<PAGE>
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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------------
FORM 10-Q
[X]Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the quarter ended December 31, 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 0-27798
WORKGROUP TECHNOLOGY CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 04-3153644
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
91 Hartwell Avenue, Lexington, Massachusetts 02173
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (781) 674-2000
-----------------------
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 practical date.
Class Outstanding at February 6, 1997
------------------------------ -------------------------------
Common Stock, $.01 par value 8,302,131
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WORKGROUP TECHNOLOGY CORPORATION
Index
<TABLE>
<CAPTION>
Page(s)
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Part I. Financial Information:
<S> <C> <C> <C>
Item 1.
Condensed Consolidated Balance Sheets
at December 31, 1997 and March 31, 1997 2
Consolidated Statements of Operations for the
three and nine month periods ended
December 31, 1997 and 1996 3
Consolidated Statements of Cash Flows for the
nine month periods ended
December 31, 1997 and 1996 4
Notes to Consolidated Financial
Statements 5-6
Item 2. Management's Discussion and
Analysis of Financial Condition
and Results of Operations 7-9
Part II. Other Information:
Item 1. Legal Proceedings 10
Item 6. Exhibits and Reports on Form 8-K 10
Signatures 11
</TABLE>
<PAGE>
WORKGROUP TECHNOLOGY CORPORATION
Condensed Consolidated Balance Sheets
(in thousands)
<TABLE>
<CAPTION>
December 31, March 31,
1997 1997
(unaudited)
Assets
- --------------------------------------------------------------------------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 32,620 $ 37,951
Accounts receivable, net 2,093 2,179
Prepaid expenses and other current assets 332 294
-------- --------
Total current assets 35,045 40,424
-------- --------
Property and equipment, net 1,619 1,339
Other assets 32 33
======== ========
$ 36,696 $ 41,796
======== ========
Liabilities and Stockholders' Equity
- --------------------------------------------------------------------------------
Current liabilities:
Accounts payable $ 372 $ 660
Accrued expenses 1,741 1,415
Deferred revenue 1,980 1,794
-------- --------
Total current liabilities 4,093 3,869
-------- --------
Stockholders' equity:
Common stock 83 81
Additional paid-in capital 44,065 43,955
Accumulated translation adjustment (9) (10)
Accumulated deficit (11,536) (6,099)
-------- --------
Total stockholders' equity 32,603 37,927
-------- --------
$ 36,696 $ 41,796
======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
2
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WORKGROUP TECHNOLOGY CORPORATION
Consolidated Statements of Operations
(in thousands, except per share data)
<TABLE>
<CAPTION>
Three months ended Nine months ended
December 31, December 31,
1997 1996 1997 1996
(unaudited) (unaudited)
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenue
Software licenses $ 842 $ 1,419 $ 2,348 $ 5,200
Maintenance and services 1,055 954 3,263 2,938
--------- --------- --------- ---------
Total revenue 1,897 2,373 5,611 8,138
Cost of revenue
Cost of software licenses 57 91 162 236
Cost of maintenance and services 623 541 2,104 1,552
--------- --------- --------- ---------
Total cost of revenue 680 632 2,266 1,788
Gross profit 1,217 1,741 3,345 6,350
Operating expenses
Selling and marketing 1,519 1,643 4,425 4,489
Research and development 1,408 1,218 4,095 3,285
General and administrative 503 525 1,442 1,097
--------- --------- --------- ---------
Total operating expenses 3,430 3,386 9,962 8,871
--------- --------- --------- ---------
Loss from operations (2,213) (1,645) (6,617) (2,521)
Interest income, net 506 489 1,250 1,457
--------- --------- --------- ---------
Loss before income taxes (1,707) (1,156) (5,367) (1,064)
Provision for income taxes 20 -- 70 40
--------- --------- --------- ---------
Net loss $(1,727) $(1,156) $(5,437) $(1,104)
========= ========= ========= =========
Basic and diluted net loss per share $ (0.21) $ (0.14) $ (0.66) $ (0.14)
========= ========= ========= =========
Basic and diluted shares outstanding 8,266 8,015 8,200 7,971
========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
3
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WORKGROUP TECHNOLOGY CORPORATION
Consolidated Statements of Cash Flows
(in thousands)
<TABLE>
<CAPTION>
Nine months ended December 31,
1997 1996
(unaudited)
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (5,437) $ (1,104)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 546 424
