##### Table of Contents









SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549




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FORM 10-K



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|                                            |  |                                                                                                     
|------------------------------------------- |  | ----------------------------------------------------------------------------------------------------
|                                            |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE IF,
        SECURITIES EXCHANGE ACT OF 1934    
|For the fiscal year ended December 31, 2000
|OR                                         
|                                            |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
        IF, SECURITIES EXCHANGE ACT OF 1934
|                                            |  | For the transition period from      to                                                              

Commission file number 000-22001

DELTEK SYSTEMS, INC.



|                                                                       |  |                                             
|---------------------------------------------------------------------- |  | --------------------------------------------
|                                                                      
|                                                                      
|                                                                      
|                                                                      
|Virginia                                                               |  | 54-1252625                                  
|(State or other jurisdiction of
        incorporation or organization) |  | (I.R.S. Employer
        Identification No.)
|                                                                      
|                                                                      
|                                                                      
|                                                                      
|                                                                      
|8280 Greensboro Drive, McLean, Virginia                                |  | 22102                                       
|(Address of principal executive offices)                               |  | (Zip Code)                                  

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

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

|                              |  |                                          
|----------------------------- |  | -----------------------------------------
|Title of each class           |  | Name of each exchange on which registered
|                              |  |                                          
|Common Stock, $.001 par value |  | Nasdaq National Market                   

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

Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been
subject to such filing requirements for the past
90 days.  Yes  

     No

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

The aggregate market value of the voting stock held by
non-affiliates of the registrant as of March 26, 2001, was
$30,607,717 based on a total of 7,533,280 shares held by
non-affiliates on that date and computed by reference to the
closing price reported on the Nasdaq National Market on that
date, which was $4.063 per share.

The Company had 15,199,349 shares of Common Stock,
$.001 par value, outstanding as of March 26, 2001.

DOCUMENTS INCORPORATED BY REFERENCE

Certain information to be contained in the registrants
proxy statement for the 2001 annual meeting of the
registrants shareholders, which is to be filed pursuant to
Regulation 14A within 120 days after the end of the
fiscal year covered by this Form 10-K, is incorporated into
Part III of this report by reference to such proxy statement.









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TABLE OF CONTENTS



|                                |                                                                                               |  |  |  |  |  |  | 
|------------------------------- | --------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|PART I                         
|                                | ITEM 1. BUSINESS                                                                             
|                                | ITEM 2. PROPERTIES                                                                           
|                                | ITEM 3. LEGAL PROCEEDINGS                                                                    
|                                | ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                                  
|PART II                        
|                                | ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER MATTERS                
|                                | ITEM 6. SELECTED FINANCIAL DATA                                                              
|                                | ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|                                | ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                          
|                                | ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA                                          
|                                | ITEM 9. CHANGES IN AND DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE                  
|PART III                       
|                                | ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT                                  
|                                | ITEM 11. EXECUTIVE COMPENSATION                                                              
|                                | ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT                      
|                                | ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS                                      
|PART IV                        
|                                | ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K                    
|                                | SIGNATURES                                                                                   
|                                | EXHIBIT INDEX                                                                                
|Embedded distribution agreement
|Consent of Arthur Andersen LLP 



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TABLE OF CONTENTS

|         |           |  |                                                                                        |  |  |    | 
|-------- | --------- |  | -------------------------------------------------------------------------------------- |  |  | -- | 
|PART I   |           |  |                                                                                        |  |  |   
|        
|        
|        
|        
|         | Item  1.  |  | Business                                                                               |  |  | 3  | 
|        
|        
|        
|        
|         | Item  2.  |  | Properties                                                                             |  |  | 12 | 
|        
|        
|        
|        
|         | Item  3.  |  | Legal Proceedings                                                                      |  |  | 12 | 
|        
|        
|        
|        
|         | Item  4.  |  | Submission of Matters to a Vote of Security Holders                                    |  |  | 12 | 
|        
|PART II  |           |  |                                                                                        |  |  |   
|        
|        
|        
|        
|         | Item  5.  |  | Market For Registrants Common Equity and Related
	Stockholder Matters                 |  |  | 13 | 
|        
|        
|        
|        
|         | Item  6.  |  | Selected Financial Data                                                                |  |  | 13 | 
|        
|        
|        
|        
|         | Item  7.  |  | Managements Discussion and Analysis of Financial Condition
	and Results of Operations |  |  | 15 | 
|        
|        
|        
|        
|         | Item  7A. |  | Quantitative and Qualitative Disclosures About Market Risk                             |  |  | 27 | 
|        
|        
|        
|        
|         | Item  8.  |  | Financial Statements and Supplementary Data                                            |  |  | 27 | 
|        
|        
|        
|        
|         | Item  9.  |  | Changes in and Disagreements on Accounting and Financial
	Disclosure                   |  |  | 27 | 
|        
|PART III |           |  |                                                                                        |  |  |   
|        
|        
|        
|        
|         | Item  10. |  | Directors and Executive Officers of the Registrant                                     |  |  | 27 | 
|        
|        
|        
|        
|         | Item  11. |  | Executive Compensation                                                                 |  |  | 27 | 
|        
|        
|        
|        
|         | Item  12. |  | Security Ownership of Certain Beneficial Owners and Management                         |  |  | 28 | 
|        
|        
|        
|        
|         | Item  13. |  | Certain Relationships and Related Transactions                                         |  |  | 28 | 
|        
|PART IV  |           |  |                                                                                        |  |  |   
|        
|        
|        
|        
|         | Item  14. |  | Exhibits, Financial Statement Schedules, and Reports on Form 8-K                       |  |  | 28 | 



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FORWARD-LOOKING STATEMENTS

In addition to historical information, this Annual Report
includes certain forward-looking statements. The
words anticipates, believes,
estimates, expects, plans,
intends and other similar expressions are intended
to identify these forward-looking statements, but are not the
exclusive means of identifying them. Readers are cautioned not
to place undue reliance on these forward-looking statements as
these forward-looking statements reflect the current view of the
Company or its management and are subject to certain risks,
uncertainties and contingencies which could cause the
Companys actual results, performance or achievements to
differ materially from those expressed in or implied by these
statements. These risks, uncertainties and contingencies
include, but are not limited to, the factors discussed under the
heading Managements Discussion and Analysis of
Financial Condition and Results of Operations,
Managements Discussion and Analysis of Financial
Condition and Results of Operations  Factors that May
Affect Future Results and Market Price and elsewhere in
this Annual Report. Deltek undertakes no obligation and does not
intend to update, revise or otherwise publicly release the
result of any revisions to these forward-looking statements that
may be made to reflect future events or circumstances.

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PART I




ITEM 1.  BUSINESS

Deltek Systems, Inc. (Deltek or the
Company) is a leading provider of enterprise
software products that enable professional services
organizations and project-oriented businesses to more
effectively manage, operate and grow their operations. Our
software products address the needs specific to such
organizations through a wide range of functionality, such as
financial and project accounting, employee time and expense,
human resources management and administration, materials
management, project reporting, customer relationship management,
sales force automation and proposal generation. We also provide
a full range of services, including implementation and
consulting, training and ongoing support. In the year ended
December 31, 2000, 28.1% of our total revenues were derived
from software license fees and 68.8% of our total revenues were
generated from services. We currently serve, and have active
relationships with, over 7,500 project-oriented customers across
a spectrum of industries, including IT services and consulting,
architecture and engineering, environmental, systems
integration, research and development, contract services and
construction, as well as make-to-order manufacturers and
not-for-profit organizations. Many of these project-oriented
businesses provide products and services under federal
government contracts.

From 1996 through 2000, total revenues increased from
$41.7 million to $98.3 million, representing compound
annual growth of 25.1%. For the year ended December 31,
2000, total revenue increased slightly to $98.3 million
from $98.2 million in the previous year.

Industry Background

Increasing competition has created pressure for organizations to
better utilize information technologies to manage their
businesses, improve efficiency, reduce costs and provide
employees and management with more timely and pertinent
information. Information technology is now viewed as a strategic
and tactical tool, as well as a means of facilitating
information processing and reducing costs. As a result, many
organizations are implementing enterprise-wide business systems
to automate their operations, including finance, accounting,
manufacturing, human resources, budgeting and reporting
functions. In addition, organizations are recognizing the need
to deploy front-office professional service automation
(PSA) solutions as a means of better managing customer
relationships in the face of increasing competition. In its PSA
2000 research report, the Aberdeen Group values the worldwide
market potential for PSA solutions at approximately
$4.8 billion, and forecasts actual sales of
$309 million in 2001 with an annual growth rate of over
75 percent through 2004.

Most enterprise-wide business systems are general purpose in
design and, without significant customization, do not address
many of the unique requirements of businesses engaged primarily
in providing products and services under project-specific
contracts and engagements. Project-oriented organizations have
many project-specific requirements. Such requirements include
the need to track costs and profitability on a
project-by-project basis, provide timely project information to
managers and customers and submit accurate and detailed bills,
often in compliance with complex industry-specific and
regulatory requirements. Many project-oriented organizations
provide products and services under government contracts.
Project accounting for these organizations often requires the
use of sophisticated methodologies for allocating and computing
project costs and revenues.

The use of project-oriented and professional service business
application software systems is expanding as a result of a
number of economic trends. Service organizations traditionally
have utilized project accounting more than manufacturing firms
due to the need to customize their services for each client and
to properly allocate the associated revenues and costs.
Therefore, as the shift from a manufacturing-based economy to a
service-based economy continues, the market for project-oriented
organizations is expanding. Furthermore, the trend towards
outsourcing an increasing range of activities broadens the
market for project-oriented organizations as both customers and
vendors need to track the costs associated with their projects.
Finally, many organizations with significant internal
development activities can benefit from the use of project
accounting systems to closely monitor their progress and cost.

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As the number and type of project-oriented and professional
service organizations increase, such businesses are demanding
increasingly sophisticated tools to address their core
information and accounting needs, including project accounting,
employee time collection, project budgeting, project reporting,
customer management, sales force automation and proposal
generation. At the same time, these organizations are
recognizing that, because most aspects of their businesses
revolve around their project orientation, they can achieve
efficiencies in a number of other accounting and business
functions, such as general ledger, accounts payable, accounts
receivable, materials management and human resources, through
the use of software applications designed to address the special
needs of project-oriented organizations. Like other businesses,
project-oriented and professional services organizations are
also demanding solutions that allow them to combine their
business software applications into a single integrated,
enterprise-wide system.

The Deltek Solution

Deltek is a leading provider of enterprise software and
professional service automation products that enable
project-oriented and professional service firms to more
effectively manage, operate and grow their operations. Our
software products address the needs specific to such
organizations through a wide range of functionality, such as
financial and project accounting, employee time and expense,
human resources management and administration, materials
management and project reporting, customer relationship
management, sales force automation and proposals generation. We
also provide a full range of services, including implementation
and consulting, training and ongoing support.

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

We also provide implementation, consulting, training and ongoing
support services. We have a staff of over 110 experienced system
consultants who may be engaged to directly assist our customers
with system implementation. Beyond implementation, we provide
training either on site or at one of our four training centers.
We also provide ongoing product maintenance and technical
support to our customers, which is a significant source of
recurring revenues.

Strategy

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

Maintain Focus on Project-Oriented Markets. Since our
inception, we have focused on addressing the unique business
needs of project-oriented organizations. We believe that our
exclusive focus on developing applications for project-oriented
organizations is a competitive advantage in serving these
markets relative to companies that offer more general-purpose
enterprise software. We believe that our solutions generally are
better suited for project-oriented organizations, require
shorter implementation times and cost less to install and
maintain than general-purpose enterprise solutions. We intend to
capitalize on the expertise that we have developed by continuing
to market to project-oriented organizations, including those
performing federal government contracts, architecture and
engineering firms and other professional and technical
organizations.

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Deliver End-to-End Professional Services Automation. In
recent months, industry analysts have focused on the strengths
and merits of applications called professional services
automation (PSA). PSA applications include our current
front-office solutions in Deltek CRM, Deltek Proposals, Deltek
Time Collection, Deltek Employee ExpenseTM, Deltek
Corporate PlannerTM and Deltek Project
PlannerTM. Given that we already have many of the
components of PSA in place, and given our current large customer
base of professional service organizations, we intend to
position ourselves as a leading provider of PSA solutions. To
comprehensively address the needs of professional service
organizations, Deltek is currently developing an integrated
end-to-end 100% pure Web technology based PSA
solution. Within one integrated, browser-based application
suite, this new PSA solution is intended to automate accounting,
billing, employee time and expense, CRM, proposals, resource
planning and scheduling, human resources, knowledge management
and project e-business. Beta delivery is planned for the latter
part of 2001.

Expand Comprehensive, Technologically Advanced Product Line.We have developed a family of complementary products with
broad-based functionality, usable in a variety of technology
environments, which we offer to project-oriented organizations.
We intend to continue to expand the breadth of our product
offerings and to enhance the features and functionality of each
of our currently marketed applications. Our primary development
initiatives include the upcoming introduction of Deltek
Costpoint 4i. This version will provide a number of
mission-critical applications on a browser-based, n-tier
architecture being developed for the Web using Java® and
Enterprise JavaBeans® technology. This new, web-based
version will be released in stages over the next few years.

Leverage Large Installed Customer Base. Our large
installed customer base enables us to generate revenues from
ongoing services and product enhancements provided to these
customers. Our strategy is to (i) maintain and strengthen
relationships with our existing customers by providing ongoing
support services; (ii) derive additional revenues by
migrating clients to more advanced products within our product
line, licensing add-on application software products and
offering our customers additional consulting and training
services; and (iii) target existing customers to purchase
front office solutions such as Deltek CRM, Deltek Proposals,
Deltek Time Collection, Deltek Employee Expense, Deltek Project
Planner and Deltek Corporate Planner.

Products

Deltek Front OfficeTM. Deltek Front Office
contains core software applications that provide
knowledge-enhancing functionality for managing customers,
projects, opportunities, proposals, employees and customer
e-Business. These components will be sold, and can be used in
conjunction with, Deltek Back Office project and financial
accounting systems. The Deltek Front Office products include:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Deltek CRM and Deltek Proposals: Provide a powerful
	solution for all front office communications, business
	development and marketing challenges. Designed to enhance
	customer relationships and increase productivity, these tools
	provide sales force automation, opportunity management, customer
	relationship management and proposal generation tools. They
	provide the tools that sales, marketing and business development
	need to create award-winning proposals and feature embedded
	reports, activity tracking, forecasting, calendaring, and MS
	Outlook® and e-mail integration. These products interface
	with Deltek Costpoint, Deltek GCS Premier and Deltek Advantage.
|
| |  | Deltek Time Collection (formerly ET Enterprise) andDeltek Employee Expense: Provide increased management
	visibility and control of projects and operations. Tracks daily
	labor activity and historical data, giving supervisors, project
	managers and executives access to pertinent information in a
	timely manner, preventing costly project overruns and reducing
	billing time in addition to enabling federal contractors to
	comply with government auditing regulations. These products
	interface with all Deltek products as well as enterprise
	applications from PeopleSoft®, SAPTM,
	Oracle®, JD EdwardsTM ADPTM,
	PayAmericaTM and SolomonTM.                               
|
| |  | Deltek Corporate Planner: Handles corporate-wide
	financial planning, budgeting and forecasting needs. Allows the
	creation of multidimensional planning scenarios and linking of
	information to permit                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     

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| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   | flowing from one model to another. Interfaces with other Deltek
	project accounting solutions: Deltek Costpoint, Deltek Advantage
	and Deltek GCS Premier.                                                                                                                                                                                                                                                                                            
|
| |  | Deltek Project Planner: Automates the process for
	evaluating, budgeting and balancing project and task-specific
	resource allocations. Offers an easy-to-use environment for
	project managers to set initial budgets for projects and then to
	automatically create rolling forecasts updated with actual
	project hours and costs. Forecasted revenues, costs and projects
	are calculated automatically to the project, resource and task
	levels.
|
| |  | Deltek Business Intelligence: Designed to leverage
	Internet technology making information easily accessible to
	everyone in the organization as well as customers. Functionality
	includes Managed Web Reporting, Web-based Analysis and Trending,
	Web Query and Reporting, BI Portal, Ad Hoc Query and Reporting,
	Analysis and Trending, Visualization, Data Warehousing and
	Quick-Start Program.                                                

Deltek Back OfficeTM. Deltek Back Office
products interface with the Deltek Front Office products as well
as third-party accounting applications and include the following:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Deltek Costpoint. Deltek Costpoint is an advanced client/
	server-based, enterprise-wide business back office solution for
	large professional service organizations (PSOs) that have
	complex project, accounting or business requirements and operate
	in a variety of project-oriented, professional services
	industries. It includes over 30 modular applications from
	project and financial accounting to human resources and
	materials management.



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Deltek Costpoint also meets the common regulatory and reporting
	requirements of businesses with federal government contracts.
	Deltek Costpoint combines these capabilities with applications
	in other business system areas that are designed for the special
	needs of project-oriented businesses. Through its open data
	architecture and the use of drill-down inquiries, on-line
	analytical processing (OLAP) tools and standard
	reports, Deltek Costpoint provides managers with timely and
	pertinent information.                                                                                                                                                                                                                                                                                                                 
|
| | Deltek Costpoint utilizes an open, relational database
	architecture on the server and Microsoft Windows operating
	systems on the desktop client PC. It can be operated on a
	variety of network operating systems, including Windows
	NT®, UNIX® and Novell® Netware and currently
	supports Oracle® Systems Corporation (Oracle),
	Microsoft® SQLServer, Sybase® Inc.
	(Sybase) and Centura® Corporation
	(Centura) relational databases. Deltek Costpoint
	employs 32-bit technology and was developed with extensive use
	of object-oriented programming techniques utilizing a fourth
	generation language together with C++ and database-specific
	stored procedures to maximize performance. As a result of this
	architecture, Deltek Costpoint is scaleable and can be utilized
	in organizations with 3 to 300 concurrent users.
|
| | We began development of Deltek Costpoint in 1992 and
	commercially released the product in June 1995. Through
	December 31, 2000, we had licensed approximately 760 Deltek
	Costpoint systems. License fees for Deltek Costpoint systems
	vary depending on the number of users and sites and the number
	and types of modules licensed.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|
| | Deltek Costpoint 4i is currently under development. This version
	will provide a number of mission-critical applications on a
	browser-based, n-tier architecture being developed for the Web
	using Java and Enterprise JavaBeans technology. Development of
	this new, web-based version will occur in stages over the next
	few years.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        

6



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##### Table of Contents





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

|                           |  |                                                                                                                     |  |                                                                                                   
|-------------------------- |  | ------------------------------------------------------------------------------------------------------------------- |  | --------------------------------------------------------------------------------------------------
|                           |  |                                                                                                                    
|Application areas          |  | Modules                                                                                                            
|Financial Accounting Suite |  | General Ledger
	Accounts Payable
	Accounts Receivable
	Consolidations                                               |  | Travel
	Fixed Assets
	Workflow
	Multicurrency                                                     
|Project Accounting Suite   |  | Project Setup
	Project Reporting
	Project Budgeting                                                                 |  | Project Billing
	Project Cost and Revenue Processing
	Project Management Interfaces               
|People Management Suite    |  | Labor/Leave
	Payroll
	Human Resources                                                                               |  | Benefit Tracking
	Labor/ Payroll Interfaces
	Employee Self Service                                
|Materials Management Suite |  | Product Definition
	Purchasing; Receiving
	Procurement Planning
	Inventory
	Bills of Material
	Materials Estimating |  | Sales Order Entry
	Production Control
	Routings
	Engineering Change Notices
	Requirements Planning



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Deltek Advantage. Deltek Advantage, an integrated,
	project-focused accounting system for professional services
	firms, was designed and developed by Harper and Shuman, which we
	acquired in May 1998. The Deltek Advantage product
	currently includes comprehensive modules for Project Control,
	Accounting, Billing, Accounts Payable, Payroll, Profit Center
	Reporting, Timekeeper, Multi-User and Expensekeeper. Deltek
	Advantage employs 32-bit technology, provides a superior user
	interface utilizing current Microsoft Windows® platforms,
	and utilizes either Microsoft SQLServer or Access® database
	platforms. Deltek Advantage can operate on a stand-alone PC or
	within a local or wide area network environment.



