<PAGE>
THIS DOCUMENT IS A COPY OF THE FORM 8-K/A FILED ON SEPTEMBER 15
PURSUANT TO A RULE 201 TEMPORARY HARDSHIP EXEMPTION.
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
-------------------------------
FORM 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): JUNE 27, 1997
TEMPLATE SOFTWARE, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Commission file number 0-21921
VIRGINIA 52-1042793
---------------------------- --------------------
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation) 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)
<PAGE>
MILESTONE SOFTWARE GmbH
INDEX TO FINANCIAL STATEMENTS
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS:
This amendment No. 1 to the current report is filed on Form 8-K/A by Milestone
Software GmbH and amends the Current Report on Form 8-K filed by the Company on
July 11, 1997. Only those items which are amended are set forth herein.
(a) FINANCIAL STATEMENTS OF MILESTONE SOFTWARE GMBH
Report of Independent Accountants
Financial Statements:
Balance sheets at December 31, 1995 and 1996 and June 30, 1997
Statement of operations for the years ended December 31, 1995 and 1996
and for the six months ended December 31, 1995 and 1996
Statements of changes in shareholders' deficit for the years ended December
31, 1995 and 1996 and for the six months ended June 27, 1996 and
1997
Statements of cash flows for the years ended December 31, 1995 and 1996
and for the six months ended June 27, 1996 and 1997
Notes to the financial statements
(b) PRO FORMA FINANCIAL INFORMATION
Unaudited Pro Forma Consolidated Balance Sheet as of May 31, 1997
Unaudited Pro Forma Consolidated Statements Of Operations for the six
months ended May 31, 1997
Unaudited Pro Forma Consolidated Statements Of Operations for the year
ended November 30, 1997
Notes to Pro Forma Consolidated Financial Statements
(c) EXHIBITS
23.1 Consent of Coopers & Lybrand
2
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
---------------------------------
To the Board of Directors
Milestone Software GmbH
We have audited the accompanying financial statements of Milestone Software GmbH
(the Company) as of December 31, 1995 and 1996, and for each of the 2 years in
the period ended December 31, 1996 as listed in the accompanying index to the
financial statements. 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 generally accepted auditing standards
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 Milestone Software GmbH as of
December 31, 1995 and 1996, and the results of its operations and cash flows for
each of the 2 years in the period ended December 31, 1996 in conformity with
generally accepted accounting principles in the United States.
Dusseldorf, Germany
September 13, 1997
[COOPERS & LYBRAND LOGO APPEARS HERE]
Wirtschaftsprufungsgesellschaft
Gesellschaft mit beschrankter Haftung
/s/ Wiegand Leveque
----------------- ---------------------------
Wiegand Leveque
Wirtschaftsprufer Certified Public Accountant
3
<PAGE>
MILESTONE SOFTWARE GmbH
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 27,
-------------------------- -----------
1995 1996 1997
------------ ----------- -----------
ASSETS (UNAUDITED)
<S> <C> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 4,639 $ 2,399 $ 200,595
Accounts receivable, net 538,922 930,370 1,196,014
Accounts receivable - affiliates 31,519 67,321 6,466
Other assets 66,826 60,550 40,199
Inventories 347,538 118,962 132,956
Prepaid expenses 71,942 84,379 3,853
------------ ----------- -----------
TOTAL CURRENT ASSETS 1,061,386 1,263,981 1,580,083
Property and equipment, net 524,802 635,683 616,617
Software development costs, net 90,482 0 0
Investments in affiliated companies 47,391 12,294 12,917
------------ ----------- -----------
TOTAL ASSETS $ 1,724,061 $ 1,911,958 2,209,617
============ =========== ===========
LIABILITIES AND SHAREHOLDERS' DEFICIT
CURRENT LIABILITIES
Accounts payable $ 1,284,294 $ 1,103,272 2,496,589
Accrued expenses 377,755 325,285 414,791
Working capital facility 478,819 531,519 0
Notes payable to shareholders 0 173,201 0
Other liabilities 401,634 424,462 577,650
Deferred income 113,390 643,393 450,619
------------ ----------- -----------
TOTAL CURRENT LIABILITIES 2,655,892 3,201,132 3,939,649
LONG-TERM LIABILITIES 75,412 70,113 74,678
------------ ----------- -----------
TOTAL LIABILITIES 2,731,304 3,271,245 4,014,327
------------ ----------- -----------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Common stock, DM 100 par value, 150,000 shares 96,780 96,780 96,780
Authorized, 1,500 shares issued and
outstanding as of December 31, 1995 and 1996
and June 27, 1997 (unaudited)
Additional paid in capital 551,646 551,646 551,646
Foreign currency translation (86,863) (4,555) 188,327
Accumulated deficit (1,568,806) (2,003,158) (2,641,463)
