1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A NO. 1
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1996
(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_________to _________
Commission File Number 0-23852
PROJECT SOFTWARE & DEVELOPMENT, INC.
(Exact name of registrant as specified in its charter)
MASSACHUSETTS 04-2448516
(State or other jurisdiction (I.R.S. employer
incorporation or organization) identification number)
20 UNIVERSITY ROAD, CAMBRIDGE, MASSACHUSETTS 02138
(Address of principal executive offices, including zip code)
(617) 661-1444
(Registrant's telephone number, including area code)
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Explanation:
The Company's response to Item 1, Financial Statements, contained in its Report
on Form 10-Q is being amended to restate the following unaudited financial
information for PSDI and MAC appearing in Footnote E in the Notes to Financial
Statements: (i) the Net Income of the Company for the three months ended March
31, 1995 and the six months ended March 31, 1996, and (ii) the Net Income of the
Company and MAC, as combined, for the three months ended March 31, 1995 and the
six months ended March 31, 1996.
Although pursuant to Rule 12b-15 promulgated under the Securities Exchange Act
of 1934, as amended, the Company, in amending its Report on Form 10-Q, is only
required to set forth the text of the item being amended, the Company is filing
the entire Report (without Exhibits) since this is the first filing of the
Company subject to Regulation S-T.
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PROJECT SOFTWARE & DEVELOPMENT, INC.
10-Q/A INDEX
PAGE
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL PAGE
STATEMENTS
Consolidated Balance Sheets as of March 31, 1996 (unaudited) and September 4
30, 1995.
Consolidated Statements of Operations (unaudited) for the three and six 5
months ended March 31, 1996 and 1995.
Consolidated Statements of Cash Flows (unaudited) for the three and six 6
months ended March 31, 1996 and 1995.
Notes to Consolidated Financial Statements. 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF 11
OPERATIONS
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 21
SIGNATURE 26
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PROJECT SOFTWARE & DEVELOPMENT, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
ASSETS MARCH 31, SEPTEMBER 30,
--------- -------------
1996 1995
---- ----
(IN THOUSANDS,EXCEPT SHARE DATA)
Current assets:
Cash and cash equivalents $ 7,407 $ 9,346
Marketable securities 35,842 36,025
Accounts receivable, trade, less allowance
for doubtful accounts of $1,557 in 1996 and
$1,346 in 1995 18,347 14,347
Prepaid expenses 1,719 1,267
Deferred income taxes 553 452
-------- --------
Total current assets 63,868 61,437
-------- --------
Property and equipment, net 2,679 2,391
Computer software costs, net 932 789
Goodwill 1,450 --
Deferred income taxes 369 314
Other assets 33 29
-------- --------
Total assets $ 69,331 $ 64,960
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 6,454 $ 5,116
Accrued compensation 2,124 3,714
Income taxes payable (88) 603
Deferred revenue 8,945 6,601
Line of credit -- 325
Leased equipment obligation 8 95
-------- --------
Total current liabilities 17,443 16,454
-------- --------
Deferred income taxes 262 277
Deferred rent 119 158
Deferred revenue 32 469
Leased equipment obligation -- 58
Commitments and contingencies
Preferred stock, $.01 par value;1,000,000 authorized,
none issued and outstanding -- --
Common stock, $.01 par value;15,350,000 authorized;
and outstanding 9,584,741 and 9,566,712 for 1996 and 1995,
respectively 96 96
Additional paid-in capital 42,983 42,725
Retained earnings 8,066 4,492
Cumulative translation adjustment 104 159
Net unrealized gain on marketable securities 226 72
-------- --------
Total stockholders' equity 51,475 47,544
-------- --------
Total liabilities and stockholders' equity $ 69,331 $ 64,960
======== ========
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 SIX MONTHS ENDED
MARCH 31, MARCH 31,
------------------------------------------------------------------------
1996 1995 1996 1995
---- ---- ---- ----
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
Revenues:
Software $ 9,046 $ 6,733 $ 18,809 $ 13,131
Support and services 7,330 4,894 13,754 8,773
------------ ------------ ------------ ------------
Total revenues 16,376 11,627 32,563 21,904
------------ ------------ ------------ ------------
Cost of revenues:
Software 452 560 1,600 1,648
Support and services 3,437 2,287 6,708 4,308
------------ ------------ ------------ ------------
Total cost of revenues 3,889 2,847 8,308 5,956
------------ ------------ ------------ ------------
Gross margin 12,487 8,780 24,255 15,948
Operating expenses:
Sales and marketing 5,614 3,985 10,550 7,295
Product development 1,590 1,736 3,460 2,954
General and administrative 1,642 1,396 3,390 2,335
Merger expenses 965 -- 965 --
------------ ------------ ------------ ------------
Total operating expenses 9,811 7,117 18,365 12,584
------------ ------------ ------------ ------------
Income from operations 2,676 1,663 5,890 3,364
Interest income 416 175 856 328
Interest (expense) (14) (6) (30) (11)
Other income (expense), net (85) 29 (89) 7
------------ ------------ ------------ ------------
Income before income taxes 2,993 1,861 6,627 3,688
Provision for income taxes 1,546 854 3,052 1,582
------------ ------------ ------------ ------------
Net income $ 1,447 $ 1,007 $ 3,575 $ 2,106