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Deltek Advantage has fewer modules, is generally less complex
	and easier to implement and results in a lower cost of ownership
	than Deltek Costpoint. Accordingly, the Company markets Deltek
	Advantage primarily to small and mid-sized professional services
	firms with relatively less complex requirements.                                                                                                                                                                  
|
| | We began development of Deltek Advantage in 1995 in response to
	the technical maturation of the CFMS product line. Deltek
	Advantage was commercially released in December 1996.
	Through December 31, 2000, it has been licensed to
	approximately 2,774 organizations, primarily architecture and
	engineering firms. License fees for Deltek Advantage systems
	vary depending on the number of the customers employees
	and sites and the number and types of modules licensed.



| |   |                                                                                                                                                                           
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Deltek GCS Premier. GCS Premier is Delteks
	Windows-based enterprise accounting solution for small to
	mid-sized businesses that earn revenue from government contracts.



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | General release occurred in March 2000. In addition to its
	Windows-based interface, it features flexible, state-of-the-art
	component based software construction achieved with MS Visual
	Basic® 6.0 and ActiveX® controls. GCS Premier was
	designed specifically to ensure that our System1 customers could
	easily migrate to GCS without the necessity of data conversion
	while preserving System1s critical processing programs,
	complex reports and other time-tested legacy programs. GCS
	Premiers Windows-based front end tightly integrates with
	its process-oriented design. Its pull-down menus are
	workflow-like in their functionality and provide an intelligent,
	intuitive capability that makes it easy for users to learn the
	application by navigating from process to process.

7



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##### Table of Contents



Other Legacy Software Products. In addition to the above
products currently marketed, we also maintain and support three
legacy product lines that we no longer market. These include
System1TM, CFMSTM and Deltek
Sema4TM Windows.



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | System1 was our original accounting system for government
	contractors. We estimate that approximately 2,000 companies have
	licensed System1 since it was commercially released in 1985. As
	of December 31, 2000, approximately 1,031 licensees were
	continuing to pay for ongoing support services related to
	System1. Since our introduction of our more advanced Deltek
	Costpoint system, the majority of our new customers have
	licensed Deltek Costpoint systems, and new System1 sales have
	decreased in number and system size. Our strategy is to migrate
	as many of these System1 users to our newly introduced GCS
	Premier product, which delivers similar functionality with
	modern technology and updated feature sets. We provide
	significant discounts to customers migrating from System1 to GCS
	Premier.
|
| |  | The CFMS product line includes three older-generation accounting
	systems designed and developed for architecture and engineering
	firms by Harper and Shuman, which we acquired in May 1998.
	In total 2,700 CFMS systems have been licensed of which
	approximately 40 remain. Over 90% of the CFMS users migrated to
	Deltek Advantage.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|
| |  | Deltek Sema4 is a fully integrated project and financial
	management software system designed for the small to mid-sized
	company. Sema4 Windows has 2000 clients ranging from 1 to 900
	employees. Most of these clients are architecture/engineering
	firms with a small percentage of other professional service
	industries in the mix. Although we are still selling new modules
	and employee series upgrades to existing Sema4 Windows clients,
	we are no longer selling this product to new prospects. Our
	strategy is to migrate users to our new PSA solution as it
	becomes available or other Deltek Back Office systems.                                                                                                                                                                                             

We plan to continue to offer maintenance updates and telephone
support services to System1 and CFMS/ RD and Sema4 Windows users
for the foreseeable future but do not plan to make significant
software enhancements to these products.

Third-Party Products. We incorporate into our software
products certain application software licensed from third
parties. The Business Intelligence ToolsTM,
Impromptu® and Power PlayTM, are both licensed
from Cognos® Corporation, and the System1 report-writer,
Intelligent Query®, is also licensed from a third party.
These Business Intelligence Tools are an enterprise solution for
database query and reporting on the desktop and over the web.
The tools enable the user to quickly and easily create any query
and report, while providing administrators with flexibility,
scheduling and distribution capabilities. In order to support
Oracle, Sybase and Centura relational databases, Deltek
Costpoint contains certain native router software
licensed from Centura. In addition, our Deltek Costpoint
customers must license applicable database software from Oracle,
Sybase, Centura, or Microsoft, either directly or through
Deltek. Because some customers desire a turnkey
solution, we occasionally purchase servers, network software and
other software and hardware products, which we resell or
sublicense to our customers and install with Deltek products to
provide a fully operational system. The products known as
Project Planner and Corporate Planner are both licensed from
Adaytum® Software. Project Planner and Corporate Planner
allow the creation of multidimensional planning scenarios and
linking of information to permit flowing from one model to
another. The interface with Deltek Costpoint has been developed
for Project Planner and Corporate Planner and interfaces with
other Deltek Back Office systems are in process. Deltek Employee
Expense utilizes software from Necho® Systems Corporation.
Deltek Costpoint 4i utilizes development and deployment software
from BEA® Systems, Inc. to achieve the web enabled
component of this most recent version.

Customer Service and Support

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

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

Ongoing Support Services. We provide comprehensive
telephone support during business hours as well as supplemental
emergency support after hours and on weekends. We utilize a
sophisticated in-house support tracking system that enables
call, problem and resolution tracking. We also maintain an
open phone policy whereby customers are encouraged
to contact any supervisor or senior manager at Deltek for any
reason. We normally handle between 315 and 540 support calls per
day. We provide periodic updates and enhancements to each of our
software products. Typically, we provide several minor updates
per year, which include system error corrections, tax table
updates and other minor enhancements, and new version releases
periodically, which include major enhancements and changes to
the database design. Telephone support and periodic product
enhancements and updates are provided for maintenance fees that
are payable quarterly and initially represent, on an annual
basis, between 15% and 20% of the related software license fee.

Training Services. Our training facilities are located at
our McLean, Virginia headquarters and at our offices in
Cambridge, Massachusetts and Tigard, Oregon where we provide
regularly scheduled training classes on approximately 40 topics
related to our products. We maintain system laboratories at our
training facilities, which are available for customer testing,
benchmarking and troubleshooting. We also offer custom, on-site
training classes. Training is billed hourly or on a per class
basis.

Customers

Since inception, we have licensed our products to over 7,500
project-oriented organizations, predominantly in the United
States, across a spectrum of industries. Project-oriented
industries that we currently serve include IT services and
consulting, architectural, engineering, environmental, systems
integration, research and development, contract services and
construction, as well as make-to-order manufacturers and
not-for-profit organizations. Many project-oriented businesses
within these industries provide products and services under
government contracts. No customer accounted for more than 10% of
the Companys total revenues in 1998, 1999 or 2000.

Sales and Marketing

We sell our products and services primarily through our direct
sales force. As of December 31, 2000, we had 56 full-time
sales and account management personnel and 20 full-time
marketing personnel at our offices in McLean, Virginia,
Cambridge, Massachusetts and San Jose, California. We currently
employ two full time sales personnel and one administrative
person in our sales and marketing office in London, England.

Our sales cycle begins with the generation of a sales lead or
the receipt of a request for proposal. Sales leads are generated
by direct mailing to potential customers in selected markets, as
well as through advertising, seminars and trade shows. Our sales
personnel work closely with prospective customers to understand
their reasons for undertaking a system change and to identify
their specific business and system requirements. Increasingly,
we target project managers in addition to accounting managers.
When the prospective customer is ready for a product
demonstration, we utilize specially trained and
industry-experienced professionals to provide the product
presentation. We provide prospective customers with information
to explain the capabilities and benefits of our products and to
assist in planning for the system implementation. The licensing
and implementation of our business software products is often a
decision with significant enterprise-wide implications involving
a substantial commitment of the customers management
attention and resources. The period between initial customer
contact and the customers purchase commit-

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

Product Development

Our product development is generally organized into teams of 6
to 12 developers who handle a particular product area, a group
of programs or functions, or a new development area. Each
development team includes one or more subject matter experts who
are instrumental in the design of each new module and
capability. Following the completion of high-level design, the
development team receives assistance from our database design
team, which helps with the important step of designing, or
making changes to the relational database architecture.
Throughout the development process, and particularly when the
initial programming has been completed, quality assurance team
members provide testing and analysis to ensure that the
application has been developed using standards and functions
appropriate to its design and purpose. Our product architecture
group supports many of our product development groups and
focuses on development, enhancement and maintenance of the
object-oriented product development tools used throughout the
development process. We utilize a sophisticated in-house system
for tracking the development process, program check-in and
check-out, version control and system error and bug tracking.

A significant portion of the development related to the Deltek
Costpoint product line is conducted using two fourth-generation
client/server development tools, SQLWindowsTM and
Team DeveloperTM, which we license from Centura. In
order to optimize performance for process-intensive functions in
Deltek Costpoint, such as project costing and billing
applications, we make extensive use of database-specific stored
procedures, which enable specific applications to operate much
faster with considerably less network traffic. C and C++
programming is also used throughout Deltek Costpoint in various
situations to improve performance and functionality. Using the
above development tools, we have developed a number of reusable
objects and classes to better facilitate development. We are
currently in the process of replacing existing Centura-based
code with Enterprise Java Bean (EJB) and Java script for
mission critical applications and expect this replacement
process to continue for the next few years.

To continue to provide innovative solutions to our customers and
to position ourselves for long-term growth, Deltek is
aggressively pursuing two major development initiatives in 2001:
1) Web-based development of the Deltek Costpoint application
suite for advanced project-oriented businesses; and 2)
development of a new, web-based professional services automation
(PSA) product suite for professional services firms
encompassing and integrating a complete, end-to-end
set of business applications. In addition, Deltek plans to
develop and introduce several new application modules during
2001 and continue to maintain and enhance its broad array of
existing products.

Deltek Costpoint for the Web. A major milestone in the
strategy for targeting Delteks high-end, project-oriented
market is the upcoming introduction of Deltek Costpoint 4i. This
release will provide a number of mission-critical applications
on a browser-based, n-tier architecture being developed for the
Web using Java and Enterprise JavaBeans technology. The Deltek
Costpoint client/server product already encompasses over 25
modular applications in project accounting, finance, human
resources and materials management. With Deltek Costpoint 4i,
users will be able to perform many back office functions
directly over the Internet. The applications will have a
zero footprint on the client PC, giving IT managers
tremendous flexibility in deploying these functions across their
enterprise. When the new version is in full release, processing
programs and reports will also be available from any Internet
connection, along with dozens of input screens relating to key
business practices such as project setup, employee setup, vendor
and payables processing, cash receipts and journal entries.

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New PSA Application Suite. Delteks newest
development effort began last summer and is directly targeted at
the emerging market for PSA applications. Using 100% pure Web
technology based on the Microsoft COM+TM
architecture, Deltek is developing a completely new,
end-to-end suite of business applications that will
be targeted to over 50,000 professional services firms around
the world. Within one integrated, browser-based application
suite, this new PSA system is intended to automate accounting,
billing, employee time and expense, CRM, proposals, resource
planning and scheduling, human resources, knowledge management,
and project e-business. Deltek plans to deliver beta releases of
this new application suite later this year.

In addition to the above development efforts, our product
development groups are continually focused on enhancements and
customary error corrections to existing versions, and
development of future versions of Deltek CRM and Proposals,
Deltek Costpoint, Deltek Advantage, Time Collection and GCS
Premier.

Our software development expenses, exclusive of certain
development costs which have been capitalized, were
$15.0 million, $16.7 million and $17.7 million in
1998, 1999, and 2000, respectively. As of December 31,
2000, we had 244 employees engaged in product development and
quality assurance activities, including 22 employees at our
development office in Manila, the Philippines.

Competition

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

We believe that competition in the rapidly evolving markets for
business application software is based primarily on product
features and functions, product architecture, ease of
implementation, vendor and product name recognition and
reputation, customer service and support, and price. We believe
that we have competed effectively to date by developing products
and services that meet the unique needs of project-oriented
organizations. We also believe that our reputation for high
quality service and support, our ability to work directly with
our customers and our ability to provide rapid implementations
have constituted competitive advantages.

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

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

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Employees

As of December 31, 2000, we had 694 full-time employees,
including 244 employees primarily engaged in product
development and quality assurance, 160 in customer support and
training activities, 172 in consulting and account management,
76 in sales and marketing, and 42 in finance and
administration. None of our employees are represented by a labor
union or are subject to a collective bargaining agreement.




ITEM 2.  PROPERTIES

Corporate headquarters, the principal administrative, product
development, sales and marketing operations and the principal
customer training center are located in 85,000 square feet
of office space in a building in McLean, Virginia, which the
Company occupies under leases expiring in March 2002. We
are in the process of negotiating space for our headquarters in
the northern Virginia area. We also lease 4,855 square feet
in San Jose, California, under a lease expiring in
January 2002. Deltek is in the process of subletting this
space and closing this office. Additional space of
4,277 square feet is leased in Diamond Bar, California. The
Company leases approximately 20,134 square feet in
Cambridge, Massachusetts under leases expiring in 2002, and
5,162 square feet in St. Louis, Missouri under a
lease expiring in 2003. This office location is in the process
of being downsized and sublet arrangements are being sought.
Leased space of 10,000 square feet in New York,
New York expires April 30, 2001 and will not be
renewed. This is the previous headquarters for Semaphore and all
activities have been allocated of other Deltek office sites.
Approximately 2,246 square feet are leased in Tigard,
Oregon and 2,496 square feet are leased in
St. Petersburg, Florida. We believe that our existing
facilities and offices are adequate to meet our current needs
and that, should it be needed, suitable additional or
alternative space will be available in the future on
commercially reasonable terms. See Notes to Consolidated
Financial Statements for information regarding our obligations
under facilities leases.




ITEM 3.  LEGAL PROCEEDINGS

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




ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS

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

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PART II






|        |                                                                       
|------- | ----------------------------------------------------------------------
|ITEM 5. | MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED
	STOCKHOLDER MATTERS

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

|                             |                |       |   |       |  |  |   |       | 
|---------------------------- | -------------- | ----- | - | ----- |  |  | - | ----- | 
|                             |                |      
|                             |                | Price
|                             |                |      
|                             |                | High  |   | Low  
|                             |                |       |   |      
|Year Ended December 31, 1999 |                |       |   |       |  |  |   |      
|                            
|                            
|                            
|                            
|                             | First Quarter  |       | $ | 19.13 |  |  | $ | 8.25  | 
|                            
|                            
|                            
|                            
|                             | Second Quarter |       | $ | 11.00 |  |  | $ | 8.06  | 
|                            
|                            
|                            
|                            
|                             | Third Quarter  |       | $ | 17.13 |  |  | $ | 9.13  | 
|                            
|                            
|                            
|                            
|                             | Fourth Quarter |       | $ | 17.88 |  |  | $ | 9.69  | 
|                            
|Year Ended December 31, 2000 |                |       |   |       |  |  |   |      
|                            
|                            
|                            
|                            
|                             | First Quarter  |       | $ | 21.00 |  |  | $ | 12.38 | 
|                            
|                            
|                            
|                            
|                             | Second Quarter |       | $ | 15.38 |  |  | $ | 5.88  | 
|                            
|                            
|                            
|                            
|                             | Third Quarter  |       | $ | 8.34  |  |  | $ | 5.75  | 
|                            
|                            
|                            
|                            
|                             | Fourth Quarter |       | $ | 7.72  |  |  | $ | 3.63  | 

On March 26, 2001, the closing price for our Common Stock
was $4.063 per share and we had approximately
71 shareholders of record. Management believes there are
approximately 2,700 beneficial holders of our Common Stock
and has been advised that there are 121 individual
participants holding approximately 59% of the outstanding Common
Stock pursuant to security position listings furnished by
Cede & Co., New York, New York, registered clearing
agency and depository.

As a former S Corporation, we made cash distributions to our
shareholders, including in connection with the termination of
the Companys S Corporation status in February 1997.
In 1998 we paid $369,000 in such cash distributions to the
S Corporation shareholders. We have not paid further cash
dividends and do not intend to pay cash dividends in the future
as we intend to retain all earnings to support planned growth.




ITEM 6.  SELECTED FINANCIAL DATA

The following selected financial data should be read in
conjunction with the consolidated financial statements and the
notes thereto included elsewhere herein or incorporated herein
by reference. The statement of operations data set forth below
with respect to the years ended December 31, 1998, 1999,
and 2000 and the balance sheet data as of December 31, 1999
and 2000 are derived from, and are qualified by reference to,
the audited financial statements of the Company included
elsewhere in this Annual Report. All amounts for all periods
have been restated to reflect the acquisition of Harper and
Shuman in May 1998, which was accounted for using the
pooling-of-interests method of accounting. The unaudited pro
forma statement of operations data set forth below do not
purport to be indicative of the results of operations that would
have occurred had the termination of the Companys S
Corporation status occurred at December 31, 1996.