Provision for doubtful accounts 50 -
Equity compensation - 156
Changes in operating assets and liabilities:
Accounts receivable 36 (6)
Prepaid expenses and other current assets (38) (219)
Other assets 1 15
Accounts payable (288) (322)
Accrued expenses 338 410
Deferred revenue 186 (225)
------------ ------------
Net cash used in operating activities (4,606) (871)
Cash flows from investing activities:
Purchases of property and equipment (826) (1,015)
Cash flows from financing activities:
Proceeds from issuance of common stock 112 10
Proceeds from collection of officers' notes - 7
Payments of capital lease obligations (12) (311)
------------ ------------
Net cash provided by (used in) financing activities 100 (294)
Effect of exchange rate changes on cash 1 (11)
------------ ------------
Net decrease in cash and cash equivalents (5,331) (2,191)
Cash and cash equivalents, beginning of period 37,951 40,959
------------ ------------
Cash and cash equivalents, end of period $ 32,620 $ 38,768
============ ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
4
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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 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, reducing
time to market, and providing more accurate and timely market feedback. CMS
ensures the capture, integrity and efficient, controlled distribution of
critical product and process information. CMS can manage many types of
electronic data including CAD models, bills of material, word processing,
spreadsheet, voice, video and multimedia files.
2. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying unaudited financial statements and notes do not include
all of the disclosures made in the Company's Annual Report on Form 10-K for
fiscal 1997, which should be read in conjunction with these statements.
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 and nine month
periods ended December 31, 1997 are not necessarily indicative of the
results to be expected for the full fiscal year.
Risks and Uncertainties
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures 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 and would impact future results of operations and cash flows.
5
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WORKGROUP TECHNOLOGY CORPORATION
Notes to Consolidated Financial Statements, Continued
3. Net Loss Per Share
The Company has adopted Statement of Financial Accounting Standards
("SFAS") No. 128, "Earnings per Share" in the quarter ended December 31,
1997 and all historical net income (loss) per share data presented has been
restated to conform to the provisions of this statement. SFAS No. 128
requires the disclosure of basic and diluted earnings per share.
The Company's basic net loss per share is computed by dividing net loss by
the weighted average number of shares of common stock and diluted net loss
per share is based on the same computation but includes dilutive potential
common shares. Potential common shares include shares issuable upon the
exercise of stock options or warrants, net of shares assumed to have been
purchased with the proceeds. Potential common shares were antidilutive for
the periods ended December 31, 1997 and 1996 and therefore the basic and
diluted net loss per share were the same.
Options to purchase shares of the Company's common stock of 1,770,055 and
1,278,622 for the periods ended December 31, 1997 and 1996 were outstanding
during the respective periods but were not included in the computation of
diluted earnings per share because they were antidilutive.
6
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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
software products and fees for professional services and software maintenance.
Revenue for the three and nine month periods ended December 31, 1997 decreased
20.1% and 31.1%, respectively, to $1,897,000 and $5,611,000 from $2,373,000 and
$8,138,000 in the comparable periods of fiscal 1997.
Software license revenue for the three and nine month periods ended December 31,
1997 decreased 40.7% and 54.8%, respectively, to $842,000 and $2,348,000 from
$1,419,000 and $5,200,000 in the comparable periods of fiscal 1997. This revenue
decrease resulted primarily from lower demand for the CMS 6 Series product as
well as a delay in the release of the Company's new CMS 7 Series product.
Maintenance and services revenue for the three and nine month periods ended
December 31, 1997 increased 10.6% and 11.1%, respectively, to $1,055,000 and
$3,263,000 from $954,000 and $2,938,000 in the comparable periods of fiscal
1997. This increase resulted primarily from higher maintenance revenue as a
result of an increase in the maintenance base.
