<PAGE> 1
THIS DOCUMENT IS A COPY OF THE FORM 10-Q FILED ON APRIL 15 PURSUANT
TO A RULE 201 TEMPORARY HARDSHIP EXEMPTION.
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
------------------
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended February 28, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from to
----- -----
Commission file number 0-21921
TEMPLATE SOFTWARE, INC.
(Exact name of registrant as specified in its charter)
VIRGINIA 52-1042793
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
45365 VINTAGE PARK PLAZA
DULLES, VIRGINIA 20166
(Address of principal executive offices) (Zip code)
(703) 318-1000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that
the registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
YES X NO
------ -------
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
<TABLE>
<CAPTION>
Outstanding at
Class of Common Stock April 10,1997
--------------------- -------------
<S> <C>
Common Stock, $.01 par value per share 4,317,758
</TABLE>
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TEMPLATE SOFTWARE, INC.
INDEX
<TABLE>
<S> <C>
Part I - Financial Information Page
- - ------------------------------ ----
Item 1. Financial Statements
Consolidated Balance Sheets at
February 28, 1997 and November 30, 1996 3
Consolidated Statements of Operations for the
Three Months Ended February 28, 1997 and
February 29, 1996 4
Consolidated Statements of Cash Flows for the
Three Months Ended February 28, 1997 and
February 29, 1996 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8
Part II - Other Information
- - ---------------------------
Item 2. Changes in Securities 10
Item 6. Exhibits and Reports on Form 8-K 11
Signatures 12
----------
</TABLE>
Exhibit Index
This Form 10-Q contains certain forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended (the
"Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), which are intended to be covered by the safe
harbors created thereby. Investors are cautioned that all forward-looking
statements involve risks and uncertainty, including without limitation, the
ability of the Company to develop its products, as well as general market
conditions, competition and pricing. Although the Company believes that the
assumptions underlying the forward-looking statements contained herein are
reasonable, any of the assumptions could be inaccurate, and therefore, there
can be no assurance that the forward-looking statements included in this Form
10-Q will prove to be accurate. In light of the significant uncertainties
inherent in the forward-looking statements included herein, the inclusion of
such information should not be regarded as a representation by the Company or
any other person that the objectives and plans of the Company will be achieved.
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
TEMPLATE SOFTWARE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
February 28, 1997 November 30, 1996
(unaudited)
------------------------------------------
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 15,567 $ 8,397
Marketable securities 14,461 -
Accounts receivable, net 3,958 2,887
Deferred income taxes 374 374
Prepaid expenses 358 504
------------------------------------------
Total current assets 34,718 12,162
Property and equipment, net 995 924
Software development costs, net 866 718
Other assets 160 181
------------------------------------------
Total assets $ 36,739 $ 13,985
==========================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 900 $ 1,209
Accrued expenses 1,370 766
Current portion of long-term debt 92 92
Capital lease obligations 51 50
Income taxes payable 307 567
Deferred income 853 469
------------------------------------------
Total current liabilities 3,573 3,153
Long-term debt, net of current portion 153 176
Capital lease obligations, noncurrent 168 181
Deferred income taxes 281 281
Other liabilities 182 151
------------------------------------------
Total liabilities 4,357 3,942
------------------------------------------
Shareholders' equity:
Series A Convertible Preferred Stock, $0.01 par value; 3,000,000 shares authorized, 5
no shares and 500,000 shares issued and outstanding, as of February 28, 1997 and
November 30, 1996, respectively
</TABLE>
3
<PAGE> 4
<TABLE>
<S> <C> <C>
Common Stock, $0.01 par value; 17,000,000 shares authorized, 42 22
2,247,008 shares and 4,223,258 shares issued and outstanding,
as of February 28, 1997 and November 30, 1996, respectively
Additional paid-in capital 29,047 9,110
Foreign currency translation (21) -
Retained earnings 1,314 906
-----------------------------------------
Total shareholders' equity 30,382 10,043
-----------------------------------------
Total liabilities and shareholders' equity $ 34,739 $ 13,985
=========================================
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
TEMPLATE SOFTWARE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
Three months Ended
-------------------------------------------
February 28, 1997 February 29, 1996
-------------------------------------------