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|                                                       |                                               |                                      |        |        |        |      |        |        |        |      |        |        |        |   |        |        |        |   |        |        |        | 
|------------------------------------------------------ | --------------------------------------------- | ------------------------------------ | ------ | ------ | ------ | ---- | ------ | ------ | ------ | ---- | ------ | ------ | ------ | - | ------ | ------ | ------ | - | ------ | ------ | ------ | 
|                                                       |                                               | 1996                                 |        | 1997   |        | 1998 |        | 1999   |        | 2000
|                                                       |                                               |                                      |        |        |        |      |        |        |        |     
|                                                       |                                               |                                     
|                                                       |                                               | (In thousands except per share data)
|                                                      
|                                                      
|                                                      
|                                                      
|Statement of Operations Data:                          |                                               |                                      |        |        |        |      |        |        |        |      |        |        |        |   |        |        |        |   |        |       
|Revenues                                               |                                               |                                      |        |        |        |      |        |        |        |      |        |        |        |   |        |        |        |   |        |       
|                                                      
|                                                      
|                                                      
|                                                      
|                                                       | License fees                                  |                                      | $      | 14,114 |        |      | $      | 21,043 |        |      | $      | 28,162 |        |   | $      | 29,836 |        |   | $      | 27,603 |       
|                                                      
|                                                      
|                                                      
|                                                      
|                                                       | Services                                      |                                      |        | 24,343 |        |      |        | 33,216 |        |      |        | 50,867 |        |   |        | 65,321 |        |   |        | 67,642 |       
|                                                      
|                                                      
|                                                      
|                                                      
|                                                       | Third-party equipment and software            |                                      |        | 3,254  |        |      |        | 3,387  |        |      |        | 4,040  |        |   |        | 3,087  |        |   |        | 3,013  |       
|                                                       |                                               |                                      |        |        |        |      |        |        |        |      |        |        |        |   |        |        |        |   |        |       
|                                                       |                                               | Total revenues                       |        |        | 41,711 |      |        |        | 57,646 |      |        |        | 83,069 |   |        |        | 98,244 |   |        |        | 98,258 | 
|Operating expenses                                     |                                               |                                      |        |        |        |      |        |        |        |      |        |        |        |   |        |        |        |   |        |       
|                                                      
|                                                      
|                                                      
|                                                      
|                                                       | Cost of software                              |                                      |        | 1,577  |        |      |        | 2,053  |        |      |        | 2,491  |        |   |        | 2,583  |        |   |        | 3,134  |       
|                                                      
|                                                      
|                                                      
|                                                      
|                                                       | Cost of services                              |                                      |        | 9,844  |        |      |        | 14,375 |        |      |        | 24,763 |        |   |        | 30,849 |        |   |        | 37,295 |       
|                                                      
|                                                      
|                                                      
|                                                      
|                                                       | Cost of third-party equipment and software    |                                      |        | 2,516  |        |      |        | 2,631  |        |      |        | 3,146  |        |   |        | 2,640  |        |   |        | 2,711  |       
|                                                      
|                                                      
|                                                      
|                                                      
|                                                       | Software development                          |                                      |        | 8,380  |        |      |        | 11,214 |        |      |        | 15,014 |        |   |        | 16,663 |        |   |        | 17,671 |       
|                                                      
|                                                      
|                                                      
|                                                      
|                                                       | Sales and marketing                           |                                      |        | 5,000  |        |      |        | 6,643  |        |      |        | 10,353 |        |   |        | 11,592 |        |   |        | 14,174 |       
|                                                      
|                                                      
|                                                      
|                                                      
|                                                       | General and administrative                    |                                      |        | 3,018  |        |      |        | 3,558  |        |      |        | 4,163  |        |   |        | 5,939  |        |   |        | 8,287  |       
|                                                      
|                                                      
|                                                      
|                                                      
|                                                       | Amortization of purchased intangibles         |                                      |        |       |        |      |        | 26     |        |      |        | 687    |        |   |        | 1,051  |        |   |        | 2,505  |       
|                                                      
|                                                      
|                                                      
|                                                      
|                                                       | Stock option compensation                     |                                      |        | 867    | (1)    |      |        |       |        |      |        |       |        |   |        |       |        |   |        |       |       
|                                                      
|                                                      
|                                                      
|                                                      
|                                                       | Acquisition and offering costs                |                                      |        |       |        |      |        | 320    | (2)    |      |        | 1,475  | (3)    |   |        |       |        |   |        |       |       
|                                                      
|                                                      
|                                                      
|                                                      
|                                                       | Purchased in-process research and development |                                      |        | 394    | (1)    |      |        |       |        |      |        | 2,500  | (3)    |   |        |       |        |   |        |       |       
|                                                       |                                               |                                      |        |        |        |      |        |        |        |      |        |        |        |   |        |        |        |   |        |       
|                                                       |                                               | Total operating expenses             |        |        | 31,596 |      |        |        | 40,820 |      |        |        | 64,592 |   |        |        | 71,317 |   |        |        | 85,777 | 
|                                                       |                                               |                                      |        |        |        |      |        |        |        |      |        |        |        |   |        |        |        |   |        |       
|Income from operations                                 |                                               |                                      | 10,115 |        |        |      | 16,826 |        |        |      | 18,477 |        |        |   | 26,927 |        |        |   | 12,481 |       
|                                                      
|                                                      
|                                                      
|                                                      
|Interest income                                        |                                               |                                      | 392    |        |        |      | 781    |        |        |      | 1,066  |        |        |   | 1,166  |        |        |   | 878    |       
|                                                       |                                               |                                      |        |        |        |      |        |        |        |      |        |        |        |   |        |        |        |   |        |       
|Income before income taxes                             |                                               |                                      | 10,507 |        |        |      | 17,607 |        |        |      | 19,543 |        |        |   | 28,093 |        |        |   | 13,359 |       
|                                                      
|                                                      
|                                                      
|                                                      
|Provision for income taxes                             |                                               |                                      | 54     |        |        |      | 5,898  |        |        |      | 7,788  |        |        |   | 10,881 |        |        |   | 5,660  |       
|                                                       |                                               |                                      |        |        |        |      |        |        |        |      |        |        |        |   |        |        |        |   |        |       
|Net income                                             |                                               | $                                    | 10,453 |        |        | $    | 11,709 |        |        | $    | 11,755 |        |        | $ | 17,212 |        |        | $ | 7,699  |       
|                                                       |                                               |                                      |        |        |        |      |        |        |        |      |        |        |        |   |        |        |        |   |        |       
|Diluted net income per share                           |                                               |                                      |        |        |        |      |        |        |        | $    | 0.64   |        |        | $ | 0.97   |        |        | $ | 0.47   |       
|                                                       |                                               |                                      |        |        |        |      |        |        |        |      |        |        |        |   |        |        |        |   |        |       
|Weighted average shares, diluted                       |                                               |                                      |        |        |        |      |        |        |        |      | 18,235 |        |        |   | 17,732 |        |        |   | 16,505 |       
|                                                       |                                               |                                      |        |        |        |      |        |        |        |      |        |        |        |   |        |        |        |   |        |       
|Pro Forma Statement of Operations Data (Unaudited)(4): |                                               |                                      |        |        |        |      |        |        |        |      |        |        |        |   |        |        |        |   |        |       
|                                                      
|                                                      
|                                                      
|                                                      
|Provision for income taxes                             |                                               | $                                    | 4,092  |        |        | $    | 6,780  |        |        |      |        |        |        |   |        |        |        |   |        |       
|                                                      
|                                                      
|                                                      
|                                                      
|Net income                                             |                                               |                                      | 6,415  |        |        |      | 10,827 |        |        |      |        |        |        |   |        |        |        |   |        |       
|                                                      
|                                                      
|                                                      
|                                                      
|Diluted net income per share                           |                                               |                                      | 0.39   |        |        |      | 0.61   |        |        |      |        |        |        |   |        |        |        |   |        |       
|                                                      
|                                                      
|                                                      
|                                                      
|Weighted average shares, diluted                       |                                               |                                      | 16,282 |        |        |      | 17,882 |        |        |      |        |        |        |   |        |        |        |   |        |       

|                                                 |  |              |        |      |  |      |        |      |  |      |        |  |  |   |        |  |  |   |        | 
|------------------------------------------------ |  | ------------ | ------ | ---- |  | ---- | ------ | ---- |  | ---- | ------ |  |  | - | ------ |  |  | - | ------ | 
|                                                 |  |             
|                                                 |  | December 31,
|                                                 |  |             
|                                                 |  | 1996         |        | 1997 |  | 1998 |        | 1999 |  | 2000
|                                                 |  |              |        |      |  |      |        |      |  |     
|Balance Sheet Data:                              |  |              |        |      |  |      |        |      |  |      |        |  |  |   |        |  |  |   |        | 
|                                                
|                                                
|                                                
|                                                
|Cash, cash equivalents and marketable securities |  | $            | 9,381  |      |  | $    | 25,832 |      |  | $    | 33,376 |  |  | $ | 29,245 |  |  | $ | 14,156 | 
|                                                
|                                                
|                                                
|                                                
|Working capital                                  |  |              | 7,309  |      |  |      | 20,132 |      |  |      | 29,662 |  |  |   | 32,174 |  |  |   | 15,966 | 
|                                                
|                                                
|                                                
|                                                
|Total assets                                     |  |              | 21,129 |      |  |      | 40,571 |      |  |      | 60,711 |  |  |   | 62,435 |  |  |   | 64,161 | 
|                                                
|                                                
|                                                
|                                                
|Total shareholders equity                       |  |              | 12,233 |      |  |      | 25,814 |      |  |      | 41,406 |  |  |   | 47,242 |  |  |   | 45,231 | 




|    |                                                                                                                                                                                                                                                                                                                                                                                                            
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | In 1996, the Company incurred non-recurring, non-cash charges of
	$867,000 for stock option compensation and $394,000 for
	purchased in-process research and development. Exclusive of
	these charges, income from operations, net income, pro forma net
	income and pro forma diluted net income per share for 1996 would
	have been $11.4 million, $11.7  million,
	$7.2 million and $0.44, respectively.
|   
|(2) | In 1997, the Company incurred a non-recurring, non-cash charge
	of $320,000 for acquisition costs. Exclusive of this charge,
	income from operations, net income, pro forma net income and pro
	forma diluted net income per share for 1997 would have been
	$17.1 million, $12.0 million, $11.1  million and
	$0.62, respectively.                                                                        

14



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|    |                                                                                                                                                                                                                                                                                                                                                                             
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(3) | In 1998, the Company incurred non-recurring, non-cash charges of
	$1.5 million for acquisition costs and $2.5 million
	for purchased in-process research and development. Exclusive of
	these charges, income from operations and net income for 1998
	would have been $22.5 million and $15.7 million,
	respectively.                                                      
|   
|(4) | Prior to February 25, 1997, Deltek (excluding Harper and
	Shuman) elected to be treated as an S Corporation and was
	not subject to federal and certain state income taxes. The pro
	forma statement of operations data reflects federal and state
	income taxes based on applicable tax rates as if Deltek had not
	elected S Corporation status for the periods indicated.






|        |                                                                                          
|------- | -----------------------------------------------------------------------------------------
|ITEM 7. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
	CONDITION AND 
	 RESULTS OF OPERATIONS

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

Overview

Deltek is a leading provider of enterprise software products
that enable project-oriented organizations and professional
service firms to more effectively manage, operate and grow their
operations. From 1985 through 1994, without considering revenues
from the Companys 1998 acquisition of Harper and Shuman,
substantially all of the Companys revenues were derived
from licenses of its System1 business software, designed
primarily for organizations providing products or services under
contracts with the federal government, and services related to
System1. In 1992, the Company began development of Deltek
Costpoint, an advanced client/ server-based, enterprise-wide
business software system, which was commercially released in
June 1995 and which represented approximately 37.1% of the
Companys license fees for the year ended December 31,
2000. The primary software product suites that we currently
market consist of Deltek CRM and Deltek Proposals, a
front-office customer relationship management solution for
professional service environments; Deltek Costpoint, an advanced
client/ server-based business software system designed for all
types of complex project-oriented organizations; Deltek
Advantage, an integrated, project-focused accounting system
designed for professional services firms; Deltek GCS Premier,
project accounting software for small-to mid-sized organizations
providing products or services under contracts with the federal
government; and Deltek Time Collection (formerly ET Enterprise),
an advanced employee timekeeping system.

The Companys revenues consist of fees derived from the
licensing of its software products, service revenues from
consulting and other services, and revenues from the resale of
third-party equipment and the sublicensing of third-party
software. The Company generally recognizes license fees from its
products upon delivery. For certain of its software products,
the Company had typically granted its customers a right of
return for any reason for a full or partial refund of the
license fee during a refund period, which is generally 60 to
90 days from the date of the initial software delivery.
Beginning with the third quarter of 2000, the Company modified
the refund provision for new contracts to be for a material
defect only within the 60 to 90 day timeframe. This had the
effect of allowing the Company to immediately recognize revenue
since it believes it has no material defects in its generally
released products. Prior to this change, revenue had been
deferred for the stated refund period of the contract. Due to
the decline in Deltek Costpoint sales, the impact on revenue was
not significant for 2000. The Company occasionally has provided,
and may in the future provide, longer refund periods for larger,
more complex Deltek Costpoint installations. Implementation and
other consulting services are provided on a time and materials
basis, billed monthly and recognized as the services are
performed. Ongoing support services are provided for fees that
are payable in quarterly or annual installments and initially
represent between 15% and 20% of the related software license
fee on an annual basis. Revenues

15



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In April 2000, Deltek acquired substantially all assets of
A/ E Management Services, Inc., including its complete suite of
RFP Proposal automation and tracking software, for the cash
purchase price of $3.5 million. Net assets acquired were
nominal and the entire purchase price was allocated to purchased
intangibles and goodwill on a preliminary basis. These
intangibles are being amortized over five years. A/ E
Managements RFP front-office automation solution is
designed to help the architecture, engineering, construction,
and other professional services organizations win more contracts
by automating the process of collecting, updating, researching
and retrieving data critical to achieving marketing and proposal
automation success.

In August 2000, the Company acquired all of the outstanding
stock of Semaphore, Inc. for a purchase price of approximately
$11.1 million in cash (subject to certain working capital
adjustments) and $0.8 million of non-cash considerations.
Semaphore, Inc. provides advanced financial and project
management software and services for architecture, engineering,
construction, and other professional services firms.
Approximately $10.5 million of the purchase price was
allocated to purchased intangibles and goodwill on a preliminary
basis. These intangibles and goodwill are being amortized over
five years. See Notes to Consolidated Financial Statements
regarding pro forma information that might have been achieved if
these transactions had been in effect since the beginning of
1999.

In April 1998, the Company acquired substantially all of
the assets of SalesKit and assumed certain related liabilities.
The purchase price consisted of $6.1 million of cash in
addition to three-year warrants with an estimated fair value of
$932,000. The warrants are exercisable for 130,000 shares
of Common Stock at an exercise price of $22.00 per share.
The acquisition has been accounted for as an asset purchase. The
Company assigned $2.5 million of the SalesKit purchase
price to in-process research and development based upon an
independent appraisal and expensed this amount in 1998. In the
opinion of management, the acquired in-process research and
development had not yet reached technological feasibility and
had no alternative future uses.

In May 1998, the Company completed its acquisition of
Harper and Shuman by exchanging approximately
686,000 shares of its Common Stock for all of the common
stock of Harper and Shuman. The acquisition constituted a
tax-free reorganization and has been accounted for as a
pooling-of-interests. Accordingly, all prior period consolidated
financial statements presented have been restated to include the
combined results of operations, financial position and cash
flows of Harper and Shuman as though it had always been a part
of Deltek.

16



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##### Table of Contents



Results of Operations

The following table sets forth, for the periods indicated,
information derived from the consolidated statements of
operations of the Company expressed as a percentage of total
revenues, and the percentage change in such items compared to
the same period in the prior year.

|                             |                                               |                              |      |      |       |      |      |      |       |  |      |      |       | 
|---------------------------- | --------------------------------------------- | ---------------------------- | ---- | ---- | ----- | ---- | ---- | ---- | ----- |  | ---- | ---- | ----- | 
|                             |                                               |                             
|                             |                                               | Percentage of Total Revenues
|                             |                                               | Year Ended December 31,     
|                             |                                               |                             
|                             |                                               | 1998                         |      | 1999 |       | 2000
|                             |                                               |                              |      |      |       |     
|Statement of Operations Data |                                               |                              |      |      |       |      |      |      |       |  |      |     
|                            
|                            
|                            
|                            
|Revenues:                    |                                               |                              |      |      |       |      |      |      |       |  |      |     
|                            
|                            
|                            
|                            
|                             | License fees                                  |                              |      | 33.9 | %     |      |      | 30.4 | %     |  |      | 28.1 | %    
|                            
|                            
|                            
|                            
|                             | Services                                      |                              |      | 61.2 |       |      |      | 66.5 |       |  |      | 68.8 |      
|                            
|                            
|                            
|                            
|                             | Third-party equipment and software            |                              |      | 4.9  |       |      |      | 3.1  |       |  |      | 3.1  |      
|                             |                                               |                              |      |      |       |      |      |      |       |  |      |     
|                             |                                               | Total revenues               |      |      | 100.0 |      |      |      | 100.0 |  |      |      | 100.0 | 
|                            
|                            
|                            
|                            
|Operating expenses:          |                                               |                              |      |      |       |      |      |      |       |  |      |     
|                            
|                            
|                            
|                            
|                             | Cost of software                              |                              |      | 3.0  |       |      |      | 2.6  |       |  |      | 3.2  |      
|                            
|                            
|                            
|                            
|                             | Cost of services                              |                              |      | 29.8 |       |      |      | 31.4 |       |  |      | 38.0 |      
|                            
|                            
|                            
|                            
|                             | Cost of third-party equipment and software    |                              |      | 3.8  |       |      |      | 2.7  |       |  |      | 2.8  |      
|                            
|                            
|                            
|                            
|                             | Software development                          |                              |      | 18.1 |       |      |      | 17.0 |       |  |      | 18.0 |      
|                            
|                            
|                            
|                            
|                             | Sales and marketing                           |                              |      | 12.5 |       |      |      | 11.8 |       |  |      | 14.4 |      
|                            
|                            
|                            
|                            
|                             | General and administrative                    |                              |      | 5.0  |       |      |      | 6.0  |       |  |      | 8.4  |      
|                            
|                            
|                            
|                            
|                             | Amortization of purchased intangibles         |                              |      | 0.8  |       |      |      | 1.1  |       |  |      | 2.5  |      
|                            
|                            
|                            
|                            
|                             | Acquisition and offering costs                |                              |      | 1.8  | (1)   |      |      |     |       |  |      |     |      
|                            
|                            
|                            
|                            
|                             | Purchased in-process research and development |                              |      | 3.0  | (1)   |      |      |     |       |  |      |     |      
|                             |                                               |                              |      |      |       |      |      |      |       |  |      |     
|                             |                                               | Total operating expenses     |      |      | 77.8  |      |      |      | 72.6  |  |      |      | 87.3  | 
|                             |                                               |                              |      |      |       |      |      |      |       |  |      |     
|Income from operations       |                                               |                              | 22.2 |      |       |      | 27.4 |      |       |  | 12.7 |     
|                            
|                            
|                            
|                            
|Interest income              |                                               |                              | 1.3  |      |       |      | 1.2  |      |       |  | 0.9  |     
|                             |                                               |                              |      |      |       |      |      |      |       |  |      |     
|Income before income taxes   |                                               |                              | 23.5 |      |       |      | 28.6 |      |       |  | 13.6 |     
|                            
|                            
|                            
|                            
|Provision for income taxes   |                                               |                              | 9.4  |      |       |      | 11.1 |      |       |  | 5.8  |     
|                             |                                               |                              |      |      |       |      |      |      |       |  |      |     
|Net income                   |                                               |                              | 14.1 | %    |       |      | 17.5 | %    |       |  | 7.8  | %   
|                             |                                               |                              |      |      |       |      |      |      |       |  |      |     




|    |                                                                                                                                                                                                                                                                                        
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | In 1998, the Company incurred non-recurring, non-cash charges
	for acquisition costs and purchased in-process research and
	development. Exclusive of these charges, income from operations
	and net income for 1998 would have been 27.0% and 17.4%,
	respectively, of total revenues.

Year Ended December 31, 2000 Compared to Year Ended
December 31, 1999

License Fees. License fees for the year ended
December 31, 2000 decreased by 7.4% to $27.6 million
from $29.8 million for the same period in 1999. The
decrease in license fees was attributable to Deltek Costpoint
and Deltek Advantage license fees, which decreased by 28.8% and
34.0% to $10.2 and $4.4 million, respectively, for the year
ended December 31, 2000. License fees from GCS/ System1
products were $5.6 million for the year ended
December 31, 2000 compared to $2.5 million for the
year ended December 31, 1999, an increase of 124.0%. Deltek
CRM and Proposals, Enterprise Planner and Semaphore licenses
were new products for the year ended December 31, 2000 and
license fees were $1.1 million, $220,000 and $482,000
respectively. We believe that the decline of Deltek Costpoint
license fees was due to the saturation of the back office market
in the industries served by the Company as compared to 1999. The
lack of a true web based architecture for our back office
systems also hindered our sales in markets where such technology
is in high demand. License fees comprised 28.1% of the
Companys total revenues for 2000, compared to 30.4% for
1999.

Services. Service revenues for the year ended
December 31, 2000 increased by 3.5% to $67.6 million
from $65.3 million for the same period in 1999. Maintenance
service revenues increased by 11.4% to

17



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Third-Party Equipment and Software. Revenues from
third-party equipment and software for the year ended
December 31, 2000 decreased by 3.2% to $3.0 million
from $3.1 million for the comparable period in 1999. These
revenues comprised 3.1% of total revenues for 2000 and 1999.

Cost of Software. Cost of software is comprised primarily
of royalties and maintenance payments to third parties,
amortization of software development costs, and the cost of
production and distribution of software and user manuals. Cost
of software for the year ended December 31, 2000 was
$3.1 million, an increase of 19.2% from $2.6 million
for the same period in 1999. This change was due to an increase
in labor, the purchase of additional software development tools
and an increase in royalty fees paid.

Cost of Services. Cost of services is comprised primarily
of personnel costs for implementation and consulting services,
user training, user conferences and ongoing maintenance and
support. Cost of services for the year ended December 31,
2000 increased by 20.7% to $37.3 million from
$30.9 million for the same period in 1999. The increase in
cost of services was primarily due to increases in services
personnel salary expense and related fringe benefit costs. Cost
of services represented 55.1% and 47.2% of service revenues for
the year ended December 31, 2000 and 1999, respectively.
The increase in cost of services as a percentage of service
revenues was due to a decrease in consulting revenues and an
increase in base salary labor expense as well as increase in
indirect, non-billable travel expenses. Exclusive of the users
conference and reimbursable travel expenses, which are billed at
cost, cost of services represented 48.0% and 37.2% of related
service revenue for the years ended December 31, 2000 and
1999, respectively.

Cost of Third-Party Equipment and Software. Cost of
third-party equipment and software consists of the costs of
computer and peripheral equipment and license fees and royalties
for third-party software. Cost of third-party equipment and
software for the year ended December 31, 2000 increased to
$2.7 million from $2.6 million for the same period in
the prior year. As a percentage of related revenues, cost of
third-party equipment and software products represented 90.0%
and 85.5% for the year ended December 31, 2000 and 1999,
respectively. The increase in these costs as a percentage of
related revenues was the result of reduced mark-ups on third
party equipment sales.

Software Development. Software development costs consist
primarily of the personnel costs of analysts and programmers who
research, develop, maintain and enhance the Companys
existing software product lines and develop new products.
Software development costs for the year ended December 31,
2000 increased by 6.0% to $17.7 million from
$16.7 million for the same period in 1999. This increase
was due primarily to increases in subcontractor costs for the
development of Deltek CRM and Proposals and the increased base
salary expense to maintain or acquire development personnel.
Software development costs represented 18.0% and 17.0% of total
revenues for the year ended December 31, 2000 and 1999,
respectively.