------------ ----------- -----------
TOTAL SHAREHOLDERS' DEFICIT (1,007,243) (1,359,287) (1,804,710)
------------ ----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIT $ 1,724,061 $ 1,911,958 $ 2,209,617
============ =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
MILESTONE SOFTWARE GmbH
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE SIX MONTHS
ENDED DECEMBER 31, ENDED JUNE 27,
------------------------- -----------------------
1995 1996 1996 1997
---------- ---------- ---------- ----------
REVENUES (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Products $3,205,979 $1,130,932 $ 506,337 $ 201,044
Services 6,426,188 8,470,900 3,776,460 5,316,750
---------- ---------- ---------- ----------
TOTAL REVENUES 9,632,167 9,601,832 4,282,797 5,517,794
---------- ---------- ---------- ----------
COST OF REVENUES
Products 1,767,185 1,465,352 672,602 594,794
Services 3,684,005 5,014,217 2,062,922 3,570,541
---------- ---------- ---------- ----------
TOTAL COST OF REVENUES 5,451,190 6,479,569 2,735,524 4,165,335
---------- ---------- ---------- ----------
GROSS PROFIT 4,180,977 3,122,263 1,547,273 1,352,459
OPERATING EXPENSES
Selling and marketing 2,266,519 1,985,264 988,061 1,223,534
General and administrative 1,211,526 1,376,469 530,499 709,430
Bad debt expense 329,516 0 0 0
---------- ---------- ---------- ----------
TOTAL OPERATING EXPENSES 3,807,561 3,361,733 1,518,560 1,932,964
---------- ---------- ---------- ----------
INCOME (LOSS) FROM OPERATIONS 373,416 (239,470) 28,713 (580,505)
Interest expense (135,513) (161,094) (73,583) (93,383)
Other income (expense) (111,140) (33,788) (13,499) 35,583
---------- ---------- ---------- ----------
NET INCOME (LOSS) BEFORE TAXES 126,763 (434,352) (58,369) (638,305)
---------- ---------- ---------- ----------
Income tax benefit (provision) --- --- --- ---
---------- ---------- ---------- ----------
NET INCOME (LOSS) $ 126,763 $ (434,352) $ (58,369) $ (638,305)
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
MILESTONE SOFTWARE GmbH
STATEMENT OF CHANGES IN SHAREHOLDERS' DEFICIT
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
-------------------- PAID IN ACCUMULATED TRANSLATION
SHARES AMOUNT CAPITAL DEFICIT ADJUSTMENT TOTAL
<S> <C> <C> <C> <C> <C> <C>
--------- ------- --------- ----------- -------- -----------
Balance at Dec. 31, 1994 150,000 $96,780 $551,646 $(1,695,569) $ 0 $(1,047,143)
Net Income 0 0 0 126,763 0 126,763
Translation adjustment 0 0 0 0 (86,863) (86,863)
--------- ------- --------- ----------- -------- -----------
Balance at Dec. 31, 1995 150,000 96,780 551,646 (1,568,806) (86,863) (1,007,243)
Net Loss 0 0 0 (58,369) 0 (58,369)
Translation adjustment 0 0 0 0 (1,796) (1,796)
--------- ------- --------- ----------- -------- -----------
Balance at June 30, 1996 150,000 96,780 551,646 (1,627,175) (88,659) (1,067,408)
Net Loss 0 0 0 (375,983) 0 (375,983)
Translation adjustment 0 0 0 0 84,104 84,104
--------- ------- --------- ----------- -------- -----------
Balance at Dec. 31, 1996 150,000 96,780 551,646 (2,003,158) (4,555) (1,359,287)
Net Loss 0 0 0 (638,305) 0 (638,305)
Translation adjustment 0 0 0 0 192,882 192,882
--------- ------- --------- ----------- -------- -----------
Balance at June 27, 1997 150,000 $96,780 $551,646 $(2,641,463) $188,327 $(1,804,710)
========= ======= ========= =========== ======== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
6
<PAGE>
MILESTONE SOFTWARE GMBH
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE SIX MONTHS
ENDED DECEMBER 31, ENDED JUNE 27,
------------------------- -----------------------
1995 1996 1996 1997
--------- --------- --------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES: (UNADITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Net income (loss) $ 126,763 $(434,352) $ (58,369) $ (638,305)
Adjustments to reconcile net income
(loss) to net cash provided (used) by operating
activities:
Bad debt expense 329,516 0 0 0
Depreciation and amortization 244,916 269,921 183,178 135,280
Gain on foreign currency exchange (17,335) 0 0 0
Gain on exchange of investment in affiliate 0 (35,968) 0 0
Income from affiliated companies 39,985 (3,404) (1,704) (2,044)
Inventory writedown 0 (10,403) 0 0
Write-off of software development costs 0 34,461 0 0
Increase (decrease) in cash from
changes in operating assets and liabilities:
Accounts receivable (35,158) (440,526) (361,548) (397,695)
Accounts receivable - affiliates 99,607 (38,993) (20,365) 56,542
Other assets (134,928) 1,551 54,216 14,225
Inventory (144,159) 219,264 94,788 (29,559)
Prepaid expenses (71,284) (18,001) (21,057) 75,399
Accounts payable (50,073) (170,807) (513,223) 1,524,584
Accrued Expenses 298,544 (26,181) (245,015) (79,118)
Other liabilities 100,242 52,809 (134,378) 228,962
