<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 6-K
REPORT OF FOREIGN ISSUER
Pursuant to Rule 13a-16 or 15d-16 of
the Securities Exchange Act of 1934
February 25, 1999
PC DOCS GROUP INTERNATIONAL INC.
(Exact name of registrant as specified in its charter)
2005 SHEPPARD AVENUE EAST
SUITE 800
TORONTO, ONTARIO, CANADA
M2J 5B4
(Address of principal executive offices)
(416) 497-7700
(Registrant's telephone number, including area code)
[Indicate by check mark whether the registrant files or will file annual reports
under cover Form 20-F or Form 40-F.
Form 20-F ....X....... Form 40-F ..........
[Indicate by check mark whether the registrant by furnishing the information
contained in this Form is also thereby furnishing the information to the
Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.
Yes ............ No ......X......
[If "Yes" is marked, indicate below the file number assigned to the registration
in connection with Rule 12g3-2(b): 82-................
<PAGE> 2
INTERIM REPORT
FOR THE SIX MONTHS ENDED
DECEMBER 31, 1998
TO THE SHAREHOLDERS
PC DOCS Group International Inc., a leader in enterprise document and knowledge
management systems and information management systems for professionals reports
the financial results for its Second Quarter ended December 31, 1998.
FINANCIAL HIGHLIGHTS (U.S. GAAP)
Revenue for the second quarter ended December 31, 1998 was $45.5 million, a 52%
increase over the $29.9 million for the same quarter last year and 21% over the
$37.5 million for the first quarter this year. Software license revenue rose by
41% to $23.9 million from $17.0 million last year and was 31% over the $18.4
million in the prior quarter. Compared to last year, revenue for the enterprise
document management business was up by 66% and by 40% over last quarter.
Earnings before interest, taxes, depreciation and amortization in the second
quarter were $7.6 million compared with $4.3 million in the previous year. Net
earnings were $2.8 million compared to $0.98 million for the same period last
year. Fully diluted earnings per share were $0.12 compared to $0.05 in the
previous year and $0.01 in the previous quarter.
During the quarter, management reassessed its accrued restructuring expenses and
determined that an excess of $2.5 million existed. Consequently this excess was
reversed in the quarter.
Excluding the reversal of restructuring charge accruals, earnings before
interest, taxes, depreciation and amortization in the second quarter were $5.1
million. Net earnings were $1.4 million. Fully diluted earnings per share were
$0.06.
For the six months to date, revenue was $83.0 million, 49% over the $55.7
million for the same period last year. Net earnings, excluding the reversal of
restructuring charge accruals, were $1.8 million for the six months to date
compared to $1.6 million last year and fully diluted earnings per share were
$0.07.
Cash at the end of the second quarter was $46.6 million, working capital was
$70.5 million, shareholders equity was $85.1 million and total assets were
$171.5 million.
<PAGE> 3
OPERATING HIGHLIGHTS
The Company continues to see strong growth in its vertical markets including:
manufacturing, telecommunications, financial services, utilities, government and
legal. Among the more than 200 new customers signed this quarter were: General
Motors, GTE Corp, Westpac Banking Corp., Commonwealth Edison, PG&E Gas
Transmission, National Economic Research Associates, Hong Kong Housing
Authority, Mississippi Chemical Corporation, US Borax, NATO Headquarters and
over 60 new law firms.
International sales were very strong this quarter growing from 20% to 29% of
total revenue over last quarter. There was strong growth in Europe and a
significant increase in revenue contribution from emerging markets, in
particular Latin America.
At the end of December, the Company released new versions of its
SearchServer(TM) and DOCSFulcrum(TM) (previously named Fulcrum Knowledge
Network) products. SearchServer 3.7E and DOCSFulcrum 2.8 support the
Microsoft(R) Windows(R) '98 platform, and both new products are Y2K compliant.
The new version DOCSFulcrum was released in English, French, Italian, German,
and Japanese.
Recently, PC DOCS/Fulcrum announced its Enterprise Table of Contents(TM) (ETOC),
a new indexing and categorization technology to be featured in upcoming versions
of the DOCSFulcrum(TM) enterprise knowledge management system. ETOC pulls
information from different corporate sources and automatically creates `My
Yahoo' for the corporate Intranet. PC DOCS/Fulcrum also introduced a new
"precedent management" business application. This application is a seamless
extension to DOCS Open, which gives lawyers the ability to create and manage a
library of their most valuable intellectual assets - their precedents. With its
strong presence among legal professionals, a market where success depends on
managing intellectual assets, PC DOCS is uniquely positioned to expand its
business into the emerging knowledge management field.
