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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 June 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)
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)
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______
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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 July 25, 2000
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Common Stock, $.01 par value 8,002,807
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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 June 30, 2000 and March 31, 2000 2
Consolidated Statements of Operations for the
three months ended June 30, 2000 and 1999 3
Consolidated Statements of Cash Flows for the
three months ended June 30, 2000 and 1999 4
Notes to Consolidated Financial Statements 5-6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7-10
Part II. Other Information:
Item 1. Legal Proceedings 11
Item 6. Exhibits and Reports on Form 8-K 11
Signatures 12
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WORKGROUP TECHNOLOGY CORPORATION
Condensed Consolidated Balance Sheets
(in thousands)
June 30, March 31,
2000 2000
(unaudited)
Assets
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Current assets:
Cash and cash equivalents $ 11,084 $ 12,406
Accounts receivable, net 431 763
Prepaid expenses and other current assets 212 209
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Total current assets 11,727 13,378
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Property and equipment, net 615 696
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$ 12,342 $ 14,074
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Liabilities and Stockholders' Equity
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Current liabilities:
Accounts payable $ 99 $ 53
Accrued expenses 911 1,072
Accrued royalties 103 50
Deferred revenue 1,943 2,496
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Total current liabilities 3,056 3,671
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Stockholders' equity:
Common stock 87 87
Additional paid-in capital 44,407 44,406
Treasury stock (1,416) (1,361)
Accumulated deficit (33,792) (32,729)
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Total stockholders' equity 9,286 10,403
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$ 12,342 $ 14,074
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The accompanying notes are an integral part of the consolidated financial
statements.
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WORKGROUP TECHNOLOGY CORPORATION
Consolidated Statements of Operations
(in thousands, except per share data)
Three months ended
June 30,
2000 1999
(unaudited)
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Revenue
Software licenses $ 334 $ 573
Maintenance and services 1,430 1,468
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Total revenue 1,764 2,041
Cost of revenue
Cost of software licenses 58 95
Cost of maintenance and services 590 810
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Total cost of revenue 648 905
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Gross profit 1,116 1,136
Operating expenses
Selling and marketing 644 1,998
Research and development 1,156 1,496
General and administrative 542 415
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Total operating expenses 2,342 3,909
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Loss from operations (1,226) (2,773)
Interest and other income, net 163 255
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Net loss $ (1,063) $(2,518)
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Basic and diluted net loss per common share $ (0.13) $ (0.31)
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Weighted average basic and diluted shares
outstanding 8,056 7,995
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The accompanying notes are an integral part of the consolidated financial
statements.
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WORKGROUP TECHNOLOGY CORPORATION
Consolidated Statements of Cash Flows
(in thousands)
Three months ended June 30,
2000 1999
(unaudited)
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Cash flows from operating activities:
Net loss $ (1,063) $ (2,518)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 150 237
Changes in operating assets and liabilities:
Accounts receivable 332 372
Prepaid expenses and other current assets (3) (242)
Accounts payable 46 (67)
Accrued expenses (159) (208)
Accrued royalties 53 (1)
Deferred revenue (553) (31)
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Net cash used in operating activities (1,197) (2,458)
Cash flows from investing activities:
Purchases of property and equipment (68) (158)
Cash flows from financing activities:
Proceeds from issuance of common stock 1 5
Payments for common stock repurchases (55) (193)
Payments of capital lease obligations (3) (2)
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Net cash used in financing activities (57) (190)
Effect of exchange rate changes on cash - 6
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Net decrease in cash and cash equivalents (1,322) (2,800)
Cash and cash equivalents, beginning of period 12,406 22,050
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Cash and cash equivalents, end of period $ 11,084 $ 19,250
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The accompanying notes are an integral part of the
consolidated financial statements.
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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 month period ended June 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 month periods ended
June 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 to the Company's common stock
of approximately 1,680,000 and 2,100,000 were outstanding for the periods
ended June 30, 2000 and 1999, respectively, at weighted average prices of
$1.78 and $3.43, respectively, but were not included in the computation of
diluted earnings per share because they were antidilutive.
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WORKGROUP TECHNOLOGY CORPORATION
Notes to Consolidated Financial Statements
The following is a summary of the Company's stock option plans by price range as
of June 30, 2000:
(in thousands, except per share amounts)
Number Average
of Shares Exercise Price
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Price range $0.15 - $0.94
(remaining contractual life of 5.6 years)
Outstanding 60 $ 0.46
Exercisable 36 0.25
Price range $1.03 - $2.00
(remaining contractual life of 9.4 years)
Outstanding 1,383 1.30
Exercisable 287 1.29
Price range $2.03 - $4.00
(remaining contractual life of 7.0 years)
Outstanding 94 3.27
Exercisable 53 3.42
Price range $4.06 - $8.50
(remaining contractual life of 4.6 years)
Outstanding 128 5.01
Exercisable 101 5.07
Price range $15.00 - $15.00
(remaining contractual life of 0.2 years)
Outstanding 15 15.00
Exercisable 15 15.00
Options outstanding, June 30, 2000 1,680 $ 1.78
Options exercisable, June 30, 2000 492 $ 2.64
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WORKGROUP TECHNOLOGY CORPORATION
Management's Discussion and Analysis of
Financial Condition and Results of Operations
RESULTS OF OPERATIONS
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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 first quarter of fiscal 2001
decreased 13.6% to $1,764,000 from $2,041,000 compared with the same period of
fiscal 2000.