Deferred income (20,263) 551,437 322,795 84,785
--------- --------- --------- ----------
Net cash provided (used) by operating activities 766,373 (49,192) (700,682) 973,056
--------- --------- --------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (302,959) (370,228) (90,525) (194,242)
Purchase of interest in affiliates (87,390) 0 0 0
--------- --------- --------- ----------
Net cash used in investing activities (390,349) (370,228) (90,525) (194,242)
--------- --------- --------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net change in working capital facility (277,985) 88,982 676,714 (500,802)
Proceeds from notes payable to shareholders 230,853 249,375 0 95,626
Payments on notes payable to shareholders (358,079) 0 0 (163,192)
Net change in overdraft facility (31,870) 79,102 0 0
--------- --------- --------- ----------
Net cash provided (used) by financing activities (437,081) 417,459 676,714 (568,368)
--------- --------- --------- ----------
EFFECT OF EXCHANGE RATES ON CASH: 60,440 (279) (52,409) (12,250)
--------- --------- --------- ----------
Net increase (decrease) in cash (617) (2,240) (166,902) 198,196
Cash and cash equivalents at beginning of period 5,256 4,639 4,639 2,399
--------- --------- --------- ----------
Cash and cash equivalents at end of period $ 4,639 $ 2,399 $(162,263) $ 200,595
========= ========= ========= ==========
SUPPLEMENTAL CASHFLOW INFORMATION:
Cash paid for interest $135,513 $ 140,745 $ 66,369 $ 103,531
========= ========= ========= ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
7
<PAGE>
MILESTONE SOFTWARE GmbH
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION
Business
Milestone Software GmbH (the "Company") provides enterprise-wide software
solutions. The Company is a reseller of several software packages and
provider of various consulting services. The Company provides its services
and resells products to commercial clients both domestically and throughout
Europe.
Revenue recognition
The Company distributes software products to customers pursuant to reseller
agreements entered into with software manufacturers. The Company also
provides related product support, training and maintenance services.
Product revenues relate to the sale of licence agreements and are
recognized upon shipment of the software to the customer unless the Company
has significant future obligations under the licence agreement. In these
cases, revenues are recognized when such obligations are satisfied.
Insignificant vendor and service revenue obligations are accrued upon
acceptance of the product by the customer. Service revenues include
consulting, product support, maintenance and training. The Company defers
and recognizes product support and maintenance revenue over the terms of
the contract period, which is generally one year. The Company recognizes
training and consulting revenue as the services are provided as the
agreements for these services are generally on a time incurred basis.
Software development costs
The Company capitalizes the direct costs associated with the development of
software products in accordance with Statement of Financial Accounting
Standards No. 86 "Accounting for the Costs of Computer Software to be Sold,
Leased or Otherwise Marketed". Research costs are charged to product
development expense prior to the development of a detailed program design
or a working model. Costs
8
<PAGE>
MILESTONE SOFTWARE GmbH
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
incurred subsequent to the product release and research and development
performed under contract are charged to operations.
Capitalized costs are amortized over the estimated product life using the
straight-line method. Software development costs are presented net of
accumulated amortization. Amortization expense for 1995 was $60,338 and
accumulated amortization at December 31, 1995 was $76,623. During 1996,
the remaining balance was written off with a charge to amortization expense
of $56,021 and a charge to write-down of software development costs of
$34,461.
Income taxes
Deferred tax assets and liabilities are recognized for the estimated future
tax consequences of temporary differences and income tax credits. Temporary
differences are the result of the differences between the tax bases of
assets and liabilities and their financial reporting amounts. Deferred tax
assets and liabilities are measured by applying enacted statutory tax rates
applicable to the future years in which deferred tax assets or liabilities
are expected to be settled or realized. Valuation allowances are
established when necessary to reduce deferred tax assets to the amount
expected to be realized. Income tax expense consists of the taxes payable
for the current period and the change during the period in deferred tax
assets and liabilities.
