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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 2000
(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)
100 CROSBY DRIVE, BEDFORD MASSACHUSETTS 01730
(Address of principal executive offices, including zip code)
(781) 280-2000
(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: 22,108,810 shares of common stock, $.01 par value per share,
as of January 31, 2001.
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PROJECT SOFTWARE & DEVELOPMENT, INC.
10-Q INDEX
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS PAGE
Consolidated Balance Sheets (unaudited) as of December 31,
2000 and September 30, 2000. 3
Consolidated Statements of Operations (unaudited) for the
three months ended December 31, 2000 and 1999. 4
Consolidated Statements of Cash Flows (unaudited) for the
three months ended December 31, 2000 and 1999. 5
Notes to Consolidated Financial Statements (unaudited). 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS 11
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 28
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 29
SIGNATURE 31
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PROJECT SOFTWARE & DEVELOPMENT, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
ASSETS DECEMBER 31, SEPTEMBER 30,
2000 2000
----------- -------------
(in thousands)
Current assets:
Cash and cash equivalents $ 36,330 $ 31,584
Marketable securities 2,243 4,241
Accounts receivable, trade, less allowance
for doubtful accounts of $2,680 at December 31, 2000
and $2,825 at September 30, 2000, respectively 42,534 47,699
Prepaid expenses and other current assets 6,968 7,148
Deferred income taxes 7,080 6,097
--------- ---------
Total current assets 95,155 96,769
--------- ---------
Marketable securities 999 1,059
Property and equipment, net 15,322 14,571
Intangible assets, net 59,891 63,286
Other assets 2,105 2,168
Deferred income taxes 4,052 3,203
--------- ---------
Total assets $ 177,524 $ 181,056
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 17,048 $ 16,013
Accrued compensation 6,253 8,551
Income taxes payable 2,996 660
Deferred revenue 20,371 19,080
Deferred income taxes --- 94
Line of credit --- 2,278
--------- ---------
Total current liabilities 46,668 46,676
--------- ---------
Deferred income taxes 17 17
Deferred rent 102 112
Deferred revenue 51 59
Other long term liabilities 35 ---
Commitments and contingencies
Stockholders' equity
Preferred stock, $.01 par value;1,000 authorized,
none issued and outstanding
Common stock, $.01 par value;50,000 authorized;
22,109 and 22,069 issued at December 31, 2000
and September 30, 2000, respectively 221 220
Additional paid-in capital 86,786 83,185
Deferred compensation (214) (233)
Retained earnings 44,617 52,312
Accumulated other comprehensive income (759) (1,292)
--------- ---------
Total stockholders' equity 130,651 134,192
--------- ---------
Total liabilities and stockholders' equity $ 177,524 $ 181,056
========= =========
The accompanying notes are an integral part of the consolidated
financial statements.
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PROJECT SOFTWARE & DEVELOPMENT, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
THREE MONTHS ENDED
DECEMBER 31,
----------------------
2000 1999
-------- --------
(in thousands, except per share data)
Revenues:
Software $ 12,597 $ 15,737
Support and services 28,871 22,249
-------- --------
Total revenues 41,468 37,986
-------- --------
Cost of revenues:
Software 466 659
Support and services 16,069 12,528
-------- --------
Total cost of revenues 16,535 13,187
-------- --------
Gross margin 24,933 24,799
Operating expenses:
Sales and marketing 21,086 13,821
Product development 5,560 4,495
General and administrative 4,246 3,095
Amortization of goodwill and other intangibles 3,636 169
-------- --------
Total operating expenses 34,528 21,580
-------- --------
(Loss)/income from operations (9,595) 3,219
Interest income 449 937
Interest expense (79) (1)
Other income (expense), net 275 (194)
-------- --------
(Loss)/income before income taxes (8,950) 3,961
(Benefit)/provision for income taxes (1,255) 1,365
-------- --------
Net (loss)/income $ (7,695) $ 2,596
======== ========
Net (loss)/ income per share, basic $ (0.35) $ 0.12
-------- --------
Net (loss)/income per share, diluted $ (0.35) $ 0.11
-------- --------
Shares used to calculate net (loss)/income per share
Basic 22,083 21,415
Diluted 22,083 22,706
The accompanying notes are an integral part of the consolidated
financial statements.
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PROJECT SOFTWARE & DEVELOPMENT, INC
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
THREE MONTHS
ENDED DECEMBER 31,
------------------------------
2000 1999
------------ ------------
(IN THOUSANDS)
Cash flows from operating activities:
Net (loss)/income $ (7,695) $ 2,596
Adjustments to reconcile net (loss)/income to net
cash provided by operating activities:
Depreciation and amortization 5,022 1,427
Loss /(Gain )on sale and disposal of property
and equipment 60 (15)
Amortization of discount on marketable securities 4 62
Deferred rent (9) (6)
Deferred compensation 19 --
Non-cash marketing expense 3,287 --
Deferred income taxes (1,904) (350)
Changes in operating assets and liabilities, net
of effect of acquisitions:
Accounts receivable 5,508 (2,433)
Prepaid expenses (1,607) (1,131)
Other assets 1,491 (755)
Accounts payable and accrued expenses 862 4,393
Accrued compensation (2,331) (4,042)
Income taxes payable 2,313 930
Deferred revenue 1,151 (469)
-------- --------
Net cash provided by operating activities 6,171 207
-------- --------
Cash flows from investing activities:
Acquisitions of businesses, net of cash acquired -- 12
Acquisitions of property and equipment and other
capital expenditures (2,029) (1,376)
Purchase of marketable securities -- (17,797)
Sale of marketable securities 2,058 20,640
-------- --------
Net cash provided by investing activities 29 1,479
-------- --------
Cash flows from financing activities:
Payment of line of credit (2,278) --
Proceeds from exercise of stock options 315 2,185
-------- --------
Net cash (used in)/provided by financing activities (1,963) 2,185
-------- --------
Effect of exchange rate changes on cash 509 (194)
-------- --------
Net increase in cash and cash equivalents 4,746 3,677
Cash and cash equivalents, beginning of period 31,584 59,903
-------- --------
Cash and cash equivalents, end of period $ 36,330 $ 63,580
======== ========
The accompanying notes are an integral part of the consolidated
financial statements.