============ ============ ============ ============
Net income per share $ 0.14 $ 0.12 $ 0.36 $ 0.25
------------ ------------ ------------ ------------
Weighted number of common
and common equivalent shares 10,019,196 8,560,065 10,034,049 8,522,115
------------ ------------ ------------ ------------
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)
SIX MONTHS ENDED SIX MONTHS ENDED
MARCH 31, MARCH 31,
(IN THOUSANDS) 1996 1995
----------------------------------
Cash flows from operating activities:
Net income $ 3,575 $ 2,106
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 1,463 1,541
Loss on sale and disposal of property
and equipment 21 14
Amortization of discount on marketable securities 145 (45)
Deferred rent (39) (14)
Deferred taxes (173) (435)
Changes in operating assets and liabilities,
net of acquisitions:
Accounts receivable (3,498) (2,669)
Prepaid expenses (404) (735)
Other assets (1,517) 56
Accounts payable 973 489
Accrued expenses (673) (349)
Accrued compensation (1,389) 217
Income taxes payable (683) (624)
Deferred revenue 1,946 1,848
-------- --------
Net cash (used in)/provided by operating activities (253) 1,400
-------- --------
Cash flows from investing activities:
Acquisitions of businesses, net of cash 108 --
Acquisitions of property and equipment (921) (887)
Proceeds from sale of property and equipment -- 2
Additions to computer software costs (888) (32)
Purchase of marketable securities (85,935) (13,400)
Sale of marketable securities 86,126 5,435
-------- --------
Net cash used in investing activities (1,510) (8,882)
-------- --------
Cash flows from financing activities:
Payments on leased equipment (19) (398)
(Payments)borrowings on bank loan (450) 169
Proceeds from issuance of common stock 256 67
-------- --------
Net cash used in financing activities (213) (162)
-------- --------
Effect of exchange rate changes on cash 37 6
-------- --------
Net (decrease)increase in cash and cash equivalents (1,939) (7,638)
Cash and cash equivalents, beginning of period 9,347 14,607
-------- --------
Cash and cash equivalents, end of period $ 7,407 $ 6,969
======== ========
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 March 31, 1996
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, 1996, 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, 1995 included in the Company's Annual Report on Form 10-K filed
with the Securities and Exchange Commission on December 28, 1995.
The consolidated financial statements of the Company for all periods
prior to March 31, 1996 included in this report include the results and balances
of an acquisition accounted for as pooling-of-interests.
B. CASH AND CASH EQUIVALENTS
The Company considers all highly liquid instruments purchased with
maturities of three months or less at the time of acquisition to be cash
equivalents. As of March 31, 1996 and September 30, 1995, the Company's cash
equivalents were comprised
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primarily of money market funds, which are stated at cost, which approximates
market.
C. MARKETABLE SECURITIES
Marketable equity and debt securities available for current operations
are classified in the balance sheet as current assets. Dividend and interest
income, including amortization of premium and discount arising at acquisition,
are included in income. The Company's marketable securities are classified as
available-for-sale and are stated at their fair market value. The fair market
value of marketable securities was determined based on quoted market prices.
Unrealized gains and losses on securities classified as available-for-sale are
reported as a separate component of stockholders' equity. The unrealized holding
gains for the three and six months ended March 31, 1996 were $60,000 and
$197,000, respectively. The unrealized holding losses for the three and six
months ended March 31, 1996 were $33,000 and $43,000. As of March 31, 1996, all
marketable securities were classified as current assets.
D. COMPUTER SOFTWARE COSTS
Internally developed software costs capitalized were $380,000 and $0
for the three months ended March 31, 1996 and 1995, respectively, and $634,000
and $0 for the six months ended March 31, 1996 and 1995, respectively.
Amortization expense was $22,000 and $108,000 for the three months ended March
31, 1996 and 1995, respectively, and $695,000 and $904,000 for the six months
ended March 31, 1996 and 1995, respectively. For the three months ended December
31, 1996, the Company changed the estimated useful life of its internally
developed software related to MAXIMO from three years to fifteen months. This
change in estimate resulted in additional amortization expense of $565,000. For
the three months ended December 31, 1994, the Company accelerated the
amortization expense of its internally developed software related to its P/X
product, which resulted in $514,000 of additional expense.
E. ACQUISITIONS
On December 27, 1995, the Company acquired the shares of its Swedish
distributor, Planneringssystem och Datorer i Norden AB for the sum of $517,000
(3,414,000 SEK). In addition, the Company will pay the seller an earnout based
on revenue target
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achievement for the fiscal year ended September 30, 1996. The transaction was
accounted for using the purchase method of accounting. The resulting goodwill is
being amortized on a straight-line basis over 5 years. This acquisition was
deemed to be immaterial for presentation of pro forma information purposes.
