<PAGE>
WORKGROUP TECHNOLOGY CORPORATION
INDEX
Page(s)
-------
Part I. Financial Information:
Item 1:
Condensed Consolidated Balance Sheets
at June 30, 1996 and March 31, 1996 2
Consolidated Statements of Operations for the
three months ended June 30, 1996 and 1995 3
Consolidated Statements of Cash Flows for the
three months ended June 30, 1996 and 1995 4
Notes to Consolidated Financial
Statements 5-6
Item 2. Management's Discussion and
Analysis of Financial Condition
and Results of Operations 7-8
Part II. Other Information:
Item 1. Legal Proceedings 9
Item 6. Exhibits and Reports on Form 8-K 9
<PAGE>
WORKGROUP TECHNOLOGY CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
June 30, March 31,
1996 1996
ASSETS (unaudited) (1)
- ------------------------------------------------------------------------------
<S> <C> <C>
Current assets:
Cash and equivalents $ 39,746 $ 40,959
Accounts receivable 3,182 2,075
Prepaid expenses and other current assets 472 234
-------- --------
Total current assets 43,400 43,268
-------- --------
Property and equipment, net 859 761
Other assets 69 44
-------- --------
$ 44,328 $ 44,073
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------------------------------------------------
Current liabilities:
Accounts payable $ 776 $ 890
Accrued expenses 821 952
Accrued royalties 5 141
Capital lease obligations 207 219
Deferred revenue 1,442 1,641
------- --------
Total current liabilities 3,251 3,843
------- --------
Capital lease obligations, net of current portion 85 116
Stockholders' equity:
Common stock 79 79
Additional paid-in capital 43,733 43,727
Officers' notes receivable (7) (7)
Accumulated translation adjustment (2) 7
Accumulated deficit (2,811) (3,692)
------- --------
Total stockholders' equity 40,992 40,114
------- --------
$ 44,328 $ 44,073
======== ========
(1) Derived from audited financial statements
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
2
<PAGE>
WORKGROUP TECHNOLOGY CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
<TABLE>
<CAPTION>
Three months ended June 30,
1996 1995
(unaudited)
- --------------------------------------------------------------------------------
<S> <C> <C>
Revenue
Software licenses $ 2,561 $ 1,493
Maintenance and services 910 532
------- -------
Total revenue 3,471 2,025
Cost of revenue
Cost of software licenses 70 149
Cost of maintence and services 483 216
------- -------
Total cost of revenue 553 365
Gross profit 2,918 1,660
Operating expenses
Selling and marketing 1,315 603
Research and development 945 681
General and administrative 234 183
------- -------
Total operating expenses 2,494 1,467
Income from operations 424 193
Interest income, net 497 20
------- -------
Income before income taxes 921 213
Provision for income taxes 40 14
------- -------
Net income $ 881 $ 199
======= =======
Net income per share $ 0.10 $ 0.03
======= =======
Weighted average number of common and common
equivalent shares outstanding 9,145 6,215
======= =======
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
3
<PAGE>
WORKGROUP TECHNOLOGY CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Three months ended June 30,
1996 1995
(unaudited)
- ------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 881 $ 199
Adjustments to reconcile net income to
net cash provided by (used in)
operating activities:
Depreciation and amortization 122 91
Changes in operating assets and
liabilities:
Accounts receivable (1,107) 1,128
Prepaid expenses and other
current assets (238) (17)
Other assets (25) (7)
Accounts payable (114) 99
Accrued expenses (131) (43)
Accrued royalties (136) 952
Customer deposits - (100)
Deferred revenue (199) (1,398)
------- -------
Net cash provided by (used in)
operating activities (947) 904
Cash flows from investing activities:
Purchases of property and equipment (220) (151)
Cash flows from financing activities:
Proceeds from issuance of common stock 6 -
Payments of capital lease obligations (43) (36)
------- -------
Net cash used in financing activities (37) (36)
Effect of exchange rate changes on cash (9) -
------- -------
Net increase (decrease) in cash and
cash equivalents (1,213) 717
Cash and cash equivalents, beginning of period 40,959 1,547
------- -------
Cash and cash equivalents, end of period $39,746 $ 2,264
======= =======
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
4
<PAGE>
WORKGROUP TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF BUSINESS
Workgroup Technology Corporation (the "Company"), incorporated May 11, 1992,
provides client server software solutions which facilitate the management of
product information and work processes. The Company's product data
management ("PDM") software, CMS, is used by customers to enhance the
management of the product lifecycle by improving design and development
processes and the transfer of design information to manufacturing, lessening
time to market, and providing more accurate and timely feedback. CMS ensures
the capture, integrity and efficient, controlled distribution of critical
product and process information. CMS can manage any type of electronic data
including CAD models, bills of material, word processing, spreadsheet, voice,
video and multimedia files. The CMS family of products is designed as a
packaged solution for "out -of-the-box" implementation, ease of use and
enterprise scalability.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiaries. All significant intercompany transactions and
balances have been eliminated.