According to a December 1998 report by one of the leading industry market
research firms, IDC, PC DOCS Group enjoys an installed market share of 45% in
worldwide business process-centric EDM software, the largest segment of the
document management market. This is more than twice the installed market share
of its closest competitor. "With a new management team in place, a portfolio of
software in place, and a solid channel model, the company is well positioned to
take advantage of the opportunity that this market segment provides," stated
IDC.
CORPORATE HIGHLIGHTS
The Company repurchased approximately 162,500 shares this quarter for
approximately $865,000 under its share repurchase plan. The total number of
shares that the Company has repurchased since the initial plan was instituted is
1,117,800 shares. The Company continues to believe that its shares are
undervalued and that it may be advantageous to continue its share repurchase
plan. The total number of shares the Company will repurchase depends on a number
of factors including the price at which the shares can be acquired and other
cash requirements of the Company.
COMMENTARY
PC DOCS Group had significant revenue growth during the quarter, despite the
business disruptions that the Company faced in December as a result of an
unsolicited merger proposal. In addition to the Company's focus on revenue
growth, cost management initiatives are being implemented and the Company
anticipates cost savings of approximately $10 million over the next 12 months.
Year to date, PC DOCS Group has invested more than $11 million in research and
product development activities. The Company is aggressively investing in R&D and
has major products scheduled for release before the end of June 1999.
<PAGE> 4
FORWARD-LOOKING STATEMENTS
Certain of the above statements are forward-looking statements that involve
risks and uncertainties. Actual results could differ materially as a consequence
of a number of factors, including: fluctuations in the Company's operating
results due to product demand, length of the sales cycle, size and timing of
individual customer transactions and similar matters; changes in the
client/server application software market, including technology change, changes
in customer requirements, frequent new product introductions by competitors and
emerging standards; dependence of the Company on the legal services market;
reliance by the Company on its third-party resellers; dependence of the Company
on its key management; uncertainties relating to acquisitions, including
operational disruptions, unexpected operating expenses and losses, and expenses
associated with the integration of such acquisitions; and other factors set
forth in the Company's Securities and Exchange Commission and Ontario Securities
Commission reports and filings.
Rubin Osten
Chief Executive Officer
<PAGE> 5
PC DOCS GROUP INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF OPERATIONS U.S. GAAP
- ------------------------------------------------------------------------------
In Accordance with U.S. Generally Accepted Accounting Principles
(Canadian dollars, in thousands except per share amounts)
for the periods ended December 31
<TABLE>
<CAPTION>
Quarter Six months
------------------------------------ --------------------------------
1998 1997 1998 1997
------------------ ----------------- ----------------- --------------
(UNAUDITED) (unaudited) UNAUDITED unaudited
<S> <C> <C> <C> <C>
REVENUES
Software sales $23,878 $16,956 $42,276 $30,197
Software support, services and other sales 20,972 11,130 39,344 22,163
Hardware sales 105 1,051 181 1,834
Interest income and other revenues 582 726 1,244 1,500
---------------- --------------- -------------- ------------
TOTAL REVENUES 45,537 29,863 83,045 55,694
---------------- --------------- -------------- ------------
COST OF SALES
Software and other 3,523 3,822 5,968 7,030
Support and services (Note 1) 8,798 4,320 16,339 7,816
---------------- --------------- -------------- ------------
TOTAL COST OF SALES 12,321 8,142 22,307 14,846
---------------- --------------- -------------- ------------
GROSS PROFIT 33,216 21,721 60,738 40,848
---------------- --------------- -------------- ------------
EXPENSES
Selling and marketing 15,939 9,972 29,622 18,031
Research and development 6,920 3,456 11,525 7,038
General and administration 5,217 3,983 10,460 8,104
Depreciation and amortization 2,687 2,663 5,292 5,035
Interest on long-term debt 410 15 934 32
Restructuring charges (Note 3) (2,500) -- (2,500) --
---------------- --------------- -------------- ------------
TOTAL EXPENSES 28,673 20,089 55,333 38,240
---------------- --------------- -------------- ------------
EARNINGS BEFORE INCOME TAXES 4,543 1,632 5,405 2,608
Income tax expense (Note 3) 1,764 655 2,259 1,048
================ =============== ============== ============
NET EARNINGS $ 2,779 $ 977 $ 3,146 $ 1,560
================ =============== ============== ============
EARNINGS PER SHARE
Basic $ 0.12 $ 0.05 $ 0.13 $ 0.08
Diluted $ 0.12 $ 0.05 $ 0.13 $ 0.07
Average number of shares, basic (000's) 23,259 19,944 23,418 19,944
Average number of shares, diluted (000's) 24,175 21,299 24,449 21,280
</TABLE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED):
1. Support and services expenses have now been classified as Cost of sales.
2. Certain expenses for Q1 and Q2 were reclassified in order to more
accurately reflect
the nature of expenses incurred. The restated amounts for the quarter ended
September 30, 1998 are: Support and services $7,541, Selling and marketing
$13,683, Research and development $4,605 and General and administration
$5,243.