On March 1, 1996, the Company acquired certain assets and assumed
specific liabilities of the IHS department of debis Systemhaus Standard -
Software - Produkte GmbH for the sum of $646,000 (946,000 DM). In addition, the
Company will pay an earnout based on revenue target achievement for the twelve
months ended December 31, 1996. The transaction was accounted for using the
purchase method of accounting. The resulting goodwill is being amortized on a
straight-line basis over 5 years. This acquisition was deemed to be immaterial
for presentation of pro forma information purposes.
On March 1, 1996, the Company acquired all of the outstanding common
stock of Maintenance Automation Corporation ("MAC"), a developer of PC-based
maintenance management software, in exchange for the issuance of 368,946 shares
of common stock. The transaction has been accounted for as a
pooling-of-interests. Costs of the merger were $965,000. This acquisition was
deemed to be immaterial for presentation of pro forma information purposes. The
Company's consolidated financial statements for all years prior to the
acquisition will be restated to include MAC. MAC's fiscal year for financial
reporting purposes was changed from December 31 to September 30 for the period
ended September 30, 1995. MAC's results of operations for the nine-month period
ended September 30, 1995 and twelve-months ended December 31, 1994 and 1993 will
be included in the Company's 1995, 1994 and 1993 results, respectively.
Accordingly, MAC's operations for the months ended October through and including
December 1994 will not be included in the Company's September 30, 1995 results.
Revenues and net income for MAC for October through and including December 1994
were $1,083,000 and $78,300, respectively, and will be included in the Company's
September 30, 1994 results.
The following is certain unaudited financial information for PSDI and
MAC for the period before the combination was consumated that are included in
the current combined net income:
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(in thousands)
REVENUE: Three months Three months Six months Six months
ended ended ended ended
----- ----- ----- -----
03/31/96 03/31/95 03/31/96 03/31/95
-------- -------- -------- --------
PSDI $ 14,710 $ 10,560 $ 28,925 $ 20,837
MAC $ 1,666 $ 1,067 $ 3,638 $ 1,067
-------- -------- -------- --------
Combined $ 16,376 $ 11,627 $ 32,563 $ 21,904
-------- -------- -------- --------
NET INCOME:
PSDI $ 2,049 $ 1,282 $ 4,451 $ 2,381
MAC (602) $ (275) $ (876) $ (275)
-------- -------- -------- --------
Combined $ 1,447 $ 1,007 $ 3,575 $ 2,106
-------- -------- -------- --------
F. INCOME PER SHARE
Income per share is computed for each period based upon the weighted
average number of common shares outstanding and dilutive common stock
equivalents (using the treasury stock method). For purposes of this calculation,
outstanding warrants and stock options are considered common stock equivalents
in the periods in which they have a dilutive effect. Fully diluted and primary
income per share data are the same for each period presented.
G. SUPPLEMENTAL CASH FLOW DISCLOSURES
Cash paid for interest and taxes was as follows:
Six months ended
March 31,
1996 1995
(in thousands)
Interest $ 30 $ 11
Income taxes 3,751 2,588
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
General.
The Company develops, markets and supports applications software used
by business, government and other organizations to improve the productivity of
facilities, plants and production equipment. The Company's revenues are derived
primarily from two sources: software licenses and fees for services, including
support contracts and training and consulting services. The Company experienced
a significant shift in the sources of its revenues as a result of its decision
in 1989 to concentrate its resources on the development and marketing of
enterprise-wide asset maintenance management systems operating in a
client/server environment. The Company acquired Maintenance Automation
Corporation ("MAC") on March 1, 1996. MAC is a developer of PC-based maintenance
management software. Prior to 1991, the Company's revenues were derived
primarily from licenses of its mainframe and other software (consisting of
character-based software designed to run on mainframe, minicomputers and
personal computers), and, to a lesser extent, from sales of computer hardware.
The Company released MAXIMO, its first client/server product, in 1991,
and released P/X, its second client/server product, in 1992. In fiscal year
ended September 30, 1991, revenues from client/server software constituted 11.4%
of software revenues. By the fiscal year ended September 30, 1995, revenues from
client/server software accounted for 98.6% of software revenues, of which 92.7%
was attributable to MAXIMO. In the quarter ended March 31, 1996, the Company
released a new version of MAXIMO, MAXIMO Enterprise. MAXIMO Enterprise runs on
Oracle and Sybase platforms and is intended for the higher-end market. The newly
acquired product resulting from the acquisition of MAC has been renamed MAXIMO
ADvantage and is intended for the lower-end market supported by Microsoft
Access.
Revenues from mainframe and other software have declined sharply,
dropping to 1.4% of software revenues in the fiscal year ended 1995. The Company
no longer actively markets its mainframe and other software products, although
it provides technical support and other services to its installed customer base.
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Revenues from licenses of P/X grew from $1,148,000 in fiscal year 1992
to $3,219,000 in fiscal year 1993 and $3,604,000 in fiscal year 1994. However,
P/X has not achieved market acceptance, and revenues from P/X software licenses
declined to $1,622,000 in fiscal year 1995. The Company released a new version
of P/X in July 1995. This release has not received the market acceptance that
the Company had anticipated for this product.
The sources of the Company's revenues from support and services have
also shifted since the introduction of the Company's new generation of
client/server products. Revenues from support and services relating to the
Company's client/server products have increased, while those relating to the
Company's mainframe and other software have declined.