Software license revenue decreased 41.7% to $334,000 in the first quarter of
fiscal 2001 from $573,000 in the same period of fiscal 2000. This decrease
resulted primarily from a decline in core license revenue from the CMS product
line.
Maintenance and services revenue decreased 2.6% to $1,430,000 in the first
quarter of fiscal 2001 from $1,468,000 in the first quarter of fiscal 2000.
This decrease resulted primarily from lower consulting revenue, which was
partially offset by increases in both maintenance and training revenue.
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 first quarter of fiscal 2001 decreased to $276,000 or 82.6% of software
license revenue from $478,000 or 83.4% of software license revenue in the first
quarter of fiscal 2000. These changes result primarily from 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 on maintenance and services revenue
increased to $840,000 or 58.7% of maintenance and services revenue in the first
quarter of fiscal 2001 from $658,000 or 44.8% of maintenance and service revenue
in the first quarter of fiscal 2000. These increases in gross profit are due
primarily to lower headcount and related personnel costs in the professional
services organization.
Total gross profit as a percentage of total revenue increased to 63.3% in the
first quarter of fiscal 2001 from 55.7% in the first quarter of fiscal 2000. The
slight increase in gross profit is due primarily to lower headcount and related
personnel costs in the professional services organization which was offset by a
decrease in software license revenue.
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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 67.8% to
$644,000 in the first quarter of fiscal 2001 from $1,998,000 in the first
quarter of fiscal 2000. The decrease for the first quarter resulted primarily
from a reduction in headcount and related expenses of approximately $950,000 and
a reduction in marketing programs of approximately $375,000, partially due to
the discontinuance of the WTC OpCenter product line. As a result of this
decrease, selling and marketing expenses as a percentage of revenue decreased to
36.5% in the first quarter of fiscal 2001 from 97.9% in the first quarter of
fiscal 2000.
Research and Development. Research and development expenses decreased 22.7% to
$1,156,000 in the first quarter of fiscal 2001 from $1,496,000 in the first
quarter 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 this decrease, research and development
expenses as a percentage of revenue decreased to 65.5% in the first quarter of
fiscal 2001 from 73.3% in the first quarter of fiscal 2000.
General and Administrative. General and administrative expenses increased 30.6%
to $542,000 in the first quarter of fiscal 2001 from $415,000 in the first
quarter of fiscal 2000. The first quarter increase is due primarily to higher
employee related and professional advisor costs. As a result of these
increases, general and administrative expenses as a percentage of revenue
increased to 30.7% in the first quarter of fiscal 2001 from 20.3% in the first
quarter 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,
decreased 36.1% to $163,000 in the first quarter of fiscal 2001 from $255,000 in
the first quarter of fiscal 2000. This decrease is the result of lower interest
income due to lower cash and cash equivalent balances during the first quarter
of fiscal 2001.
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WORKGROUP TECHNOLOGY CORPORATION
Management's Discussion and Analysis of
Financial Condition and Results of Operations
LIQUIDITY AND CAPITAL RESOURCES
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Cash and cash equivalents at June 30, 2000 decreased $1,322,000 to $11,084,000
from $12,406,000 at March 31, 2000. This decrease resulted primarily from cash
used for operating activities of $1,197,000, capital expenditures of $68,000 and
stock repurchases of $55,000 during the quarter. Working capital decreased
$1,036,000 to $8,671,000 at June 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 quarter of fiscal 2001, the Company repurchased 58,000 shares of its
common stock for $55,000. At June 30, 2000, the Company had repurchased
approximately 658,000 shares of the 1,750,000 shares authorized by the Board of
Directors.
The Company believes its existing cash and cash equivalent balances will be
sufficient to meet its cash requirements, including treasury stock transactions,
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.
YEAR 2000 READINESS DISCLOSURE STATEMENT
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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.
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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
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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.
The Company has received notice from The NASDAQ Stock Market, Inc. that it is
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 is
at least $1.00 for a minimum of ten (10) consecutive trading days. There can be
no assurance that the Company's common stock will remain listed on the NASDAQ
National 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.
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.
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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
10.17 Amended and Restated 1996 Non-Employee Director Stock
Option Plan
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended June
30, 2000.
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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: July 31, 2000 /s/ Patrick H. Kareiva
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Patrick H. Kareiva
President, Chief Executive Officer, Chief
Financial Officer, Treasurer and Secretary
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