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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 December 31, 2000 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, 2001, 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, 2000 included in the Company's Annual Report on Form 10-K filed
with the Securities and Exchange Commission on December 29, 2000.
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
Basic income (loss) per share is computed by dividing income or loss available
to common shareholders by the weighted average number of common shares
outstanding. Diluted income per share is
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computed by dividing income or loss available to common shareholders by the
weighted average common shares outstanding plus dilutive potential common
shares. For purposes of this calculation, stock options are considered dilutive
potential common shares in periods in which they have a dilutive effect. All
potential dilutive common shares are excluded from the computation of net loss
per share because they are anti-dilutive.
Basic and diluted income (loss) per share are calculated as follows:
THREE MONTHS ENDED
(IN THOUSANDS, EXCEPT PER SHARE DATA) 12/31/00 12/31/99
- ------------------------------------- --------- --------
Net (loss)/income $ (7,695) $ 2,596
Denominator:
Weighted average common shares
outstanding-basic 22,083 21,415
Effect of dilutive securities (1) -- 1,291
-------- -------
Weighted average common shares
outstanding-diluted 22,083 22,706
======== =======
Net (loss)/income per share-basic $ (0.35) $ 0.12
Net (loss)/income per share-diluted $ (0.35) $ 0.11
(1) In the period ended December 31, 2000 common stock equivalents of 168
thousand are not included because they are anti-dilutive.
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C. COMPREHENSIVE INCOME
The following table reflects the components of comprehensive income:
(in thousands)
- --------------------------------------------------------------------------------
THREE MONTHS ENDED
DECEMBER 31,
2000 1999
- --------------------------------------------------------------------------------
Net (loss)/income $(7,695) $ 2,596
- --------------------------------------------------------------------------------
Other comprehensive income, net of tax:
Unrealized gain/(loss) on
Securities arising during
Period 4 (28)
Foreign currency translation
Adjustment 529 (165)
- --------------------------------------------------------------------------------
Comprehensive (loss)/income $(7,162) $ 2,403
- --------------------------------------------------------------------------------
D. SEGMENT INFORMATION, GEOGRAPHIC DATA AND MAJOR CUSTOMERS:
In December 2000, the Company announced the repositioning of its Internet-based
business-to-business software products. The Company now operates in two new
reportable industry segments: (1) the development, marketing and support of the
"Demand-Side" software products and services, consisting of MAXIMO Enterprise
and MAXIMO Extended Enterprise (which includes MAXIMO Buyer, the e-procurement
application that was integrated with MAXIMO during fiscal 2000), and (2) the
development, marketing and support of the MRO.COM "Supply-Side" software
products and services, and the Internet-based content management tools and
cataloging services developed and marketed by our INTERMAT, Inc. subsidiary. The
MRO.COM Supply-Side products consist of the mroDistributor, mroManufacturer and
mroConnect products. Asset information by reportable segment is not reported,
since the Company does not produce such information internally. The Company also
manages these segments across geographic reportable segments: United States,
Other Americas (Canada and Latin America), Europe/Middle East and Africa, and
Asia Pacific. All segments are managed by the same board of directors and
executive officers.
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A summary of the Company's operations by industry segment was as follows:
THREE MONTHS ENDED
DECEMBER 31,
(IN THOUSANDS) 2000 1999
-------- --------
Revenues:
Demand-Side $ 37,039 $ 35,822
Supply-Side 4,429 2,164
-------- --------
$ 41,468 $ 37,986
======== ========
(Loss)/income from operations:
Demand-Side $ 6,700 $ 5,459
Supply-Side (16,295) (2,240)
-------- --------
$ (9,595) $ 3,219
======== ========
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A summary of the Company's revenues by geographical area was as follows:
THREE MONTHS ENDED
DECEMBER 31,
(IN THOUSANDS) 2000 1999
-------- --------
Revenues:
United States $ 25,894 $ 21,019
Other Americas 2,541 2,774
Intercompany revenues 961 2,020
-------- --------
Subtotal $ 29,396 $ 25,813
-------- --------
Europe/Middle East and Africa 10,114 11,279
Asia/Pacific 2,919 2,914
Consolidating eliminations (961) (2,020)
-------- --------
Total revenues $ 41,468 $ 37,986
======== ========
The Company has subsidiaries in foreign countries, which sell the Company's
products and services in their respective geographic areas. Intercompany
revenues primarily represent shipments of software to international subsidiaries
and are eliminated from consolidated revenues. Income (loss) from operations
excludes interest income, interest expense, provision/(benefit) for income taxes
and foreign currency translation gains and losses.
E. COMMON STOCK:
In December 2000, the Company issued a warrant to i2 Technologies, Inc. ("i2")
under which i2 has the right to purchase up to 500,000 shares of the Company's
common stock at an exercise price of $10.25 per share. The Company valued the
warrant at $3.3 million using the Black-Scholes valuation model, with the
following assumptions: (1) risk-free interest rate of 4.8%; (2) life of 2.5
years; and (3) volatility of 105%. The warrant is immediately exercisable and
has been recorded as a one-time non-cash sales and marketing expense. The
warrant was issued in connection with a strategic agreement for the two
companies to resell each other's offerings and integrate their technologies to
create a solution for the strategic maintenance, repair and operations market.