The Company has experienced an increase in the average selling price of
its MAXIMO client/server software licenses during fiscal 1995. The Company
attributes this increase in part to its introduction during fiscal year 1994 of
a version of MAXIMO for use with the ORACLE database management system. This
version of MAXIMO has a higher entry price and is typically implemented in
configurations involving a larger number of users, for whom additional license
fees are paid. Larger software license contracts, if any, may have a significant
impact on revenues for any quarter and could therefore result in significant
fluctuations in quarterly revenues and operating results.
The Company's revenues attributable to its operations outside North
America are a significant portion of revenues. The Company expects that
international revenues will continue to be a significant percentage of total
revenues. As the percentage of the Company's total revenues which are derived
from international operations and are conducted in foreign currencies grows,
changes in the values of these foreign currencies relative to the United States
dollar will affect the Company's results of operations, and may contribute to
fluctuations in the Company's results of operations. The functional currencies
of the Company's international subsidiaries include the pound sterling, the
French franc, the German deutschemark, the Dutch guilder, the Swedish krona, and
the Australian and Canadian dollars, each of which has fluctuated significantly
in relation to the United States dollar. In addition, the Company is exposed to
potential losses as a result of transactions giving rise to accounts receivable
in
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currencies other than the United States dollar or the functional currencies of
its international subsidiaries. When the value of a foreign currency in which
the accounts receivable of the Company are denominated changes between the date
the account receivable is accrued and the date on which it is settled, the
resulting gain or loss is recorded as a foreign currency transaction adjustment.
The Company recorded foreign currency transaction losses of $153,000 for the six
months ended March 31, 1996 and foreign currency transaction gains of $18,000
for the six months ended March 31, 1995. The Company may in the future undertake
currency hedging, although there can be no assurance that hedging transactions,
if entered into, would materially reduce the effects of fluctuations in foreign
currency exchange rates on the Company's results of operations.
To date, inflation has not had a material impact on the Company's
financial results. There can be no assurance, however, that inflation may not
adversely affect the Company's financial results in the future.
Business Combinations.
On December 27, 1995, the Company acquired the assets of its Swedish
distributor, Planneringssystem och Datorer i Norden AB for the sum of $517,000
(3,414,000 SEK). In addition, the Company will pay the seller an earnout based
on revenue target achievement for the fiscal year ended September 30, 1996. The
transaction was accounted for using the purchase method of accounting. The
resulting goodwill is being amortized on a straight-line basis over 5 years.
This acquisition was deemed to be immaterial for presentation of pro forma
information purposes.
On March 1, 1996, the Company acquired certain assets and assumed
specific liabilities of the IHS department of debis Systemhaus Standard -
Software - Produkte GmbH for the sum of $646,000 (946,000 DM). In addition, the
Company will pay an earnout based on revenue target achievement for the twelve
months ended December 31, 1996. The transaction was accounted for using the
purchase method of accounting. The resulting goodwill is being amortized on a
straight-line basis over 5 years. This acquisition was deemed to be immaterial
for presentation of pro forma information purposes.
On March 1, 1996, the Company acquired all of the outstanding common
stock of MAC in exchange for the issuance of
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368,946 shares of common stock. MAC provides the Company an existing telesales
channel which can target industries supplemental to those currently targeted by
the Company's existing direct sales channel, such as real estate management,
hotels and small education and medical facilities. MAC's existing product, CHIEF
ADvantage has been renamed MAXIMO Advantage. The transaction has been accounted
for as a pooling-of-interests. Costs of the merger were $965,000. The
consolidated financial statements of the Company for all periods prior to March
31, 1996 include the results and balances of this acquisition.
RESULTS OF OPERATIONS
Revenues.
Total revenues increased 40.8% to $16,376,000 from $11,627,000 for the
three months ended March 31, 1996 and 1995, respectively, and 48.7% to
$32,563,000 from $21,904,000 for the six months ended March 31, 1996 and 1995,
respectively. The three and six months prior year comparative revenues include
only three months of MAXIMO ADvantage revenues, as MAC's fiscal year was changed
to coincide with the Company's. The growth in revenues is generated from the
Company's MAXIMO software and related support and services. A significant
portion of the Company's total revenues are derived from operations outside
North America. Revenues generated outside North America increased 45.2% to
$6,870,000 or 42.0% of total revenues in the three months ended March 31, 1996
from $4,733,000 or 40.7% of total revenues in the three months ended March 31,
1995 and increased 42.1% to $12,522,000 or 38.5% of total revenues in the six
months ended March 31, 1996 from $8,813,000 or 40.2% of total revenues in the
six months ended March 31, 1995.
