (3,633) 33,984
---------------- ------------ ------------ -------------
Property & equipment, net 2,635 282 -- 2,917
Capitalized software development
costs, net 2,579 -- -- 2,579
Intangible assets from Saleskit -- -- 580 580
Other assets 110 24 (24) 110
---------------- ------------ ------------ -------------
Total assets $ 42,724 $ 523 $ (3,077) $ 40,170
---------------- ------------ ------------ -------------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
- ----------------------------------------------
Notes payable to banks $ -- $ 2,710 $ (2,710) $ --
Notes payable to investors -- 8,059 (8,059) --
Current portion of capitalized
lease obligations -- 155 -- 155
Accounts payable and accrued
expenses 4,043 912 (912) 4,043
Accrued interest on notes payable -- 10 (10) --
Dividends payable 400 -- -- 400
Income taxes payable 573 -- -- 573
Deferred income taxes payable 2,177 -- -- 2,177
Deferred revenues 10,779 351 -- 11,130
---------------- ------------ ------------ -------------
Total current liabilities 17,972 12,197 (11,691) 18,478
---------------- ------------ ------------ -------------
Capitalized lease obligations -- 2 -- 2
Notes payable to investors -- 369 (369) --
---------------- ------------ ------------ -------------
Total liabilities $ 17,972 $ 12,568 $ (12,060) $ 18,480
---------------- ------------ ------------ -------------
Stockholders' equity (deficit):
Common stock $ 17 $ 571 $ (571) $ 17
Preferred stock -- -- -- --
Additional paid-in capital 17,924 13,025 (12,093) 18,856
Retained earnings (Accumulated
deficit) 7,263 (25,641) 21,647 3,269
Less unearned compensation (452) -- -- (452)
---------------- ------------ ------------ -------------
Total stockholders' equity 24,752 (12,045) 8,983 21,690
---------------- ------------ ------------ -------------
Total liabilities and
stockholders' equity $ 42,724 $ 523 $ (3,077) $ 40,170
---------------- ------------ ------------ -------------
18
PROFORMA INCOME STATEMENT
INCOME STATEMENT
PRO FORMA
INCOME
SALESKIT SOFTWARE STATEMENT
DELTEK SYSTEMS, INC. CORPORATION YEAR
YEAR ENDED YEAR ENDED ADJUST- ENDED
12/31/97 12/31/97 MENTS 12/31/97
-------- -------- ----- --------
License fees $ 17,415 $ 897 $ 18,312
Services 29,316 -- 29,316
Third-party equipment and
software 2,051 -- 2,051
---------------- ------------- ----------
Total revenues $ 48,782 897 $ 49,679
---------------- ------------- ----------
Cost of software 1,764 625 116 (1) 2,505
Cost of services 11,980 -- 11,980
Cost of third-party equipment
and software 1,690 -- 1,690
Software development 9,539 1,715 11,254
Sales and marketing 4,767 1,040 5,807
General and administrative 2,522 1,497 4,019
Acquisition costs 320 -- -- 320
---------------- ------------- -------- ----------
Total operating expenses 32,582 4,877 116 37,575
---------------- ------------- -------- ----------
Income from operations 16,200 (3,980) (116) 12,104
Interest income 746 (603) (2) 143
Interest expense -- (1,426) 1,426 (3) --
---------------- ------------- -------- ----------
Income before income taxes 16,946 (5,406) 707 12,247
Provision for income taxes
(benefit) 5,634 -- (1,880) (4) 3,754
---------------- ------------- -------- ----------
Net income 11,312 (5,406) 2,587 8,493
---------------- ------------- -------- ----------
Proforma statement of
operations:
Income before income taxes $ 16,946 $ (5,406) 707 $ 12,247
Provision for income taxes
(benefit) 6,516 -- (1,880) (4) 4,636
---------------- ------------- -------- ----------
Net income $ 10,430 $ (5,406) $ 2,587 $ 7,611
---------------- ------------- -------- ----------
Weighted average shares
outstanding 16,699 -- -- 16,699
Weighted shares outstanding,
including dilutive effect
of stock options and warrants 17,177 -- -- 17,177
Pro forma basic net income
per share $0.62 $0.46
Pro forma diluted net income
per share $0.61 $0.44
19
NOTES TO PRO FORMA FINANCIAL STATEMENTS
(1) The Cost of software has been adjusted to reflect the amortization of
$580,000 over a five year period, resulting in an amortization expense of
$116,000.
(2) Interest income has been reduced by $363,000 to reflect the reduction of
investment balances for the $6,054,000 cash purchase price at a 6% rate.
An additional reduction of $240,000 was made for the assumption that
Deltek would have funded the pro forma $4,000,000 losses from SalesKit by
utilizing cash from operations.
(3) The interest expense reduction reflects the elimination of the SalesKit
Software Corporation debt obligations.
(4) The tax provision reflects income taxes at a statutory rate of 40%.
(5) The balance sheet pro forma adjustments reflect reductions for the assets
and liabilities of SalesKit that Deltek did not acquire in the
transaction. The common stock and paid in capital of SalesKit were
eliminated, and the $932,000 value of the stock warrants that were issued
in the transaction is reflected as an increase to paid in capital. The
retained earnings adjustments reflect the charge to in-process research
and development costs of approximately $6.8 million before deferred income
tax benefits.
-4-
20
(c) Exhibits
The following exhibits are filed herewith:
2.1 Asset Purchase Agreement dated February 25, 1998 between the
Company and SalesKit.
4.2 Warrant to Purchase Common Stock issued to SalesKit.
10.13 Escrow Agreement dated February 25, 1998.
27 Financial Data Schedule
-5-
21
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Company has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Deltek Systems, Inc.
(Registrant)
Dated: May 12, 1998 By: /s/ Alan R. Stewart
-------------------
Alan R. Stewart,
Chief Financial Officer
-6-