Foreign currency translation
The assets and liabilities have been translated into U.S. dollars at
exchange rates in effect as of each balance sheet date. Revenue and expense
accounts of these operations are translated at average exchange rates
prevailing during the month the transaction occurred.
9
<PAGE>
MILESTONE SOFTWARE GmbH
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Inventory
Inventory consists of goods held for resale and are carried at the lower of
cost or market using the average cost method.
Property and equipment
Property and equipment are stated at cost less accumulated depreciation.
Depreciation is computed using the straight-line method over the estimated
useful lives of the assets, generally four to five years. Amortization of
leasehold improvements is computed using the straight-line method over the
shorter of the assets useful life or the lease term. When assets are
retired or sold, the cost and related accumulated depreciation and
amortization are removed from the accounts, and any gain or loss is
reflected in operations. Maintenance and repairs are charged to expenses
when incurred, and the cost of significant additions and improvements is
capitalized.
Cash and cash equivalents
Cash and cash equivalents includes cash on hand and demand deposits which
have original maturities of three months or less.
Concentration of credit risk
Financial instruments that potentially subject the Company to significant
concentration of credit risk consist primarily of cash equivalents and
accounts receivable. The Company sells products and services to customers
without requiring collateral, however, the Company routinely assesses the
financial strength of its customers and maintains allowances for
anticipated losses, when necessary.
Fair value of financial instruments
During 1995, the Company adopted Statement of Financial Accounting
Standards No. 107, "Disclosure About Fair Value of Financial Instruments".
The Company
10
<PAGE>
MILESTONE SOFTWARE GmbH
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
believes that the carrying amount of certain of its financial instruments,
which includes cash equivalents, accounts receivable, accounts payable and
accrued expenses approximate fair value due to the relatively short
maturity of these instruments. The carrying amounts of the revolving credit
agreement and notes payable to shareholders approximate fair value because
these financial instruments contain variable interest rate which reprice
frequently.
Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles 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.
Interim financial information
The financial information presented as of June 27, 1997 and for the six
months ended June 27, 1996 and 1997 is unaudited. In the opinion of
management, this unaudited financial information contains all adjustments
(which consists of only normal, recurring, adjustments) necessary for a
fair presentation. Operating results for the six months ended June 27, 1996
and 1997 are not necessarily indicative of results that may be expected for
a full year.
11
<PAGE>
MILESTONE SOFTWARE GmbH
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. ACCOUNTS RECEIVABLE
<TABLE>
<CAPTION>
Accounts receivable consist of the following:
DECEMBER 31, JUNE 27,
----------------------------- -----------
1995 1996 1997
------------ ------------ -----------
(UNAUDITED)
<S> <C> <C> <C>
Receivables assigned to factor $ 11,364,722 $ 10,189,047 $ 5,606,540
Less: advances from factor (10,506,049) (10,053,870) (5,410,615)
------------ ------------ -----------
Due from factor 858,673 135,177 195,925
Unfactored accounts receivable 9,670 1,101,135 1,272,724
------------ ------------ -----------
Total 868,343 1,236,312 1,468,649
Less: allowance for doubtful accounts (329,421) (305,942) (272,635)
------------ ------------ -----------
$538,922 $ 930,370 $ 1,196,014
============ ============ ===========
</TABLE>
Pursuant to a factoring agreement, which terminated in June 1997, a bank
acts as a factor for the majority of the Company's receivables which are
assigned on a pre-approved, nonrecourse basis. The factoring charge
amounts to 0.9% of the receivables assigned. On a monthly basis, the bank
charged at rates equal to 9% and 8.75% per annum for the years ended
December 31, 1995 and 1996 for interest on the outstanding balance of the
uncollected factored amounts. For the years ended December 31, 1995 and
1996 intercompany accounts and accounts over 90 days outstanding are not
eligible for factoring. As of June 30, 1997 the Company has discontinued
the practice of factoring its accounts receivable.
Pursuant to the terms of the factoring agreement, the factor returned
approximately $305,000 of factored receivables based on a customer claim
that the Company has not properly performed under the contract. These
disputed receivables were reserved for at December 31, 1995 and 1996 as
significant doubt exists as to the ultimate collectibility of these
accounts.