The Company's software revenues increased 34.4% to $9,046,000 from
$6,733,000 for the three months ended March 31, 1996 and 1995, respectively, and
increased 43.2% to $18,809,000 from $13,131,000 for the six months ended March
31, 1996 and 1995, respectively. The Company's MAXIMO software revenues
increased 39.0% to $8,913,000 from $6,412,000 for the three months ended March
31, 1996 and 1995, respectively, and increased 48.6% to $18,162,000 from
$12,226,000 for the six months ended March 31, 1996 and 1995, respectively. The
Company's P/X software revenues decreased 96.4% to $8,600 from $239,000 for the
three
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months ended March 31, 1996 and 1995, respectively, and 56.6% to $348,000 from
$801,000 for the six months ended March 31, 1996 and 1995, respectively. The
increase in revenues for the three and six months ended March 31, 1996 can be
attributed to the increases in the number of licenses sold. In the six months
ended March 31, 1995, the Company concluded two large software license
agreements that exceeded one million dollars each. While the Company did not
recognize a sale of this magnitude in the three months ended December 31, 1995,
it recognized $630,000 of software license revenue under one of those agreements
in the three months ended December 31, 1995. Software revenues as a percentage
of total revenues decreased to 55.2% from 57.9% for the three months ended March
31, 1996 and 1995, respectively, and decreased to 57.8% from 59.9% for the six
months ended March 31, 1996 and 1995, respectively. Revenues from licenses of
MAXIMO and from related support and services increased 52.9% to $14,777,000 from
$9,665,000 or 90.2% and 83.1% of total revenues for the three months of March
31, 1996 and 1995, respectively, and increased 63.2% to $29,083,000 from
$17,817,000 or 89.3% and 81.3% of total revenues for the six months of March 31,
1996 and 1995, respectively. Revenues from licenses of P/X and from related
support and services decreased 14.5% to $1,014,000 from $1,186,000 or 6.2% and
10.2% of total revenues for the three months ended March 31, 1996 and 1995,
respectively, and decreased 5.7% to $2,419,000 from $2,566,000 or 7.4% and 11.7%
of total revenues for the six months ended March 31, 1996 and 1995,
respectively.
Revenues from the Company's mainframe and other software and related
support and services decreased 24.8% to $584,000 from $777,000 for the three
months ended March 31,1996 and 1995, respectively, and decreased 30.3% to
$1,061,000 from $1,522,000 for the six months ended March 31, 1996 and 1995,
respectively. The Company no longer actively markets its mainframe and other
software products.
Revenues from support and services increased 49.8% to $7,330,000 from
$4,894,000 for the three months ended March 31, 1996 and 1995, respectively, and
increased 56.8% to $13,754,000 from $8,773,000 for the six months ended March
31, 1996 and 1995, respectively. The increase is due primarily to increased
sales of support contracts and use of the Company's training and consulting
services in connection with licenses of the Company's MAXIMO software, partially
offset by declines in sales of support
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contracts and services relating to the Company's mainframe and other software.
Cost of Revenues.
The total cost of revenues increased 36.6% to $3,889,000 from
$2,847,000 for the three months ended March 31, 1996 and 1995, respectively, and
increased 39.5% to $8,308,000 from $5,956,000 for the six months ended March 31,
1996 and 1995, respectively. The three and six months prior year comparative
cost of revenues include only three months of MAXIMO ADvantage expenses, as
MAC's fiscal year was changed to coincide with the Company's. The total cost of
revenues as a percentage of total revenues was 23.7% and 24.5% for the three
months ended March 31, 1996 and 1995, respectively, and 25.5% and 27.2% for the
six months ended March 31, 1996 and 1995, respectively.
Cost of software revenues decreased 19.3% to $452,000 from $560,000 for
the three months ended March 31, 1996 and 1995, respectively, and decreased 2.9%
to $1,600,000 from $1,648,000 for the six months ended March 31, 1996 and 1995,
respectively . The cost of software revenues decreased as a percentage of
software revenues to 5.0% from 8.3% for the three months ended March 31, 1996
and 1995, respectively, and 8.5% from 12.6% for the six months ended March 31,
1996 and 1995. The decrease as a percentage of revenues is primarily
attributable to a decrease in amortization expense of internally developed
software and an increase in the revenue base. In the three months ended December
31, 1995, the Company changed the estimated useful life of its MAXIMO Enterprise
product from three years to fifteen months to accurately reflect the lifecycles
for new releases of this product. This change resulted in additional
amortization expense of $565,000. For the three months ended December 31, 1994,
the Company accelerated the amortization expense of its internally developed
software related to its P/X product, which resulted in $514,000 of additional
expense.
Cost of support and services consists primarily of personnel costs for
employees and the related costs of benefits and facilities. Cost of support and
services revenues increased by 50.3% to $3,437,000 from $2,287,000 for the three
months ended March 31, 1996 and 1995, respectively, and increased by 55.7% to
$6,708,000 from $4,308,000 for the six months ended March 31, 1996 and 1995,
respectively. Cost of support and services increased as a percentage of support
and services revenues to
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46.9% from 46.7% for the three months ended March 31, 1996 and 1995,
respectively, and decreased as a percentage of support and services revenues to
48.8% from 49.1% for the six months ended March 31, 1996 and 1995, respectively.
During the three months ended December 31, 1994, the Company increased personnel
and utilization of personnel to secure a significant software license agreement
rather than these employees undertaking billable assignments.
Sales and Marketing Expenses.