3. Income tax expense includes $1.1 million relating to the reversal of
restructuring expenses. The net effect after tax of the restructuring
expense reversal was $1.4 million or $0.06 per share.
<PAGE> 6
PC DOCS GROUP INTERNATIONAL INC.
CONSOLIDATED BALANCE SHEETS U.S. GAAP
- -------------------------------------------------------------------------------
In Accordance with U.S. Generally Accepted Accounting Principles
(Canadian dollars, in thousands)
as of
<TABLE>
<CAPTION>
DECEMBER 31 June 30
1998 1998
--------------------- -----------------
UNAUDITED audited
ASSETS
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Current
Cash and short-term investments $ 46,629 $ 62,537
Trade receivables 60,729 65,717
Unbilled receivables 11,230 11,146
Prepaid expenses 9,610 8,039
Other assets 6,799 --
------------------ --------------
134,997 147,439
------------------ --------------
Fixed assets 12,812 13,813
Product development costs 1,824
1,832
Acquired software 1,769
3,011
Deferred income taxes 11,702 12,695
Investment -- 2,762
Goodwill 8,440 3,742
------------------ --------------
$171,544 $185,294
================== ==============
LIABILITIES
- --------------------------------------------------------------------------------------------------------------------------------
Current
Accounts payable and accrued liabilities $ 37,517 $ 55,299
Deferred revenues 26,966 25,548
------------------ --------------
64,483 80,847
------------------ --------------
Long-term debt 21,693 22,044
Minority interest 297
297
------------------ --------------
86,473 103,188
------------------ --------------
SHAREHOLDERS' EQUITY
- --------------------------------------------------------------------------------------------------------------------------------
Share capital, 23,339,368 shares outstanding 143,645 146,456
(June 30 - 23,644,147)
Cumulative translation adjustments 5,001 2,371
Retained earnings (deficit) (63,575) (66,721)
------------------ --------------
85,071 82,106
------------------ --------------
$171,544 $185,294
================== ==============
</TABLE>
<PAGE> 7
PC DOCS GROUP INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS U.S. GAAP
- -------------------------------------------------------------------------------
In Accordance with U.S. Generally Accepted Accounting Principles
(Canadian dollars, in thousands except per share amounts)
for the periods ended December 31
<TABLE>
<CAPTION>
Quarter Six months
--------------------------------- --------------------------------
1998 1997 1998 1997
--------------------------------- --------------------------------
(UNAUDITED) (unaudited) UNAUDITED unaudited
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net earnings $ 2,779 $ 977 $ 3,146 $ 1,560
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation and amortization 2,687 2,663 5,292 5,035
Loss on disposal of fixed assets 27 -- 36 --
Decrease (increase) in accounts receivable (8,061) (9,664) 4,992 (7,661)
Decrease (increase) in unbilled receivables 2,278 (373) (84) (1,910)
Decrease (increase) in prepaid expenses (1,445) (315) 1,358 (502)
Decrease (increase) in other assets 379 -- (6,799) --
Decrease (increase) in deferred income taxes 1,490 (147) 993 (207)
Increase (decrease) in accounts payable and (7,378) 1,648 (22,340) (498)
accrued liabilities
Increase (decrease) in deferred revenues (2,701) 1,984 1,418 2,668
--------------- ------------- --------------- ------------
Net cash used for operating activities (9,945) (3,227) (11,988) (1,515)
--------------- ------------- --------------- ------------
INVESTING ACTIVITIES
Increase in loan receivable -- (819) -- (1,205)
Additions to fixed assets (891) (819) (2,248) (2,435)
Acquisitions (192) -- (192) --
Additions to product development costs -- (2,344) -- (4,554)
Increase in investment -- -- -- (2,778)
Cumulative translation adjustments (63) 281 2,150 326
--------------- ------------- --------------- ------------
Net cash used for investing activities (1,146) (3,701) (290) (10,646)
--------------- ------------- --------------- ------------
FINANCING ACTIVITIES
Decrease in long-term debt (194) (193) (398) (435)
Repurchase of common stock (843) (1,030) (3,592) (1,030)
Net proceeds from issuance of common stock 309 95 360 129
--------------- ------------- --------------- ------------