F. SUBSEQUENT EVENT:
On February 1, 2001, the Company's Board of Directors amended the Company's
By-Laws to change the date of the annual meeting of stockholders from the
second Tuesday in February to the first Tuesday in March of each year.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
FORWARD-LOOKING STATEMENTS
In addition to historical information, this Quarterly report on Form 10-Q, as
well as documents incorporated herein by reference, may contain forward-looking
statements (within the meaning of section 27A of the Securities Act of 1933, as
amended, and section 21E of the Securities Exchange Act of 1934, as amended).
The following and similar expressions identify forward-looking statements:
"expects", "anticipates", and "estimates". Forward-looking statements include,
but are not limited to, statements related to: the Company's plans, objectives,
expectations and intentions; the timing of, availability and functionality of
products under development or recently introduced; and market and general
economic conditions. Actual results may differ materially from those suggested
by the forward-looking statements for various reasons, including those discussed
under "Factors Affecting Future Performance." These forward-looking statements
speak only as of the date of this Quarterly Report, or in the case of
forward-looking statements in documents incorporated by reference, as of the
dates of those documents.
OVERVIEW
On December 11, 2000, the Company's Board of Directors voted to change the
Company's name to MRO Software, Inc., and to propose this change at the next
annual meeting of the Company's stockholders (the "Annual Meeting"). This change
will become legally effective immediately following the Annual Meeting, assuming
that the Company's stockholders vote in favor of the change. The Company also
intends to change its NASDAQ trading symbol from "PSDI" to "MROI", effective at
approximately the same time.
In December 2000, the Company announced the repositioning of its Internet-based
business-to-business marketplace software products. Commencing in fiscal 2001,
the Company operates in the following two reportable industry segments: (1) the
development, marketing and support of "Demand-Side" software products and
services, consisting of MAXIMO Enterprise and MAXIMO Extended Enterprise (which
includes MAXIMO Buyer, the e-procurement application that was integrated with
MAXIMO during fiscal year 2000) and (2) the development, marketing and support
of the
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MRO.COM "Supply-Side" software products and services, and the Internet-based
content management tools and cataloging services developed and marketed by our
INTERMAT, Inc. subsidiary. The Supply-Side products consist of the
mroDistributor, mroManufacturer and mroConnect products. The Company also offers
application hosting services delivered through the mroHosting Center, and the
MRO.COM website will act as an administrative hub for all activities generated
by these solutions.
As of September 30, 2000, the Company reported revenues related to two industry
segments: the development, marketing and support of asset maintenance management
software (MAXIMO) and the development, marketing and support of Internet
e-commerce software products and the related network services (MRO.COM). All
segment reported financial information contained in this report has been
restated to reflect the Company's repositioning.
RESULTS OF OPERATIONS
REVENUES
The Company's revenues are derived primarily from two sources: (i) software
licenses, and (ii) fees for services, including support contracts, training and
consulting services. The Company also offers data normalization services through
its INTERMAT, Inc. subsidiary.
Three Months Three Months
Ended CHANGE Ended
(in thousands) 12/31/00 % 12/31/99
- ---------------------------------------------------------------------------
Software licenses $12,597 (20)% $15,737
Percentage of total revenues 30% 41%
Support and services $28,871 30% $22,249
Percentage of total revenues 70% 59%
Total revenues $41,468 9% $37,986
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Total revenues for the quarter increased $3.5 million over the comparable
quarter. Total revenues for the Demand-Side business segment increased 3% to
$37.0 million from $35.8 million over the comparable quarter. Total revenues for
the Supply-Side business segment increased 100% to $4.4 million from $2.2
million over the comparable quarter.
Software license revenues decreased 20% or $3.1 million over the comparable
quarter. Software licenses revenue for the Demand-Side business segment
decreased 10% to $12.5 million from $13.9 million over the comparable quarter.
The Company attributes this decline to soft market conditions. In the quarter
ended December 31, 2000, the Company transitioned to an Application Service
Provider ("ASP") subscription revenue model for the Supply-Side of the business.
ASP revenues are recognized ratably over the contract period and are recognized
as service revenues.
Support and services revenue increased 30% or $6.6 million over the comparable
quarter. Support revenues were $11.3 million and $8.1 million for the three
months ended December 31, 2000 and 1999, respectively. Demand-Side support
revenues represented 96% and 99% of total support revenues for the three months
ended December 31, 2000 and 1999, respectively. Support revenues have increased
as a result of an increase in the number of customers supported by the Company.
Service revenues were $17.5 million and $14.1 million for the three months ended
December 31, 2000 and 1999, respectively. Services revenues are comprised of
consulting and training services offered to customers, data normalization
services, annual commerce fees and ASP fees. The increase in total service
revenues is primarily attributable to a large contract for data normalization
services. Demand-Side service revenues represented 78% and 98% of total services
revenues for the three months ended December 31, 2000 and 1999, respectively.
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COST OF REVENUES
Three Months Three Months
Ended CHANGE Ended
(in thousands) 12/31/00 % 12/31/99
- --------------------------------------------------------------------------------
Software licenses $ 466 (29)% $ 659
Percentage of software licenses 4% 4%
Support and services $16,069 28% $12,528
Percentage of support and services 56% 56%
Total cost of revenues $16,535 25% $13,187
Percentage of total revenues 40% 35%
Cost of software license revenues consists of software purchased for resale,
royalties paid to vendors of third-party software, the cost of software product
packaging and media, and certain employee costs related to software duplication,
packaging and shipping. The decrease in the cost of software licenses revenues
was due primarily to a decrease in the amount of royalties paid to Demand-Side
third-party vendors.