Basis of Presentation
The accompanying financial statements and notes do not include all of the
disclosures made in the Company's Annual Report on Form 10-K for fiscal 1996,
which should be read in conjunction with these statements. The financial
information included herein, with the exception of the condensed consolidated
balance sheet at March 31, 1996, has not been audited. However, in the
opinion of Management, the statements include all adjustments necessary for a
fair presentation of the quarterly results. All adjustments made to these
financial statements were considered to be of a normal and recurring nature.
The results for the three month period ended June 30, 1996 are not
necessarily indicative of the results to be expected for the full fiscal
year.
3. PROPERTY AND EQUIPMENT
Property and equipment consists of the following (in thousands):
<TABLE>
<CAPTION>
June 30, 1996 March 31, 1996
------------- --------------
<S> <C> <C>
Computer software $ 349 $ 311
Furniture & fixtures 3 2
Equipment 1,096 944
Leasehold improvements 15 15
------ ------
Total $1,463 $1,272
Less accumulated depreciation
and amortization 604 511
------ ------
$ 859 $ 761
====== ======
</TABLE>
5
<PAGE>
WORKGROUP TECHNOLOGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. NET INCOME PER COMMON AND COMMON EQUIVALENT SHARE
Net income per share is computed by dividing net income by the weighted
average number of shares of common stock and, if dilutive, common stock
equivalents outstanding. Common stock equivalents include shares issuable
upon the exercise of stock options or warrants, net of shares assumed to have
been purchased with the proceeds. In accordance with Securities and Exchange
Commission Staff Accounting Bulletin No. 83, all common and common equivalent
shares issued during the twelve month period prior to the initial public
offering ("cheap stock"), have been included in the calculation as if they
were outstanding for all periods prior to the initial public offering ("IPO")
using the treasury stock method and the assumed IPO price of $14.50 per
share.
Fully diluted net income per common share is the same as primary net income
per common share for the period.
6
<PAGE>
WORKGROUP TECHNOLOGY CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
- ---------------------
Revenue. The Company's revenue consists of license fees for its CMS family of
PDM software products and fees for professional services and software
maintenance. Revenue for the three months ended June 30, 1996 increased 71% to
$3,471,000 from $2,025,000 in the comparable period of fiscal 1996.
International revenue decreased to $204,000 in the first quarter of fiscal 1997
from $530,000 in the first quarter of fiscal 1996. This decrease was primarily
due to revenue attributable to Hitachi, Ltd. in fiscal 1996.
Software license revenue increased 72% in the first quarter of fiscal 1997 to
$2,561,000 from $1,493,000 in the first quarter of fiscal 1996. This revenue
increase resulted from an increase in the average sales value of software orders
from customers as well as an increase in the number of customers licensing the
Company's software.
Maintenance and services revenue increased 71% in the first quarter of fiscal
1997 to $910,000 from $532,000 in the comparable period of fiscal 1996. This
increase resulted primarily from an increase in the customer maintenance base as
well as an increase in usage of the Company's professional services.