Sales and Marketing. Sales and marketing expenses consist
primarily of the costs of the Companys sales and marketing
personnel as well as the costs of advertising, direct mail and
other sales and marketing activities. Sales and marketing
expenses for the year ended December 31, 2000 increased by
22.4% to $14.2 million from $11.6 million for the same
period in 1999. Primary reasons for the increase are higher base
salary and compensation plans effective in 2000 to maintain and
hire qualified staff. Sales and marketing expenses represented
14.4% of the Companys total revenues for the year ended
December 31, 2000, compared to 11.8% for the same period in
1999.

General and Administrative. General and administrative
expenses consist primarily of the personnel costs of the
Companys management, administrative and finance staffs as
well as the costs of insurance programs, bad debt expenses,
professional fees and other infrastructure costs. General and
administrative expenses for the year ended December 31,
2000 increased by 40.7% to $8.3 million from
$5.9 million for the

18



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##### Table of Contents





Interest Income. Interest income results from investment
and, to a lesser extent, from installment financing. Interest
income for the year ended December 31, 2000 decreased by
26.8% to $878,000 from $1.2 million for the same period in
1999. This decrease is due to outlays of cash related to the
acquisition of A/ E Management, Inc. for $3.5 million, the
acquisition of Semaphore for $11.1 million and the
fulfillment of the Companys stock repurchase program of
1.6 million shares costing $11.4 million.

Income Tax Provision. The Companys effective tax
rate for the year ended December 31, 2000 was 42.4% as
compared to the effective tax rate of 38.7% for the same period
in 1999. The increase in effective rate is due to the
amortization of goodwill associated with the Semaphore
acquisition, which is not deductible for tax purposes.

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

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

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

Third-Party Equipment and Software. Revenues from
third-party equipment and software for the year ended
December 31, 1999 decreased by 23.6% to $3.1 million
from $4.0 million for the comparable period in 1998. These
revenues comprised 3.1% and 4.9% of total revenues for 1999 and
1998, respectively.

Cost of Software. Cost of software is comprised primarily
of royalties and maintenance payments to third parties,
amortization of software development costs, and the cost of
production and distribution of software and user manuals. Cost
of software for the year ended December 31, 1999 was
$2.6 million, an increase of 4.0% from $2.5 million
for the same period in 1998. This change was due to an increase
in software supplies and licensing activity.

Cost of Services. Cost of services is comprised primarily
of personnel costs for implementation and consulting services,
user training, the International User Conference and ongoing
maintenance and support. Cost of services for the year ended
December 31, 1999 increased by 24.6% to $30.9 million
from $24.8 million for the same period in 1998. The
increase in cost of services was primarily due to increases in
services personnel and the related costs associated with
additional personnel, such as training and payroll overhead.
Cost of services represented 47.2% and 48.7% of service revenues
for the year ended December 31, 1999 and 1998,
respectively. The decrease in cost of services as a percentage
of service revenues was due to increased

19



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##### Table of Contents





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

Software Development. Software development costs consist
primarily of the personnel costs of analysts and programmers who
research, develop, maintain and enhance the Companys
existing software product lines and develop new products.
Software development costs for the year ended December 31,
1999 increased by 11.0% to $16.7 million from
$15.0 million for the same period in 1998. This increase
was due primarily to travel expenses and hiring additional
subcontractors for assisting in the development of new products
including Project Workplace and MyProjectWorkplace.com. Software
development costs represented 17.0% and 18.1% of total revenues
for the year ended December 31, 1999 and 1998, respectively.

Sales and Marketing. Sales and marketing expenses consist
primarily of the costs of the Companys sales and marketing
personnel as well as the costs of advertising, direct mail and
other sales and marketing activities. Commission expense also
increased significantly. Sales and marketing expenses for the
year ended December 31, 1999 increased by 12.0% to
$11.6 million from $10.4 million for the same period
in 1998. While sales and marketing expenses increased in total,
as a percentage of total revenues they decreased by .7%. Sales
and marketing expenses represented 11.8% of the Companys
total revenues for the year ended December 31, 1999,
compared to 12.5% for the same period in 1998.

General and Administrative. General and administrative
expenses consist primarily of the personnel costs of the
Companys management, administrative and finance staffs as
well as the costs of insurance programs, bad debt expenses,
professional fees and other infrastructure costs. General and
administrative expenses for the year ended December 31,
1999 increased by 42.7% to $5.9 million from
$4.2 million for the same period in 1998. This increase was
due first and foremost to the Companys overall growth and
an increase in general and administrative personnel. To a lesser
extent, an increase in bad debt expense for 1999 contributed.
General and administrative expenses represented 6.0% of the
Companys total revenues for the year ended
December 31, 1999, compared to 5.0% for the same period in
1998.

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

Purchased In-Process Research and Development. There were
no purchased in-process research and development expenses in
1999. A charge of $2.5 million was recorded during the year
ended December 31, 1998 for the appraised valuation of the
purchased in-process research and development costs acquired
from SalesKit.

Interest Income. Interest income results from investment
and, to a lesser extent, from installment financing. Interest
income for the year ended December 31, 1999 increased by
9.4% to $1.2 million from $1.1 million for the same
period in 1998. This increase is due to better returns on
marketable securities.

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

20



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Liquidity and Capital Resources

The Company has financed its operations almost exclusively from
cash flow from its operations. As of December 31, 2000, the
Company had cash and cash equivalents of $8.9 million,
marketable securities of $5.2 million and working capital
of $16.0 million.

For the year ended December 31, 2000, the Companys
net cash provided by operating activities was
$15.4 million. Accounts receivable, net of the allowance
for doubtful accounts, were $15.2 million as of
December 31, 2000, compared to $13.4 million as of
December 31, 1999. Accounts receivable days sales
outstanding were 58 days as of December 31, 2000,
compared to 56 days as of December 31, 1999.

Investing activities utilized $1.8 million for the year
ended December 31, 2000. This amount included
$18.0 million in sold marketable securities,
$2.8 million in purchased property and equipment and
$2.2 million of capitalized software production costs.
Acquisitions for the year utilized an additional
$14.8 million.

Financing activities for the year ended December 31, 2000
consisted primarily of $311,000 in proceeds from the exercise of
stock options and $518,000 from the issuance of stock under the
Companys employee stock purchase plan. This was offset by
$11.4 million of common stock purchased and retired.

The Company believes that its current liquidity, together with
anticipated cash flow from operations, will satisfy the
Companys anticipated working capital and capital
expenditure requirements through the foreseeable future.
However, depending on its rate of growth, profitability and
other factors, some of which are not in the Companys
control, the Company believes additional financing may be
required to meet its working capital requirements or capital
expenditure needs, including acquisitions, in the future. The
Company may consider additional appropriate acquisitions should
such opportunities present themselves. There can be no assurance
that additional financing will be available when required or, if
available, that any such financing will be on terms satisfactory
to the Company.

Factors That May Affect Future Results and Market Price of
Stock

We may continue to experience a downturn in sales from
several of our core back office software products due to our
inability to move their related technologies to a completely
web-based architecture. To maintain our competitive
position, we must enhance and improve existing products and
continue to introduce new products and new versions of existing
products that keep pace with technological developments, satisfy
increasingly sophisticated customer requirements and achieve
market acceptance. IT directors of many companies now believe
that all of their enterprise software applications should be
deployable over the web. Other than Employee Time Collection and
the Business Intelligence reporting tools components of Deltek
Costpoint, many of our software applications cannot be operated
over the Internet without the use of remote control software
technology. It may take several years to rebuild many of these
application products in technologies that will fully support
web-based, thin client architecture. The Companys
inability to port to or run on new or increasingly popular
operating systems, or the Companys failure to successfully
enhance and improve its products in a timely manner, and
position and/or price its products, could have a material
adverse effect on the Companys business, results of
operations or financial position.

Future revenue growth is dependent in part on our successful
introduction of our new PSA application suite. The
Companys new PSA Application Suite development effort
began during third quarter of year 2000 and is directly
targeted at the emerging market for PSA applications. Our new
PSA system is intended to automate accounting, billing, employee
time and expense, CRM, proposals, resource planning and
scheduling, human resources, knowledge management, and project
e-business. Deltek plans to deliver early releases of this new
application suite later this year. Growth from software sales is
dependent, in part, on our ability to successfully launch this
and additional new products and our ability to retain and hire
sales personnel. See Business-Products.

Adverse economic conditions may result in decreased revenues
or lower revenue growth. The revenue growth and
profitability of the Companys business depends on the
overall demand for computer software and services, particularly
in the product segments in which we compete. Because our sales
are primarily to major corporate and government customers, our
business also depends on general economic and business
conditions.

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We may not be able to overcome loss of growth previously
attributable to businesses that purchased software in order make
their systems Y2K compliant. Management believes that the
growth in demand for our products in prior years was due in part
to our customers needs to update their IT systems in
preparation for the year 2000. Our business, operating
results and financial condition could be materially adversely
impacted if we are unable to overcome such loss of growth
through development and sale of our new products.

Several factors may require the Company to defer recognition
of license revenue for a significant period of time after
entering into a license agreement. These factors include:



| |   |                                                                                                                                                                           
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | whether the license agreement relates partially or entirely to
	then unavailable software products;                                                                       
|
| |  | whether enterprise transactions include both currently
	deliverable software products and software products that are
	under development or other undeliverable elements;  
|
| |  | whether the customer demands services that include significant
	modifications, customizations or complex interfaces that could
	delay product delivery or acceptance;     
|
| |  | whether the transaction involves acceptance criteria that may
	preclude revenue recognition or if there are identified
	product-related issues, such as known defects; and
|
| |  | whether the transaction involves payment terms or fees that
	depend upon contingencies.                                                                                   

Because of the factors listed above and other specific
requirements under GAAP for software revenue recognition, the
Company must have very precise terms in its license agreements
in order to recognize revenue when it initially delivers
software or performs services. Although the Company has a
standard form of license agreement that meets the criteria under
GAAP for current revenue recognition on delivered elements, it
negotiates and revises these terms and conditions in some
transactions. Negotiation of mutual acceptance terms and
conditions can extend the sales cycle, and sometimes we do not
obtain terms and conditions that permit revenue recognition at
the time of delivery or event as work on the project is
completed.

Recent accounting pronouncements could adversely impact our
profitability by delaying some revenue recognition into future
periods. Over the past several years, the American Institute
of Certified Public Accountants (AICPA) issued
Statement of Position or SOP 97-2, Software Revenue
Recognition SOP 98-4, Deferral of the Effective
Date of a Provision of SOP 97-2, Software Revenue
Recognition, and SOP 98-9, Modification of
SOP 97-2 Software Revenue Recognition with Respect to
Certain Transactions. These standards address software
revenue recognition matters primarily from a conceptual level
and do not include specific implementation guidance. The Company
believes that it is currently in compliance with SOPs 97-2,
98-4 and SOP 98-9. The Company adopted SOP 98-9 on
January 1, 2000 and has changed certain business policies
to meet the requirements of this SOP.

In December 1999, the Securities and Exchange Commission
(SEC) staff issued Staff Accounting Bulletin
No. 101, Revenue Recognition in Financial
Statements (SAB 101) which explains how
the SEC staff believes existing revenue recognition rules should
be applied or analogized to for transactions not addressed by
existing rules. In addition, in October 2000, the SEC staff
issued a Frequently Asked Questions and Answers
(FAQ) document, which further elaborates on the SEC
staffs views regarding issues addressed in SAB 101.
The Company was required to and adopted the provisions of
SAB 101 in its fourth quarter of 2000 and believes that
adopting SAB 101 will not have a material impact on its
financial position or results of operations.

The accounting profession continues to discuss certain
provisions of SOP No. 97-2 and SAB 101 with the
objective of providing additional guidance on potential
interpretations. These discussions and the issuance of

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We may experience fluctuations in quarterly operating results
that may adversely impact the price of our stock. Our
operating results for any quarter are subject to significant
variation depending upon a number of factors including the
following:



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



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

We may be unable to accurately forecast timing of sales,
which may adversely affect our business. We use a
pipeline system, a common industry practice, to
forecast sales and trends in our business. Our sales personnel
monitor the status of all proposals, such as the date when they
estimate that a customer will make a purchase decision and the
potential dollar amount of the sale. Management aggregates these
estimates periodically in order to generate a sales pipeline.
Management compares the pipeline at various points in time to
look for trends in our business. While this pipeline analysis
may provide some guidance to management in business planning and
budgeting, these pipeline estimates are necessarily speculative
and may not correlate to revenues in a particular quarter or
over a longer period of time. A variation in the conversion of
the pipeline into contracts or in the pipeline itself could
cause us to improperly plan or budget and thereby adversely
affect our business or results of operations.

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

We compete with a number of companies, many of which have
significantly greater financial, technical, marketing and other
resources than the Company. As our larger competitors, such
as Oracle, Peoplesoft and SAP, begin to experience a
deceleration in their core business and refocus their marketing
and sales efforts to the middle market in which we actively
markets our products, we expect such competitors to implement
increasingly aggressive pricing programs. In addition, certain
competitors such as Oracle, Peoplesoft, SAP and Siebel, have
well-established relationships with our current and prospective
customers and with major accounting and consulting firms that
may have an incentive to recommend such competitors over us. We
also face indirect competition from the internal MIS departments
of our potential customers. In the front-office systems market
we face competition from customers internal information
technology departments, systems integrators, as well as from
other application software providers such as Siebel and
Goldmine, which offer a variety of products and services to
address this market. Many of our customers and potential
customers have attempted to develop front office systems
in-house, either alone or with the help of systems integrators.
We may not be able to compete successfully in this market. There
can be no assurance that our products will continue to compete
favorably or that we will be successful in the face of
increasing competition from new products and enhancements
introduced by existing or new competitors. In addition,
increased competition may result in price reductions, reduced
margins and loss of market share, any of which could have a
material adverse effect on our business, operating results and
financial condition. See Business 
Competition.

Our future success is dependent upon our ability to hire and
retain employees. Our success is dependent upon our ability
to attract and retain highly skilled managerial, research and
development, consulting, customer service, sales and marketing
personnel. Although we currently are investing, and plan to
continue to invest, significant resources to expand our direct
sales force and our technical and customer support staff, we
have at times experienced difficulties in recruiting and
retaining qualified personnel. We could be adversely affected if
we are unable to recruit qualified personnel or if senior
managers or other such personnel were to leave our employ and
qualified replacements were not available. Competition for
skilled personnel in the software industry is intense,
particularly in the Washington DC metro area. There can be no
assurance that we will continue to be able to attract and retain
the personnel we require to develop and market new and enhanced
products or to market and service its existing products and
conduct our operations successfully. Any inability to do so
could have a material adverse effect on our business, operating
results and financial condition. In addition, we may incur
increased compensation costs in order to attract and retain
skilled employees.

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

We face risks associated with new product development, rapid
technology change, and potential liability. The business
application software market is characterized by rapidly changing
technologies, evolving industry standards, frequent new product
introductions and short product life cycles. Our future success
will depend, to a substantial degree, upon our ability to
enhance our existing products and to develop and introduce, on a
timely and cost-effective basis, new products and features that
meet changing customer requirements and emerging and evolving
industry standards. There can be no assurance that we will be
successful in completing the development of new products and
enhancements or that any new product or enhancement it may
introduce will achieve market acceptance.

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The development of new, technologically advanced software
products is a complex and uncertain process requiring high
levels of innovation, as well as the accurate anticipation of
technological and market trends. The introduction of new or
enhanced products also requires us to manage the transition from
or integration with older products in order to minimize
disruption in sales of existing products. There can be no
assurance that our development efforts will progress
satisfactorily or keep pace with industry developments. We
allocate resources for research and development projects based
on planned product introductions and enhancements; however,
actual expenditures may significantly differ from amounts
allocated. We have experienced, and may experience in the
future, delays in the introduction of our products, due to
factors internal and external to us. Additionally, because our
software products are complex, there can be no assurance that,
despite testing, errors will not be found after commencement of
commercial shipments, resulting in loss of or delay in market
acceptance. The sale and support of our software products
entails the risk of product liability claims. In addition, the
failure to perform services to a customers expectations
may result in our not being paid for services rendered, may
damage our reputation and may result in a claim being brought
against us. We maintain errors and omissions insurance; however,
a successful claim for product or service liability brought
against us could have a material adverse effect upon our
business, operating results and financial condition. See
Business  Products and
 Product Development.

We may be subject to risks from acquisition activities.
As part of our growth strategy, we have acquired or invested in,
and from time to time may acquire or invest in, complementary
businesses, technologies and product lines. In order to
successfully integrate acquired products into our sales and
marketing channels, we must train our sales force on acquired
products and integrate employees of the acquired companies with
respect to sales commission, territories, product positioning
and training. In addition, certain of such acquired assets,
licenses or technology may require significant additional
development, such as the completion of product functionality,
before the commercial release of products. Additional risks from
acquisitions include disruption of our ongoing business;
diversion of management from day-to-day operations; amortization
of acquired intangible assets; impairment of relationships with
customers, employees and strategic partners; loss of personnel;
difficulty of maintaining uniform standards, controls,
procedures and policies; and potential liabilities arising from
any acquisition. Our inability to address such risks or fulfill
expectations regarding revenues from acquired businesses,
products and technologies could have a material adverse effect
on our business, operating results and financial condition.

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

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

We are partially dependent upon organizations with federal
government contracts. A significant portion of our total
revenues is derived from customers that provide products and
services under federal government contracts. We believe that, at
least in the near term, such organizations will continue to
represent a large percentage of our customers and account for a
significant percentage of our total revenues. While such
organizations are subject to the same general economic
conditions as other businesses, demand for their

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We continue to rely on third-party software development
tools. We license from third parties certain software
development tools that we utilize in the development of our
products. Accordingly, we are dependent upon such third
parties abilities to deliver quality products, correct
errors, support their current products, develop new and enhanced
products on a timely and cost-effective basis and respond to
emerging industry standards and other technological changes.
Should these third-party development tools become unavailable,
or should their developers fail to adequately support or enhance
them, we would be required to establish relationships with
alternative third-party providers and to rewrite our products
using different development tools. Although we believe that
other development tools with comparable functionality are
currently available from other third parties, there can be no
assurance that, if needed, replacement products could be
obtained on reasonable terms. In addition, there can be no
assurance that we could successfully rewrite our products using
different development tools or that it would not encounter
substantial delays in doing so. Our inability to rewrite our
products using different development tools on a timely and
cost-effective basis could have a material adverse effect on our
business, operating results and financial condition. See
Business  Products and
 Product Development.

We may be unable to adequately protect our proprietary rights
and be subject to risks of infringement. Our success and
ability to compete is dependent in part upon its our proprietary
software. We rely on a combination of copyright and trademark
laws, trade secrets, confidentiality procedures and contractual
provisions to establish and protect our rights in our software.
Despite our efforts to protect our proprietary rights,
unauthorized parties may attempt to copy, design around or
reverse engineer aspects of our products or to obtain and use
information that we regard as proprietary. Furthermore, we have
no patents, and existing copyright law affords only limited
protection. In addition, the laws of some countries do not
protect our proprietary rights to the same extent as do the laws
of the United States. Accordingly, there can be no assurance
that we will be able to protect our proprietary software against
unauthorized third-party copying or use, which could adversely
affect our competitive position.

There are currently no claims pending against us relating to the
infringement of any proprietary rights of third parties. There
can be no assurance, however, that third parties will not claim
infringement by us of their intellectual property rights. We
expect that software product developers will increasingly be
subject to infringement claims as the number of products and
competitors in our industry segment grows and the functionality
of products in different industry segments overlaps. Any such
claims, with or without merit, could be time-consuming to
defend, result in costly litigation, divert managements
attention and resources from day-to-day operations or cause
delays in the delivery or implementation of our products. In
addition, such claims could require us to discontinue the use of
certain software codes or processes, cease the manufacture, use
and sale of infringing products, and develop non-infringing
technology or to obtain licenses to the alleged infringing
technology. There can be no assurance we would be able to
develop alternative technologies or to obtain such licenses or,
if a license were obtainable, that the terms would be
commercially acceptable to us. In the event of a successful
claim of product infringement against us and our failure or
inability to license the infringed or similar technology, our
business, operating results and financial condition could be
materially adversely affected.