Cost of support and services consists primarily of personnel costs for employees
and the related costs of benefits and facilities. Cost of support revenues were
$2.8 million and $1.9 million for the three months ended December 31, 2000 and
1999, respectively. Cost of support revenues as a percentage of total support
revenues were 25% and 23% for the three months ended December 31, 2000 and 1999,
respectively. The increase is primarily attributable to an increase in personnel
to support the increase in revenues for both the Demand- and Supply-Side
segments. Cost of services revenues were $13.3 million and $10.6 million for the
three months ended December 31, 2000 and 1999, respectively. The increase in
cost of services is primarily attributable to utilization of third-party
consultants to perform services related to a large Supply-Side contract, as well
as, additional personnel hired to support the growth of the Supply-Side segment.
Cost of services revenues as a percentage of total services revenues was 76% for
both the three months ended December 31, 2000 and 1999.
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OPERATING EXPENSES
Three Months Three Months
Ended CHANGE Ended
(in thousands) 12/31/00 % 12/31/99
- --------------------------------------------------------------------------------
Sales and marketing $21,086 53% $13,821
Percentage of total revenues 51% 36%
Product development $ 5,560 24% $ 4,495
Percentage of total revenues 13% 12%
General and administrative $ 4,246 37% $ 3,095
Percentage of total revenues 10% 8%
Goodwill amortization and
other intangibles $ 3,636 205% $ 169
Percentage of total revenues 9% --- ---
The increase in sales and marketing expenses was due to increases in sales,
sales support and marketing personnel, sales commissions, market research,
telemarketing expenses and higher travel costs. The additional sales support and
marketing personnel were hired to support the MRO.COM e-commerce organization.
The Company has made significant investments in the MRO.COM e-commerce sales and
marketing organization. Also contributing to the increase in sales and marketing
expenses is a one-time charge of $3.3 million for a warrant to i2 Technologies,
Inc. ("i2"). In December 2000, the Company issued a warrant to i2 under which i2
has the right to purchase up to 500,000 shares of the Company's common stock at
an exercise price of $10.25 per share. The Company valued the warrant using the
Black-Scholes valuation model. The warrant was issued in connection with a
strategic agreement between the two companies to resell each other's offerings
and integrate their technologies to create a solution for the strategic
maintenance, repair and operations market. During the three months ended
December 31, 2000, the Company also wrote off a $1 million receivable owed by a
company that had ceased operations.
The increase in product development expenses was primarily due to an increase in
employees through recruiting and acquisitions of businesses, and the cost of
third-party research and development consultants. The additional personnel were
hired and acquired to further enhance and develop e-commerce technologies.
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The Company intends to continue to make investments in electronic commerce
products for MRO supply chain management and e-procurement. The Company will
also make further enhancements to its MAXIMO (Demand-Side) products.
The increase in general and administrative expenses were primarily due to an
increase in personnel through recruiting and acquisitions of businesses, as well
as other expenses to support the increase in revenues and global expansion of
the Company.
The increase in goodwill amortization expense is attributable to the
acquisitions of businesses completed during fiscal year ended September 30,
2000. There were no acquisitions in the three months ended December 31, 2000.
NON-OPERATING EXPENSES
Three Months Three Months
Ended CHANGE Ended
(in thousands) 12/31/00 % 12/31/99
- --------------------------------------------------------------------------------
Interest income $ 449 (52)% $ 937
Interest expense $ (79) 78% $ (1)
Other income (expense) $ 275 (242)% $(194)
Interest income is attributable to interest earned on marketable securities and
cash equivalents from cash flow generated from operations including accounts
receivable collections. The Company liquidated a portion of its marketable
securities in March 2000 in order to complete the purchase of INTERMAT, Inc. and
has thus earned less interest income from investments. The Company may decide to
make further investments in marketable securities in the future.
The increase in interest expense was due to interest paid on a line of credit of
$2.3 million that the Company assumed upon completion of an acquisition in
September 2000. The Company terminated and paid off the line of credit in full
in December 2000.
Other income was primarily attributable to currency translation gains recorded
in the current quarter.
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PROVISION FOR INCOME TAXES
The Company's effective tax rate for the current quarter was a benefit of 14%.
The Company will not be able to benefit from all of its losses due to the
non-deductible nature of certain intangible and goodwill costs. Also, the $3.3
million marketing expense related to the warrant issued to i2 is not deductible
for tax purposes. The company's effective tax rate was 35% for the comparable
quarter.
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 2000, the Company had cash and cash equivalents and
marketable securities of approximately $39.6 million and working capital of
$48.5 million. Cash provided by operations for the three months ended December
31, 2000 was $6.2 million, primarily attributable to collection of outstanding
accounts receivable.
Cash provided by investing activities totaled $29 thousand, primarily
attributable to sales of marketable securities, offset by capital expenditures
related to purchases of financial software.
Cash used in financing activities was $2.0 million. The Company paid down a $2.3
million line of credit during the current quarter.
As of December 31, 2000, the Company's principal commitments consist primarily
of office leases for its U.S. and European headquarters. Under the terms of the
U.S. lease agreement, upon termination of the lease, the Company has the right
to extend the lease for an additional six year term for an agreed upon fixed
cost. The Company leases its facilities and certain equipment under
non-cancelable operating lease agreements that expire at various dates through
June 2006.
The Company may use a portion of its cash to acquire additional businesses,
products and technologies complementary to its business. The Company also plans
to make investments over the next year in its e-commerce products.
The Company believes that its current cash balances and marketable securities
combined with cash flow from operations
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will be sufficient to meet its working capital and capital expenditure
requirements through at least September 30, 2001.