Cost of Revenue and Gross Profit. The Company's cost of software license revenue
consists primarily of third party 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 for the third
quarter of fiscal 1998 was $785,000 or 93.2% of software license revenue versus
$1,328,000 or 93.6% of software license revenue in the third quarter of fiscal
1997. For the nine months ended December 31, 1997, gross profit from software
license revenue was $2,186,000 or 93.1% of software license revenue compared
with $4,964,000 or 95.5% for the same period of fiscal 1997. These decreases
resulted primarily from lower software revenue in fiscal 1998 as well as the mix
of products sold during each of the periods 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 was $432,000 or 40.9%
of maintenance and services revenue in the third quarter of fiscal 1998 versus
$413,000 or 43.3% of maintenance and service revenue in the third quarter of
fiscal 1997. For the nine months ended December 31, 1997, gross profit on the
maintenance and services revenue decreased to $1,159,000 or 35.5% from
$1,386,000 or 47.2% of the associated revenue in the comparable period of fiscal
1997. This decrease in gross profit is due to costs associated with hiring and
training additional staff in the customer support and professional services
organizations as well as a greater utilization of outside contractors in the
professional services organization.
Selling and Marketing. Selling and marketing expenses decreased 7.5% to
$1,519,000 in the third quarter of fiscal 1998 from $1,643,000 in the same
period of fiscal 1997. For the nine month period, selling and marketing expenses
decreased slightly to $4,425,000 in fiscal 1998 from $4,489,000 in fiscal 1997.
These decreases resulted primarily from a decrease in the number of employees in
the selling and marketing organizations. As a result of lower revenue, selling
and marketing expenses as a percentage of revenue increased to 80.1% and 78.9%
in the three and nine months of fiscal 1998 from 69.2% and 55.2% in the same
periods of fiscal 1997.
7
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WORKGROUP TECHNOLOGY CORPORATION
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Research and Development. Research and development expenses increased 15.6% and
24.7% for the three and nine month periods ended December 31, 1997 to $1,408,000
and $4,095,000 from $1,218,000 and $3,285,000, respectively for the same periods
of fiscal 1997. The increases in fiscal 1998 resulted primarily from the
employment of additional staff and external contractors to develop and enhance
the Company's products as well as severance and other costs associated with a
management change in the first quarter of fiscal 1998. As a result of these
increases and lower revenue, research and development expenses as a percentage
of revenue increased to 74.2% and 73.0% in the three and nine months of fiscal
1998 from 51.3% and 40.4% in the same periods of fiscal 1997.
General and Administrative. General and administrative expenses decreased 4.2%
to $503,000 in the third quarter of fiscal 1998 from $525,000 in the same period
of fiscal 1997. As a result of lower revenue, general and administrative
expenses as a percentage of revenue increased to 26.5% in the third quarter of
fiscal 1998 from 22.1% in the same period of fiscal 1997. For the nine month
period, general and administrative expenses increased 31.4% to $1,442,000 in
fiscal 1998 from $1,097,000 in fiscal 1997. This increase resulted primarily
from an increase in personnel costs and expenses associated with the termination
and recruiting of several management positions in fiscal 1998. As a result of
this increase and lower revenue, general and administrative expenses as a
percentage of revenue increased to 25.7% for the nine month period of fiscal
1998 from 13.5% for the same period of the previous fiscal year.
Interest Income, (Net). Interest income, net consists of interest earned on cash
and cash equivalents, offset by interest expense associated with equipment
financing. As a result of higher interest rates on investments, interest income
for the three month period increased slightly to $506,000 in fiscal 1998 from
$489,000 in fiscal 1997. Interest income for the nine month period decreased
$207,000 or 14.2% as a result of a decrease in the cash and cash equivalent
balances.
Provision for Income Taxes. For the nine months ended December 31, 1997, the
provision for income taxes was $70,000 compared to $40,000 for the same period
of fiscal 1997. The provision for taxes results primarily from taxable income in
the Company's foreign subsidiaries as well as estimated state taxes.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
Cash and equivalents at December 31, 1997 decreased $5,331,000 to $32,620,000
from $37,951,000 at March 31, 1997. This decrease resulted primarily from the
Company's net loss during the nine month period ended December 31, 1997. Working
capital decreased $5,603,000 to $30,952,000 at December 31, 1997 from
$36,555,000 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.
To date, neither foreign currency exposure nor inflation has had a material
impact on the Company's financial results.