Our principal shareholders have the ability to exercise
control. Our principal shareholders, Kenneth E.
deLaski, our Chairman, President, and Chief Executive Officer,
and Donald deLaski, Director, together with their affiliates, in
the aggregate own approximately 50.4% of the outstanding shares
of the Common Stock as of March 26, 2001. As a result,
these shareholders, acting together, are able to effectively
control substantially all matters requiring approval by our
shareholders including the election of the Board of Directors
and significant corporate transactions. Such influence by such
shareholders could delay or prevent a change in control, impede
a merger, consolidation, takeover or other business combination
involving us, or discourage a potential acquirer from making a
tender offer or otherwise attempting to obtain control of us.

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A substantial number of our shares are eligible for resale,
which could adversely affect the market price. Substantially
all of our restricted securities are available for resale
pursuant to Rule 144 under the Securities Act of 1933, as
amended (the Securities Act) including the shares
owned by the principal shareholders. In October 1998,
pursuant to contractual obligations to do so, we registered an
aggregate of 516,751 shares of Common Stock and
130,000 shares of Common Stock issuable pursuant to
outstanding warrants under the Securities Act. Sales of
substantial amounts of such restricted or registered securities
could adversely affect prevailing market prices for the common
Stock.

The market price of our common stock is volatile which could
materially impact your investment. The market price of our
common stock has historically been volatile. We believe factors
such as quarterly fluctuations in results of operations,
announcements of new products and acquisitions by us or by our
competitors, changes in earnings estimates by analysts, changes
in accounting treatments or principles and other factors may
cause the market price of the common stock to fluctuate, perhaps
substantially. The market price of our common stock also may be
affected by our ability to estimate our pipeline, or to meet
market analysts expectations, and any failure to meet such
expectations could have a material adverse effect on the market
price of our common stock. In addition, securities prices for
many technology companies fluctuate widely for reasons, which
may be unrelated to operating results of such companies. These
fluctuations, as well as general economic, political and market
conditions, may adversely affect the market price of our common
stock in the future. In the past, following periods of
volatility in the market price of a companys securities,
class action litigation has often been instituted against such
company. Any such litigation instigated against us could result
in substantial costs and a diversion of managements
attention and resources from day-to-day operations, which could
have a material adverse effect on our business, operating
results and financial condition. See Market for
Registrants Common Equity and Related Stockholder
Matters.






|         |                                                           
|-------- | ----------------------------------------------------------
|ITEM 7A. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

See Item 7 for discussion.




ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY
DATA

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






|        |                                                                       
|------- | ----------------------------------------------------------------------
|ITEM 9. | CHANGES IN AND DISAGREEMENTS ON ACCOUNTING AND FINANCIAL 
	 DISCLOSURE

Not applicable.




PART III




ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE
REGISTRANT

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




ITEM 11.  EXECUTIVE COMPENSATION

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

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ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT

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




ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS

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




PART IV




ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES,
AND REPORTS ON FORM 8-K

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



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

(b)  Reports on Form 8-K

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

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, this report has been signed
below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.

|               |  |                                                                                                                                                                                   
|-------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|March 30, 2001 |  | /s/ KENNETH E. DELASKI
	-----------------------------------------------
	Kenneth E. deLaski, Chairman of the Board of Directors,
	President, Chief Executive Officer, and Director
|              
|March 30, 2001 |  | /s/ LORI BECKER
	-----------------------------------------------
	Lori Becker, Chief Financial Officer
	Principal Financial and Accounting Officer                                
|              
|March 30, 2001 |  | /s/ DONALD DELASKI
	-----------------------------------------------
	Donald deLaski, Director                                                                                     
|              
|March 30, 2001 |  | /s/ DARRELL J. OYER
	-----------------------------------------------
	Darrell J. Oyer, Director                                                                                   
|              
|March 30, 2001 |  | /s/ CHARLES W. STEIN
	-----------------------------------------------
	Charles W. Stein, Director                                                                                 
|              
|March 30, 2001 |  | /s/ ROBERT E. GREGG
	-----------------------------------------------
	Robert E. Gregg, Director                                                                                   
|              
|March 30, 2001 |  | /s/ JAMES F. PETERSON
	-----------------------------------------------
	James F. Peterson, Director                                                                               

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DELTEK SYSTEMS, INC.

FINANCIAL STATEMENTS

As of December 31, 1999 and 2000


Together With Report of Independent Public Accountants




---



##### Table of Contents



REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Deltek Systems, Inc.:

We have audited the accompanying consolidated balance sheets of
Deltek Systems, Inc. (a Virginia corporation) and subsidiaries,
as of December 31, 1999 and 2000, and the related
consolidated statements of operations, changes in
shareholders equity and comprehensive income, and cash
flows for each of the three years in the period ended
December 31, 2000. These financial statements are the
responsibility of the Companys management. Our
responsibility is to express an opinion on these financial
statements based on our audits.

We conducted our audits in accordance with auditing standards
generally accepted in the United States. Those standards require
that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position
of Deltek Systems, Inc. and subsidiaries, as of
December 31, 1999 and 2000 and the results of its
operations and its cash flows for each of the three years in the
period ended December 31, 2000, in conformity with
accounting principles generally accepted in the United States.

Arthur Andersen, LLP

Vienna, Virginia





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##### Table of Contents



DELTEK SYSTEMS, INC.

TABLE OF CONTENTS

|                                                                                                                                          |  |      |      | 
|----------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | ---- | 
|                                                                                                                                          |  | Page
|                                                                                                                                          |  |     
|Consolidated Balance SheetsAs of December 31, 1999 and 2000                                                                               |  |      | F-1  | 
|                                                                                                                                         
|                                                                                                                                         
|                                                                                                                                         
|                                                                                                                                         
|Consolidated Statements of OperationsFor the Years Ended December 31, 1998, 1999, and 2000                                                |  |      | F-2  | 
|                                                                                                                                         
|                                                                                                                                         
|                                                                                                                                         
|                                                                                                                                         
|Consolidated Statements of Changes in Shareholders
	Equity and Comprehensive IncomeFor the Years Ended December 31, 1998, 1999, and 2000 |  |      | F-3  | 
|                                                                                                                                         
|                                                                                                                                         
|                                                                                                                                         
|                                                                                                                                         
|Consolidated Statements of Cash FlowsFor The Years Ended December 31, 1998, 1999, and 2000                                                |  |      | F-4  | 
|                                                                                                                                         
|                                                                                                                                         
|                                                                                                                                         
|                                                                                                                                         
|Notes to Consolidated Financial StatementsAs of December 31, 1999 and 2000                                                                |  |      | F-5  | 
|                                                                                                                                         
|                                                                                                                                         
|                                                                                                                                         
|                                                                                                                                         
|Valuation and Qualifying AccountsFor the Years Ended December 31, 1998, 1999, and 2000                                                    |  |      | F-17 | 



---



##### Table of Contents



DELTEK SYSTEMS, INC.

CONSOLIDATED BALANCE SHEETS

As of December 31, 1999 and 2000


(In Thousands, Except Per Share Data)


|                                                                                                                                                                               |                                                                                                 |      |        |        |  |   |        |        | 
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | ----------------------------------------------------------------------------------------------- | ---- | ------ | ------ |  | - | ------ | ------ | 
|                                                                                                                                                                               |                                                                                                 | 1999 |        | 2000  
|                                                                                                                                                                               |                                                                                                 |      |        |       
|                                                                                                                                                                              
|                                                                                                                                                                              
|                                                                                                                                                                              
|                                                                                                                                                                              
|Assets                                                                                                                                                                        
|                                                                                                                                                                              
|                                                                                                                                                                              
|                                                                                                                                                                              
|                                                                                                                                                                              
|Current assets:                                                                                                                                                                |                                                                                                 |      |        |        |  |   |        |       
|                                                                                                                                                                              
|                                                                                                                                                                              
|                                                                                                                                                                              
|                                                                                                                                                                              
|                                                                                                                                                                               | Cash and cash equivalents                                                                       |      | $      | 5,989  |  |   | $      | 8,939  | 
|                                                                                                                                                                              
|                                                                                                                                                                              
|                                                                                                                                                                              
|                                                                                                                                                                              
|                                                                                                                                                                               | Marketable securities                                                                           |      |        | 23,256 |  |   |        | 5,217  | 
|                                                                                                                                                                              
|                                                                                                                                                                              
|                                                                                                                                                                              
|                                                                                                                                                                              
|                                                                                                                                                                               | Accounts receivable, net of allowance for doubtful accounts of
	$1,404 and $1,652, respectively |      |        | 13,427 |  |   |        | 15,159 | 
|                                                                                                                                                                              
|                                                                                                                                                                              
|                                                                                                                                                                              
|                                                                                                                                                                              
|                                                                                                                                                                               | Deferred income taxes, net                                                                      |      |        | 842    |  |   |        | 1,206  | 
|                                                                                                                                                                              
|                                                                                                                                                                              
|                                                                                                                                                                              
|                                                                                                                                                                              
|                                                                                                                                                                               | Prepaid expenses and other current assets                                                       |      |        | 3,853  |  |   |        | 4,375  | 
|                                                                                                                                                                               |                                                                                                 |      |        |        |  |   |        |       
|Total current assets                                                                                                                                                           |                                                                                                 |      | 47,367 |        |  |   | 34,896 |       
|                                                                                                                                                                               |                                                                                                 |      |        |        |  |   |        |       
|Furniture, equipment, and leasehold improvements, at cost,
	net of accumulated depreciation and amortization of $8,289 and
	$10,528, respectively                              |                                                                                                 |      | 6,516  |        |  |   | 7,358  |       
|                                                                                                                                                                              
|                                                                                                                                                                              
|                                                                                                                                                                              
|                                                                                                                                                                              
|Computer software development costs, at cost, net of
	accumulated amortization of $3,166 and $4,210, respectively                                                              |                                                                                                 |      | 5,129  |        |  |   | 6,319  |       
|                                                                                                                                                                              
|                                                                                                                                                                              
|                                                                                                                                                                              
|                                                                                                                                                                              
|Purchased intangibles, net                                                                                                                                                     |                                                                                                 |      | 3,298  |        |  |   | 15,238 |       
|                                                                                                                                                                              
|                                                                                                                                                                              
|                                                                                                                                                                              
|                                                                                                                                                                              
|Other assets                                                                                                                                                                   |                                                                                                 |      | 125    |        |  |   | 350    |       
|                                                                                                                                                                               |                                                                                                 |      |        |        |  |   |        |       
|Total assets                                                                                                                                                                   |                                                                                                 | $    | 62,435 |        |  | $ | 64,161 |       
|                                                                                                                                                                               |                                                                                                 |      |        |        |  |   |        |       
|                                                                                                                                                                              
|                                                                                                                                                                              
|                                                                                                                                                                              
|                                                                                                                                                                              
|Liabilities and Shareholders Equity                                                                                                                                          
|                                                                                                                                                                              
|                                                                                                                                                                              
|                                                                                                                                                                              
|                                                                                                                                                                              
|Current liabilities:                                                                                                                                                           |                                                                                                 |      |        |        |  |   |        |       
|                                                                                                                                                                              
|                                                                                                                                                                              
|                                                                                                                                                                              
|                                                                                                                                                                              
|                                                                                                                                                                               | Accounts payable and accrued expenses                                                           |      | $      | 6,567  |  |   | $      | 8,962  | 
|                                                                                                                                                                              
|                                                                                                                                                                              
|                                                                                                                                                                              
|                                                                                                                                                                              
|                                                                                                                                                                               | Deferred revenue                                                                                |      |        | 8,626  |  |   |        | 9,968  | 
|                                                                                                                                                                               |                                                                                                 |      |        |        |  |   |        |       
|Total current liabilities                                                                                                                                                      |                                                                                                 |      | 15,193 |        |  |   | 18,930 |       
|                                                                                                                                                                               |                                                                                                 |      |        |        |  |   |        |       
|Commitments and contingencies (Note 7)                                                                                                                                         |                                                                                                 |      |        |        |  |   |        |       
|                                                                                                                                                                              
|                                                                                                                                                                              
|                                                                                                                                                                              
|                                                                                                                                                                              
|Shareholders equity:                                                                                                                                                          |                                                                                                 |      |        |        |  |   |        |       
|                                                                                                                                                                              
|                                                                                                                                                                              
|                                                                                                                                                                              
|                                                                                                                                                                              
|Preferred stock, $0.001 par value per share;
	2,000,000  shares authorized; none issued or outstanding                                                                         |                                                                                                 |      |       |        |  |   |       |       
|                                                                                                                                                                              
|                                                                                                                                                                              
|                                                                                                                                                                              
|                                                                                                                                                                              
|Common stock, $0.001 par value per share; 45,000,000 
	shares authorized; 16,636,197 and 15,125,058 shares issued
	and outstanding at December 31, 1999 and 2000, respectively |                                                                                                 |      | 17     |        |  |   | 15     |       
|                                                                                                                                                                              
|                                                                                                                                                                              
|                                                                                                                                                                              
|                                                                                                                                                                              
|Paid-in capital                                                                                                                                                                |                                                                                                 |      | 10,023 |        |  |   | 424    |       
|                                                                                                                                                                              
|                                                                                                                                                                              
|                                                                                                                                                                              
|                                                                                                                                                                              
|Retained earnings                                                                                                                                                              |                                                                                                 |      | 37,202 |        |  |   | 44,901 |       
|                                                                                                                                                                              
|                                                                                                                                                                              
|                                                                                                                                                                              
|                                                                                                                                                                              
|Accumulated other comprehensive income, net of tax                                                                                                                             |                                                                                                 |      |       |        |  |   | (109   | )     
|                                                                                                                                                                               |                                                                                                 |      |        |        |  |   |        |       
|Total shareholders equity                                                                                                                                                     |                                                                                                 |      | 47,242 |        |  |   | 45,231 |       
|                                                                                                                                                                               |                                                                                                 |      |        |        |  |   |        |       
|Total liabilities and shareholders equity                                                                                                                                     |                                                                                                 | $    | 62,435 |        |  | $ | 64,161 |       
|                                                                                                                                                                               |                                                                                                 |      |        |        |  |   |        |       

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

F-1



---



##### Table of Contents



DELTEK SYSTEMS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

For the Years Ended December 31, 1998, 1999, and 2000


(In Thousands, Except Per Share Data)


|                                                                                 |                                               |      |        |        |  |      |        |        |  |   |        |        | 
|-------------------------------------------------------------------------------- | --------------------------------------------- | ---- | ------ | ------ |  | ---- | ------ | ------ |  | - | ------ | ------ | 
|                                                                                 |                                               | 1998 |        | 1999   |  | 2000
|                                                                                 |                                               |      |        |        |  |     
|Revenues:                                                                        |                                               |      |        |        |  |      |        |        |  |   |        |       
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|                                                                                 | License fees                                  |      | $      | 28,162 |  |      | $      | 29,836 |  |   | $      | 27,603 | 
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|                                                                                 | Services                                      |      |        | 50,867 |  |      |        | 65,321 |  |   |        | 67,642 | 
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|                                                                                 | Third-party equipment and software            |      |        | 4,040  |  |      |        | 3,087  |  |   |        | 3,013  | 
|                                                                                 |                                               |      |        |        |  |      |        |        |  |   |        |       
|                                                                                 |                                               |      | 83,069 |        |  |      | 98,244 |        |  |   | 98,258 |       
|                                                                                 |                                               |      |        |        |  |      |        |        |  |   |        |       
|Operating expenses:                                                              |                                               |      |        |        |  |      |        |        |  |   |        |       
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|                                                                                 | Cost of software                              |      |        | 2,491  |  |      |        | 2,583  |  |   |        | 3,134  | 
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|                                                                                 | Cost of services                              |      |        | 24,763 |  |      |        | 30,849 |  |   |        | 37,295 | 
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|                                                                                 | Cost of third-party equipment and software    |      |        | 3,146  |  |      |        | 2,640  |  |   |        | 2,711  | 
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|                                                                                 | Software development                          |      |        | 15,014 |  |      |        | 16,663 |  |   |        | 17,671 | 
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|                                                                                 | Sales and marketing                           |      |        | 10,353 |  |      |        | 11,592 |  |   |        | 14,174 | 
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|                                                                                 | General and administrative                    |      |        | 4,163  |  |      |        | 5,939  |  |   |        | 8,287  | 
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|                                                                                 | Amortization of purchased intangibles         |      |        | 687    |  |      |        | 1,051  |  |   |        | 2,505  | 
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|                                                                                 | Acquisition and offering costs                |      |        | 1,475  |  |      |        |       |  |   |        |       | 
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|                                                                                 | Purchased in-process research and development |      |        | 2,500  |  |      |        |       |  |   |        |       | 
|                                                                                 |                                               |      |        |        |  |      |        |        |  |   |        |       
|Total operating expenses                                                         |                                               |      | 64,592 |        |  |      | 71,317 |        |  |   | 85,777 |       
|                                                                                 |                                               |      |        |        |  |      |        |        |  |   |        |       
|Income from operations                                                           |                                               |      | 18,477 |        |  |      | 26,927 |        |  |   | 12,481 |       
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|Interest income                                                                  |                                               |      | 1,066  |        |  |      | 1,166  |        |  |   | 878    |       
|                                                                                 |                                               |      |        |        |  |      |        |        |  |   |        |       
|Income before income taxes                                                       |                                               |      | 19,543 |        |  |      | 28,093 |        |  |   | 13,359 |       
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|Provision for income taxes                                                       |                                               |      | 7,788  |        |  |      | 10,881 |        |  |   | 5,660  |       
|                                                                                 |                                               |      |        |        |  |      |        |        |  |   |        |       
|Net income                                                                       |                                               | $    | 11,755 |        |  | $    | 17,212 |        |  | $ | 7,699  |       
|                                                                                 |                                               |      |        |        |  |      |        |        |  |   |        |       
|Basic net income per share                                                       |                                               | $    | 0.66   |        |  | $    | 1.00   |        |  | $ | 0.47   |       
|                                                                                 |                                               |      |        |        |  |      |        |        |  |   |        |       
|Diluted net income per share                                                     |                                               | $    | 0.64   |        |  | $    | 0.97   |        |  | $ | 0.47   |       
|                                                                                 |                                               |      |        |        |  |      |        |        |  |   |        |       
|Weighted-average shares outstanding                                              |                                               |      | 17,814 |        |  |      | 17,284 |        |  |   | 16,309 |       
|                                                                                
|                                                                                
|                                                                                
|                                                                                
|Weighted-average shares outstanding, including dilutive
	effect of stock options |                                               |      | 18,235 |        |  |      | 17,732 |        |  |   | 16,505 |       