Net cash used for financing activities (728) (1,128) (3,630) (1,336)
--------------- ------------- --------------- ------------
DECREASE IN CASH AND CASH EQUIVALENTS (11,819) (8,056) (15,908) (13,497)
Cash and cash equivalents
Beginning of period 58,448 84,267 62,537 89,708
--------------- ------------- --------------- ------------
END OF PERIOD $46,629 $76,211 $46,629 $76,211
=============== ============= =============== ============
</TABLE>
<PAGE> 8
PC DOCS GROUP INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION CANADIAN GAAP
- -------------------------------------------------------------------------------
In Accordance with Canadian Generally Accepted Accounting Principles
(Canadian dollars, in thousands)
as of
<TABLE>
<CAPTION>
DECEMBER 31 June 30
1998 1998
---------------------- --------------------
UNAUDITED audited
<S> <C> <C>
ASSETS
- --------------------------------------------------------------------------------------------------------------------------------
Current
Cash and short-term investments $ 46,629 $ 62,537
Trade receivables 60,729 65,717
Unbilled receivables 11,230 11,146
Prepaid expenses 9,610 8,039
Other assets 6,799 --
-------------------- ------------------
134,997 147,439
-------------------- ------------------
Fixed assets 12,812 13,813
Product development costs 1,824 1,832
Acquired software 1,769 3,011
Deferred income taxes 11,702 12,695
Investment -- 2,762
Goodwill and purchased research and development 52,972 51,860
-------------------- ------------------
$216,076 $233,412
==================== ==================
LIABILITIES
- --------------------------------------------------------------------------------------------------------------------------------
Current
Accounts payable and accrued liabilities $ 37,513 $ 55,292
Deferred revenues 26,966 25,548
-------------------- ------------------
64,479 80,840
-------------------- ------------------
Long-term debt 21,693 22,044
Minority interest 297 297
-------------------- ------------------
86,469 103,181
-------------------- ------------------
SHAREHOLDERS' EQUITY
- --------------------------------------------------------------------------------------------------------------------------------
Share capital, 23,339,368 shares outstanding (June 30 - 23,644,147) 141,874 144,688
Cumulative translation adjustments 5,282 2,652
Retained earnings (deficit) (17,549) (17,109)
-------------------- ------------------
129,607 130,231
-------------------- ------------------
$216,076 $233,412
==================== ==================
</TABLE>
<PAGE> 9
PC DOCS GROUP INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF CHANGES IN FINANCIAL POSITION CANADIAN GAAP
- -------------------------------------------------------------------------------
In Accordance with Canadian Generally Accepted Accounting Principles
(Canadian dollars, in thousands except per share amounts)
for the periods ended December 31
<TABLE>
<CAPTION>
Quarter Year
--------------------------------- ------------------------------------
1998 1997 1998 1997
---------------- ---------------- ----------------- ------------------
(UNAUDITED) (unaudited) UNAUDITED unaudited
<S> <C> <C> <C> <C>
CASH FROM (FOR) OPERATING ACTIVITIES
Net earnings (loss) $ 987 $ 97 $ (440) $ 1,560
Items not affecting cash
Amortization 4,479 2,663 8,878 5,035
Loss on disposal of fixed assets 27 -- 36 --
Deferred income taxes 1,490 (147) 993 (207)
-------------- ------------- -------------- ---------------
6,983 3,493 9,467 6,388
Changes in non-cash working capital items
relating to operations
Trade receivables (8,061) (9,664) 4,992 (7,661)
Unbilled receivables 2,278 (373) (84) (1,910)
Prepaid expenses (1,445) (315) (1,405) (502)
Other assets 379 -- (6,799) --
Accounts payable and accrued liabilities (7,378) 1,648 (22,358) (498)
Deferred revenues (2,701) 1,984 1,418 2,668
-------------- ------------- -------------- ---------------
(9,945) (3,227) (14,769) (1,515)
-------------- ------------- -------------- ---------------
CASH FROM (FOR) INVESTING ACTIVITIES
Loan receivable -- (819) -- (1,205)
Proceeds on disposal of fixed assets -- -- -- --
Additions to fixed assets (891) (819) (2,248) (2,435)
Acquisitions (592) 2,778 (592) --
Additions to product development costs -- (2,344) -- (4,554)
Increase in investment -- -- 2,762 (2,778)