<S> <C> <C>
Revenues:
Products $ 1,489 $ 511
Services 2,465 2,000
-------------------------------------------
Total Revenues 3,954 2,511
-------------------------------------------
Cost of revenues:
Products 182 160
Services 1,467 1,090
-------------------------------------------
Total cost of revenues 1,649 1,250
-------------------------------------------
Gross profit 2,305 1,261
-------------------------------------------
Operating expenses:
Selling and marketing 824 470
Product development 326 133
General and administrative 633 393
-------------------------------------------
Total operating expenses 1,783 996
-------------------------------------------
Income from operations 522 265
Interest expense 13 12
Other income 137 -
-------------------------------------------
Net income before income taxes 646 253
Income tax provision 239 97
-------------------------------------------
Income income $ 407 $ 156
===========================================
Earnings per common share $ 0.08 $ 0.03
===========================================
Weighted average number of common shares outstanding 5,022,520 4,659,000
===========================================
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
4
<PAGE> 5
TEMPLATE SOFTWARE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Three months Ended
February 28, 1997 February 29, 1996
----------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net Income $ 407 $ 156
Adjustments to reconcile net income (loss) to cash and cash
equivalents provided by operating activities:
Depreciation 63 22
Amortization 64 63
Deferred rent amortization 30 (44)
Bad debt expense 178 -
Change in assets and liabilities:
Accounts receivable (1,249) 247
Prepaid expenses and other 145 (61)
Other assets 22 (24)
Accounts payable and accrued liabilities 295 157
Income taxes payable (260) 79
Deferred income 384 328
----------------------------------------
Net cash provided by operating activities 79 923
----------------------------------------
Cash flows from investing activities:
Marketable securities (14,461) -
Capital expenditures (135) (29)
Capitalization of software development costs (211) (181)
----------------------------------------
Net cash used in investing activities (14,807) (210)
----------------------------------------
Cash flows from financing activities:
Payments on revolving credit facility, net - (161)
Payments on note payable (23) (28)
Payments on capital lease obligations (12) -
Proceeds from issuance of capital stock, net of issuance costs 19,953 -
----------------------------------------
Net cash provided by (used in) financing activities 19,918 (189)
----------------------------------------
Effect of exchange rate changes on cash and cash equivalents (21) -
----------------------------------------
Net increase (decrease) in cash and cash equivalents 5,169 524
Cash and cash equivalents at beginning of period 8,397 63
</TABLE>
5
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<TABLE>
<S> <C> <C>
----------------------------------------
Cash and cash equivalents at end of period $ 13,566 $ 587
=========================================
Noncash investing and financing activities:
Retirement of treasury stock:
Class A Common Stock $ - $ 4
Preferred Stock $ - $ 18
Conversion of 500,000 shares Series A Convertible $ 5 $ -
Preferred Stock to 500,000 shares of Common Stock
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
TEMPLATE SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 28, 1997
NOTE A -- BASIS OF PRESENTATION
In the opinion of management, the accompanying unaudited consolidated financial
statements of Template Software, Inc. and subsidiaries (the "Company") contain
all adjustments (consisting only of normal recurring accruals) necessary to
present fairly the Company's consolidated financial position as of February 28,
1997, and the results of operations and cash flows for the periods indicated.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. It is suggested that these condensed
consolidated financial statements be read in conjunction with the financial
statements and notes thereto included in the Company's Registration Statement
of Form S-1 (File No. 333-17063). The results of operations for the three
months ended February 28, 1997 are not necessarily indicative of the operating
results to be expected for the full year.
NOTE B - INITIAL PUBLIC OFFERING
In January 1997, the Company filed a registration statement with the Securities
and Exchange Commission permitting the Company to sell 1,400,000 shares of its
common stock to the public. The registration statement also permitted certain
stockholders of the Company to sell 700,000 shares to the public. The
registration statement became effective January 28, 1997. The initial public
offering resulted in proceeds to the Company of approximately $19.8 million,
net of $2.6 million in underwriting fees and offering expenses. The Company
received no proceeds from the sale of shares by selling stockholders in the
initial public offering.
