<PAGE>
 
================================================================================

                                 UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                 ---------------------------------------------

                                   FORM 10-K
(Mark One)
[X] Annual Report Pursuant to Section 13 or 15(d) of The Securities Exchange Act
    of 1934.
 
    For the Fiscal Year Ended:  March 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 of                        (I.R.S. Employer
  incorporation or organization)                       Identification No.)

    91 Hartwell Ave., Lexington, MA                          02173
----------------------------------------                 --------------
(Address of principal executive offices)                   (Zip Code)

       Registrant's telephone number, including area code: (617) 674-2000


 Securities registered pursuant to Section 12(b) of the Act:   None

 Securities registered pursuant to Section 12(g) of the Act:

                          Common Stock, $.01 par value
                          ----------------------------
                                (Title of class)


 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 by check mark if disclosure of delinquent filers pursuant to Item 405
 of Regulation S-K is not contained herein, and will not be contained, to the
 best of registrant's knowledge, in definitive proxy or information statements
 incorporated by reference in Part III of this Form 10-K or any amendment to
 this Form 10-K.  [ ]

 The aggregate market value of the voting stock held by nonaffiliates of the
 registrant as of June 16, 1997 (based on the closing price as quoted by Nasdaq
 National Market as of such date) was $21,350,000.

 As of June 16, 1997, 8,133,675 shares of the registrant's common stock were
 outstanding.

                      DOCUMENTS INCORPORATED BY REFERENCE

 Portions of the Company's Proxy Statement relating to the Company's Annual
 Meeting of Stockholders to be held on July 31, 1997 are incorporated by
 reference into Part III hereof.

================================================================================
<PAGE>
 
                                     PART I

ITEM 1.  BUSINESS

General

   Founded in 1992, Workgroup Technology Corporation ("Workgroup Technology" or
the "Company") designs, develops, markets and supports CMS, a product family of
client/server product data management ("PDM") software solutions that
facilitates the management of product information and work processes performed
by multi-functional product development teams. Workgroup Technology's CMS
enables companies to  improve their product development competitiveness by
solving complex business problems one process at a time.  CMS captures the
detailed processes and work instructions for all project deliverables. This
enables companies to capture and reuse their product "know-how," and helps
eliminate the loss of critical knowledge from employee turnover and attrition.
Ultimately, this means improved product development competitiveness through
reduced development cycle time, greater development time predictability and
improved innovation.

   The CMS product family is designed to manage the deliverables produced during
product development, with particular emphasis on the design control phase where
innovation, time to market and quality are most influenced.  CMS manages the
processes which create, modify and distribute the project deliverables
throughout the enterprise.  These deliverables may include any type of
electronic data, such as computer aided design ("CAD") models, bills of
material, word processing, spreadsheet, voice, video and multimedia files.

   The Company was incorporated in the State of Delaware in May 1992.  The
Company's principal executive offices are located at 91 Hartwell Avenue,
Lexington, Massachusetts 02173, and its telephone number is (617) 674-2000.
References herein to "Workgroup Technology" and "the Company" include Workgroup
Technology Corporation and its wholly-owned subsidiaries, Workgroup Technology
GmbH, Workgroup Technology Corporation Limited and Workgroup Technology SRL.

   From time to time, information provided by the Company or statements made by
its employees may contain "forward looking" information which involve risks and
uncertainties.  In particular, the statements set forth under the heading "The
Workgroup Technology Solution" below regarding the Company's objectives to
expand its technological leadership and product offerings, broaden the
applicability of its products and increase its use of third-party distribution
channels are "forward looking" statements.  The Company's actual results may
vary significantly from those stated in any forward looking statements.  Factors
that may cause such differences include, but are not limited to, the risks,
uncertainties and other information discussed within this Form 10K as well as
the accuracy of the Company's internal estimates of revenue and operating
expense levels.

Industry Background

   Competitive pressures are forcing companies to improve product design and
quality, shorten time-to-market and reduce total product cost. At the same time,
the globalization of markets and competition demands consistent product quality
with an ability to tailor product features to suit local and regional market
conditions. These pressures are forcing companies to reengineer their approach
to the management of the product lifecycle - the conceptual design, engineering,
production, marketing, support and service, and retirement of their products. At
the heart of managing the product lifecycle is the complex challenge of
coordinating the activities of workgroups within the organization and with
suppliers, vendors and customers, as the information and processes related to
each product evolve.