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

F-2



---



##### Table of Contents



DELTEK SYSTEMS, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS
EQUITY

AND COMPREHENSIVE INCOME


For the Years Ended December 31, 1998, 1999, and 2000


(In Thousands, Except Share Data)


|                           |                                                                              |               |        |        |   |       |            |            |   |          |    |               |   |              |        |         |   |   |        |    |  |   |      |      |   |   |      |     | 
|-------------------------- | ---------------------------------------------------------------------------- | ------------- | ------ | ------ | - | ----- | ---------- | ---------- | - | -------- | -- | ------------- | - | ------------ | ------ | ------- | - | - | ------ | -- |  | - | ---- | ---- | - | - | ---- | --- | 
|                           |                                                                              |               |        |        |   |       |            |            |   |          |    | Accumulated   |   |             
|                           |                                                                              |               |        | Common |   |       |            |            |   |          |    | Other         |   |             
|                           |                                                                              | Comprehensive |        | Stock  |   | Par   |            | Paid-In    |   | Retained |    | Comprehensive |   | Unearned    
|                           |                                                                              | Income        |        | Shares |   | Value |            | Capital    |   | Earnings |    | Income        |   | Compensation
|                           |                                                                              |               |        |        |   |       |            |            |   |          |    |               |   |             
|Balance, December 31, 1997 |                                                                              |               |       |        |   |       | 17,704,933 |            |   | $        | 18 |               |   | $            | 18,044 |         |   | $ | 8,204  |    |  | $ |     |      |   | $ | (452 | )  
|                          
|                          
|                          
|                          
|                           | Reversed dividend accrual                                                    |               |        |       |   |       |            |           |   |          |    |              |   |              |        |        |   |   |        | 31 |  |   |      |     |   |   |      |    | 
|                          
|                          
|                          
|                          
|                           | Exercise of stock options                                                    |               |        |       |   |       |            | 160,261    |   |          |    |              |   |              |        | 431     |   |   |        |   |  |   |      |     |   |   |      |    | 
|                          
|                          
|                          
|                          
|                           | Issuance of shares for Employee Stock Purchase Plan                          |               |        |       |   |       |            | 38,957     |   |          |    |              |   |              |        | 620     |   |   |        |   |  |   |      |     |   |   |      |    | 
|                          
|                          
|                          
|                          
|                           | Purchase and retirement of common stock                                      |               |        |       |   |       |            | (50,000    | ) |          |    |              |   |              |        | (806    | ) |   |        |   |  |   |      |     |   |   |      |    | 
|                          
|                          
|                          
|                          
|                           | Tax benefit of options exercised                                             |               |        |       |   |       |            |           |   |          |    |              |   |              |        | 2,097   |   |   |        |   |  |   |      |     |   |   |      |    | 
|                          
|                          
|                          
|                          
|                           | Issuance of stock warrants for acquisition of SalesKit Software
	Corporation |               |        |       |   |       |            |           |   |          |    |              |   |              |        | 932     |   |   |        |   |  |   |      |     |   |   |      |    | 
|                          
|                          
|                          
|                          
|                           | Shareholder contribution                                                     |               |        |       |   |       |            |           |   |          |    |              |   |              |        | 250     |   |   |        |   |  |   |      |     |   |   |      |    | 
|                          
|                          
|                          
|                          
|                           | Amortization of unearned compensation                                        |               |        |       |   |       |            |           |   |          |    |              |   |              |        |        |   |   |        |   |  |   |      |     |   |   |      | 282 | 
|                          
|                          
|                          
|                          
|Net income                 |                                                                              |               | 11,755 |        |   |       |           |            |   |          |   |               |   |              |       |         |   |   | 11,755 |    |  |   |     |      |   |   |     |    
|                           |                                                                              |               |        |        |   |       |            |            |   |          |    |               |   |              |        |         |   |   |        |    |  |   |      |      |   |   |      |    
|Comprehensive income       |                                                                              | $             | 11,755 |        |   |       |            |            |   |          |    |               |   |              |        |         |   |   |        |    |  |   |      |      |   |   |      |    
|                           |                                                                              |               |        |        |   |       |            |            |   |          |    |               |   |              |        |         |   |   |        |    |  |   |      |      |   |   |      |    
|Balance, December 31, 1998 |                                                                              |               |       |        |   |       | 17,854,151 |            |   |          | 18 |               |   |              | 21,568 |         |   |   | 19,990 |    |  |   |     |      |   |   | (170 | )  
|                          
|                          
|                          
|                          
|                           | Exercise of stock options                                                    |               |        |       |   |       |            | 134,680    |   |          |    |              |   |              |        | 497     |   |   |        |   |  |   |      |     |   |   |      |    | 
|                          
|                          
|                          
|                          
|                           | Issuance of shares for Employee Stock Purchase Plan                          |               |        |       |   |       |            | 49,866     |   |          |    |              |   |              |        | 689     |   |   |        |   |  |   |      |     |   |   |      |    | 
|                          
|                          
|                          
|                          
|                           | Purchase and retirement of common stock                                      |               |        |       |   |       |            | (1,402,500 | ) |          |    | (1            | ) |              |        | (13,247 | ) |   |        |   |  |   |      |     |   |   |      |    | 
|                          
|                          
|                          
|                          
|                           | Tax benefit of options exercised                                             |               |        |       |   |       |            |           |   |          |    |              |   |              |        | 516     |   |   |        |   |  |   |      |     |   |   |      |    | 
|                          
|                          
|                          
|                          
|                           | Amortization of unearned compensation                                        |               |        |       |   |       |            |           |   |          |    |              |   |              |        |        |   |   |        |   |  |   |      |     |   |   |      | 170 | 
|                          
|                          
|                          
|                          
|Net income                 |                                                                              |               | 17,212 |        |   |       |           |            |   |          |   |               |   |              |       |         |   |   | 17,212 |    |  |   |     |      |   |   |     |    
|                           |                                                                              |               |        |        |   |       |            |            |   |          |    |               |   |              |        |         |   |   |        |    |  |   |      |      |   |   |      |    
|Comprehensive income       |                                                                              | $             | 17,212 |        |   |       |            |            |   |          |    |               |   |              |        |         |   |   |        |    |  |   |      |      |   |   |      |    
|                           |                                                                              |               |        |        |   |       |            |            |   |          |    |               |   |              |        |         |   |   |        |    |  |   |      |      |   |   |      |    
|Balance, December 31, 1999 |                                                                              |               |       |        |   |       | 16,636,197 |            |   |          | 17 |               |   |              | 10,023 |         |   |   | 37,202 |    |  |   |     |      |   |   |     |    
|                          
|                          
|                          
|                          
|                           | Exercise of stock options                                                    |               |        |       |   |       |            | 112,945    |   |          |    |              |   |              |        | 311     |   |   |        |   |  |   |      |     |   |   |      |    | 
|                          
|                          
|                          
|                          
|                           | Issuance of shares for Employee Stock Purchase Plan                          |               |        |       |   |       |            | 73,416     |   |          |    |              |   |              |        | 518     |   |   |        |   |  |   |      |     |   |   |      |    | 
|                          
|                          
|                          
|                          
|                           | Purchase and retirement of common stock                                      |               |        |       |   |       |            | (1,697,500 | ) |          |    | (2            | ) |              |        | (11,436 | ) |   |        |   |  |   |      |     |   |   |      |    | 
|                          
|                          
|                          
|                          
|                           | Tax benefit of options exercised                                             |               |        |       |   |       |            |           |   |          |    |              |   |              |        | 56      |   |   |        |   |  |   |      |     |   |   |      |    | 
|                          
|                          
|                          
|                          
|                           | Stock options due to acquisitions and other                                  |               |        |       |   |       |            |           |   |          |    |              |   |              |        | 952     |   |   |        |   |  |   |      |     |   |   |      |    | 
|                          
|                          
|                          
|                          
|                           | Unrealized gain/loss on investments                                          |               |        | (2     | ) |       |            |           |   |          |    |              |   |              |        |        |   |   |        |   |  |   |      | (2   | ) |   |      |    | 
|                          
|                          
|                          
|                          
|                           | Foreign currency translation adjustments                                     |               |        | (107   | ) |       |            |           |   |          |    |              |   |              |        |        |   |   |        |   |  |   |      | (107 | ) |   |      |    | 
|                          
|                          
|                          
|                          
|Net income                 |                                                                              |               | 7,699  |        |   |       |           |            |   |          |   |               |   |              |       |         |   |   | 7,699  |    |  |   |     |      |   |   |     |    
|                           |                                                                              |               |        |        |   |       |            |            |   |          |    |               |   |              |        |         |   |   |        |    |  |   |      |      |   |   |      |    
|Comprehensive income       |                                                                              | $             | 7,590  |        |   |       |            |            |   |          |    |               |   |              |        |         |   |   |        |    |  |   |      |      |   |   |      |    
|                           |                                                                              |               |        |        |   |       |            |            |   |          |    |               |   |              |        |         |   |   |        |    |  |   |      |      |   |   |      |    
|Balance, December 31, 2000 |                                                                              |               |        |        |   |       | 15,125,058 |            |   | $        | 15 |               |   | $            | 424    |         |   | $ | 44,901 |    |  | $ | (109 | )    |   | $ |     |    
|                           |                                                                              |               |        |        |   |       |            |            |   |          |    |               |   |              |        |         |   |   |        |    |  |   |      |      |   |   |      |    

[Additional columns below]

[Continued from above table, first column(s) repeated]

|                           |                                                                              |               |        |         |  
|-------------------------- | ---------------------------------------------------------------------------- | ------------- | ------ | ------- | -
|                           |                                                                              | Total        
|                           |                                                                              | Shareholders
|                           |                                                                              | Equity       
|                           |                                                                              |              
|Balance, December 31, 1997 |                                                                              | $             | 25,814 |        
|                          
|                          
|                          
|                          
|                           | Reversed dividend accrual                                                    |               |        | 31      |  
|                          
|                          
|                          
|                          
|                           | Exercise of stock options                                                    |               |        | 431     |  
|                          
|                          
|                          
|                          
|                           | Issuance of shares for Employee Stock Purchase Plan                          |               |        | 620     |  
|                          
|                          
|                          
|                          
|                           | Purchase and retirement of common stock                                      |               |        | (806    | )
|                          
|                          
|                          
|                          
|                           | Tax benefit of options exercised                                             |               |        | 2,097   |  
|                          
|                          
|                          
|                          
|                           | Issuance of stock warrants for acquisition of SalesKit Software
	Corporation |               |        | 932     |  
|                          
|                          
|                          
|                          
|                           | Shareholder contribution                                                     |               |        | 250     |  
|                          
|                          
|                          
|                          
|                           | Amortization of unearned compensation                                        |               |        | 282     |  
|                          
|                          
|                          
|                          
|Net income                 |                                                                              |               | 11,755 |        
|                          
|                          
|                          
|                          
|Comprehensive income       |                                                                              |               |        |        
|                           |                                                                              |               |        |        
|Balance, December 31, 1998 |                                                                              |               | 41,406 |        
|                          
|                          
|                          
|                          
|                           | Exercise of stock options                                                    |               |        | 497     |  
|                          
|                          
|                          
|                          
|                           | Issuance of shares for Employee Stock Purchase Plan                          |               |        | 689     |  
|                          
|                          
|                          
|                          
|                           | Purchase and retirement of common stock                                      |               |        | (13,248 | )
|                          
|                          
|                          
|                          
|                           | Tax benefit of options exercised                                             |               |        | 516     |  
|                          
|                          
|                          
|                          
|                           | Amortization of unearned compensation                                        |               |        | 170     |  
|                          
|                          
|                          
|                          
|Net income                 |                                                                              |               | 17,212 |        
|                          
|                          
|                          
|                          
|Comprehensive income       |                                                                              |               |        |        
|                           |                                                                              |               |        |        
|Balance, December 31, 1999 |                                                                              |               | 47,242 |        
|                          
|                          
|                          
|                          
|                           | Exercise of stock options                                                    |               |        | 311     |  
|                          
|                          
|                          
|                          
|                           | Issuance of shares for Employee Stock Purchase Plan                          |               |        | 518     |  
|                          
|                          
|                          
|                          
|                           | Purchase and retirement of common stock                                      |               |        | (11,438 | )
|                          
|                          
|                          
|                          
|                           | Tax benefit of options exercised                                             |               |        | 56      |  
|                          
|                          
|                          
|                          
|                           | Stock options due to acquisitions and other                                  |               |        | 952     |  
|                          
|                          
|                          
|                          
|                           | Unrealized gain/loss on investments                                          |               |        | (2      | )
|                          
|                          
|                          
|                          
|                           | Foreign currency translation adjustments                                     |               |        | (107    | )
|                          
|                          
|                          
|                          
|Net income                 |                                                                              |               | 7,699  |        
|                          
|                          
|                          
|                          
|Comprehensive income       |                                                                              |               |        |        
|                           |                                                                              |               |        |        
|Balance, December 31, 2000 |                                                                              | $             | 45,231 |        
|                           |                                                                              |               |        |        

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

F-3



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##### Table of Contents



DELTEK SYSTEMS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

For The Years Ended December 31, 1998, 1999, and 2000


(In Thousands)


|                                                     |                                                                                     |                                                     |         |        |        |      |         |         |        |   |         |         |       |  
|---------------------------------------------------- | ----------------------------------------------------------------------------------- | --------------------------------------------------- | ------- | ------ | ------ | ---- | ------- | ------- | ------ | - | ------- | ------- | ----- | -
|                                                     |                                                                                     | 1998                                                |         | 1999   |        | 2000
|                                                     |                                                                                     |                                                     |         |        |        |     
|Cash flows from operating activities:                |                                                                                     |                                                     |         |        |        |      |         |         |        |   |         |        
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Net income                                                                          |                                                     | $       | 11,755 |        |      | $       | 17,212  |        |   | $       | 7,699   |      
|                                                     | Adjustments to reconcile net income to net cash provided by
	operating activities  |                                                     |         |        |        |      |         |         |        |   |         |         |      
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                     | Depreciation and amortization                       |         |        | 2,787  |      |         |         | 3,711  |   |         |         | 5,788 |  
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                     | Non-cash expense for modification of stock options  |         |        |       |      |         |         |       |   |         |         | 171   |  
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                     | Other noncash charges                               |         |        | 1,575  |      |         |         | 170    |   |         |         | 56    |  
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                     | Purchased research and development                  |         |        | 2,500  |      |         |         |       |   |         |         |      |  
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                     | Accreted interest on marketable securities          |         |        | (34    | )    |         |         |       |   |         |         |      |  
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                     | Change in accounts receivable, net                  |         |        | (5,295 | )    |         |         | (1,673 | ) |         |         | (276  | )
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                     | Change in prepaid expenses and other current assets |         |        | (523   | )    |         |         | (1,245 | ) |         |         | (586  | )
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                     | Change in accounts payable and accrued expenses     |         |        | 2,258  |      |         |         | (1,144 | ) |         |         | 1,187 |  
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                     | Change in income taxes payable                      |         |        | (543   | )    |         |         |       |   |         |         |      |  
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                     | Change in current deferred income taxes, net        |         |        | (961   | )    |         |         | 836    |   |         |         | 1,325 |  
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                                                     | Change in deferred revenue                          |         |        | 3,988  |      |         |         | (2,968 | ) |         |         | 71    |  
|                                                     |                                                                                     |                                                     |         |        |        |      |         |         |        |   |         |        
|Net cash provided by operating activities            |                                                                                     |                                                     | 17,507  |        |        |      | 14,899  |         |        |   | 15,435  |        
|                                                     |                                                                                     |                                                     |         |        |        |      |         |         |        |   |         |        
|Cash flows from investing activities:                |                                                                                     |                                                     |         |        |        |      |         |         |        |   |         |        
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | (Purchase) sale of marketable securities                                            |                                                     |         | (8,878 | )      |      |         | 605     |        |   |         | 18,039  |      
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Purchase of property and equipment                                                  |                                                     |         | (2,543 | )      |      |         | (3,937  | )      |   |         | (2,819  | )    
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Acquisitions                                                                        |                                                     |         | (6,054 | )      |      |         |        |        |   |         | (14,753 | )    
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Capitalization of computer software development costs                               |                                                     |         | (1,276 | )      |      |         | (3,031  | )      |   |         | (2,234  | )    
|                                                     |                                                                                     |                                                     |         |        |        |      |         |         |        |   |         |        
|Net cash (used in) provided by investing activities  |                                                                                     |                                                     | (18,751 | )      |        |      | (6,363  | )       |        |   | (1,767  | )      
|                                                     |                                                                                     |                                                     |         |        |        |      |         |         |        |   |         |        
|Cash flows from financing activities:                |                                                                                     |                                                     |         |        |        |      |         |         |        |   |         |        
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Cash dividends paid to stockholders                                                 |                                                     |         | (369   | )      |      |         |        |        |   |         |        |      
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Cash proceeds from exercise of stock options                                        |                                                     |         | 431    |        |      |         | 497     |        |   |         | 311     |      
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Cash proceeds from issuance of stock for employee purchase plan                     |                                                     |         | 620    |        |      |         | 689     |        |   |         | 518     |      
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Common stock purchased and retired                                                  |                                                     |         | (806   | )      |      |         | (13,248 | )      |   |         | (11,438 | )    
|                                                     |                                                                                     |                                                     |         |        |        |      |         |         |        |   |         |        
|Net cash (used in) provided by financing activities  |                                                                                     |                                                     | (124    | )      |        |      | (12,062 | )       |        |   | (10,609 | )      
|                                                     |                                                                                     |                                                     |         |        |        |      |         |         |        |   |         |        
|                                                     | Impact of foreign exchange rates                                                    |                                                     |         |       |        |      |         |        |        |   |         | (109    | )    
|                                                     |                                                                                     |                                                     |         |        |        |      |         |         |        |   |         |        
|Net increase (decrease) in cash and cash equivalents |                                                                                     |                                                     | (1,368  | )      |        |      | (3,526  | )       |        |   | 2,950   |        
|                                                    
|                                                    
|                                                    
|                                                    
|Cash and cash equivalents, beginning of year         |                                                                                     |                                                     | 10,883  |        |        |      | 9,515   |         |        |   | 5,989   |        
|                                                     |                                                                                     |                                                     |         |        |        |      |         |         |        |   |         |        
|Cash and cash equivalents, end of year               |                                                                                     | $                                                   | 9,515   |        |        | $    | 5,989   |         |        | $ | 8,939   |        
|                                                     |                                                                                     |                                                     |         |        |        |      |         |         |        |   |         |        
|Cash paid during the year for income taxes           |                                                                                     | $                                                   | 8,307   |        |        | $    | 11,231  |         |        | $ | 3,791   |        
|                                                     |                                                                                     |                                                     |         |        |        |      |         |         |        |   |         |        

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

F-4



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##### Table of Contents



DELTEK SYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

As of December 31, 1999 and 2000


1.  Organization and Summary of Significant
Accounting Policies:

Deltek is incorporated under the laws of the Commonwealth of
Virginia. The Company designs, develops, sells and supports a
family of integrated software that provide project-oriented
businesses and professional service firms with tools to more
effectively manage, operate and grow their operations. The
Companys software products have been specifically designed
to fulfill the needs of project-based companies and professional
service firms and include both enterprise-wide systems as well
as application software products that can be used either as a
stand alone application or as an integrated part of the
Companys enterprise-wide systems. Delteks software
products address the needs specific to such organizations
through a wide range of functionality, such as financial and
project accounting, employee time and expense, human resources
management and administration, materials management and project
reporting, customer relationship management, sales force
automation and proposal generation. The Company also provides a
full range of services, including implementation and consulting,
training and ongoing support. Since the Companys
inception, it has focused exclusively on developing and
providing products and services designed to meet the needs of
project-oriented organizations. Deltek believes that this focus
is a competitive advantage in serving project-oriented markets
relative to companies that offer more general-purpose enterprise
software. The Company also believes that their solutions
generally are better suited, require shorter implementation
times and cost less to install and maintain than general-purpose
enterprise solutions. The primary software product suites that
Deltek currently markets consist of Deltek CRM and Deltek
Proposals, a front-office customer relationship management
solution for professional service environments; Deltek
Costpoint®, an advanced client/ server-based business
software system designed for all types of complex
project-oriented organizations; Deltek Advantage, an integrated,
project-focused accounting system designed for professional
services firms; Deltek GCS Premier, project accounting
software for small-to mid-sized organizations providing products
or services under contracts with the federal government; and
Deltek Time Collection (formerly ET Enterprise), an
advanced employee timekeeping system.

Consolidation Policy

The accompanying consolidated financial statements are prepared
in accordance with accounting principles generally accepted in
the United States and include the accounts of the Company and
its subsidiaries, all of which are wholly owned. All significant
intercompany accounts and transactions have been eliminated in
consolidation.

Net Income Per Common Share

The calculation of basic net income per share is based on the
weighted-average number of Company shares outstanding in each
period. Diluted net income per share is based on the combined
weighted-average number of shares and share equivalents
outstanding, assuming dilution as calculated under the treasury
stock method. No reconciling items exist between the net income
used for basic and diluted net income per share. The only
reconciling item between the shares used for basic and diluted
net income per share relates to outstanding stock options.

Managements Use of Estimates

The preparation of financial statements in conformity with
accounting principles generally accepted in the United States
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.

F-5



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##### Table of Contents



DELTEK SYSTEMS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The Companys estimates of anticipated gross revenues,
working capital, and the remaining estimated lives of tangible
and intangible assets, or both, could be reduced significantly
in the future due to changes in technology, regulation,
available financing, or competitive pressures.

Revenue Recognition

The Company recognizes software revenue in accordance with
Statement of Position 97-2 Software Revenue
Recognition, and Statement of Position 98-9
Modification of SOP 97-2, Software Revenue
Recognition, with Respect to Certain Transactions.