6
<PAGE> 7
NOTE C -- ACQUISITION OF KRYSTAL INGENIERIE S.A.
On March 4, 1997, the Company consummated its acquisition (the "Transaction")
of all of the issued and outstanding capital stock of Krystal Ingenierie S.A.
("Krystal"), a corporation organized under the laws of the Republic of France.
The Transaction was consummated pursuant to a Stock Purchase Agreement dated as
of February 19, 1997, with Alain Kuhner ("Kuhner"), whereby the Company agreed
to : (1) exchange for an aggregate of 48,064 shares of the Company's common
stock, par value $0.01 per share (the "Common Stock"), 2,500 shares of Krystal
held by Kuhner, representing all of the issued and outstanding capital stock of
Krystal; and (2) exchange for an aggregate of 45,686 additional shares of the
Company's Common Stock, certain indebtedness of Krystal owed to Kuhner in the
aggregate amount of approximately FF 3,914,000. Concurrently with the closing
of the Transaction, Krystal's name was formally changed to Template Software
S.A.
NOTE D -- EARNINGS PER SHARE
Earnings per share is computed on a primary and fully-diluted basis using the
weighted average number of shares of Common Stock, assuming conversion of
dilutive common stock equivalent shares from common stock options. Pursuant to
the Securities and Exchange Commission's Staff Accounting Bulletin No. 83,
common stock and common stock equivalent shares issued by the Company at prices
below the public offering price during the twelve month period prior to the
proposed offering date and the conversion of 500,000 shares of Preferred Stock
that were issued in November 1996 into an equal number of shares of Common
Stock, have been included in the calculation as if they were outstanding for
all periods presented. Fully diluted net income (loss) per common share is the
same as primary.
NOTE E - NEW ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board has issued Statement of Financial
Standards No. 123, "Accounting for Stock Based Compensation" ("SFAS 123").
SFAS 123 allows companies which grant stock options a choice to either continue
the current accounting treatment under Accounting Principles Bulletin Opinion
No. 25, "Accounting for Stock Issued to Employees" ("APB 25"), or adopt a new
set of fair value accounting rules for recognizing compensation expense related
to stock awards. Companies continuing under APB 25 must measure option values
and disclose the pro forma effects that the new fair value accounting would
have on earnings, if recorded. The Company has determined that it will
continue the current accounting treatment under APB 25 and will provide pro
forma disclosures as of November 30, 1997 for the effect the new fair value
accounting rule would have on earnings, if adopted.
The Financial Accounting Standards Board has also issued Statements of
Financial Accounting Standards No. 128, "Earnings Per Share" ("SFAS 128"),
which specifies the
7
<PAGE> 8
computation, presentation, and disclosure requirements for earnings per share.
SFAS 128 is effective for financial statements for periods ending after
December 15, 1997. The Company believes that the adoption of SFAS 128 will not
have a material effect on the financial statements.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
Results of Operations
Revenue. Total revenue was $4.0 million for the quarter ended
February 28, 1997 compared to $2.5 million for the quarter ended February 28,
1996, an increase of $1.4 million or 57.5%. This growth resulted principally
from volume increases in sales of both software-related services and software
licenses due to the Company's shift in emphasis toward selling complete
solutions.
Product Revenue was $1.5 million for the quarter ended February 28,
1997 compared to $.5 million for the quarter ended February 28, 1996, a
increase of $1.0 million or 190.8%. This increase was primarily attributable
to the sale of development licenses associated with new contract engagements.
Services Revenue was $2.5 million for the quarter ended February 28, 1997
compared to $2.0 million for the quarter ended February 28, 1996, and increase
of $0.5 million or 23.3%. This increase was primarily attributable to the
implementation of multiple significant client engagements for complete
solutions. Contracts for complete solutions obtained by the Company through
its direct sales force typically contain a larger service component than those
obtained through the Company's distributors, value added resellers and systems
integrators, as the Company is engaged to develop a customized solution in
addition to providing software products.