FACTORS AFFECTING FUTURE PERFORMANCE
The nature of forward-looking information is that such information involves
significant assumptions, risks and uncertainties. Certain public documents of
the Company and statements made by authorized officers, directors, employees,
agents and representatives of the Company, acting on its behalf, may include
forward-looking information which will be influenced by the factors described
below, and by other assumptions, risks and uncertainties. Forward-looking
information is based on assumptions, estimates, forecasts and projections
regarding the Company's future results as well as the future effectiveness of
the Company's strategic plans and future operational decisions. Forward-looking
statements made by or on behalf of the Company are subject to the risk that the
forecasts, projections, and expectations of management, or assumptions
underlying such forecasts, projections and expectations, may become inaccurate.
Accordingly, actual results and the Company's implementation of its plans and
operations may differ materially from forward-looking statements made by or on
behalf of the Company. The following discussion identifies certain important
factors that could affect the Company's actual results and actions and could
cause such results and actions to differ materially from any forward-looking
statements made by or on behalf of the Company that related to such results and
actions.
Other factors, which are not identified herein, could also have such an effect.
RAPID TECHNOLOGICAL CHANGE
The computer software industry is characterized by rapid technological advances,
changes in customer requirements and frequent product introductions and
enhancements. The Company's success depends upon its ability to continue to
enhance its current products and to develop and introduce new products that keep
pace with technological developments, respond to evolving customer requirements
and industry standards, and achieve market acceptance. In particular, the
Company believes that it must continue to respond quickly to users' needs for
new functionality and to advances in hardware and operating systems, and that it
must continue to create products that conform to industry
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standards regarding the communication and interoperability between software
products of different vendors. Any failure by the Company to anticipate or
respond adequately to technological developments and customer requirements, or
any significant delays in product development or introduction, could result in a
loss of competitiveness and revenues. There can be no assurance that the Company
will be successful in developing and marketing new products or product
enhancements, or that the Company will not experience significant delays in
developing such new products or product enhancements. Such delays could have a
material adverse effect on the Company's results of operations. In addition,
there can be no assurance that new products and product enhancements developed
by the Company will achieve market acceptance.
DEPENDENCE ON MAXIMO
A significant portion of the Company's revenues are derived from the licensing
of its MAXIMO family of products and to related services and support. Revenues
from licenses of MAXIMO and related services and support accounted for
approximately 83% of the Company's total revenues in fiscal 2000, but declined
in absolute dollar amount compared with fiscal 1999. The Company's financial
performance in 2001 depends largely on continued market acceptance of MAXIMO,
and the acceptance of its Demand-Side e-commerce procurement application MAXIMO
Buyer. The Company believes that continued market acceptance of MAXIMO will
largely depend on its ability to enhance and broaden the capabilities of MAXIMO
by among other things, developing additional application modules and by
developing and incorporating into the MAXIMO product technologies that are
emerging in connection with the Internet. Any factor adversely affecting sales
of MAXIMO, such as delays in development, significant software flaws,
incompatibility with significant hardware platforms, operating systems or
databases, increased competition or negative evaluations of MAXIMO, would have a
material adverse effect on the Company's business and financial results.
NEW PRODUCTS; NEW MARKETS
In the first quarter of fiscal 2001, the Company repositioned its MRO.COM brand
Internet-based business-to-business marketplace as mroDistributor,
mroManufacturer and mroConnect, offering the suppliers of MRO goods and services
the ability to drive and control their Internet-based e-commerce initiatives.
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There can be no assurance that the Company's Supply-Side products will be sold
successfully, or that the Company's Supply-Side products will achieve market
acceptance. There is also no assurance that the Company and its customers will
create a large enough community of sellers, connected to a large enough
community of buyers, for the Company to achieve leverage and market synergy
between its Demand-Side and Supply-Side products.
The Company's future success in the electronic commerce market may depend on its
ability to accurately determine the functionality and features required by its
customers, as well as the ability to enhance its Supply-Side products and
deliver them in a timely manner. The Company may incur substantial costs to
enhance and modify its Supply-Side products and services in order to meet the
demands of this growing and changing market. The Company's Supply-Side product
segment is not yet profitable and may not be profitable for sometime.
MAXIMO Extended Enterprise is now marketed to satisfy prospective customers'
e-procurement requirements, and its pricing has been changed from user-based
pricing to demand capacity pricing, where the customer purchases the right to
process a certain number of transactions during the year. There can be no
assurance that this pricing model will be accepted in the market, and sales of
MAXIMO could be delayed or lost if the Company has to change its pricing model.
MAXIMO Buyer is also offered to non-MAXIMO customers who wish to engage in
e-procurement. The Internet e-procurement market is a nascent market that may
undergo rapid technological change and rapid influx of competing technologies
and vendors. The Company cannot predict the present and future size of the
potential market for its MAXIMO Extended Enterprise and MAXIMO Buyer products,
or whether the Demand-Side products will achieve acceptance in that market.
FLUCTUATIONS IN QUARTERLY OPERATING RESULTS; SEASONALITY
The Company has experienced, and may in the future experience, significant
period-to-period fluctuations in revenues and operating results, which may
negatively impact the price of our stock. The Company's revenues and income from
operations typically grow at a lower rate or decline in the first quarter of
each fiscal year, compared to the fourth quarter of the preceding fiscal year.