Sales and marketing expenses increased 40.9% to $5,614,000 from
$3,985,000 for the three months ended March 31, 1996 and 1995, respectively, and
increased 44.6% to $10,550,000 from $7,295,000 for the six months ended March
31, 1996 and 1995, respectively. The three and six months prior year comparative
sales and marketing expenses include only three months of MAC's expenses, as
their fiscal year was changed to coincide with the Company's. The increases are
primarily due to increases in the number of sales personnel, sales commissions,
travel and lodging expenses, and an increase in advertising costs. Sales and
marketing expenses as a percentage of total revenues remained the same and were
34.3% for both of the three months ended March 31, 1996 and 1995, but decreased
as a percentage of total revenues to 32.4% from 33.3% for the six months ended
March 31, 1996 and 1995, respectively. The decrease as a percentage of revenues
is due primarily to the increased productivity of the Company's sales and
marketing staffs combined with the timing of expenses and increased sales of the
Company's MAXIMO product by distributors.
Product Development Expenses.
Product development expenses decreased 8.4% to $1,590,000 from
$1,736,000 for the three months ended March 31, 1996 and 1995, respectively, and
increased 17.1% to $3,460,000 from $2,954,000 for the six months ended March 31,
1996 and 1995, respectively. The three and six months prior year comparative
product development expenses include only three months of MAC's expenses, as
their fiscal year was changed to coincide with the Company's. The decrease for
the three months ended March 31, 1996 is attributable to capitalization of
internal software development costs, as there were no expenses capitalized for
the comparative three month period. The increase for the six months
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ended March 31, 1996 is primarily due to the engagement of additional employees
and third party consultants to work on the new release of MAXIMO (MAXIMO
Enterprise), offset by the capitalization of the software costs related to the
product, as no software costs were capitalized for the comparative six month
period.
Product development expenses decreased to 9.7% from 14.9% of total
revenues for the three months ended March 31, 1996 and 1995, respectively, and
decreased to 10.6% from 13.5% of total revenues for the six months ended March
31, 1996 and 1995, respectively. The Company continues to spend an increasing
percentage of its development expenses on its MAXIMO product than it does on its
P/X product. The decreases as a percentage of revenues is attributable to the
capitalization of internal software developments costs in the current period
versus no capitalization of expenses in the comparative period.
General and Administrative Expenses.
General and administrative expenses include the cost of the Company's
finance, human resources, information services and administrative operations.
General and administrative expenses increased 17.6% to $1,642,000 from
$1,396,000 for the three months ended March 31, 1996 and 1995, respectively, and
increased 45.2% to $3,390,000 from $2,335,000 for the six months ended March 31,
1996 and 1995, respectively. The three and six months prior year comparative
general and administrative expenses include only three months of MAC's expenses,
as their fiscal year was changed to coincide with the Company's. The increase is
primarily due to an increase in the provision for bad debt expenses in
proportion to the increase in receivables. Also contributing to the increase are
the expenses related to professional fees in connection with growth and
transactions of the Company, including goodwill amortization, as well as,
increases in insurance premiums resulting from the second public offering in
July 1995. General and administrative expenses as a percentage of total revenues
decreased to 10.0% from 12.0% in the three months ended March 31, 1996 and 1995,
respectively, and to 10.4% from 10.7% in the six months ended March 31, 1996 and
1995, respectively. The decreases as a percentage of revenues is attributable to
salary reductions of MAC executives and the ability of the Company to manage a
larger revenue base without commensurate increases in general and administrative
expenses.
18
19
Other Income/Expense.
Interest income for the three months ended March 31, 1996 and 1995 was
$416,000 and $175,000, respectively, and $856,000 and $328,000 for the six
months ended March 31, 1996 and 1995. The increases are due to interest earned
on certain cash equivalents and marketable securities.
Provision for Income Taxes.
The Company's effective tax rate was 51.6% and 45.9% for the three
months ended March 31, 1996 and 1995, respectively and 46.1% and 42.9% for the
six months ended March 31, 1996 and 1995, respectively. The increase in the
effective tax rate for the six months ended March 31, 1996 can be attributed to
merger expenses of $965,000, which are not deductible for income tax purposes.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 1996, the Company had cash and cash equivalents of
approximately $7,407,000 and working capital of $46,425,000. Cash used by
operations for the six months ended March 31, 1996 was $253,000 and is
attributable to the funding of accounts receivables, the payout of fiscal 1995
employee bonuses and the acquisition costs in connection with the purchase of
our Swedish and German distributors, offset by income earned for the period.
Cash used in investing activities totaled $1,510,000, primarily for the purchase
of computer equipment and capitalization of internal software costs. Cash used
by financing activities was $213,000 and is attributable to the repayment of
MAC's equipment loans and amounts borrowed on their line of credit, offset by
employee stock option exercises.
The Company's principal commitments as of March 31, 1996 consisted
primarily of an office lease for its headquarters and leases of motor vehicles.
The Company's subsidiaries have financed certain capital asset purchases at
interest rates ranging from 9.5% to 15.0%. The Company leases its facilities and
certain equipment under non-cancelable operating lease agreements which expire
at various dates through March 1999.