12
<PAGE>
MILESTONE SOFTWARE GmbH
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 27,
---------------------- ----------
1995 1996 1997
--------- --------- ----------
(UNAUDITED)
<S> <C> <C> <C>
Data processing equipment $ 542,712 $ 767,124 $ 826,340
Office furniture and equipment 176,458 235,891 261,879
Leasehold improvements 65,570 68,509 66,085
--------- ---------- ----------
784,740 1,071,524 1,154,304
Less: Accumulated depreciation (259,938) (435,841) (537,687)
--------- ---------- ----------
$ 524,802 $ 635,683 $ 616,617
========= ========== ==========
</TABLE>
Depreciation expense was $184,578 and $213,898 for the years ended December
31, 1995 and 1996, and $155,167 and $135,280 for the six months ended June
27, 1996 and 1997, respectively.
4. REVOLVING CREDIT FACILITY AND NOTES PAYABLE TO SHAREHOLDERS
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 27,
-------------------------- ----------
1995 1996 1997
--------- --------- ----------
(UNAUDITED)
<S> <C> <C> <C>
Revolving credit facility $ 478,819 $ 531,519 $ 0
Note payable to shareholders 0 173,201 0
--------- --------- ----------
Total 478,819 704,720 0
Less: Current portion (478,819) (704,720) 0
--------- --------- ----------
Long-term portion $ 0 $ 0 $ 0
========= ========= ==========
</TABLE>
Revolving credit facility
The Company had a DM1,550,000 (approximately $1,006,000 at December 31,
1996) revolving credit facility (the "Facility") pursuant to a Loan and
Security Agreement, as amended in July 1996 (the "Loan Agreement") with a
commercial bank at December 31, 1996. As of December 31, 1996, availability
under the Facility was equal to approximately DM 730,000 (approximately
$475,000 at
13
<PAGE>
MILESTONE SOFTWARE GmbH
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996). Borrowings under the Facility bear interest
at 9.75% and were guaranteed by one of the Company's shareholders. The
Facility expired on February 28, 1997 and the outstanding balance was
repaid as of this date. Currently, the Company has an outstanding letter of
credit of approximately DM 160,000 (approximately $105,000 at December 31,
1996) related to a noncancelable operating lease for new office space (see
Note 6).
5. INCOME TAXES
Under the current German corporate income tax system, income is taxed
initially at a rate of 45%. Upon distribution of earnings, the income tax
imposed on such earnings is reduced to 30% through a tax credit. In
addition to the corporate tax, a solidarity tax (Solidaritatszuschlag) of
7.5% of the corporate tax was imposed for 1995 and 1996 and is included in
income taxes.
The benefit (provision) for income taxes for the years ended December 31,
1995 and 1996 is summarized as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1995 1996
<S> <C> <C>
-------- --------
Current $(94,202) $ 0
Deferred 94,202 0
-------- --------
Total benefit (provision) $ 0 $ 0
======== ========
</TABLE>
14
<PAGE>
MILESTONE SOFTWARE GmbH
NOTES CONSOLIDATED FINANCIAL STATEMENTS
The source and tax effects of the temporary differences and net operating
loss carryforwards giving rise to the Company's net non-current deferred
tax assets at December 31, 1995 and 1996 are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1995 1996
--------- ---------
<S> <C> <C>
Investment in affiliates $ 21,986 $ 18,592
Net operating loss carryforward 786,622 695,052
Less: Valuation allowance (808,608) (713,644)
--------- ---------
TOTAL $ 0 $ 0
========= =========
</TABLE>
As of December 31, 1996 the Company had net operating loss carryforwards of
approximately DM 1,940,000 ($1,250,000) which can be carried forward
indefinitely to offset future taxable income.
The factors accounting for the difference between the total provision for
income taxes and the amount computed by applying the German statutory rate
are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1995 1996
--------- ---------
<S> <C> <C>
Computed "expected" tax $ 57,044 $(103,352)
expense based on German rates
Trade income tax effect 37,771 (22,409)
Solidarity tax 3,937 (6,067)
Non tax-deductible expenses 12,447 12,368
Changes in valuation allowances (111,199) 119,460
--------- ---------
Total provision for income tax $ 0 $ 0
========= =========
</TABLE>
15
<PAGE>
MILESTONE SOFTWARE GmbH
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. COMMITMENTS AND CONTINGENCIES
Operating leases
During March 1996, the Company entered into a noncancelable operating lease
for office space that expires in December 2001. As an incentive to lease
this space, the landlord provided a rent abatement through May 1996.
Additionally, the lease contains an escalation clause that provides for an
increase in base rent beginning in October 1996. The Company also has a
noncancelable operating lease agreement for office space expiring in 2004.
The agreement includes an escalation clause providing for an increase in
lease payments beginning in April 1996. Subsequent to December 31, 1990,
this lease was extended to 2007 including rent escalations for March 1998
and July 1998. The Company has provided additional security under these
leases in the form of an irrevocable letter of credit in the amount of DM
160,000 (approximately $105,000 at December 31, 1996) (see Note 4) at
December 31, 1996. The letter of credit requirement expires upon expiration
of the lease agreement.