In addition, revenues are typically higher in the fourth quarter than in other
quarters of the year. The Company believes that these quarterly patterns are
partly attributable to
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the Company's sales commission policies, which compensate members of the
Company's direct sales force for meeting or exceeding annual quotas. In
addition, the Company's quarterly revenues and operating results have fluctuated
historically due to the number and timing of product introductions and
enhancements, the budgeting and purchasing cycles of customers, the timing of
product shipments and the timing of marketing and product development
expenditures. The Company typically realizes a significant portion of its
revenue from sales of software licenses in the last two weeks of a quarter,
frequently even in the last days of a quarter. Failure to close a small number
of large software license contracts may have a significant impact on revenues
for any quarter and could, therefore, result in significant fluctuations in
quarterly revenues and operating results. Accordingly, the Company believes that
period-to-period comparisons of its results of operations are not necessarily
meaningful and should not be relied upon as an indication of future performance.
The Company generally ships its products upon receipt of orders and maintains no
significant product 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
operating results. A significant portion of the Company's operating expenses is
fixed in the short term, and planned expenditures are based primarily on sales
forecasts. Accordingly, if revenues do not meet the Company's expectations in
any given quarter, operating results may be materially adversely affected.
COMPETITION
The market for enterprise asset maintenance software such as MAXIMO is
fragmented by geography, by hardware platform and by industry orientation, and
is characterized by a large number of competitors including both independent
software vendors and certain enterprise resource planning ("ERP") vendors.
Independent software vendors include Datastream, Manugistics and Indus. MAXIMO
also competes with integrated ERP systems which include integrated maintenance
modules provided by several large vendors, such as SAP, Oracle and JD Edwards
and others. Currently, MAXIMO competes with products of a number of large
vendors, some of which have traditionally provided maintenance software running
on mainframes and minicomputers and are now offering systems for use in the
client/server environment. MAXIMO also encounters
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competition from vendors of low cost maintenance management systems designed
initially for use by a single user or limited number of users as vendors of
these products upgrade their functionality to enter the client/server market.
Some of the companies mentioned above have also developed e-procurement
applications that are competitive with MAXIMO Buyer.
The Company's Supply-Side business has many diverse competitors offering a wide
range of differing products, services and technologies. The Company expects
competition to intensify as current competitors expand their product offerings
and new competitors enter the market. We may not remain competitive, and
increased competition could seriously harm our business. Our competitors offer a
variety of e-business products that compete with ours including supply chain and
other core Supply-Side business. We may compete with vendors who have
established electronic marketplaces and indirect procurement capabilities, such
as Ariba and Commerce One. Other competitive factors include internal
development efforts by corporate information technology departments and
companies offering customized products.
Certain of the Company's competitors have greater financial, marketing, service
and support and technological resources than the Company. To the extent that
such competitors increase their focus on the asset maintenance or planning and
cost systems markets, or on the industrial supply chain market, the Company
could be at a competitive disadvantage.
INTERNATIONAL OPERATIONS
A significant portion of the Company's total revenues is derived from operations
outside the United States. The Company derived 39%, 46%, and 46% of its total
revenue from sales outside the United States in fiscal years 2000, 1999, and
1998, respectively. The Company continues to invest in international
infrastructure, global product functionality and translated versions of
financial and other software products. In the event international expansion
and/or product globalization efforts are not successful, the Company's business
operating results and financial condition may be adversely affected. This
international business is subject to various risks common to international
activities, including exposure to currency fluctuations, greater difficulty in
collecting accounts receivable, political and economic instability, the greater
difficulty of administering business
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abroad and the need to comply with a wide variety of foreign import and United
States export laws and regulatory requirements.
A significant portion of the Company's total revenue is derived from
international operations that are conducted in foreign currencies. Changes in
the values of these foreign currencies relative to the United States dollar have
in the past adversely affected, and may in the future affect, the Company's
results of operations and financial position. Gains and losses on translation to
United States dollars and settlement of receivables from international
subsidiaries may contribute to fluctuations in the Company's results of
operations. To date, the Company has not engaged in currency hedging
transactions. 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.
DEPENDENCE ON THIRD PARTIES
The Company has entered into nonexclusive license agreements with other
third-party software developers, pursuant to which the Company incorporates into
its products software providing certain application development, user interface,
business intelligence, content and graphics capabilities developed by these
companies. If the Company were unable to renew these licenses (or unable to
renew them on commercially reasonable terms), or if any of such vendors were to
become unable to support and enhance its products, the Company could be required
to devote additional resources to the enhancement and support of these products
or to acquire or develop software providing equivalent capabilities, which could
cause delays in the development and introduction of products incorporating such
capabilities. The Supply-Side operations, is dependent on Digital Island, a
third-party data center, which could be destroyed or damaged. In addition, the
Company must stay on good terms with this vendor, and be able to renew its
agreement with this vendor on commercially reasonably terms. If this data center
were to become inoperable or unavailable on commercially reasonable terms, the
Company would incur significant expense, and potentially lose its ability to
provide these services altogether during the period of downtime and transition,
resulting in customer dissatisfaction and market rejection of its Supply-Side
offerings. The Company's Supply-Side operations are dependent upon the Company's
ability to protect
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computer equipment and the information stored in these third-party data centers
against damage that may be caused by natural disasters, fire, power loss,
telecommunication or Internet failures, unauthorized intrusions, computer
viruses and other similar damaging events. The Company cannot assure that any of
these damaging events would not result in a prolonged outage of the Company's
network services or that the Company would not experience a reduction of
revenues or unexpected expenses which could have a material adverse effect on
our business and financial results.
HOSTING
The Company does not have extensive experience in hosting applications. We may
not adequately predict the flow of traffic. If we do not predict the volume of
traffic adequately, we may experience slower response times or other problems.
Any delays in response time or performance problems could cause our customers to
perceive this service as not functioning properly and they may discontinue use
of our products and services.