   Managing the product lifecycle imposes significant demands on information
systems. Companies must be able to manage product information within global
organizations and distribute this information to support decision making in
remote locations and across functional areas. Increasingly, product 

                                      -1-
<PAGE>
 
information is created and stored electronically by a wide range of disparate
applications and systems such as CAD systems; word processing, document
management and spreadsheet applications; relational database management systems
("RDBMS"); and enterprise manufacturing resource planning ("MRP") systems.
Companies have also invested in LAN, WAN and Intranet infrastructures to
facilitate information sharing. Although such network infrastructure has been
installed, many workgroups still operate as "islands of automation." This is
primarily due to a proliferation of hardware and software platforms and
applications from multiple vendors that create and store data in incompatible
formats and data types, resulting in limited system-to-system data sharing
capability. Consequently, PDM is often a manual, paper-intensive process.

   Systems designed to coordinate the activities of team members working
concurrently on a product or project, and to manage the information concerning
the interrelationships among the components, processes and documentation
associated with the product or project, are crucial to managing the product
lifecycle. Accurate and timely access to product information such as product
specifications, CAD models, manufacturing instructions, technical manuals,
regulatory submissions and marketing and financial information is critical to
success at each stage of the product lifecycle. However, lacking an effective
means of locating and revising information, team members are often forced to
recreate or use an outdated version of information, thereby duplicating efforts
and increasing errors. Additional complexity is added by the processes
themselves, which often require cross-functional collaboration by geographically
dispersed teams using different hardware platforms and software applications.
The lack of effective tools for communicating and sharing information in a
secure manner, and for automating the work processes, can make group
collaboration especially time-consuming and error prone.

   There has been a growing awareness that, although CAD technology improves the
productivity of individual engineers and designers, it does little to improve
the productivity of the overall enterprise. CAD tools create the "source"
information used throughout the product lifecycle, utilizing sophisticated and
proprietary file formats with complex object configurations. However, such tools
do not address the needs of the large numbers of diverse personnel who need to
access product information. Early PDM systems were developed to manage the
information created by mechanical CAD ("MCAD"), electronic CAD ("ECAD") and
technical publishing tools. These systems were either internally developed,
purchased from MCAD, ECAD and technical publishing systems vendors or provided
by independent PDM companies. Typically, internally developed systems lack
flexibility and functionality and become increasingly difficult and expensive to
maintain. PDM modules from MCAD, ECAD and technical publishing system vendors
tend to focus only on managing information created by their own application. PDM
offerings provided by software and system vendors are generally designed as
"toolkit" frameworks which require significant customization, lack integration
with MCAD, ECAD and technical publishing tools, require lengthy and costly
implementations and are not user-friendly. The Company believes the market
demands a tailorable, packaged PDM software solution that facilitates management
of product data, work processes, and product development programs throughout the
entire product lifecycle.

The Workgroup Technology Solution

   Workgroup Technology's CMS family of client/server software products is
designed to automate and accelerate the creation, capture, modification, control
and reuse of product and process information. CMS is designed to enhance the
efficient management of the product lifecycle, thereby shortening time-to-
market, increasing the productivity and creativity of team members and enhancing
design and production accuracy.  The Company offers two product lines to meet
the PDM needs of its customers.

CMS 6 Series
------------

   The Company's CMS 6 Series of products is targeted at customers in need of an
electronic design warehouse.  The CMS 6 Series is a flexible PDM solution that
has the ability to integrate with widely-used desktop automation tools to
capture information at creation, provide secure storage, version control and
release management of stored information, and support controlled and efficient
information 

                                      -2-
<PAGE>
 
distribution capabilities across an existing information technology
infrastructure. With over 400 installations, the CMS 6 Series is a production
proven solution designed to be easily implemented providing a fast return on
investment. The product is ideal for workgroups and can be scaled to address the
electronic design warehouse requirements of the global enterprise.

CMS 7 Series
------------

   In April 1997, the Company announced its new product line, the CMS 7 Series.
The CMS 7 Series is targeted at customers who are interested in managing their
product development processes and programs in addition to the product definition
data. The CMS 7 Series is based on patent-pending Collaborative Work
Management/TM/, an enabling technology developed by the Company.  Collaborative
Work Management  transforms product development into a truly collaborative
streamlined process where everyone on the team shares, manages and controls
product information as it is being created.  This reduces development errors and
cycle times, improves program predictability, fosters innovation, supports reuse
of best practices and maintains an audit trail for regulatory compliance.
Conventional PDM and workflow systems have proven to be too task oriented, rigid
and disconnected from the actual work to successfully automate product
development. The CMS 7 Series with Collaborative Work Management, on the other
hand, employs a new approach based upon project milestones and deliverables
which closely matches the methodology currently employed by discrete
manufacturers. Scheduled for release in the summer of 1997, the CMS 7 Series
offers product developers the first  integrated data, process and program
management solution.