The Company also leases certain office equipment and other office space
under noncancelable operating leases which expire at various dates through
2004. Rent expense under all leases is recognized ratably over the lease
terms. Rent expense under all operating leases was approximately $306,929
and $340,785 for the years ended December 31, 1995 and 1996, respectively
and $137,649 and $186,548 for the six months ended June 27, 1996 and 1997,
respectively.
16
<PAGE>
MILESTONE SOFTWARE GmbH
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Future minimum lease payments, under operating leases, at December 31,
1996, are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
<S> <C>
------------
1997 $ 382,871
1998 338,141
1999 245,255
2000 246,359
2001 246,359
Thereafter 164,240
------------
Total minimum payments $ 1,623,225
============
7. ACCRUED EXPENSES
Accrued expenses consist of the following:
FOR THE YEAR ENDED
DECEMBER 31,
--------------------
1995 1996
---------- --------
Payroll, bonus and vacation $ 71,497 $102,748
Commissions 27,564 93,240
Royalties 202,972 33,743
Other expenses 75,722 95,554
---------- --------
$ 377,755 $325,285
========== ========
</TABLE>
8. RELATED PARTY TRANSACTIONS
During 1995 and 1996, the Company executed loans with shareholders to fund
working capital requirements. These notes accrue interest at 12% per annum.
33% of the notes were collateralized by investments in affiliated companies
(Note 9) and 67% of the notes were guaranteed by other shareholders. As of
December 31, 1995 and 1996, there were outstanding note payables to
shareholders of approximately $0 and $173,000, respectively and accrued
interest of
17
<PAGE>
MILESTONE SOFTWARE GmbH
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
approximately $0 and $20,000, respectively. The Company paid management
fees in the amount of $111,940 and $53,566 in 1995 and 1996, respectively.
9. TRANSACTIONS WITH AFFILIATED COMPANIES
The Company has ownership interests in Milestone Holding BV (Netherlands),
Milestone Holding GmbH (Austria) and Milestone Holding AG (Switzerland).
The interests in Austria and Switzerland are accounted for using the Equity
Method. The investment in the Netherlands is accounted for using the Cost
Method. During 1995 and 1996, the Company had sales and receivables with
affiliates as follows:
<TABLE>
<CAPTION>
SALES
OWNERSHIP % FOR THE YEAR ENDED RECEIVABLES
DECEMBER 31, DECEMBER 31, DECEMBER 31,
-------------- ------------------- --------------------
1995 1996 1995 1996 1995 1996
------ ----- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Netherlands 16.9 0.0 $49,739 $27,244 $ 0 $12,761
Austria 34.0 34.0 $56,753 $37,197 $36,567 $36,594
Switzerland 20.0 20.0 $ 4,165 $28,636 $ 354 $22,482
</TABLE>
Purchases from affiliates was $114,467 and $13,300 in 1995 and 1996,
respectively. The amount payable to affiliates was $5,402 and $4,516 at
December 31, 1995 and 1996, respectively.
The Company's investment in Austria has a book value of zero at December,
31 1996. The Company's share of the underlying deficit in equity in Austria
is approximately $16,000. The Company has not recognized its share of
losses in Austria as it exceeds the write-down of the book value of the
investment to zero.
In December 1996, the Company exchanged its 16.9% ownership of Netherlands
with a book value of approximately $35,000, for forgiveness of certain
notes payable to shareholders in the amount of approximately $70,000. The
transaction resulted in a non-cash gain of approximately $35,968 which is
included in other income.
18
<PAGE>
MILESTONE SOFTWARE GmbH
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10. SUBSEQUENT EVENT
Under the terms of the Stock Purchase Agreement ("Purchase Agreement") dated
June 27, 1997, the Company was acquired by Template Software, Inc. on June 27,
1997.
19
<PAGE>
ITEM 7 (b). UNAUDITED PRO FORMA FINANCIAL INFORMATION
The following Unaudited Pro Forma Consolidated Financial Statements of
Milestone Software GmbH (the Company) are based on the historical consolidated
financial statements of Template Software, Inc. (Template) and the historical
financial statements of the Company. These historical financial statements were
prepared in accordance with US GAAP. The unaudited pro forma adjustments are
based upon available information and certain assumptions that management of the
Company believes are reasonable. These historical financial statements have
been prepared to illustrate the effects of the consummation of the Purchase
Agreement between Template and the Company. The Pro Forma Financial Information
and accompanying notes should be read in conjunction with the historical
consolidated financial statements of Template and historical financial
statements of the Company.