The Company's success and profitability in its Supply-Side business is dependent
on the Company's ability to increase the scaleability and performance of its
Supply-Side solutions, meaning that the Company must be able to host and operate
a large number of mroDistributor, mroManufacturer and mroConnect product
instances on a single computer using multiple processors. This is because the
Company incurs fixed costs associated with the hosting environment, regardless
of how many, or how few, Supply-Side products are hosted at the same time. If
the Company is unable to host a certain number of Supply-Side solutions per
computer, then the Supply-Side business may not become profitable for a long
time. Moreover, if the Company is not able to operate a large number of
Supply-Side product instances on the same computer without denigrating product
performance, the Supply-Side solutions may not gain customer acceptance and
market penetration.
ERRORS IN DATA
The Company needs to publish accurate catalog data, as this is critical to our
customers' businesses. Our content management tools help suppliers manage the
collection and publication of catalog content. Any defects or errors in these
tools, or in the
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catalog data produced by using them, could deter businesses from utilizing our
Supply-Side solutions.
PRODUCT DEVELOPMENT: INTERNET
The Company has developed a Java-based component architect software application
to incorporate into the MAXIMO product technologies emerging in conjunction with
the Internet. Internet technologies and applications generally are developing
and gaining acceptance rapidly in the market. MRO supply chain management using
electronic commerce is a nascent market with many standards and technologies
remaining to be developed. Accordingly, developing technologies pose risks to
the Company. The Company believes that electronic commerce products and
technologies complement the Company's enterprise asset management products.
There can be no assurance that the Company will successfully anticipate trends
in this market, that the Company will be successful in Internet technology
development or acquisition efforts or that the Company's Internet applications,
if developed, will achieve market acceptance.
INTERNET RELATED RISKS
If Internet usage continues to grow rapidly, its infrastructure may not be able
to support customer and user demands and its performance and reliability may
decline. If outages, delays, or viruses on the Internet occur frequently or
increase in frequency, overall Internet usage including usage of the Company's
products and services could grow more slowly or decline. The Company is
dependent upon improvements being made to the entire Internet as well as to
particular customers' networking infrastructures to alleviate overloading and
congestion. If these improvements are not made, the ability of the Company's
customers to utilize the Company's solution will be hindered, and the Company's
business, operating results and financial condition may suffer.
LIMITED INTELLECTUAL PROPERTY PROTECTION
The Company's success is dependent upon its proprietary technology. The Company
currently has one patent and protects its technology primarily through
copyrights, trademarks, trade secrets and employee and third party nondisclosure
agreements. The Company's software products are sometimes licensed to
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customers under "shrink wrap" or "click wrap" licenses included as part of the
product packaging or acknowledged by customers who register on-line. Although,
in larger sales, the Company's shrink-wrap and click wrap licenses may be
accompanied by specifically negotiated agreements signed by the licensee, in
many cases its shrink-wrap and click wrap licenses are not negotiated with or
signed by individual licensees. Certain provisions of the Company's shrink-wrap
and click wrap licenses, including provisions protecting against unauthorized
use, copying, transfer and disclosure of the licensed program, may be
unenforceable under the laws of certain jurisdictions. In addition, the laws of
some foreign countries do not protect the Company's proprietary rights to the
same extent, as do the laws of the United States. There can be no assurance that
the steps taken by the Company to protect its proprietary rights will be
adequate to prevent misappropriation of its technology or development by others
of similar technology. Although the Company believes that its products and
technology do not infringe on any valid claim of any patent or any other
proprietary rights of others, there can be no assurance that third parties will
not assert infringement claims in the future. Litigation may be necessary to
enforce the Company's intellectual property rights, to protect the Company's
trade secrets, to determine the validity and scope of the proprietary rights of
others, or to defend against claims of infringement or invalidity. Such
litigation could result in substantial costs and diversion of resources and
could potentially have a material adverse result on our operating results and
financial condition.
DEPENDENCE ON KEY PERSONNEL
The Company is highly dependent on certain key executive officers, technical and
sales employees, and the loss of one or more of who could have an adverse impact
on the future operations of the Company. The Company does not have employment
contracts with, and does not maintain key person life insurance policies on, any
personnel. The Company continues to hire a significant number of additional
sales, services and technical personnel. Competition for hiring of such
personnel in the software industry is intense, and the Company from time to time
experiences difficulty in locating candidates with the appropriate
qualifications within the desired geographic locations, or with certain industry
specific domain expertise. It is widely believed that the technology industry is
at or beyond a condition of full employment. There can be no assurance that the
Company will be
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able to retain its existing personnel or attract additional qualified employees.
CERTAIN RISKS ASSOCIATED WITH ACQUISITIONS
As part of its overall strategy, the Company plans to continue to acquire or
invest in complementary companies, products, or technologies and to enter into
joint ventures and strategic alliances with other companies. There can be no
assurance that the Company will be successful in overcoming the risks associated
or problems encountered in connection with such business combinations,
investments, or joint ventures, or that such transactions will not materially
adversely affect the Company's business, financial condition, or operating
results.
POSSIBLE CONTINUED VOLATILITY OF STOCK PRICE
Fiscal 1999 and 2000 was marked by significant fluctuations in the market price
of the common stock, par value $.01 per share, of the Company (the "Common
Stock"). Factors such as announcements of technological innovations or new
products by the Company, its competitors and other third parties, as well as
quarterly variations in the Company's results of operations and market
conditions in the industry, may cause the market price of the Common Stock to
continue to fluctuate significantly. In addition, the stock market in general
has recently experienced substantial price and volume fluctuations, which have
particularly affected the market prices of many software and e-commerce
companies and which have often been unrelated to the operating performance of
such companies. These broad market fluctuations also may adversely affect the
market price of the common stock.