Cost of Revenue and Gross Profit. The Company's cost of software license
revenue consists primarily of royalties payable upon the license of products for
which another party is entitled to receive compensation, as well as costs
associated with media, packaging, documentation and delivery of the Company's
product. Gross profit associated with software license revenue increased 85% in
the first quarter of fiscal 1997 to $2,491,000, or 96% of software license
revenue, from $1,344,000, or 90% of software license revenue, in the first
quarter of fiscal 1996. This increase resulted primarily from the mix of
products sold during the quarter which required royalty payments to another
party.
Cost of maintenance and services revenue consists primarily of personnel costs
for the Company's customer support and professional services organizations. The
Company's gross profit on maintenance and services revenue increased 35% in the
first quarter of fiscal 1997 to $427,000 from $316,000 in the comparable quarter
of fiscal 1996. As a percentage of the associated revenue, gross profit from
maintenance and services decreased to 47% in the first quarter of fiscal 1997
from 59% in the first quarter of fiscal 1996. This decrease is a reflection of
the Company's investment during the first quarter of fiscal 1997 in the
development and training of new personnel to expand the professional services
organization.
Selling and Marketing. Selling and marketing expenses increased 118% to
$1,315,000, or 38% of revenue, in the first quarter of fiscal 1997 from
$603,000, or 30% of revenue, in the same period of fiscal 1996. This increase
resulted primarily from additional employees in the sales and marketing
organizations as well as an increase in marketing programs. In addition,
international selling expenses increased due to the establishment of three
subsidiaries in Europe.
7
<PAGE>
WORKGROUP TECHNOLOGY CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Research and Development. Research and development expenses increased 39% in
the first quarter of fiscal 1997 to $945,000 from $681,000 in the first quarter
of fiscal 1996. The increase in fiscal 1997 resulted primarily from employment
of additional staff and independent contractors to develop and enhance the
Company's products, expand the integration of its products with other
applications and provide quality assurance. As a result of increased revenue,
research and development expenses as a percentage of revenue decreased to 27% in
the first quarter of fiscal 1997 from 34% in the same period of fiscal 1996.
General and Administrative. In the first quarter of fiscal 1997, general and
administrative expenses increased 28% to $234,000 from $183,000 in the same
quarter of fiscal 1996. This increase resulted primarily from the employment of
additional staff and other expenses in support of the Company's increased level
of operations. As a percentage of revenue, general and administrative expenses
decreased to 7% for the first quarter of fiscal 1997 from 9% for the same period
of the previous year.
Interest Income, (Net). Interest income, net consists of interest earned on
cash and cash equivalents, offset by interest expense associated with equipment
financing. Due to higher cash and cash equivalent balances as a result of the
Company's initial public offering, interest income for the period increased
$477,000 versus the same period in fiscal 1996.
Provision for Income Taxes. For the first quarter ended June 30, 1996, the
provision for income taxes increased to $40,000 from $14,000 for the same period
of fiscal 1996. The effective tax rate was 4% and 1% in the first quarter of
fiscal 1997 and 1996, respectively. The provision for taxes results primarily
from taxable income in the Company's foreign subsidiaries as well as estimated
minimum taxes due for state and federal purposes.
The Company has available net operating loss carryforwards of $3,298,000 which
it may use to offset future federal taxable income. As of June 30, 1996,
management of the Company has evaluated the positive and negative evidence as
required by Financial Accounting Statement No. 109, impacting the realizability
of the deferred tax assets which consist principally of net operating loss and
tax credit carryforwards. Due to the uncertainty of the realization of deferred
tax assets, a full valuation allowance has been recorded. Management
reevaluates the position on a quarterly basis.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
Cash and equivalents at June 30, 1996 decreased $1,213,000 to $39,746,000 from
$40,959,000 at March 31, 1996. This decrease resulted primarily from an
increase in the accounts receivable balance at June 30, 1996 which related
primarily to the timing of sales during the quarter. Working capital increased
$724,000 to $40,149,000 at the end of the fiscal quarter from $39,425,000 at
fiscal year end.
The Company believes its existing cash and cash equivalent balances will be
sufficient to meet its cash requirements for at least the next year.