Cumulative translation adjustments (63) 281 2,151 326
-------------- ------------- -------------- ---------------
(1,546) (923) 2,073 (10,646)
-------------- ------------- -------------- ---------------
CASH FROM (FOR) FINANCING ACTIVITIES
Decrease in long-term debt (194) (193) (398) (435)
Share capital issued for acquisition 400 -- 418 --
Repurchase of common shares (843) (1,030) (3,592) (1,030)
Share capital issued for cash, net of expenses 309 95 360 129
-------------- ------------- -------------- ---------------
(328) (1,128) (3,212) (1,336)
-------------- ------------- -------------- ---------------
DECREASE IN CASH AND SHORT-TERM INVESTMENTS (11,819) (5,278) (15,908) (13,497)
CASH AND SHORT-TERM INVESTMENTS
Beginning of period 58,448 81,489 62,537 89,708
-------------- ------------- -------------- ---------------
End of period $46,629 $76,211 $46,629 $76,211
============== ============= ============== ===============
</TABLE>
<PAGE> 10
PC DOCS GROUP INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF EARNINGS (LOSS) CANADIAN GAAP
- -------------------------------------------------------------------------------
In Accordance with Canadian Generally Accepted Accounting Principles
(Canadian dollars, in thousands except per share amounts) for the
periods ended December 31
<TABLE>
<CAPTION>
Quarter Six months
------------------------------------- ----------------------------------
1998 1997 1998 1997
------------------- ----------------- ------------------ ---------------
(UNAUDITED) (unaudited) UNAUDITED unaudited
<S> <C> <C> <C> <C>
REVENUES
Software sales $23,878 $16,956 $42,276 $30,197
Software support, services and other sales 20,972 11,130 39,344 22,163
Hardware sales 105 1,051 181 1,834
Interest income and other revenues 582 726 1,244 1,500
---------------- --------------- ---------------- -------------
TOTAL REVENUES 45,537 29,863 83,045 55,694
---------------- --------------- ---------------- -------------
COST OF SALES
Software and other 3,523 3,822 5,968 7,030
Support and services (Note 1) 8,798 4,320 16,339 7,816
---------------- --------------- ---------------- -------------
TOTAL COST OF SALES 12,321 8,142 22,307 14,846
---------------- --------------- ---------------- -------------
GROSS PROFIT 33,216 21,721 60,738 40,848
---------------- --------------- ---------------- -------------
EXPENSES
Selling and marketing 15,939 9,972 29,622 18,031
Research and development 6,920 3,456 11,525 7,038
General and administration 5,217 3,983 10,460 8,104
---------------- --------------- ---------------- -------------
TOTAL EXPENSES 28,076 17,411 51,607 33,173
---------------- --------------- ---------------- -------------
EARNINGS BEFORE AMORTIZATION, INTEREST AND RESTRUCTURING 5,140 4,310 9,131 7,675
Restructuring charges (Note 3) (2,500) -- (2,500) --
Amortization 4,479 2,663 8,878 5,035
Interest on long-term debt 410 15 934 32
---------------- --------------- ---------------- -------------
EARNINGS (LOSS) BEFORE INCOME TAXES 2,751 1,632 1,819 2,608
Income tax expense (Note 3) 1,764 655 2,259 1,048
---------------- --------------- ---------------- -------------
NET EARNINGS (LOSS) $ 987 $977 $ (440) $ 1,560
================ =============== ================ =============
EARNINGS (LOSS) PER SHARE
Basic $ 0.04 $ 0.05 $ (0.02) $ 0.08
Fully diluted 0.04 0.04 ANTIDILUTIVE $ 0.07
Average number of shares, basic (000's) 23,418 19,944
Average number of shares, fully diluted (000's) 27,431 23,376
</TABLE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED):
1. Support and services expenses have now been classified as Cost of sales.
2. Certain expenses for Q1 and Q2 were reclassified in order to more
accurately reflect the nature of expenses incurred. The restated amounts
for the quarter ended September 30, 1998 are: Support and services $7,541,
Selling and marketing $13,683, Research and development $4,605 and General
and administration $5,243.
3. Income tax expense includes $1.1 million relating to the reversal of
restructuring expenses. The net effect after tax of the restructuring
expense reversal was $1.4 million or $0.06 per share.
<PAGE> 11
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.
PC DOCS GROUP INTERNATIONAL INC.
By /s/ Martin Day
------------------------------
Martin Day
General Counsel
Date February 25, 1999