19
20
In March 1996, the Company extended its $5,000,000 unsecured line of
credit with Chase Manhattan Bank, N.A., which will expire on March 31, 1997. The
Company believes that its current cash balances combined with cash flow from
operations and credit available under its bank line of credit will be sufficient
to meet its working capital and capital expenditure requirements through at
least December 31, 1996.
FLUCTUATIONS IN QUARTERLY OPERATING RESULTS;SEASONALITY
The Company generally ships its products upon receipt of orders and
maintains no significant backlog. As a result, revenues from license fees in any
quarter are substantially dependent on orders booked and shipped in that
quarter. A delay in or loss of orders can cause significant variations in
quarterly operating results. In addition, the Company's revenues and operating
results have fluctuated historically, due to the number and timing of product
introductions and enhancements, the budgeting and purchasing cycles of customers
and the timing of large orders, the timing of product shipments and the timing
of marketing and product development expenditures. Large software license
contracts, if any, may have a significant impact on revenues for any quarter and
could therefore result in significant fluctuations in quarterly revenues and
operating results. The Company's revenues and income from operations typically
grow at a lower rate or decline in the first quarter of each fiscal year. In
addition, revenues are typically higher in the fourth quarter than in other
quarters of the year reflecting the Company's fiscal year end and a sales
commission policy that bases rewards on achievement of annual quotas. As a
result of these factors, the Company has experienced, and may in the future
experience, significant period-to-period fluctuations in revenues and operating
results.
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21
Part II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders.
The Company's Annual Meeting of Stockholders was held on February 13,
1996. At the Annual Meeting the stockholders of the Company voted to approve the
following actions by the following votes:
1. To fix the number of directors that shall constitute the whole
Board of Directors of the Company at five.
No. of Shares
-------------
For 8,181,938
Against 45,705
Abstain 1,150
No Vote 0
2. To elect the following as directors of the Company:
Total Vote Total Vote
For Each Withheld From
Director Each Director
-------- -------------
Robert L. Daniels 8,196,068 32,725
Dean F. Goodermote 8,196,068 32,725
Charles S. Jones 8,195,318 33,475
Michael D. Marvin 8,195,318 33,475
William G. Nelson 8,195,318 33,475
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22
3. To amend the Company's 1994 Incentive and Nonqualified Stock
Option Plan to increase the number of shares of Common Stock
that may be granted thereunder from 900,000 to 1,800,000.
No. of Shares
-------------
For 5,767,634
Against 2,077,707
Abstain 2,749
No Vote 380,703
4. To amend the Company's 1994 Incentive and Nonqualified Stock
Option Plan to provide for formula grants to members of the
Company's Board of Directors who are not employees of the
Company or one of the Company's subsidiaries.
No. of Shares
-------------
For 6,424,240
Against 1,436,502
Abstain 3,249
No Vote 364,802
5. To approve the proposal to ratify the appointment by the Board
of Directors of Coopers & Lybrand L.L.P. as the Company's
independent public accountants for the current fiscal year.
No. of Shares
-------------
For 8,226,393
Against 625
Abstain 1,775
No Vote 0
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
3. Instruments Defining the Rights of Security-Holders
3.1 Amended and Restated Articles of
Organization of the Company (included as
Exhibit 3.3 to the Company's Registration
Statement on Form S-1, Registration No.
33-76420, and incorporated herein by
reference)
3.2 Restated By-Laws of the Company (included as
Exhibit 3.4 to the Company's Registration
Statement on Form S-1, Registration No.
33-76420, and incorporated herein by
reference)
10. Material Contracts
10.1 Directors and Officers Liability Insurance
and Company Reimbursement Policy of the
Company issued by Lexington Insurance
Company for the period of March 18, 1996
through March 18, 1997 (included as Exhibit
10.1 to the Company's Quarterly Report on
Form 10-Q for the quarter ended March 31,
1996, File No. 0-23852, and incorporated
herein by reference)
10.2 Directors and Officers Liability Insurance
and Company Reimbursement Policy of the
Company issued by Zurich Insurance Company
for the period of March 18, 1996 through
March 18, 1997 (included as Exhibit 10.2 to
the Company's Quarterly Report on Form 10-Q
for the quarter ended March 31, 1996, File
No. 0-23852, and incorporated herein by
reference)
10.3 Project Software & Development, Inc. 1994
Incentive and Nonqualified Stock Option
Plan, as amended (included as Exhibit 10.3
to the Company's Quarterly Report on Form
10-Q for
23
24
the quarter ended March 31, 1996, File No.
0-23852, and incorporated herein by
reference)
10.4 Agreement and Plan of Merger, dated as of
March 1, 1996, by and among the Company,
Toolbox Acquisition Corp., Maintenance
Automation Corporation, Johnson Controls,
Inc., Eli G. Katz, Phyllis S. Katz, Mitchell
B. Knecht, Heidi D. Knecht, Nicholas E.
Meola,Naomi R. Meola, Johnson Controls, Inc.
and Eli G. Katz, as agent (included as
Exhibit 10.4 to the Company's Quarterly
Report on Form 10-Q for the quarter ended
March 31, 1996, File No. 0-23852, and
incorporated herein by reference)
10.5 Escrow Agreement, dated as of March 1, 1996,
by and among the Company, Toolbox
Acquisition Corp., Maintenance Automation
Corporation, Johnson Controls, Inc., Eli G.
