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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 September 30, 2000.
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)
<TABLE>
<S> <C>
Delaware 04-3153644
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
91 Hartwell Avenue, Lexington, Massachusetts 02421
(Address of principal executive offices) (Zip code)
</TABLE>
Registrant's telephone number, including area code: (781) 674-2000
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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 October 30, 2000
----------------------------- -------------------------------
Common Stock, $.01 par value 7,718,773
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WORKGROUP TECHNOLOGY CORPORATION
Index
Page(s)
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Part I. Financial Information:
Item 1. Condensed Consolidated Balance Sheets
at September 30, 2000 and March 31, 2000 2
Consolidated Statements of Operations for the
three and six month periods ended
September 30, 2000 and 1999 3
Consolidated Statements of Cash Flows for the
six month periods ended
September 30, 2000 and 1999 4
Notes to Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 6-10
Part II. Other Information:
Item 1. Legal Proceedings 11
Item 4. Submission of Matters to a Vote of Security Holders 11
Item 5. Other Information 11
Item 6. Exhibits and Reports on Form 8-K 12
Signatures 13
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WORKGROUP TECHNOLOGY CORPORATION
Condensed Consolidated Balance Sheets
(in thousands)
<TABLE>
<CAPTION>
September 30, March 31,
2000 2000
(unaudited)
Assets
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<S> <C> <C>
Current assets:
Cash and cash equivalents $ 9,568 $ 12,406
Accounts receivable, net 671 763
Prepaid expenses and other current assets 103 209
-------------- ------------
Total current assets 10,342 13,378
-------------- ------------
Property and equipment, net 655 696
-------------- ------------
$ 10,997 $ 14,074
============== ============
Liabilities and Stockholders' Equity
---------------------------------------------------------------------------------------------------------------------
Current liabilities:
Accounts payable $ 442 $ 53
Accrued expenses 699 1,072
Accrued royalties 150 50
Deferred revenue 1,604 2,496
-------------- ------------
Total current liabilities 2,895 3,671
-------------- ------------
Stockholders' equity:
Common stock 87 87
Additional paid-in capital 44,411 44,406
Treasury stock (1,583) (1,361)
Accumulated deficit (34,813) (32,729)
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Total stockholders' equity 8,102 10,403
-------------- ------------
$ 10,997 $ 14,074
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</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 Six months ended
September 30, September 30,
2000 1999 2000 1999
(unaudited) (unaudited)
----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <S> <C>
Revenue
Software licenses $ 317 $ 427 $ 651 $ 1,000
Maintenance and services 1,529 1,528 2,959 2,996
------------- ------------- -------------- -------------
Total revenue 1,846 1,955 3,610 3,996
Cost of revenue
Cost of software licenses 87 289 145 384
Cost of maintenance and services 560 719 1,150 1,529
------------- ------------- -------------- -------------
Total cost of revenue 647 1,008 1,295 1,913
------------- ------------- -------------- -------------
Gross profit 1,199 947 2,315 2,083
Operating expenses
Selling and marketing 686 1,748 1,330 3,746
Research and development 1,087 1,677 2,243 3,173
General and administrative 612 602 1,154 1,017
------------- ------------- -------------- -------------
Total operating expenses 2,385 4,027 4,727 7,936
------------- ------------- -------------- -------------
Loss from operations (1,186) (3,080) (2,412) (5,853)
Interest and other income, net 165 266 328 521
------------- ------------- -------------- -------------
Net loss $(1,021) $ (2,814) $ (2,084) $ (5,332)
============= ============= ============== =============
Basic and diluted net loss per common share $ (0.13) $ (0.35) $ (0.26) $ (0.67)
============= ============= ============== =============
Weighted average basic and diluted shares outstanding 7,891 7,963 7,974 7,981
============= ============= ============== =============
</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>
Six months ended September 30,
2000 1999
(unaudited)
----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (2,084) $ (5,332)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 289 455
Provision for doubtful accounts (10) 69
Changes in operating assets and liabilities:
Accounts receivable 102 694
Prepaid expenses and other current assets 106 (124)
Accounts payable 389 (330)
Accrued expenses (368) (366)
Accrued royalties 100 (71)
Deferred revenue (892) (916)
---------------- ---------------
Net cash used in operating activities (2,368) (5,921)
Cash flows from investing activities:
Purchases of property and equipment (248) (228)
Cash flows from financing activities:
Proceeds from issuance of common stock 5 48
Payments for common stock repurchases (222) (206)
Payments of capital lease obligations (5) (5)
---------------- ---------------
Net cash provided by (used in) financing activities (222) (163)
Effect of exchange rate changes on cash 0 5
---------------- ---------------
Net decrease in cash and cash equivalents (2,838) (6,307)
Cash and cash equivalents, beginning of period 12,406 22,050
---------------- ---------------
Cash and cash equivalents, end of period $ 9,568 $ 15,743
================ ===============
</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 on May 11,
1992, provides collaborative product data management solutions through its
WTC ProductCenter family of products (formerly CMS). The Company's
products and services provide product development organizations with
product content management and process automation to optimize the product
development process throughout the extended enterprise, including
customers, partners and the supply chain.
2. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying unaudited consolidated financial statements and notes do
not include all of the disclosures made in the Company's Annual Report on
Form 10-K for fiscal 2000, which should be read in conjunction with these
statements. The year-end condensed balance sheet data was derived from
audited financial statements, but does not include all disclosures
required by generally accepted accounting principles. 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 six month periods ended September
30, 2000 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 revenue and expenses
during the reporting period. Actual results could differ from those
estimates and could impact future results of operations.
3. Basic and Diluted Earnings Per Share
The Company's basic net loss per common share is computed by dividing net
loss by the weighted average number of shares of common stock outstanding.
Potential common shares include shares issuable upon the exercise of stock
options or warrants, net of shares assumed to have been purchased by the
Company with the related proceeds. Potential common shares, which
consisted only of stock options, were antidilutive for the three and six
month periods ended September 30, 2000 and 1999 and therefore the diluted
net loss per common share was the same as basic net loss per common share
for those periods.
Options to purchase weighted average shares of the Company's common stock
of approximately 1,750,000 and 1,554,000 were outstanding for the periods
ended September 30, 2000 and 1999, respectively, at weighted average
prices of $1.43 and $3.45, respectively, but were not included in the
computation of diluted earnings per share because they were antidilutive.
5
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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 family of
software products including CMS, WTC ProductCenter, and WTC OpCenter (which was
discontinued in the third quarter of fiscal 2000), and fees for professional
services and software maintenance. Revenue for the second quarter of fiscal 2001
decreased 5.6% to $1,846,000 from $1,955,000 compared with the same period of
fiscal 2000. Revenue for the six month period ended September 30, 2000 decreased
9.7% to $3,610,000 from $3,996,000 in the comparable period of fiscal 2000.
Software license revenue for the three and six month periods ended September 30,
2000 decreased 25.8% and 34.9%, respectively, to $317,000 and $651,000,
respectively, from $427,000 and $1,000,000, respectively, in the comparable
periods of fiscal 2000. This decrease resulted primarily from a decline in core
license revenue from the CMS product line.
Maintenance and services for the three and six month periods ended September 30,
2000 remained approximately constant when compared with the same periods of
fiscal 2000
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
products. Gross profit associated with software license revenue for the second
quarter of fiscal 2001 increased to $230,000 or 72.6% of software license
revenue from $138,000 or 32.3% of software license revenue in the second quarter
of fiscal 2000. For the six months ended September 30, 2000, gross profit from
software license revenue decreased to $506,000 or 77.7% of software license
revenue from $616,000 or 61.6% for the same period of fiscal 2000. These changes
result primarily from a one-time charge in the second quarter of fiscal 2000 for
the write-off of prepaid royalties related to the discontinued WTC OpCenter
product line as well as lower software license revenue.