   The Company's CMS family of products are differentiated by the following:

   Ease of Adoption. CMS enables quick and easy customer adoption through a
tailorable, off-the-shelf solution and scaleable architecture.  Instead of
imposing a solution that revamps the entire enterprise, the Company advocates a
scaleable and phased product implementation approach.  This enables customers to
implement data and process management solutions aimed at solving specific
problems, then link these solutions to create an enterprise information
environment.  Incremental implementation is more manageable for customers;
solves the greatest problems first; is up and running and producing measurable
results fast; and does not require a large initial investment.

   Integration with Desktop Automation Tools. CMS's architecture is designed for
easy integration with widely-used desktop automation tools.  The CMS 6 Series is
currently integrated with such desktop automation tools as Parametric Technology
Corporation's  Pro/ENGINEER, Mentor Graphics Boardstation and Design Architect
and Zuken, Inc.'s CR5000.  The Company is also planning integrations with the
CMS 7 Series.  Through CMS, the complexity of the managed data becomes virtually
transparent to the user, enabling CMS to integrate smoothly with established
business practices.

   Efficient Information Distribution. CMS enables customers to automatically
distribute information managed and controlled by CMS across LANs, WANs and/or
the Internet/Intranet in accordance with a set of customer-defined rules for
individual users, groups and classes of information.

   Leverage Existing Systems and Data. CMS allows users to access information
from existing desktop platforms, applications, databases and network
infrastructure. CMS is designed to manage any type of electronic data, including
CAD models, bills of material and word processing, spreadsheet, voice, video and
multimedia files regardless of its file format or location.

                                      -3-
<PAGE>
 
   The CMS 7 Series with Collaborative Work Management also offers the following
additional advantages:

   Focus on Design Control. The CMS 7 Series allows people to effectively
collaborate during all phases of product development - including the early pre-
release stages, which have been largely ignored by PDM providers up until now.
Traditional task-oriented workflow products are too static and inflexible to
handle the dynamic and unpredictable nature of the creative design phases.
Workflow defines specific tasks that the user must follow and, ultimately,
constrain creativity.  The CMS 7 Series, by contrast, can manage these dynamic
phases because its lifecycle approach identifies key project stages and control
gates within which engineers can iterate to reach a solution.  With the CMS 7
Series, each team member can see all product deliverables, what state they are
in, where they are physically located, identify who is working on them and
determine their interdependence.

   Empowerment of Process Owners.  The CMS 7 Series empowers process owners by
allowing them to define and tightly couple the lifecycle process for each
deliverable they control.  These deliverables become process building blocks
which can be aggregated into a process hierarchy.  This enables project managers
to assemble and synchronize the required processes into a cohesive project,
ultimately providing greater flexibility for adding, modifying and reconfiguring
processes. This bottom-up approach to process definition is not possible with
conventional workflow solutions, and allows CMS customers to solve complex
business problems one process at a time.

   Targeted Industry Solutions. The Company's product development software is
designed to specifically address the process driven requirements in implementing
ISO 9001, QS-9000,  US FDA Quality System Regulations and European CE Mark
Medical Device Directives.  Industries such as medical devices, high-technology
manufacturers and automobile suppliers are under regulatory pressure to document
processes and maintain proof that the processes were followed.  The CMS 7 Series
helps provide this through its ability to model and institutionalize processes,
maintain audit trails and keep process and product information tightly coupled.

   The Company believes the following case studies are illustrative of the
manner in which CMS is used by its customers.

ADC Telecommunications, Inc.

   ADC Telecommunications, Inc. ("ADC") is a manufacturer of cable, fiber,
transmission and network management products with revenues of $828 million
during its fiscal year ended October 31, 1996. Since July 1994, ADC has used CMS
to manage over 200 gigabytes of CAD data generated by its Pro/ENGINEER MCAD
systems and has reduced part data redundancy and increased engineering
productivity. ADC selected CMS because of its Pro/ENGINEER integration
capabilities, comprehensive platform support and scaleability. ADC uses CMS to
manage the electronic master models of its products and provide functional
groups within ADC and its key suppliers with immediate access to product data.