8
<PAGE>
WORKGROUP TECHNOLOGY CORPORATION
PART II OTHER INFORMATION
Item 1 Legal Proceedings
The Company is not a party to any litigation that it believes would have
a material impact on its business.
Item 6 Exhibits and Reports on Form 8-K
(a) Exhibits
11.1 Statement re: computation of per share earnings
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended
June 30, 1996.
9
<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.
WORKGROUP TECHNOLOGY CORPORATION
Registrant
Date: August 12, 1996 /s/ James M. Carney
----------------- -------------------------------------
James M. Carney
President, Chief Executive Officer and
Chairman
Date: August 12, 1996 /s/ George R. McHorney
----------------- --------------------------------------
George R. McHorney
Vice President, Finance, Chief Financial
Officer, Secretary and Treasurer
10
<PAGE>
EXHIBIT 11.1
WORKGROUP TECHNOLOGY CORPORATION
COMPUTATION OF WEIGHTED AVERAGE SHARES
USED IN COMPUTING INCOME PER SHARE AMOUNTS
<TABLE>
<CAPTION>
Primary Fully
Type of Security Shares Diluted
- ---------------- --------- ---------
<S> <C> <C>
For the three months ended June 30, 1996:
Common Stock, beginning of period......... 7,926,000 7,926,000
Weighted average common stock
issued during the period................. 8,000 8,000
Common stock equivalents.................. 1,301,000 1,301,000
Treasury stock buyback.................... (90,000) (90,000)
---------- ----------
Weighted average shares of
common stock outstanding.............. 9,145,000 9,145,000
========== ==========
Net income per share...................... $ 0.10 $ 0.10
========== ==========
For the three months ended June 30, 1995:
Common Stock, beginning of period......... 1,722,000 1,722,000
Cheap stock outstanding during the
period................................... 1,370,000 1,370,000
Weighted average common stock
issued during the period................. 1,000 1,000
Common stock equivalents.................. 3,371,000 3,371,000
Treasury stock buyback.................... (249,000) (249,000)
---------- ---------
Weighted average shares of
common stock outstanding.............. 6,215,000 6,215,000
========== ==========
Net income per share...................... $ 0.03 $ 0.03
========== ==========
</TABLE>
(1) All common share amounts have been restated to reflect a 3-into-2 reverse
stock split.
(2) In accordance with the Securities and Exchange Commission, issuances of
common stock and common stock equivalents, within one year prior to the
initial filing of the registration statement, at share prices below the
assumed initial public offering price of $14.50 per share (cheap stock),
are considered to have been made in anticipation of the contemplated public
offering for which this registration statement was prepared. Accordingly,
these stock issuances are treated as if issued and outstanding, using the
treasury stock method, since the inception of the Company. See Note 4 of
Notes to the Consolidated Financial Statements.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS
<FISCAL-YEAR-END> MAR-31-1997 MAR-31-1996
<PERIOD-START> APR-01-1996 APR-01-1995
<PERIOD-END> JUN-30-1996 JUN-30-1995
<CASH> 39,746 40,959
<SECURITIES> 0 0
<RECEIVABLES> 3,182 2,075
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 43,400 43,268
<PP&E> 1,463 1,272
<DEPRECIATION> 604 511
<TOTAL-ASSETS> 44,328 44,073
<CURRENT-LIABILITIES> 3,251 3,843
<BONDS> 0 0
0 0
0 0
<COMMON> 43,812 43,806
<OTHER-SE> (2,820) (3,692)
<TOTAL-LIABILITY-AND-EQUITY> 44,328 44,073
<SALES> 3,471 2,025
<TOTAL-REVENUES> 3,471 2,025
<CGS> 553 365
<TOTAL-COSTS> 553 365
<OTHER-EXPENSES> 2,494 1,467
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> (497) (20)
<INCOME-PRETAX> 921 213
<INCOME-TAX> 40 14
<INCOME-CONTINUING> 881 199
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 881 199
<EPS-PRIMARY> .10 .03
<EPS-DILUTED> .10 .03
</TABLE>