Cost of maintenance and services revenue consists primarily of personnel and
related costs for the Company's customer support and professional services
organizations. The Company's gross profit from maintenance and services revenue
increased to $969,000 or 63.4% of maintenance and services revenue in the second
quarter of fiscal 2001 from $809,000 or 52.9% of maintenance and service revenue
in the second quarter of fiscal 2000. For the six months ended September 30,
2000 gross profit from maintenance and services revenue increased to $1,809,000
or 61.1% from $1,467,000 or 49.0% of the associated revenue in the comparable
period of fiscal 2000. These increases in gross profit are due primarily to
lower headcount and related personnel costs in the professional services
organization.
6
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WORKGROUP TECHNOLOGY CORPORATION
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Selling and Marketing. Selling and marketing expenses decreased 60.8% and 64.5%
for the three and six month periods ended September 30, 2000 to $686,000 and
$1,330,000 from $1,748,000 and $3,746,000, respectively, for the same periods of
fiscal 2000. These decreases resulted primarily from a reduction in headcount
and related expenses of approximately $1,680,000 and a reduction in marketing
programs of approximately $580,000, partially due to the discontinuance of the
WTC OpCenter product line. As a result of these decreases, selling and marketing
expenses as a percentage of revenue decreased to 37.2% and 36.8% in the three
and six month periods of fiscal 2001 from 89.4% and 93.7% in the same periods of
fiscal 2000.
Research and Development. Research and development expenses decreased 35.2% and
29.3% for the three and six month periods ended September 30, 2000 to $1,087,000
and $2,243,000 from $1,677,000 and $3,173,000, respectively, for the same
periods of fiscal 2000. This decrease resulted primarily from lower headcount in
the development organization mostly due to the discontinuance of the WTC
OpCenter product line. As a result of these decreases, research and development
expenses as a percentage of revenue decreased to 58.9% and 62.1% in the three
and six month periods of fiscal 2001 from 85.8% and 79.4% in the same periods of
fiscal 2000.
General and Administrative. General and administrative expenses increased 1.7%
and 13.5% for the three and six month periods ended September 30, 2000 to
$612,000 and $1,154,000 from $602,000 and $1,017,000, respectively, for the same
periods of fiscal 2000. The increase in the first six month period is due
primarily to higher employee related and professional advisor costs. As a result
of these increases and lower revenue, general and administrative expenses as a
percentage of revenue increased to 33.2% and 32.0% for the three and six month
periods of fiscal 2001 from 30.8% and 25.5% in the same periods of fiscal 2000.
Interest and Other Income, (Net). Interest and other income, net, consists
primarily of interest earned on cash and cash equivalents, offset by interest
expense associated with equipment financing. Interest and other income, net, for
the three and six month periods ended September 30, 2000 decreased $101,000 or
38.0% and $193,000 or 37.0%, respectively, from the same periods of fiscal 2000.
This decrease is the result of lower interest income due to lower cash and cash
equivalent balances during fiscal 2001, along with other income included in the
three month period ending September 30, 1999.
7
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WORKGROUP TECHNOLOGY CORPORATION
Management's Discussion and Analysis of
Financial Condition and Results of Operations
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
Cash and cash equivalents at September 30, 2000 decreased $2,838,000 to
$9,568,000 from $12,406,000 at March 31, 2000. This decrease resulted primarily
from cash used for operating activities of $2,368,000, capital expenditures of
$248,000 and stock repurchases of $222,000 during the six month period ended
September 30, 2000. Working capital decreased $2,260,000 to $7,447,000 at
September 30, 2000 from $9,707,000 at fiscal 2000 year end.
In June, 2000, the Board of Directors authorized the repurchase of an additional
1,000,000 shares of the Company's outstanding common stock. This program is in
addition to previously authorized repurchases of up to 750,000 shares. During
the first half of fiscal 2001, the Company repurchased approximately 324,000
shares of its common stock for $222,000. At September 30, 2000, the Company had
repurchased approximately 924,000 shares of the 1,750,000 shares authorized by
the Board of Directors.