Cost of Revenue. Total cost of revenue consists primarily of salaries
and related benefits for personnel, and also includes an allocated portion of
rent, building services and computer equipment services and expenses. Total
cost of revenue was $1.6 million for the quarter ended February 28, 1997
compared to $1.2 million for the quarter ended February 28, 1996, an increase
of $0.4 million or 31.9%. This increase was primarily attributable to
additional professional staff hired to perform the increased volume of software
services. Total cost of revenue was 41.7% of total revenue for the quarter
ended February 28, 1997 compared to 49.8% of total revenue for the quarter
ended February 28, 1996. This percentage decrease was primarily attributable
to the Company's higher margin related to Product Revenue.
Cost of Product Revenue was $0.2 million for the quarter ended
February 28, 1997 unchanged from $0.2 million for the quarter ended February
28, 1996. Cost of Services Revenue was $1.5 million for the quarter ended
February 28, 1997 compared to $1.1 million for the quarter ended February 28,
1996, an increase of $0.4 million or 34.6%. This increase resulted primarily
from the cost associated with staffing the growth in services
8
<PAGE> 9
contracts. Because such staffing is relatively fixed in the short term, if any
of the Company's engagements were to be terminated on short notice, the Company
would be unable to reduce cost of Services Revenue commensurate with the
associated decrease in Services Revenue. Any such termination would have a
material adverse effect on the Company's business, operating results and
financial condition.
Selling and Marketing. Selling and marketing expenses consist
primarily of expenses related to sales and marketing personnel, advertising,
promotion, trade show participation and public relations. Selling and
marketing expenses were $0.8 million for the quarter ended February 28, 1997
compared to $0.5 million for the quarter ended February 28, 1996, an increase
of $0.3 million or 75.3%. This increase resulted primarily from the Company's
strategic shift toward direct sales. The Company anticipates that selling and
marketing expenses will increase in the near future due to such shift.
Product Development. Product development expenses were $0.3 million
for the quarter ended February 28, 1997 compared to $0.1 million for the
quarter ended February 28, 1996, an increase of $0.2 million or 143.6%. This
increase resulted primarily from the development of enhancements to the
Company's visual development tools. Product development expenses in the
three-month period ended February 28, 1997 and February 29, 1996, included
offsets of $0.1 million and $0.1 million, respectively, as a result of the
Company's participation in a federal Technology Reinvestment Program.
General and Administrative. General and administrative expenses
include costs of corporate services functions including accounting, human
resources and legal services, as well as the corporate executive staff.
General and administrative expenses were $0.6 million for the quarter ended
February 28, 1997 compared to $0.4 million for the quarter ended February 28,
1996 an increase of $0.2 million or 61.2%; this increase resulted primarily
from the increase in reserves. The Company anticipates general and
administrative expenses to increase in the future due to increases in staffing.
Income Tax Provision. The provision for income taxes was $0.2 for the
quarter ended February 28, 1997 compared to $0.1 for the quarter ended February
28, 1996, an increase of $0.1. This increase was attributable to the Company's
greater pretax profit level in the three-month period ended February 28, 1997.
The Company's effective tax rate of 37% for the quarter ended February 28, 1997
was lower than the effective tax rate of 38% for the quarter ended February 28,
1996, primarily as a result of increased profits in European jurisdictions with
lower tax rates.
LIQUIDITY AND CAPITAL RESOURCES
The Company's overall cash and cash equivalents were $13.6 million at February
28, 1997, which is an increase of approximately $5.2 million from $8.4 million
as of November 30, 1996 During the three month period ended February 28, 1997,
the Company financed its operations from available working capital. The
Company's operating activities provided cash of $0.9 million for the three
month period ended
9
<PAGE> 10
February 29, 1996 and $0.1 million for the three month period ended February
28, 1997. During the three month period ended February 28, 1997, cash flow
provided by operating activities reflected a net income and increases in
accrued expenses and deferred income which were partially offset by increases
in accounts receivable and decreases in income taxes payable.
Cash used in investing activities totaled $14.8 million during the three month
period ended February 28, 1997 relating primarily to investment in short-term,
investment grade marketable securities with maturities of less than one year.
Cash flow from financing activities totaled $19.9 million for the three month
period ended February 28, 1997 relating to the net proceeds from the initial
public offering of the Company's common stock partially offset by deferred
compensation expense related to certain stock options granted during the years
ended November 30, 1995 and 1996.