The Unaudited Pro Forma Consolidated Balance Sheet as of May 31, 1997 has
been prepared as if the transactions had occurred on that date. The
Consolidated Pro Forma Statements of Operations for Template's fiscal year ended
November 30, 1996 and for the Company's fiscal year ended December 31, 1996, and
for Template's six month period ended May 31, 1997 and for the Company's six
month period ended June 27, 1997 give effect to the transactions as if they had
occurred at the beginning of the respective fiscal years and carried forward
through the interim period presented.
The Unaudited Pro Forma Consolidated Financial Statements do not purport to
be indicative of what the Company's consolidated financial position or
consolidated results of operations would actually have been had the acquisition
and related financings been completed on such date or at the beginning of the
period indicated, or to project the Company's consolidated financial position
for any future period or the Company's consolidated results of operations for
any future period.
The acquisition will be accounted for as a purchase. After the
Acquisition, the purchase cost will be allocated to the Company's assets and
liabilities based on their respective fair values. The final allocation of the
purchase price is subject to the receipt of certain information related to the
acquired assets, but that allocation is not expected to differ materially from
the preliminary allocation.
20
<PAGE>
TEMPLATE SOFTWARE, INC. AND MILESTONE SOFTWARE GmbH
Condsolidated Pro Forma Balance Sheets (Unaudited)
(Dollars in Thousands)
<TABLE>
<CAPTION>
--------------------------------- -------------------------------
Historical Pro Forma
--------------------------------- -------------------------------
Milestone
Template Software
Software, Inc. GmbH
May 31, 1997 June 27, 1997 Adjustments As Adjusted
-------------- ------------- ------------- ------------
<S> <C> <C> <C> <C>
(a)
ASSETS
Current assets:
Cash and cash equivalents $ 12,318 $ 201 $ (7,440)(c) $ 5,079
Marketable Securities 14,684 14,684
Accounts receivable, net 4,805 1,198 6,003
Accounts receivable - affiliates 6 6
Other assets 765 40 805
Inventories 133 133
Prepaid expenses 4 4
------------ ------------- ------------- ------------
Total current assets 32,572 1,582 (7,440) 26,714
Property and equipment, net 1,183 617 1,800
Software development costs, net 1,096 1,096
Goodwill and other assets 2,247 10,791 (e) 13,038
Investments in affiliated companies 11 11
------------ ------------- ------------- ------------
Total Assets $ 37,098 $ 2,210 $ 3,351 $ 42,659
============ ============= ============= ============
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable $ 1,984 $ 2,496 $ $ 4,480
Accrued expenses 415 450 (d) 865
Income taxes payable 398 398
Current portion of long term debt 144 144
Other liabilities 578 578
Deferred income 731 451 1,182
------------ ------------- ------------- ------------
Total current liabilities 3,257 3,940 450 7,647
Long term debt, net of current portion 964 964
Other long-term liabilities 482 75 557
Shareholders' Equity (Deficit) 32,395 (1,805) 1,805 (b) 33,491
1,096 (b)
------------ ------------- ------------- ------------
Total liabilities and stockholders equity $ 37,098 $ 2,210 $ 3,351 $ 42,659
============ ============= ============= ============
</TABLE>
See accompanying notes to Pro Forma Financial Information
21
<PAGE>
TEMPLATE SOFTWARE, INC. AND MILESTONE SOFTWARE GmbH
Consolidated Pro Forma Statement of Operations
(Unaudited)
(Dollars in Thousands)
<TABLE>
<CAPTION>
Template Software, Inc. Six Months Ended May 31, 1997 and
Milestone Software GmbH Six Months Ended June 27, 1997
----------------------------- -----------------------------
Historical Pro Forma
----------------------------- -----------------------------
Template Milestone
Software, Inc. Software GmbH Adjustments As Adjusted
-------------- ------------- ------------- -----------
<S> <C> <C> <C> <C>
(f)
Revenues $ 8,529 $ 5,518 $ $ 14,047
Cost of revenues 3,528 4,165 7,693
--------- -------- --------- ---------
Gross profit 5,001 1,353 0 6,354
Operating expenses
Selling and marketing 2,113 1,224 3,337
Product Development 636 636
General and administrative 1,137 710 366 (g) 2,213
--------- -------- --------- ---------
Income (loss) from operations 1,115 (581) (366) 168
Interest (expense) (29) (93) (122)
Other income (expense) 481 36 517
--------- -------- --------- ---------
Net income (loss) before taxes 1,567 (638) (366) 563
Income tax benefit (provision) (580) (580)