The Company grants perpetual licenses under a standard license
agreement. For certain of its software products, the Company
granted its customers a right of return for a full or partial
refund of the license fee during a refund period which was
generally 60 to 90 days from the date of the initial
software delivery. Beginning in the second half of 2000, the
Company limited the right of refund to a material defect only
for the majority of its Costpoint sales. With this change, the
Company generally recognizes revenue of Costpoint sales upon
delivery or if a right of return exists, upon the expiration of
that right. Due to the decline in Costpoint sales, the impact on
revenue was not significant for 2000. The Company generally
recognizes license fees from its GCS Premier, System 1, ET
Enterprise and Advantage products upon delivery.

Revenues recognized from multiple-element software arrangements
are allocated to each element of the arrangement based on the
relative fair values of the elements. The fair value of
professional services, technical support and training have been
determined based on the Companys specific objective
evidence of fair value based on the price charged when the
elements are sold separately. License revenues are recorded
under the residual method described in SOP 98-9 for arrangements
in which licenses are sold with these elements. However, the
entire fee related to arrangements that require the Company to
deliver specified additional upgrades is deferred until delivery
of the specified upgrade has occurred, unless the Company has
vendor-specific objective evidence of fair value for the
upgrade. Also, the entire fee is deferred for arrangements that
require the Company to deliver future specified products in
which vendor-specific objective evidence of fair value is not
yet available. Fees related to contracts that require the
company to deliver unspecified additional products are deferred
and recognized ratably over the contract term.

For contracts that involve significant installment payments, the
Company also evaluates whether fees are fixed and determinable.
If the fees are not fixed and determinable, the Company defers
the recognition of revenue until the payments become due.

Implementation and other consulting services are provided on a
time and materials basis billed monthly and recognized as the
services are performed. Prepaid consulting is recorded as
deferred revenue.

Telephone support and periodic enhancements and updates are
provided for maintenance fees that are payable quarterly and
initially represent between 15 percent and 20 percent
of the related software license fee on an annual basis.
Customers generally prepay for maintenance on a quarterly basis.
These prepayments are recorded as deferred revenue until earned.
Revenue from quarterly maintenance and support service is
recognized over the term of the support agreement.

Revenue from third-party equipment and software is derived from
the resale and sublicensing of third-party hardware and software
products in connection with the license and installation of the
Companys systems and is generally recognized upon delivery.

Cash and Cash Equivalents

The Company considers all highly liquid investments purchased
with an original maturity of three months or less to be cash
equivalents.

F-6



---



##### Table of Contents



DELTEK SYSTEMS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Marketable Securities

The Company accounts for its debt and equity securities under
SFAS No. 115, Accounting for Certain Investments in
Debt and Equity Securities. At acquisition, debt and
equity securities are classified into three categories:
held-to-maturity, available-for-sale, or trading. At each
reporting date, the appropriateness of the classifications is
reassessed.

Included in the balance sheet at December 31, 1999 and 2000
are marketable securities of $23,256,000 and $5,217,000
respectively, that consist of investments in municipal bonds,
money market accounts and floating rate bonds and are classified
as available-for-sale and recorded at fair value.

Furniture, Equipment and Leasehold Improvements

Furniture and equipment are stated at cost and are depreciated
using the straight-line method over the estimated useful lives
of the assets, which are generally three to five years.
Leasehold improvements are amortized over the shorter of the
useful life of the asset or the lease term. The components of
fixed assets as of December 31, 2000 and 1999 were as
follows (in thousands):

|                                                    |  |      |        |      |  |   |         |  
|--------------------------------------------------- |  | ---- | ------ | ---- |  | - | ------- | -
|                                                    |  | 1999 |        | 2000
|                                                    |  |      |        |     
|Furniture & equipment                               |  | $    | 2,448  |      |  | $ | 2,568   |  
|                                                   
|                                                   
|                                                   
|                                                   
|Computer equipment                                  |  |      | 12,001 |      |  |   | 14,684  |  
|                                                   
|                                                   
|                                                   
|                                                   
|Leasehold improvements                              |  |      | 356    |      |  |   | 634     |  
|                                                    |  |      |        |      |  |   |         |  
|Furniture, equipment and leasehold improvements     |  |      | 14,805 |      |  |   | 17,886  |  
|                                                    |  |      |        |      |  |   |         |  
|Less: accumulated depreciation                      |  |      | (8,289 | )    |  |   | (10,528 | )
|                                                    |  |      |        |      |  |   |         |  
|Net furniture, equipment and leasehold improvements |  | $    | 6,516  |      |  | $ | 7,358   |  
|                                                    |  |      |        |      |  |   |         |  

Capitalized Computer Software Development Costs

Computer software development costs for products are capitalized
subsequent to the establishment of technological feasibility, as
evidenced by detailed program designs. Capitalization ceases
when the products are available for general release to
customers, at which time amortization of the capitalized costs
begins on a straight-line basis over the estimated lives of the
products, which are generally five years. Amortization expense
of approximately $876,000, $927,000, and $1,044,000 was recorded
related to these costs during 1998, 1999, and 2000,
respectively, and is included in cost of software.

Concentrations of Credit Risk

Financial instruments that potentially subject the Company to
significant concentrations of credit risk consist principally of
cash and cash equivalents, marketable securities, and accounts
receivable. The Company maintains cash and cash equivalents with
high credit quality financial institutions. Marketable
securities consist primarily of investments in municipal bonds,
money market accounts and floating rate bonds with original
maturities at date of purchase beyond three months. The credit
risk with respect to accounts receivable is generally
diversified due to the large number of entities comprising the
Companys customer base. The Company performs ongoing
credit evaluations of its customers financial condition
and maintains allowances for potential credit losses. Actual
losses and allowances have been within managements
expectations.

Fair Value of Financial Instruments

Financial instruments are defined as cash, evidence of an
ownership interest in an entity, or a contract that imposes an
obligation to deliver cash or other financial instruments to a
second party. The carrying

F-7



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##### Table of Contents



DELTEK SYSTEMS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

amounts of accounts receivable and accounts payable in the
accompanying financial statements approximate fair value due to
the short maturity of these instruments.

Income Taxes

Income taxes are accounted for in accordance with SFAS
No. 109, Accounting for Income Taxes. Under
SFAS No. 109, deferred tax assets and liabilities are
computed based on the difference between the financial statement
and tax basis of assets and liabilities and are measured by
applying enacted tax rates and laws for the taxable years in
which those differences are expected to reverse.

Purchased Intangibles

The value of intangible assets acquired primarily relates to
purchased technology that has reached technological feasibility.
Purchased intangibles are being amortized over three to five
years.

Impairment of Long-Lived Assets

The Company complies with SFAS No. 121, Accounting
for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of. The Company reviews its
long-lived assets, including software development costs;
property, plant, and equipment; identifiable intangibles; and
goodwill, for impairment whenever events or changes in
circumstances indicate that the carrying amount of the assets
may not be fully recoverable. To determine recoverability of its
long-lived assets, the Company evaluates the probability that
future undiscounted net cash flows, without interest charges,
will be less than the carrying amount of the assets. Impairment
is measured at fair value. No impairment charges were incurred
for the year-ended December 31, 2000.

Accounting Pronouncements

In June 1998, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 133,
Accounting for Derivative Instruments and Hedging
Activities (SFAS No. 133). The Company
adopted this statement on January 1, 2001. SFAS
No. 133 establishes accounting and reporting standards
requiring that every derivative instrument be recorded in the
balance sheet as either an asset or liability measured at its
fair value. The Companys adoption of SFAS No. 133 did
not materially impact its financial condition or results of
operations.

In December 1999, the U.S. Securities and Exchange
Commission issued Staff Accounting Bulletin 101,
Revenue Recognition in Financial Statements
(SAB 101), which summarizes certain of the SEC
Staff views in applying U.S. GAAP to revenue recognition in
financial statements. SAB 101 is effective for the fourth
quarter ended December 31, 2000, and did not have a
material impact on the financial statements of the Company.

Reclassifications

Certain amounts in prior years financial statements have
been reclassified to conform to the 2000 presentation.

2.  Business Combinations:

Semaphore Acquisition

On August 9, 2000, the Company acquired all of the
outstanding stock of Semaphore, Inc. for a purchase price of
approximately $11.1 million in cash (subject to certain
working capital adjustments) and $0.8 million of non-cash
considerations. Semaphore, Inc. provides advanced financial and
project management software

F-8



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##### Table of Contents



DELTEK SYSTEMS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

and services for architecture, engineering, construction, and
other professional services firms. Approximately
$10.5 million of the purchase price was allocated to
purchased intangibles and goodwill on a preliminary basis. These
intangibles and goodwill are being amortized over five years.
The Company also allocated $1.7 million to deferred tax
assets, $1.5 million to accounts receivable and
$2.1 million to liabilities.

The following unaudited pro forma statements of operations show
the combined results of the Company and Semaphore assuming that
the acquisition had occurred on January 1, 1999. The pro
forma information is based on the historical financial
statements of these companies, giving effect to purchase
accounting adjustments as of the beginning of the period. The
unaudited pro forma information is not intended to be indicative
of the future results of our operations or results that might
have been achieved if this transaction had been in effect since
the beginning of these periods.

Unaudited Pro Forma Results of Operations (in thousands)

|                             |  |      |         |      |  |   |         | 
|---------------------------- |  | ---- | ------- | ---- |  | - | ------- | 
|                             |  | 1999 |         | 2000
|                             |  |      |         |     
|Revenues                     |  | $    | 106,711 |      |  | $ | 103,482 | 
|                            
|                            
|                            
|                            
|Net income                   |  |      | 14,231  |      |  |   | 6,083   | 
|                            
|                            
|                            
|                            
|Basic net income per share   |  | $    | 0.82    |      |  | $ | 0.37    | 
|                            
|                            
|                            
|                            
|Diluted net income per share |  | $    | 0.80    |      |  | $ | 0.37    | 

A/ E Management Services Acquisition

On April 14, 2000, Deltek acquired substantially all assets
of A/ E Management Services, Inc., including its complete suite
of RFP Proposal automation and tracking software, for the cash
purchase price of $3.5 million. Net assets acquired were
nominal and substantially all of the purchase price was
allocated to purchased intangibles and goodwill on a preliminary
basis. These intangibles are being amortized over five years. A/
E Managements RFP front-office automation solution is
designed to help the architecture, engineering, construction,
and other professional services organizations win more contracts
by automating the process of collecting, updating, researching
and retrieving data critical to achieving marketing and proposal
automation success. Unaudited pro forma results of operations
are not provided, as the historical net income of A/ E
Management was not significant.

Harper and Shuman Business Combination

In May 1998, Deltek Systems, Inc. completed its business
combination with Harper and Shuman, Inc. (H&S)
by exchanging 686,000 shares of its common stock for all of
the common stock of H&S. Each share of H&S was exchanged
for 5.64 shares of Deltek Systems, Inc. common stock. In
addition, outstanding H&S stock options were converted at
the same exchange factor into options to purchase approximately
4,000 shares of Deltek Systems, Inc. common stock.

The acquisition constituted a tax-free reorganization and has
been accounted for as a pooling-of-interests under Accounting
Principles Board Opinion No. 16. Accordingly, all prior
period consolidated financial statements presented have been
restated to include the combined results of operations,
financial position and cash flows as though H&S had always
been a part of Deltek Systems, Inc. (hereafter H&S and
Deltek Systems, Inc. are collectively referred to as the
Company or Deltek).

SalesKit Acquisition

In April 1998, the Company acquired substantially all of
the assets of SalesKit Software Corporation
(SalesKit), and assumed certain related liabilities.
The purchase price consisted of cash of $6,054,000 and

F-9



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##### Table of Contents



DELTEK SYSTEMS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

warrants with an estimated fair value of $932,000. The warrants
allow the holder to purchase 130,000 shares of Deltek
common stock at an exercise price of $22 per share,
exercisable over a three-year period.

The Company assigned $4,310,000 of the purchase price to
intangible assets and existing technology and is amortizing this
amount over five years. Based on the stage of
completion valuation method, the Company assigned
$2,500,000 to in-process research and development and expensed
this amount in 1998. In the opinion of management, the acquired
in-process research and development had not yet reached
technological feasibility and had no alternative future uses. At
closing, the Company recorded approximately $468,000 in assumed
liabilities of SalesKit, primarily related to accrued
liabilities and deferred revenue.

3.  Accounts Receivable:

The Company periodically licenses its software to certain
customers under monthly installment plans. Installment plans
extending longer than four months are generally interest bearing.

4.  Accounts Payable and Accrued Expenses:

Accounts payable and accrued expenses consist of the following
(in thousands):

|                                          |  |             |       |      |  |   |       | 
|----------------------------------------- |  | ----------- | ----- | ---- |  | - | ----- | 
|                                          |  |            
|                                          |  | December 31
|                                          |  |            
|                                          |  | 1999        |       | 2000
|                                          |  |             |       |     
|Accrued wages and other employee benefits |  | $           | 3,462 |      |  | $ | 4,186 | 
|                                         
|                                         
|                                         
|                                         
|Accounts payable                          |  |             | 786   |      |  |   | 1,255 | 
|                                         
|                                         
|                                         
|                                         
|Deferred rent credits                     |  |             | 125   |      |  |   | 119   | 
|                                         
|                                         
|                                         
|                                         
|Other accrued expenses                    |  |             | 2,194 |      |  |   | 3,402 | 
|                                          |  |             |       |      |  |   |       | 
|                                          |  | $           | 6,567 |      |  |   | 8,962 | 
|                                          |  |             |       |      |  |   |       | 

5.  Income Taxes (in thousands):

|              |         |      |        |        |   |      |        |       |  |   |       |       | 
|------------- | ------- | ---- | ------ | ------ | - | ---- | ------ | ----- |  | - | ----- | ----- | 
|              |         | 1998 |        | 1999   |   | 2000
|              |         |      |        |        |   |     
|Current:      |         |      |        |        |   |      |        |       |  |   |       |      
|             
|             
|             
|             
|              | Federal |      | $      | 7,958  |   |      | $      | 8,334 |  |   | $     | 3,600 | 
|             
|             
|             
|             
|              | State   |      |        | 1,573  |   |      |        | 1,711 |  |   |       | 1,117 | 
|             
|             
|             
|             
|              | Foreign |      |        |       |   |      |        |      |  |   |       | 43    | 
|              |         |      |        |        |   |      |        |       |  |   |       |      
|              |         |      | 9,531  |        |   |      | 10,045 |       |  |   | 4,760 |      
|              |         |      |        |        |   |      |        |       |  |   |       |      
|Deferred:     |         |      |        |        |   |      |        |       |  |   |       |      
|             
|             
|             
|             
|              | Federal |      |        | (1,525 | ) |      |        | 694   |  |   |       | 668   | 
|             
|             
|             
|             
|              | State   |      |        | (218   | ) |      |        | 142   |  |   |       | 207   | 
|             
|             
|             
|             
|              | Foreign |      |        |       |   |      |        |      |  |   |       | 25    | 
|              |         |      |        |        |   |      |        |       |  |   |       |      
|              |         |      | (1,743 | )      |   |      | 836    |       |  |   | 900   |      
|              |         |      |        |        |   |      |        |       |  |   |       |      
|Tax provision |         | $    | 7,788  |        |   | $    | 10,881 |       |  | $ | 5,660 |      
|              |         |      |        |        |   |      |        |       |  |   |       |      

F-10



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##### Table of Contents



DELTEK SYSTEMS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The income tax provision for continuing operations differs from
that computed using the statutory federal income tax rate of
35 percent in 1999 and 1998 for the following reasons:

|                                               |  |      |       |      |  |      |        |   |  |   |       |  
|---------------------------------------------- |  | ---- | ----- | ---- |  | ---- | ------ | - |  | - | ----- | -
|                                               |  | 1998 |       | 1999 |  | 2000
|                                               |  |      |       |      |  |     
|Computed Statutory Amount                      |  | $    | 6,840 |      |  | $    | 9,833  |   |  | $ | 4,676 |  
|                                              
|                                              
|                                              
|                                              
|Tax Exempt Income                              |  |      | (327  | )    |  |      | (340   | ) |  |   | (306  | )
|                                              
|                                              
|                                              
|                                              
|State Income Taxes, net of federal tax benefit |  |      | 880   |      |  |      | 1,278  |   |  |   | 724   |  
|                                              
|                                              
|                                              
|                                              
|Non-deductible acquisition costs               |  |      | 388   |      |  |      |       |   |  |   | 407   |  
|                                              
|                                              
|                                              
|                                              
|Other                                          |  |      | 7     |      |  |      | 110    |   |  |   | 159   |  
|                                               |  |      |       |      |  |      |        |   |  |   |       |  
|                                               |  | $    | 7,788 |      |  | $    | 10,881 |   |  | $ | 5,660 |  
|                                               |  |      |       |      |  |      |        |   |  |   |       |  

The following table is a summary of the significant components
of the Companys deferred tax assets and liabilities for
1999 and 2000.

|                                        |                                                 |             |        |        |   |   |        |        |  
|--------------------------------------- | ----------------------------------------------- | ----------- | ------ | ------ | - | - | ------ | ------ | -
|                                        |                                                 |            
|                                        |                                                 | December 31
|                                        |                                                 |            
|                                        |                                                 | 1999        |        | 2000  
|                                        |                                                 |             |        |       
|Deferred tax assets:                    |                                                 |             |        |        |   |   |        |       
|                                       
|                                       
|                                       
|                                       
|                                        | Cash to accrual change in tax accounting method |             | $      | 65     |   |   | $      |       |  
|                                       
|                                       
|                                       
|                                       
|                                        | Employee compensation & benefits                |             |        | 579    |   |   |        | 854    |  
|                                       
|                                       
|                                       
|                                       
|                                        | Reserves and other liabilities                  |             |        | 634    |   |   |        | 841    |  
|                                       
|                                       
|                                       
|                                       
|                                        | Non-cash compensation                           |             |        | 346    |   |   |        |       |  
|                                       
|                                       
|                                       
|                                       
|                                        | Purchased Intangibles                           |             |        | 1,331  |   |   |        | 1,687  |  
|                                       
|                                       
|                                       
|                                       
|                                        | Net operating loss                              |             |        |       |   |   |        | 1,238  |  
|                                       
|                                       
|                                       
|                                       
|                                        | Other                                           |             |        | 308    |   |   |        | 166    |  
|                                        |                                                 |             |        |        |   |   |        |       
|Total deferred tax asset                |                                                 |             | 3,263  |        |   |   | 4,786  |       
|                                        |                                                 |             |        |        |   |   |        |       
|Deferred tax liabilities:               |                                                 |             |        |        |   |   |        |       
|                                       
|                                       
|                                       
|                                       
|                                        | Depreciation                                    |             |        | (363   | ) |   |        | (260   | )
|                                       
|                                       
|                                       
|                                       
|                                        | Computer software development costs             |             |        | (2,030 | ) |   |        | (2,551 | )
|                                       
|                                       
|                                       
|                                       
|                                        | Deferred Revenue                                |             |        |       |   |   |        | (526   | )
|                                       
|                                       
|                                       
|                                       
|                                        | Foreign                                         |             |        |       |   |   |        | (25    | )
|                                       
|                                       
|                                       
|                                       
|                                        | Other                                           |             |        | (28    | ) |   |        | (129   | )
|                                        |                                                 |             |        |        |   |   |        |       
|Total deferred tax liabilities          |                                                 |             | (2,421 | )      |   |   | (3,491 | )     
|                                        |                                                 |             |        |        |   |   |        |       
|Net deferred tax asset                  |                                                 |             | 842    |        |   |   | 1,295  |       
|                                       
|                                       
|                                       
|                                       
|Less: long-term net deferred tax assets |                                                 |             |       |        |   |   | 89     |       
|                                        |                                                 |             |        |        |   |   |        |       
|Net short-term deferred tax asset       |                                                 | $           | 842    |        |   | $ | 1,206  |       
|                                        |                                                 |             |        |        |   |   |        |       

6.  Commitments and Contingencies:

Office Space Lease

The Company leases office space under noncancellable operating
leases. Minimum rental expense is recognized on a straight-line
basis over the term of the lease, regardless of when payments
are due. Rent expense was approximately $2,909,000 and
$3,048,000 for the years ended December 31, 1999 and 2000,
respectively. The Companys primary lease expires in
March 2002.