At the Company's current level of operations, and after allowing for a potential
short-term increase in a loss from operations due to an expansion of its Field
Sales and Support and R&D organizations, the Company believes it has sufficient
cash on hand to sustain operations for approximately two years without having to
seek additional debt or equity funding.
To date, neither foreign currency exposure nor inflation has had a material
impact on the Company's financial results.
YEAR 2000 READINESS DISCLOSURE STATEMENT
----------------------------------------
Last year, the Company discussed the nature and progress of its plans to become
Year 2000 ("Y2K") ready. In late 1999, the Company completed its identification
and Y2K testing of its software product offerings, internal infrastructure and
major suppliers. As a result of those efforts, the Company experienced no
significant disruptions in mission critical information technology and non-
information technology systems and believes those systems successfully responded
to the Year 2000 date change. The Company has not experienced any material
adverse effects on its products, including any problems with third party
software incorporated into its products, due to the transition to Year 2000. The
Company has not incurred any material costs in connection with Y2K compliance to
date and does not expect to incur any material levels of expenditure on this
issue during fiscal 2001. The Company will continue to monitor its computer
systems and those of its suppliers and vendors to ensure that any latent Y2K
matters that may arise are addressed promptly.
8
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WORKGROUP TECHNOLOGY CORPORATION
Management's Discussion and Analysis of
Financial Condition and Results of Operations
CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS
----------------------------------------------
The Company does not provide forecasts of its future financial performance.
However, from time-to-time information provided by the Company or statements
made by its employees may contain "forward-looking" information that involves
risks and uncertainties. In particular, statements contained in filings with the
Securities and Exchange Commission (including this Form 10-Q), press releases
and oral statements which are not historical facts constitute forward-looking
statements and are made under the safe harbor provisions of the Private
Securities Litigation Reform Act of 1995. The Company's actual results of
operations and financial condition have varied and may in the future vary
significantly from those stated in any forward-looking statements and there can
be no assurance that the results set forth in those statements will be achieved.
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, including the Company's Form 10-K filed in June 2000.
In June of 2000 the Company received notice from The Nasdaq Stock Market, Inc.
that it was subject to delisting by the Nasdaq National Market on September 14,
2000, unless anytime before September 12, 2000 the bid price of the Company's
common stock was at least $1.00 for a minimum of ten (10) consecutive trading
days. Additionally, in August of 2000 the Company received a second notice from
The Nasdaq Stock Market, Inc. that it was subject to delisting by the Nasdaq
National Market on November 3, 2000, unless anytime before November 1, 2000 the
minimum market value of public float of the Company's common stock was at least
$5,000,000 for a minimum of ten (10) consecutive trading days. On September 13,
2000, the Company announced that it had appealed the Nasdaq Delisting Notice;
and that, as part of its plan to regain compliance with Nasdaq listing
requirements and subject to Nasdaq and shareholder approval, the Board of
Directors had authorized a one-for-four reverse split of outstanding shares of
common stock and had scheduled a special shareholders meeting on December 20,
2000 for shareholders of record as of November 9, 2000 to vote on these matters.
On October 12, 2000 the Company presented to the Nasdaq Listing Qualifications
Panel its plan to regain compliance for continued listing on the Nasdaq National
Market, or alternatively, to be allowed to maintain a listing on the Nasdaq
SmallCap Market. On October 25, 2000 the Company received notice from the Nasdaq
Listing Qualifications Panel that the listing of the Company's securities would
be transferred to The Nasdaq SmallCap Market effective with the open of business
on October 30, 2000. The Nasdaq Listing Qualifications Panel has approved the
transfer subject to the following conditions: on or before January 3, 2001, the
Company must demonstrate a closing bid price of at least $1.00 per share;
immediately thereafter, the Company must evidence a closing bid price of at
least $1.00 per share for a minimum of ten consecutive trading days. The
Company's continued listing on The Nasdaq SmallCap Market is further contingent
upon the successful completion of an application and review process. This
process will require the Company to file an application for this new listing, to
pay all initial listing fees, and to evidence compliance with all requirements
for continued listing on The Nasdaq SmallCap Market, other than the minimum bid
price requirement, on or before November 8, 2000.