NO REVISIONS OR UPDATES TO FORWARD-LOOKING STATEMENTS
The Company has no obligation to release publicly any revision or update to any
forward-looking statements to reflect events or circumstances after the date of
such statements or to reflect the occurrence of anticipated or unanticipated
events.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's primary exposures to market risk are the effect of fluctuations in
interest rates earned on its cash equivalents and marketable securities and
exposures to foreign currency exchange rate fluctuations.
At December 31, 2000, the Company held $39.6 million in cash equivalents and
marketable securities consisting of taxable and tax exempt municipal securities.
Cash equivalents are classified as available for sale and valued at amortized
cost, which approximates fair market value. A hypothetical 10 percent increase
in interest rates would not have a material impact on the fair market value of
these instruments due to their short maturity.
The Company develops its products in the United States and markets them in North
America, Europe, Middle East and Africa, Australia, Asia Pacific and Latin
America. As a result, our financial results could be affected by factors such as
changes in foreign currency exchange rates or weak economic conditions in
foreign markets. Currently, the Company has no hedging contracts.
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PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
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, File
No. 0-23852, 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, File No. 0-23852 and incorporated herein by reference)
3.3 Form of Certificate of Designation of Series A Junior Participating
Preferred Stock of Project Software & Development, Inc. (which is attached
as Exhibit A to the Rights Agreement included as Exhibit 4(b) to the
Company's Current Report on Form 8-K dated February 2, 1998, File No.
0-23852, and incorporated herein by reference)
3.4 Amendment to Articles of Organization adopted on December 15, 1999
(included as Exhibit 3.4 to the Company's Quarterly Report on Form 10-Q for
the quarter ended December 31, 1999, File No. 0-23852, and incorporated
herein by reference)
3.5 Restated By-Laws of the Company, as amended
4. Instruments defining the Rights of Security Holders, Including
Indentures
4.1 Specimen certificate for the Common Stock of the Company (included as
Exhibit 4.1 to the Company's Registration Statement on Form S-1,
Registration No. 33-76420, and incorporated herein by reference)
4.2 Article 4B of the Amended and Restated Articles of Organization of the
Company (included as Exhibit 4.1 to the Company's Registration Statement on
Form S-1, Registration No. 33-76420, and incorporated herein by reference)
4.3 Rights Agreement dated as of January 27, 1998, between Project Software
& Development, Inc. and BankBoston, N.A. as Rights Agent (included as
Exhibit 4 (a) to the Company's
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Current Report on Form 8-K dated February 2, 1998, File No. 0-23852, and
incorporated herein by reference)
4.4 Form of Certificate of Designation of Series A Junior Participating
Preferred Stock of Project Software & Development, Inc. (included as
Exhibit 4 (b) to the Company's Current Report on Form 8-K dated February 2,
1998, File No. 0-23852, and incorporated herein by reference)
4.5 Form of Rights Certificate (included as Exhibit 4 (c) to the Company's
Current Report on Form 8-K dated February 2, 1998, File No. 0-23852, and
incorporated herein by reference)
10. Material Contracts
10.1 i2 Technologies, Inc. warrant
(b) Reports on Form 8-K
There were no current reports filed on Form 8-K for the three months ended
December 31, 2000.
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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: February 14, 2001 By: /s/ Peter J. Rice
----------------- ------------------------
Peter J. Rice
Executive Vice President -
Finance and Administration,
Chief Financial Officer and
Treasurer
(Principal Financial Officer)
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EXHIBIT INDEX
EXHIBIT
NO. DESCRIPTION PAGE
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 File No. 0-23852
and incorporated herein by reference)
3.3 Form of Certificate of Designation of Series A Junior
Participating Preferred Stock of Project Software &
Development, Inc. (which is attached as Exhibit A to the
Rights Agreement included as Exhibit 4 (b) to the Company's
Current Report on Form 8-K dated February 2, 1998, File No.
0-23852, and incorporated herein by reference)
3.4 Amendment to Articles of Organization adopted on December
15, 1999 (included as Exhibit 3.4 to the Company's Form 10-Q
for the quarter ended December 31, 1999, File No. 0-23852,
and incorporated herein by reference)
3.5 Restated By-Laws of the Company, as amended
4.1 Specimen certificate for the Common Stock of the Company
(included as Exhibit 4.1 to the Company's Registration
Statement on Form S-1, Registration No. 33-76420, and
incorporated herein by reference)
4.2 Article 4B of the Amended and Restated Articles of
Organization of the Company (included as Exhibit 4.1 to the
Company's Registration Statement on Form S-1, Registration
No. 33-76420, and incorporated herein by reference)
4.3 Rights Agreement dated as of January 27, 1998, between
Project Software & Development, Inc. and BankBoston, N.A. as
Rights Agent (included as Exhibit 4 (a) to the Company's
Current Report on Form 8-K dated February 2, 1998, File
No.0-23852, and incorporated herein by reference)
4.4 Form of Certificate of Designation of Series A Junior
Participating Preferred Stock of Project Software &
Development, Inc. (included as Exhibit 4 (b) to the
Company's Current Report on Form 8-K dated February 2, 1998,
File No. 0-23852, and incorporated herein by reference)
4.5 Form of Rights Certificate (included as Exhibit 4 (c) to the
Company's Current Report on Form 8-K dated February 2, 1998,
File No. 0-23852, and incorporated herein by reference)
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9.1 1996 Daniels Voting Trust Agreement dated August 19, 1996
among Susan H. Daniels, Robert L. Daniels and Robert L.
Daniels, as Trustee (included as Exhibit 9.1 to the
Company's Annual Report on Form 10-K for the fiscal year
ended September 30, 19996, and incorporated herein by
reference)File No. 0-23852 and incorporated herein by
reference)
10.1 i2 Technologies, Inc. warrant
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