8
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WORKGROUP TECHNOLOGY CORPORATION
Management's Discussion and Analysis of
Financial Condition and Results of Operations
CERTAIN FACTORS THAT MAY EFFECT FUTURE RESULTS
- ----------------------------------------------
From time to time information provided by the Company, statements made by its
employees or information included in its filings with the Securities and
Exchange Commission (including this Form 10-Q) may contain statements which are
not historical facts, so-called "forward looking statements," and which involve
risks and uncertainties. The Company's actual future results may differ
significantly from those stated in or implied by any forward-looking statements.
Factors that may cause such differences include, but are not limited to, the
factors discussed below. Each of these factors, and others, are discussed from
time to time in the Company's filings with the Securities and Exchange
Commission.
The Company's future results may be subject to substantial risks and
uncertainties. Because the Company derives the majority of its revenue from
software license fees, the Company's quarterly and annual operating results are
sensitive to the size, timing and shipment of individual orders, customer order
deferrals in anticipation of new products or the lengthening of the sales cycle
either generally or with respect to individual customers. In addition, the
Company's continued growth is dependent on achieving broader market acceptance
of its products and the ability of the Company to introduce enhancements and
additional integrations to its products in a timely manner to meet the evolving
needs of its customers. In addition, the Company relies on certain intellectual
property protections to preserve its intellectual property rights. Any
invalidation of the Company's intellectual property rights or lengthy and
expensive defense of those rights could have a material adverse effect on the
Company. The segment of the software industry in which the Company is engaged is
extremely competitive. Certain current and potential competitors of the Company
are more established and benefit from greater market recognition and have
substantially greater financial, development and marketing resources than the
Company.
The Company's quarterly and annual operating results are impacted by a variety
of factors that could materially adversely affect revenues and profitability,
including: the timing and shipment of individual orders and enhancements to the
Company's products, the introduction and market acceptance of new integrations
with the Company's products and changes or anticipated changes in economic
conditions. Because the Company's operating expenses are relatively fixed, any
unanticipated shortfall in revenue in a quarter may have an adverse impact on
the Company's results of operations for that quarter. As a result of the
foregoing and other factors, the Company may experience material fluctuations in
future operating results on a quarterly or annual basis which could materially
and adversely affect its business, financial condition, operating results and
stock price.
9
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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
None
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended
December 31, 1997.
10
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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: February 12, 1998 /s/ James M. Carney
------------------- -------------------------------------
James M. Carney
Chief Executive Officer and Chairman
Date: February 12, 1998 /s/ John P. McDonough
------------------ -------------------------------------
John P. McDonough
President, Chief Operating Officer,
and Secretary
Date: February 12, 1998 /s/ Diane M. Marcou
------------------ -------------------------------------
Diane M. Marcou
Vice President- Finance & Administration
and Treasurer
11
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10Q AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 9-MOS
<FISCAL-YEAR-END> MAR-31-1998 MAR-31-1998
<PERIOD-START> OCT-01-1997 APR-01-1997
<PERIOD-END> DEC-31-1997 DEC-31-1997
<CASH> 32,620 32,620
<SECURITIES> 0 0
<RECEIVABLES> 2,193 2,193
<ALLOWANCES> 100 100
<INVENTORY> 0 0
<CURRENT-ASSETS> 35,045 35,045
<PP&E> 2,875 2,875
<DEPRECIATION> 1,256 1,256
<TOTAL-ASSETS> 36,696 36,696
<CURRENT-LIABILITIES> 4,093 4,093
<BONDS> 0 0
0 0
0 0
<COMMON> 44,148 44,148
<OTHER-SE> (11,545) (11,545)
<TOTAL-LIABILITY-AND-EQUITY> 36,696 36,696
<SALES> 1,897 5,611
<TOTAL-REVENUES> 1,897 5,611
<CGS> 680 2,266
<TOTAL-COSTS> 680 2,266
<OTHER-EXPENSES> 3,430 9,962
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> (506) (1,250)
<INCOME-PRETAX> (1,707) (5,367)
<INCOME-TAX> 20 70
<INCOME-CONTINUING> (1,727) (5,437)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (1,727) (5,437)
<EPS-PRIMARY> (0.21) (0.66)
<EPS-DILUTED> (0.21) (0.66)
</TABLE>