--------- -------- --------- ---------
Income (loss) $ 987 $ (638) $ (366) $ (17)
========= ======== ========= =========
Income (loss) per common
equivalent shares outstanding $ 0.21 $ (0.00)
========= =========
Weighted average common
equivalent shares outstanding 4,659,000 4,749,000
========= =========
</TABLE>
See accompanying notes to Pro Forma Financial Information
22
<PAGE>
TEMPLATE SOFTWARE, INC. AND MILESTONE SOFTWARE GmbH
Consolidated Pro Forma Statement of Operations
(Unaudited)
(Dollars in Thousands)
<TABLE>
<CAPTION>
Template Software, Inc. Year Ended November 31, 1996 and
Milestone Software GmbH Year Ended December 31, 1996
------------------------------------------------------------
Historical Pro Forma
----------------------------- -----------------------------
Template Milestone
Software, Software
Inc. GmbH Adjustments As Adjusted
-------------- ------------- ------------- -----------
<S> <C> <C> <C> <C>
(f)
Revenues $ 13,530 $ 9,602 $ $ 23,132
Cost of revenues 7,029 6,479 13,508
---------- ------- ------ ----------
Gross profit 6,501 3,123 0 9,624
Operating expenses
Selling and marketing 2,362 1,985 4,347
Product development 966 966
General and administrative 1,473 1,377 731 (g) 3,581
---------- ------- ------ ----------
Income (loss) from operations 1,700 (239) (731) 730
Interest (expense) (43) (161) (204)
Other income (expense) 33 (34) (1)
---------- ------- ------ ----------
Net income (loss) before taxes 1,690 (434) (731) 525
Income tax benefit (provision) (645) (645)
---------- ------- ------ ----------
Income (loss) $ 1,045 $ (434) $ (731) $ (120)
========== ======= ====== ==========
Income (loss) per common
equivalent shares outstanding $ 0.23 $ (0.03)
========== ==========
Weighted average common
equivalent shares outstanding 4,643,919 4,733,919
========== ==========
</TABLE>
See accompanying notes to Pro Forma Financial Information
23
<PAGE>
NOTES TO PRO FORMA FINANCIAL INFORMATION
(DOLLARS IN THOUSAND, EXCEPT PER SHARE DATA)
(a) The historical balance sheet of the Company has been converted to U.S.
dollars at 1.74 DM for 1 U.S. dollar, the exchange rate at June 27, 1997.
(b) Adjustment reflects the issuance of 90,000 shares of Template Common
Stock to the Company shareholders valued at $12.18 per share ($1,096) and
the elimination of the Company net deficit ($1,805). The $12.18 share value
is the approximate weighted average price (based on volume of shares
traded) during the period from June 10, 1997 to June 16, 1997. The
transaction was announced publically on June 12, 1997.
(c) Adjustment reflects the cash payment by Template to the prior
shareholders of the Company as part of the purchase consideration.
(d) Adjustment reflects the accrual of estimated transaction costs related
to the accrual.
(e) Adjustment reflects the excess of the cost to Template over the
assigned value of the Company assets as computed as follows:
<TABLE>
<CAPTION>
Template Consideration:
<S> <C>
. 90,000 shares of Template Class A common stock
at 12.18 per share $ 1,096
. Cash 7,440
. Acquisition costs 450
-------
8,986
Company net deficit (1,805)
-------
Net write-up of net assets preliminarily allocated to goodwill $10,791
=======
</TABLE>
(f) The historical income statements of the Company have been converted to
U.S. dollars at the weighted average exchange rate for the periods
presented: 1.54 DM for 1 U.S. dollar for the year ended December 31, 1996
and 1.64 DM for 1 U.S. dollar for the six months ended June 27, 1997.
24
<PAGE>
NOTES TO PRO FORMA FINANCIAL INFORMATION
(DOLLARS IN THOUSAND, EXCEPT PER SHARE DATA)
(g) Adjustment reflects the change in amortization resulting from the goodwill
arising from the transaction ($731 for the year and $366 for the six months).
25
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: September 15, 1997 TEMPLATE SOFTWARE, INC.
By: /s/ E. Linwood Pearce
-----------------------
E. Linwood Pearce
Chief Executive Officer
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statement of
Template Software, Inc. on Form S-8 (File No. 3333-24873), of our report dated
September 13, 1997 on our audits of the financial statements of Milestone
Software GmbH as of December 31, 1995 and 1996 and for the years then ended,
which report is included in this Form 8-K/A.
Dusseldorf, Germany
September 13, 1997
[COOPERS & LYBRAND LOGO APPEARS HERE]
Wirtschaftsprufungsgesellschaft
Gesellschaft mit beschrankter Haftung
/s/ Wiegand Leveque
- ----------------- ---------------------------
Wiegand Leveque
Wirtschaftsprufer Certified Public Accountant