AlliedSignal, Inc.-Aerospace Division

   The Aerospace Division of AlliedSignal, Inc. ("AlliedSignal Aerospace") is a
global manufacturer of aerospace components and systems with 35 locations in 17
countries. Since its initial implementation of CMS in October 1994, AlliedSignal
Aerospace has standardized on CMS to control large volumes of product definition
data and automate critical processes, enabling significant reductions in time-
to-market. AlliedSignal Aerospace selected CMS because of its user-friendly
interface, integration with Pro/ENGINEER and ease of implementation. As of March
31, 1997, AlliedSignal Aerospace has expanded its usage of CMS to more than 25
locations around the world.

                                      -4-
<PAGE>
 
Eaton Corporation

   Eaton Corporation ("Eaton") is a global manufacturer of products for the
automotive, industrial, construction, commercial, aerospace and marine markets
with 150 manufacturing sites in 18 countries.  Since its initial implementation
of CMS in 1992, Eaton's Semiconductor Equipment Division has automated its
engineering change review and engineering change order processes. Eaton selected
CMS because of the scaleability it provided to meet the needs of both the
divisions and the corporate IT organization. In 1995, Eaton signed a corporate
license agreement for the Company's CMS product family and standardized on CMS
in support of Eaton's concurrent engineering initiative, Simultaneous
Product/Process Development.

Whirlpool Corporation

   Whirlpool Corporation ("Whirlpool") is one of the world's leading
manufacturers and marketers of major home appliances. Since 1994, Whirlpool has
used CMS to manage and distribute the product data utilized by manufacturing
locations around the world. Whirlpool selected CMS because of CMS's user-
friendly interface and ease of implementation. In 1994, Whirlpool signed a
corporate license agreement for the Company's CMS product family to support
integration and exchange of design and best practices information among
Whirlpool's global locations.

Strategy

   The Company's objective is to become the leading worldwide supplier of PDM
software solutions. To achieve this objective, the Company is pursuing the
following strategies:

   Extend Technological Leadership. The Company believes it has certain core
competencies that can be leveraged to extend the Company's technological
leadership in the PDM market. The Company has developed significant expertise in
engineering and manufacturing processes, product version control and
configuration management, program management and data storage and distribution.
The Company plans to build upon its technological base by adding new features
and functionality to its CMS family of products, including additional platform
support and support for other information delivery vehicles such as the World
Wide Web. The Company also plans to leverage the unique Collaborative Work
Management technology and is awaiting a decision on its US patent application.

   Broaden Application Solutions. The Company believes there is significant
opportunity to increase the number of users of the Company's family of products
by integrating CMS with additional software tools and other business critical
applications. The Company has established a third-party developers program, the
Workgroup Partners Program ("WPP"), which provides third-party software
developers with access to software designed to assist them in developing
complementary applications.

   Enable Customers to Succeed. By designing products that are easily
implemented and are easily integrated with the customer's existing computing
systems, the Company seeks to assist its customers in building a PDM system
without disrupting their computer infrastructure or work processes. The Company
has a comprehensive service and support organization that is designed to ensure
customers' successful implementation and use of CMS. The Company believes its
customers' success in implementing and using the Company's products to improve
business processes is crucial to attaining a highly referenceable customer base
and repeat orders. As of March 31, 1997, the Company's software has been
licensed to over 300 companies in over 400 locations worldwide and the Company
has historically licensed additional products and services to existing customers
as they have extended their deployment of CMS while building their enterprise
PDM solution.

   Utilize Multiple Distribution Channels. The Company markets CMS in the United
States and Europe through its direct sales force and through value added
resellers ("VARs") with vertical market 

                                      -5-
<PAGE>
 
expertise. The Company also has OEM relationships with Mentor Graphics
Corporation, Sietec Consulting GmbH & Co. OHG, a subsidiary of Siemens-Nixdorf
Informationssyteme AG, Hitachi, Ltd. and Zuken, Inc. The Company intends to
focus increased efforts on expanding both direct and indirect distribution
channels on a worldwide basis by hiring additional direct sales personnel and
recruiting additional VARs and OEM partners.

Products

   CMS is a family of client/server software products designed to address the
PDM requirements of a business enterprise. The Company's CMS family of products
comprises the CMS product information engine and a series of modules and related
products that enhance the features and functionality of its core product
offering.