The Company has a line of credit under a Loan and Security Agreement (the "Loan
Agreement") with Signet Bank (the "Bank") for up to $3.0 million. As of
February 28, 1997, there were no amounts outstanding under this line of credit.
The Company has been in compliance with all financial and non-financial
covenants of the Loan Agreement. In addition, the Company obtained the Bank's
consent in connection with the acquisition of Krystal Ingenierie S.A.
The Company believes its cash balances, cash generated from operations and
borrowings available under its line of credit, will satisfy the Company's
working capital and capital expenditure requirements for at least the next
twelve months. In the longer term, the Company may require additional sources
of liquidity to fund future growth. Such sources of liquidity may include
additional equity offerings or debt financings.
ITEM 2. CHANGE IN SECURITIES.
Upon consummation of the Company's initial public offering in
January 1997, all shares of the Company's Series A Convertible Preferred Stock
held by Alcatel, N.V., a subsidiary of Alcatel Alsthom Compagnie Generale
d'Electricite S.A., automatically converted into shares of the Company's Common
Stock.
10
<PAGE> 11
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) The following exhibits are filed herewith:
<TABLE>
<CAPTION>
Exhibit
Number Exhibit Title
- - ------ -------------
<S> <C>
3.1* Articles of Incorporation
3.2* By-laws
11 Statement regarding computation of per share earnings
27 Financial Data Schedule
</TABLE>
- - -------------------------------
* Incorporated by reference to exhibit of the same number to the
Company's Registration Statement on Form S-1 (Registration No. 333-17063),
originally filed with the Securities and Exchange Commission on November 27,
1996.
(b) Reports on Form 8-K
On March 19, 1997, the Company filed a report on Form 8-K
regarding the acquisition of Krystal Ingenierie S.A., a corporation organized
under the laws of the Republic of France ("Krystal"), whereby the Company
agreed to: (1) exchange for an aggregate of 48,064 shares of the Company's
Common stock, par value $.01 per share (the "Common Stock"), 2,500 shares of
Krystal held by Alain Kuhner, representing all of the issued and outstanding
capital stock of Krystal; and (2) exchange for an aggregate of 45,686
additional shares of the Company's Common Stock, certain indebtedness of
Krystal owed to Kuhner in the aggregate amount of FF 3,914,331.36.
11
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
Dated: April 14, 1997 TEMPLATE SOFTWARE, INC.
By: /s/ Kimberly E. Osgood
---------------------------
Kimberly E. Osgood
Chief Financial Officer and
Chief Accounting Officer
12
<PAGE> 1
TEMPLATE SOFTWARE, INC. EXHIBIT 11
COMPUTATION OF EARNINGS PER COMMON SHARE
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
February 28, 1997 February 29, 1996
<S> <C> <C>
Net income $ 407,214 $ 156,114
======================================
Weighted average shares of common stock outstanding 2,905,550 2,182,994
Weighted average effect of common stock equivalents (using
the treasury stock method) 2,116,970 1,471,460
Common shares issued within one year of initial filing - 64,014
Common stock equivalents issued within one year of initial
filing - 940,532
--------------------------------------
5,022,520 4,659,000
======================================
Net income per common share $ 0.08 $ 0.03
======================================
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> NOV-30-1997
<PERIOD-END> FEB-28-1997
<CASH> 13567
<SECURITIES> 14461
<RECEIVABLES> 4320
<ALLOWANCES> 362
<INVENTORY> 0
<CURRENT-ASSETS> 32718
<PP&E> 1714
<DEPRECIATION> 719
<TOTAL-ASSETS> 34739
<CURRENT-LIABILITIES> 3573
<BONDS> 0
0
0
<COMMON> 42
<OTHER-SE> 30340
<TOTAL-LIABILITY-AND-EQUITY> 30382
<SALES> 0
<TOTAL-REVENUES> 3954
<CGS> 0
<TOTAL-COSTS> 1649
<OTHER-EXPENSES> 1783
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 13
<INCOME-PRETAX> 0
<INCOME-TAX> 239
<INCOME-CONTINUING> 407
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 407
<EPS-PRIMARY> 0.08
<EPS-DILUTED> 0.08
</TABLE>