Katz, Phyllis S. Katz, Mitchell B. Knecht,
Heidi D. Knecht, Nicholas E.Meola, Naomi R.
Meola, Johnson Controls, Inc. and Eli G.
Katz, as agent (included as Exhibit 10.5 to
the Company's Quarterly Report on Form 10-Q
for the quarter ended March 31, 1996, File
No. 0-23852, and incorporated herein by
reference)
10.6 Registration Rights Agreement, dated as of
March 1, 1996, by and among the Company,
Toolbox Acquisition Corp., Maintenance
Automation Corporation, Johnson Controls,
Inc., Eli G. Katz, Phyllis S. Katz, Mitchell
B. Knecht, Heidi D. Knecht, Nicholas E.
Meola, Naomi R. Meola, Johnson Controls,
Inc. and Eli G. Katz, as agent (included as
Exhibit 4.4 to the Company's Registration
Statement on Form S-3, Registration No.
333-2346, and incorporated herein by
reference)
11.1 Statement re computation of per share
earnings (included as Exhibit 11.1 to the
24
25
Company's Quarterly Report on Form 10-Q for
the quarter ended March 31, 1996, File No.
0-23852, and incorporated herein by
reference)
27. Financial Data Schedule
(b) Reports filed on Form 8-K
(1) The Company filed a current report on Form
8-K on March 1, 1996.
Item 5. Other Events - Information
concerning the Company's Acquisition of
Maintenance Automation Corporation.
25
26
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: June 10, 1996 By: /s/ Paul D. Birch
-----------------
Paul D. Birch
Authorized Officer
Vice President Finance & Administration,
Chief Financial Officer and Treasurer
(Principal Financial Officer)
26
27
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 (included as
Exhibit 3.4 to the Company's Registration Statement
on Form S-1, Registration No. 33-76420, and
incorporated herein by reference)
10.1 Directors and Officers Liability Insurance and
Company Reimbursement Policy of the Company
issued by Lexington Insurance Company for the
period of March 18, 1996 through March 18, 1997
(included as Exhibit 10.1 to the Company's Quarterly
Report on Form 10-Q for the quarter ended March 31,
1996, File No.0-23852, and incorporated herein by
reference)
10.2 Directors and Officers Liability Insurance and
Company Reimbursement Policy for the Company issued
by Zurich Insurance Company for the period of March
18, 1996 through March 18, 1997(included as Exhibit
10.2 to the Company's Quarterly Report on Form 10-Q
for the quarter ended March 31, 1996, File No.
0-23852, and incorporated herein by reference)
10.3 Project Software & Development, Inc. 1994 Incentive
and Nonqualified Stock Option Plan, as amended
(included as Exhibit 10.3 to the Company's
Quarterly Report on Form 10-Q for the quarter ended
March 31, 1996, File No. 0-23852, and incorporated
herein by reference)
10.4 Agreement and Plan of Merger, dated as of March
1,1996, by and among the Company, Toolbox
Acquisition Corp., Maintenance Automation
Corporation, Johnson Controls,
28
EXHIBIT
NO. DESCRIPTION PAGE
- --- ----------- ----
Inc., Eli G. Katz, Phyllis S. Katz, Mitchell B.
Knecht, Heidi D. Knecht, Nicholas E. Meola, Naomi
R. Meola, Johnson Controls, Inc. and Eli G. Katz,
as agent (included as Exhibit 10.4 to the Company's
Quarterly Report on Form 10-Q for the quarter ended
March 31, 1996, File No. 0-23852, and incorporated
herein by reference)
10.5 Escrow Agreement, dated as of March 1, 1996, by and
among the Company, Toolbox Acquisition Corp.,
Maintenance Automation Corporation, Johnson
Controls, Inc., Eli G. Katz, Phyllis S. Katz,
Mitchell B. Knecht, Heidi D. Knecht, Nicholas E.
Meola, Naomi R. Meola, Johnson Controls, Inc. and
Eli G. Katz, as agent(included as Exhibit 10.5 to
the Company's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1996, File No.0-23852, and
incorporated herein by reference)
10.6 Registration Rights Agreement, dated as of March
1,1996, by and among the Company, Toolbox
Acquisition Corp., Maintenance Automation
Corporation, Johnson Controls, Inc., Eli G.
Katz,Phyllis S. Katz, Mitchell B. Knecht, Heidi D.
Knecht, Nicholas E. Meola, Naomi R. Meola, Johnson
Controls, Inc. and Eli G. Katz, as agent (included
as Exhibit 10.6 to the Company's Quarterly Report
on Form 10-Q for the quarter ended March 31, 1996,
File No. 0-23852, and incorporated herein by
reference)
11.1 Statement re computation of per share earnings
(included as Exhibit 11.1 to the Company's
Quarterly Report on Form 10-Q for the quarter ended
March 31, 1996, File No. 0-23852, and incorporated
herein by reference)
27 Financial Data Schedule