F-11



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##### Table of Contents



DELTEK SYSTEMS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

As of December 31, 2000, the future minimum operating lease
payments are as follows (in thousands):

|            |  |        |       | 
|----------- |  | ------ | ----- | 
|Year Ending |  |       
|December 31 |  | Amount
|            |  |       
|2001        |  | $      | 2,608 | 
|           
|           
|           
|           
|2002        |  |        | 922   | 
|           
|           
|           
|           
|2003        |  |        | 227   | 
|           
|           
|           
|           
|2004        |  |        | 142   | 
|           
|           
|           
|           
|2005        |  |        | 45    | 
|           
|           
|           
|           
|Thereafter  |  |        |      | 
|            |  |        |       | 
|            |  | $      | 3,944 | 
|            |  |        |       | 

Profit-Sharing Plan

The Company has a 401(k) profit-sharing plan covering all
eligible employees. Employees are eligible to participate in the
plan after they have completed six months of service. Once the
eligibility requirement is satisfied, employees may become
participants on the earlier of the first day of the plan year or
the first day of the seventh month of the plan year coinciding
with the employees eligibility. Company contributions vest
ratably over five years. The Board of Directors approved a
contribution of 4 percent of eligible compensation for both
1999 and 2000. The Companys contribution for 1999 and 2000
was approximately $1,211,000 and $1,488,000 respectively.

Other Matters

The Companys continuing operations are involved in various
claims incidental to its business. The Company is contesting
these matters and in the opinion of management, the ultimate
resolution of the legal proceedings will not have a material
adverse effect on the financial condition or the future
operating results of the Company.

7.  Shareholders Equity:

Common Stock Repurchases

During 2000, Deltek repurchased and retired 1,697,500 common
shares at an average price of $6.73 per share.

Preferred Stock

The Companys Board of Directors has the authority, without
further action by the shareholders, to issue preferred stock in
one or more series and to fix the terms and rights of the
preferred stock. Such actions by the Board of Directors could
adversely affect the voting power and other rights of the
holders of common stock. Preferred stock could thus be issued
quickly with terms that could delay or prevent a change in
control of the Company or make removal of management more
difficult.

8.  Employee Stock Option Plans:

1987 Employee Stock Option Plan

Prior to April 1, 1996, the Companys sole stock
option plan was the 1987 Employee Stock Option Plan (the
1987 Plan), a nonqualified plan. No further options
can be issued under the 1987 Plan. Options are exercisable over
ten years, subject to a five-year vesting period. Options
granted pursuant to the 1987 Plan are generally nontransferable.

F-12



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##### Table of Contents



DELTEK SYSTEMS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

At December 31, 2000, 61,255 options were outstanding and
61,255 options were exercisable under the 1987 Plan at exercise
prices ranging from $.304 to $.517 per share.

Employee Time Accelerated Stock Option Plan

On April 1, 1996, the Company created the Employee Time
Accelerated Stock Option Plan (the Accelerated Plan)
and granted options thereunder to purchase 679,500 common
shares. At December 31, 2000, 261,650 options were
outstanding and 180,950 options were exercisable under the
Accelerated Plan.

1996 Stock Option Plan

The Companys Board of Directors and the shareholders of
the Company adopted a new 1996 Stock Option Plan (the 1996
Option Plan) in December 1996. A total of
2,100,000 shares of common stock have been reserved for
issuance under the 1996 Option Plan. No options were granted
under the 1996 Option Plan during the 1996 fiscal year. At
December 31, 2000 1,468,788 options were outstanding and
378,398 options were exercisable at exercise prices ranging from
$8.00 to $18.69 per share. The 1996 Option Plan provides
for grants of incentive stock options to employees (including
officers and employee directors) and for grants of nonstatutory
options to employees, nonemployee directors and consultants.

The exercise price of incentive stock options granted under the
1996 Option Plan must not be less than the fair market value of
the common stock on the date of the grant, and the exercise
price of nonstatutory options must not be less than
85 percent of the fair market value of the common stock on
the date of the grant. With respect to any optionee who owns
stock representing more than 10 percent of the voting power
of all classes of the Companys outstanding common stock,
the exercise price of any incentive stock option must be equal
to at least 110 percent of the fair market value of the
common stock on the date of the grant, and the term of the
option must not exceed five years. The terms of all other
options may not exceed 10 years.

1996 Employee Stock Purchase Plan

The Companys 1996 Employee Stock Purchase Plan (the
Purchase Plan) was adopted by the Companys
Board of Directors and approved by the shareholders of the
Company in December 1996. A total of 400,000 shares of
common stock have been reserved for issuance under the Purchase
Plan. The Purchase Plan permits eligible employees to purchase
common stock through payroll deductions at a price equal to
85 percent of the lower of fair market value of the common
stock on the first day of the offering period or the last day of
the offering period. During 1999 and 2000, employees purchased
49,866 shares and 73,416 shares, respectively.

F-13



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##### Table of Contents



DELTEK SYSTEMS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Summary Activity

The following table summarizes the activity of all the
Companys stock option plans:

|                                       |                   |           |           |                 |   |   |                |                | 
|-------------------------------------- | ----------------- | --------- | --------- | --------------- | - | - | -------------- | -------------- | 
|                                       |                   | Number of |           |                
|                                       |                   | Shares    |           | Price Per Share
|                                       |                   |           |           |                
|Shares under option, December 31, 1997 |                   |           | 1,132,484 |                 |   | $ | 0.249  22.500 |               
|                                      
|                                      
|                                      
|                                      
|                                       | Options granted   |           |           | 623,108         |   |   |                | 3.191  24.500 | 
|                                      
|                                      
|                                      
|                                      
|                                       | Options canceled  |           |           | (116,501        | ) |   |                | 0.517  24.500 | 
|                                      
|                                      
|                                      
|                                      
|                                       | Options exercised |           |           | (160,261        | ) |   |                | 0.304  18.750 | 
|                                       |                   |           |           |                 |   |   |                |               
|Shares under option, December 31, 1998 |                   |           | 1,478,830 |                 |   |   | 0.249  18.687 |               
|                                       |                   |           |           |                 |   |   |                |               
|                                       | Options granted   |           |           | 283,610         |   |   |                | 8.750  18.000 | 
|                                      
|                                      
|                                      
|                                      
|                                       | Options canceled  |           |           | (187,859        | ) |   |                | 8.500  18.750 | 
|                                      
|                                      
|                                      
|                                      
|                                       | Options exercised |           |           | (134,680        | ) |   |                | 0.304  11.000 | 
|                                       |                   |           |           |                 |   |   |                |               
|Shares under option, December 31, 1999 |                   |           | 1,439,901 |                 |   |   | 0.249  18.687 |               
|                                       |                   |           |           |                 |   |   |                |               
|                                       | Options granted   |           |           | 800,860         |   |   |                | 4.250  19.000 | 
|                                      
|                                      
|                                      
|                                      
|                                       | Options canceled  |           |           | (338,488        | ) |   |                | 4.000  19.000 | 
|                                      
|                                      
|                                      
|                                      
|                                       | Options exercised |           |           | (112,945        | ) |   |                | 0.249  17.625 | 
|                                       |                   |           |           |                 |   |   |                |               
|Shares under option, December 31, 2000 |                   |           | 1,789,328 |                 |   |   | 0.304  18.687 |               
|                                       |                   |           |           |                 |   |   |                |               

On December 11, 1998, the Company repriced 383,050 options,
which had exercise prices between $18.75 and $24.50 per
share to the then current market price of $18.687 per
share. This was the Companys first repricing of options
and did not benefit executive officers, affiliates, or major
shareholders. As the repricing occurred prior to the
effectiveness of FIN44, Accounting for Certain
Transactions Involving Stock Compensation, the repriced
options maintained fixed plan accounting.

The Company adopted the disclosure requirements of SFAS
No. 123, Accounting for Stock-Based
Compensation, effective for the Companys
December 31, 1996 financial statements. The Company applies
APB Opinion No. 25 and related Interpretations in
accounting for its plans. Accordingly, compensation cost has
been recognized for its stock plans based on the intrinsic value
of the stock option at date of grant (i.e. the difference
between the exercise price and the fair value of the
Companys stock).

Had compensation cost for the Companys stock-based
compensation plans been determined based on the fair value at
the grant dates for awards under those plans consistent with the
method of FASB Statement 123, the Companys net income and
earnings per share would have been reduced to the pro forma
amounts indicated below:

|                                        |  |                                       |        |      |  |      |        |  |  |   |        | 
|--------------------------------------- |  | ------------------------------------- | ------ | ---- |  | ---- | ------ |  |  | - | ------ | 
|                                        |  | 1998                                  |        | 1999 |  | 2000
|                                        |  |                                       |        |      |  |     
|                                        |  |                                      
|                                        |  | (In thousands, except per share data)
|                                       
|                                       
|                                       
|                                       
|Net income before taxes, as reported    |  | $                                     | 19,543 |      |  | $    | 28,093 |  |  | $ | 13,359 | 
|                                       
|                                       
|                                       
|                                       
|Pro forma compensation expense          |  |                                       | 1,317  |      |  |      | 2,589  |  |  |   | 3,448  | 
|                                       
|                                       
|                                       
|                                       
|Pro forma income tax provision          |  |                                       | 8,585  |      |  |      | 9,873  |  |  |   | 4,281  | 
|                                        |  |                                       |        |      |  |      |        |  |  |   |        | 
|Pro forma net income                    |  | $                                     | 9,641  |      |  | $    | 15,631 |  |  | $ | 5,630  | 
|                                        |  |                                       |        |      |  |      |        |  |  |   |        | 
|Diluted earnings per share, as reported |  | $                                     | 0.64   |      |  | $    | 0.97   |  |  | $ | 0.47   | 
|                                       
|                                       
|                                       
|                                       
|Diluted earnings per share, pro forma   |  | $                                     | 0.53   |      |  | $    | 0.88   |  |  | $ | 0.34   | 

The fair value of each option is estimated on the date of grant
using the Black-Scholes option-pricing model with the following
assumptions used for grants in 1998, 1999, and 2000,
respectively; no dividend yield, expected volatility of 60, 70,
and 70 percent, risk-free interest rates of approximately
4.6, 6.5 and 7.0 percent, respectively, and expected lives
of seven years.

F-14



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##### Table of Contents



DELTEK SYSTEMS, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

9.  Segment Reporting

The Company operates in one industry segment; the design,
development, marketing and support of project accounting
enterprise resource planning applications software products. The
majority of the Companys revenues are derived in the
United States.

10.  Quarterly Financial Data (unaudited):

The following unaudited quarterly data has been prepared from
the financial records of the Company without audit, and reflects
all adjustments which, in the opinion of management, were of a
normal recurring nature and necessary for a fair presentation of
the results of operations for the interim periods presented (in
thousands, except per share data).

|                                          |  |           |        |          |  |               |        |              |  |   |        |  |  |   |        | 
|----------------------------------------- |  | --------- | ------ | -------- |  | ------------- | ------ | ------------ |  | - | ------ |  |  | - | ------ | 
|                                          |  | March 31, |        | June 30, |  | September 30, |        | December 31,
|                                          |  | 1999      |        | 1999     |  | 1999          |        | 1999        
|                                          |  |           |        |          |  |               |        |             
|Net sales                                 |  | $         | 23,507 |          |  | $             | 23,836 |              |  | $ | 25,139 |  |  | $ | 25,762 | 
|                                         
|                                         
|                                         
|                                         
|Gross profit                              |  |           | 14,838 |          |  |               | 15,588 |              |  |   | 15,484 |  |  |   | 16,262 | 
|                                         
|                                         
|                                         
|                                         
|Net income                                |  |           | 4,041  |          |  |               | 4,367  |              |  |   | 4,304  |  |  |   | 4,500  | 
|                                         
|                                         
|                                         
|                                         
|Basic net income per common share         |  | $         | 0.23   |          |  | $             | 0.25   |              |  | $ | 0.25   |  |  | $ | 0.27   | 
|                                         
|                                         
|                                         
|                                         
|Fully diluted net income per common share |  | $         | 0.22   |          |  | $             | 0.25   |              |  | $ | 0.25   |  |  | $ | 0.26   | 

|                                    |  |           |        |          |  |               |        |              |  |   |        |  |  |   |        | 
|----------------------------------- |  | --------- | ------ | -------- |  | ------------- | ------ | ------------ |  | - | ------ |  |  | - | ------ | 
|                                    |  | March 31, |        | June 30, |  | September 30, |        | December 31,
|                                    |  | 2000      |        | 2000     |  | 2000          |        | 2000        
|                                    |  |           |        |          |  |               |        |             
|Net sales                           |  | $         | 25,293 |          |  | $             | 22,109 |              |  | $ | 25,348 |  |  |   | 25,508 | 
|                                   
|                                   
|                                   
|                                   
|Gross profit                        |  |           | 15,140 |          |  |               | 11,290 |              |  |   | 14,259 |  |  |   | 14,429 | 
|                                   
|                                   
|                                   
|                                   
|Net income                          |  |           | 4,183  |          |  |               | 818    |              |  |   | 1,819  |  |  |   | 879    | 
|                                   
|                                   
|                                   
|                                   
|Basic net income per common share   |  | $         | 0.25   |          |  | $             | 0.05   |              |  | $ | 0.11   |  |  | $ | 0.06   | 
|                                   
|                                   
|                                   
|                                   
|Diluted net income per common share |  | $         | 0.25   |          |  | $             | 0.05   |              |  | $ | 0.11   |  |  | $ | 0.06   | 

F-15



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##### Table of Contents



REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Deltek Systems, Inc.:

We have audited in accordance with auditing standards generally
accepted in the United States the financial statements of Deltek
Systems, Inc. included in this Form 10-K and have issued
our report thereon dated January 31, 2001. Our audit was
made for the purpose of forming an opinion on the basic
financial statements taken as a whole. Schedule I,
Valuation and Qualifying Accounts, is the responsibility of the
Companys management and is presented for the purpose of
complying with the Securities and Exchange Commissions
rules and is not a part of the basic financial statements. This
schedule has been subjected to the auditing procedures applied
in the audits of the basic financial statements and, in our
opinion, fairly states, in all material respects, the financial
data required to be set forth therein in relation to the basic
financial statements taken as a whole.

Vienna, Virginia



F-16



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##### Table of Contents



DELTEK SYSTEMS, INC.

VALUATION AND QUALIFYING ACCOUNTS

For the Years Ended December 31, 1998, 1999, and 2000


(In Thousands)


|                   |                   |           |   |             |  |            |   |         |   |  |   |       |  |  |   |       | 
|------------------ | ----------------- | --------- | - | ----------- |  | ---------- | - | ------- | - |  | - | ----- |  |  | - | ----- | 
|                   |                   | Beginning |   | Amounts     |  | Charged    |   | Ending 
|                   |                   | Balance   |   | Written-Off |  | to Expense |   | Balance
|                   |                   |           |   |             |  |            |   |        
|December 31, 1998: |                   |           |   |             |  |            |   |         |   |  |   |       |  |  |   |      
|                  
|                  
|                  
|                  
|                   | Bad-debt reserves |           | $ | 573         |  |            | $ | (69     | ) |  | $ | 185   |  |  | $ | 689   | 
|                  
|                  
|                  
|                  
|December 31, 1999: |                   |           |   |             |  |            |   |         |   |  |   |       |  |  |   |      
|                  
|                  
|                  
|                  
|                   | Bad-debt reserves |           |   | 689         |  |            |   | (2,900  | ) |  |   | 3,615 |  |  |   | 1,404 | 
|                  
|                  
|                  
|                  
|December 31, 2000: |                   |           |   |             |  |            |   |         |   |  |   |       |  |  |   |      
|                  
|                  
|                  
|                  
|                   | Bad-debt reserves |           |   | 1,404       |  |            |   | (3,140  | ) |  |   | 3,388 |  |  |   | 1,652 | 

F-17



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##### Table of Contents






EXHIBIT INDEX

|            |          |                        |  |                                                                                                                                                                                                                                               
|----------- | -------- | ---------------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |          | Description of Exhibit
|            |          |                       
|            | 2.1(1)   |                        |  | Asset Purchase Agreement dated February 12, 1998 between
	SalesKit Software Corporation, Arch Acquisition Corp. and the
	Company.                                                                                                             
|            | 2.2(2)   |                        |  | Agreement and Plan of Reorganization among Deltek Systems, Inc.,
	Turtledove Acquisition Corp., Chester A. Shuman, the Harper
	and Shuman, Inc. Employee Stock Ownership Plan and Trust and the
	other shareholders of Harper and Shuman, Inc.
|            | 2.3(7)   |                        |  | Agreement and Plan of Merger dated as of August 9, 2000 by
	and among Deltek Systems, Inc., Yankee Clipper Merger Sub
	Corporation and Semaphore Inc., Raymond King, Paul Chu and Novax
	Group, Inc.                                          
|            | 3.1(3)   |                        |  | Amended and Restated Articles of Incorporation of the Registrant.                                                                                                                                                                             
|            | 3.2(7)   |                        |  | Amended and Restated Bylaws of the Registrant.                                                                                                                                                                                                
|            | 4.1(4)   |                        |  | Specimen Common Stock certificate of the Registrant.                                                                                                                                                                                          
|            | 4.2(1)   |                        |  | Form of Warrant issued to SalesKit Software Corporation.                                                                                                                                                                                      
|            | 10.1(3)  |                        |  | 1987 Employee Stock Option Plan.                                                                                                                                                                                                              
|            | 10.2(3)  |                        |  | Employee Time Accelerated Stock Option Plan (revised).                                                                                                                                                                                        
|            | 10.3(3)  |                        |  | 1996 Stock Option Plan.                                                                                                                                                                                                                       
|            | 10.4(3)  |                        |  | 1996 Employee Stock Purchase Plan.                                                                                                                                                                                                            
|            | *10.5(5) |                        |  | OEM Software License Agreement by and between the Company and
	Centura Software Corporation dated as of March 1, 1993, as
	amended.                                                                                                           
|            | *10.6(5) |                        |  | Cognos Desktop OEM Agreement by and between the Company and
	Cognos Corporation dated as of February 28, 1994, as
	amended.                                                                                                                   
|            | *10.7(5) |                        |  | Micro Focus OSX Application Vendor License Agreement by and
	between the Company and Micro Focus Incorporated dated as of
	June 10, 1993, as amended.                                                                                         
|            | 10.8(3)  |                        |  | Agreement of Lease by and between the Company and Tysons Corner
	Limited Partnership, dated as of November 12, 1991, as
	amended.                                                                                                             
|            | 10.9(3)  |                        |  | Agreement of Lease by and between the Company and Tysons Corner
	Limited Partnership, dated as of November 12, 1992, as
	amended.                                                                                                             
|            | 10.10(4) |                        |  | Form of Indemnity Agreement for officers and directors.                                                                                                                                                                                       
|            | 10.11(4) |                        |  | Form of Tax Indemnification Agreement.                                                                                                                                                                                                        
|            | 10.12(4) |                        |  | Seventh Amendment to Agreements of Lease by and between the
	Company and Tysons Corner Limited Partnership, dated as of
	December 17, 1997.                                                                                                   
|            | 10.13(1) |                        |  | Escrow Agreement dated February 25, 1998.                                                                                                                                                                                                     
|            | 10.14(2) |                        |  | Escrow Agreement dated May 29, 1998.                                                                                                                                                                                                          
|            | 10.15    |                        |  | Embedded distribution agreement between the Company and BEA
	Systems, Inc. dated as of December 19, 2000.                                                                                                                                     
|            | 21 (6)   |                        |  | Subsidiaries of the Company.                                                                                                                                                                                                                  
|            | 23.1     |                        |  | Consent of Arthur Andersen LLP.                                                                                                                                                                                                               




| |   |                                                                                                                                                                                                                
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | * | This Exhibit has been filed separately with the Commission
	pursuant to an application for confidential treatment. The
	confidential portions of this Exhibit have been omitted and are
	marked by an asterisk.



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



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##### Table of Contents





|    |                                                                                                                                           
|--- | ------------------------------------------------------------------------------------------------------------------------------------------
|(6) | Incorporated by reference to the Companys Annual Report on
	Form 10-K for the fiscal year ended December 31, 1998
	(File No.  000-22001).
|   
|(7) | Incorporated by reference to the Companys Quarterly Report
	on Form 10-Q filed on August 14, 2000 (File
	No. 000-22001).