Because this is a conditional listing on The Nasdaq SmallCap Market, the
Company's trading symbol will have a fifth character "C" appended to it.
Accordingly, effective upon the open of business on October 30, 2000, the
trading symbol of the Company's securities was changed from WKGP to WKGPC. The
"C" will be removed from the symbol when Nasdaq has confirmed compliance with
the terms of the exception and all other criteria necessary for continued
listing.
9
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WORKGROUP TECHNOLOGY CORPORATION
Management's Discussion and Analysis of
Financial Condition and Results of Operations
There can be no assurance that the Company's common stock will remain listed on
the Nasdaq SmallCap Market. Delisting of the common stock could have an adverse
effect on the market price of, and the efficiency of the trading market for, the
Company's common stock. Also, if in the future the Company determines that it
needs to seek additional equity capital, it could have an adverse effect on its
ability to raise capital in the public equity markets.
The Company's future results are subject to substantial risks and uncertainties.
Because the Company derives a substantial portion 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
growth is dependent on achieving broader market acceptance of its products, the
growth of the product data management market, 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. The Company also 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 enhancements to the Company's products, and
changes or anticipated changes in economic conditions. Because the Company's
operating expenses are relatively fixed, an 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 and stock price.
10
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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 4. Submission of Matters to a Vote of Security Holders
On July 28, 2000, the Company held its Annual Meeting of
Stockholders. At the meeting, the Stockholders acted upon a
proposal to elect one Class II director to serve for a three-year
term or until his or her successor is elected and qualified. The
Board of Directors nominated and recommended that Mr. Patrick H.
Kareiva, who is currently a director, be elected a Class II
director. The proposal was approved by the Stockholders. Holders of
7,106,307 shares of common stock voted for the proposal. Holders of
568,845 shares withheld and there were no broker non-votes. The
terms of directors Douglas A. Catalano and James M. McConnell
continued after the Annual Meeting of Stockholders. Also, at the
meeting, the Stockholders acted upon a proposal to amend and
restate the Company's Non-Employee Director Stock Option Plan to
(i) increase the number of shares of the Company's common stock,
$0.01 par value per share (the "Common Stock"), available for
issuance thereunder to 300,000 shares and (ii) amend Section 4
thereof so that upon initial election to the Company's Board of
Directors and after each three year period of service on the Board
of Directors, a director shall receive an option to purchase 48,000
shares of Common Stock. The proposal was approved by the
Stockholders. Holders of 6,836,721 shares of common stock voted for
the proposal. Holders of 814,501 shares voted against and 23,930
shares abstained.
Item 5. Other Information
Proposals of stockholders intended for inclusion in the proxy
statement to be furnished to all stockholders entitled to vote at
the next Annual Meeting of Stockholders of the Company must be
received at the Company's principal executive offices not later
than February 27, 2001. The deadline for providing timely notice to
the Company of matters that stockholders otherwise desire to
introduce at the next annual meeting of stockholders of the Company
is February 27, 2001, provided, however, notice shall not be given
prior to January 28, 2001. Further, any proposals must comply with
the other procedural requirements set forth in the Company's By-
laws, a copy of which is on file with the SEC, and as set forth by
the SEC. In order to curtail any controversy as to the date on
which a proposal was received by the Company, it is suggested that
proponents submit their proposals by Certified Mail, Return Receipt
Requested to Workgroup Technology Corporation, 91 Hartwell Avenue,
Lexington, Massachusetts, 02421, Attention: Corporate Secretary.
11
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WORKGROUP TECHNOLOGY CORPORATION
Part II Other Information
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
September 30, 2000.
12
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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: November 02, 2000 /s/ Patrick H. Kareiva
------------------ -----------------------------------
Patrick H. Kareiva
President, Chief Executive Officer, Chief
Financial Officer, Treasurer and Secretary
13