The principal features of CMS include the following:

   .  Enterprise Distributed Vault. CMS provides controlled access to product
   information from authorized people located anywhere with a customer's network
   and accounts for all changes to that information. Work objects may be
   reviewed, checked-in and out, organized by classes or associations, and
   modified from the client desktop. CMS automatically provides version control
   and rollback facilities, ensuring that users can return to previous versions
   of a particular configuration.

   .  Concurrent Engineering. CMS permits multi-functional product development
   teams to work on the same project concurrently, ensuring that all team
   members are working on the latest version ("version control") of a particular
   component or assembly of components. Each team member is automatically
   notified by electronic mail of changes made by other team members once the
   changed item is checked-in to the CMS database. Items checked-out for change
   are locked for modification by other team members, although they may utilize
   reference-only copies as a basis for complementary design activities.

   .  Configuration Management. CMS provides the ability to group work objects
   together to define product configurations which can be maintained through the
   various stages of the product lifecycle. Authorized users have the ability to
   create "snapshots" of the configuration when required during the product
   lifecycle. This capability provides an audit trail which enables the
   gathering of relevant data should an engineering change be required and
   facilitates ISO 9001 certification.

   .  Release Management. CMS provides the ability to freeze product
   configuration at appropriate stages of the product lifecycle for approval and
   release. Participants in the approval process are notified automatically
   through electronic mail of the status of the product configuration during
   various stages of the approval and release cycle. This electronic release
   process saves significant time over traditional sign-off processes which
   entail routing a package of paper documents.

   .  Transparent Access. Through CMS, the complexity of the managed data
   becomes virtually transparent to the user, enabling CMS to integrate smoothly
   with established business practices.

   .  Security and Administration. CMS controls the access to work objects based
   on customer-defined rules for individual users, groups and classes of
   information. (The CMS 7 Series also controls access by role at each stage of
   the process.)  This system is designed to ensure that information is not lost
   or altered by unauthorized personnel. CMS also supports traditional database
   administration such as backup/restore, system archival and reporting. Users
   also have the ability to query the database and format information using
   standard SQL scripts.

                                      -6-
<PAGE>
 
   The CMS 7 Series also adds the following features:

  .  Intelligent Deliverables. The CMS 7 Series tightly couples a deliverable
  with the process it will follow through its lifecycle.  The deliverable
  becomes "intelligent" and "knows" what stages it must follow.  This approach
  enables complex processes to be built from a configuration of deliverables and
  supports process reuse by reconfiguring deliverables in new products.

  .  Process Configuration Management.  Collaborative Work Management supports
  the aggregation of individual deliverables with their processes into a process
  hierarchy.  This enables project managers to assemble the required processes,
  synchronize them and build dependencies between them.  The result is a
  cohesive process configuration with built-in rules governing its execution.

  .  Project Tracking and Analysis. Collaborative Work Management records the
  progress of each deliverable as it moves through its lifecycle.  This real
  time status is available from any user's desktop so that work progress is now
  visible for the first time.  This is particularly valuable on large projects
  where many people are collaborating from various geographic locations.

  .  User Tailorable Desktops.  The CMS 7 Series enables the customer to define
  individual user environments without custom programming, including commonly
  used function and preferred views of information.

  .  Process Synchronization.  The CMS 7 Series allows the customer to prevent
  a process from proceeding to the next step if certain predetermined
  conditions are not met.  This ensures that downstream stages are based on
  accurate and complete information.

  .  Intelligent Forms.  The intelligent forms within the CMS 7 Series
  dynamically change at each stage of a process.  They identify required and
  optional information needed at that stage and suppress irrelevant
  information, thus greatly simplifying what the user sees.


CMS Application Modules

   The Company has also developed several add-on modules and applications which
enhance the features and functionality of the CMS product information engine.
These modules include the following:

   CMS/Work Management.  CMS/Work Management is a process management application
   that enables collaboration in the product development process by making the
   work of all team members visible to each member in real time.

   CMS/ReplicationServer. CMS/ReplicationServer supports the duplication and
   synchronization of work objects stored in multiple locations to enhance
   system performance.

   CMS/Launch. CMS/Launch registers any object type and automatically launches
   the appropriate application when a given work object is accessed for viewing,
   printing or modification.

   CMS/Workflow. CMS/Workflow models any business process, and automates work
   processes by routing work requests and related information to appropriate
   individuals and groups.

                                      -7-
<PAGE>
 
   CMS/Pro. CMS/Pro automatically captures work objects and complex
   configurations defined within Pro/ENGINEER and transfers the information to
   the CMS/Server for secure storage.

   CMS/API. CMS/API provides customers and development partners with C language
   programming access to certain of CMS's functions to develop customized CMS
   extensions.  CMS/API in the CMS 7 Series also provides C++ language
   programming.

   CMS for Mentor Graphics. CMS for Mentor Graphics automatically captures work
   objects and complex configurations defined within Mentor Graphics' Board
   Station and transfers the information to the CMS/Server for secure storage.

   The above modules are currently available on the CMS 6 and CMS 7 Series as
shown below:

<TABLE>
<CAPTION>
 
         Module            CMS 6 Series  CMS 7 Series
         ------            ------------  ------------
<S>                             <C>           <C> 
CMS/Work Management                           a
CMS/ReplicationServer           a             a
CMS/Launch                      a             a
CMS/Workflow                    a
CMS/Pro                         a
CMS/API                         a             a
CMS for Mentor Graphics         a

</TABLE>

   The Company is also developing internally or negotiating licenses for several
new modules to enhance the features and functionality of CMS/Client and
CMS/Server.

Technical Environments

   CMS products are available on Sun Microsystems, Hewlett-Packard, IBM, Digital
and Silicon Graphics Unix and Windows NT servers (CMS 7 Series only), with Unix
and Windows (3.1, 95, NT) clients and the Oracle and Sybase (CMS 6 Series only)
database.

Professional Services

   Professional services, including customer training and implementation
services, are an important component of the total solution the Company seeks to
provide to its customers. System-level training is provided to customers' system
administrators and database administrators to prepare them for successful
implementation of CMS. Implementation services are offered to those customers
who request assistance in installing software, designing databases, organizing
data and developing workflow processes. The Company also provides software
maintenance which includes central call center support, all maintenance releases
of products and all major upgrades of products.

Technology

   CMS is based on a three-tier client/server architecture designed to maximize
system and network performance and flexibility. The Company believes that its
architecture enables CMS to handle large amounts of complex, unstructured data
types without a degradation in performance.

   The base tier comprises the vault server and the relational database server.
The vault server, which may be distributed over LANS and WANS, is a permanent
repository that stores and controls all versions of files. The relational
database server stores data describing the files and work objects within the
vault servers, such as access permissions, versions, associations to other work
objects and other attributes. Although CMS currently utilizes databases provided
by Oracle and Sybase, CMS is designed to be database independent.

                                      -8-
<PAGE>
 
   The middle tier includes the CMS application server which performs all of the
PDM applications, including work object management, configuration management,
release management and process management. The middle tier also utilizes the
Company's integration technology to enable the client interfaces to access and
utilize data stored in the base tier.

   The top tier includes the clients that supply the user interface to CMS on
the user's platform of choice. CMS supports tool, task-specific and web clients
that are tailored to the needs of a specific type of user.

   CMS/OpenLink, a layer of proprietary software, is utilized by the Company and
its WPP partners to efficiently develop CMS clients that are integrated with
desktop application products. The Company believes that CMS/OpenLink provides it
and its WPP partners with the ability to quickly integrate CMS with new releases
or versions from application software vendors.

Customers

   As of March 31, 1997, the Company's products had been licensed to over 300
customers in over 400 sites worldwide. The following is a representative list of
users of the Company's products that the Company believes to be typical of the
Company's overall customer base by virtue of the industries they represent and
the products they develop. Each of these users has at least 25 CMS licenses or
has purchased over $10,000 in licenses and services during the last three years.

<TABLE>

<S>                              <C>                                   <C> 
Aerospace                        Electronic Products                   Medical Products
AlliedSignal, Inc.               3Com Corporation                      Boehringer Mannheim
Sandia National Laboratories     Bay Networks, Inc.                    Medrad Inc.
                                 Cummins Electronics Company, Inc.     United States Surgical Corp.
Automotive                       Fuji                                  Zimmer Inc.
Eaton Corporation                General Electric Company
Harmon International             Hitachi, Ltd.                         Telecom/Utility            
Hyundai Corporation              LSI Logic Corporation                 ADC Telecommunications, Inc.
New Venture Gear, Inc.           Mitsubishi Corporation                Digital Switch Corporation 
                                 Siemens Energy & Automation, Inc.     Indianapolis Power & Light Co.
Consumer Products                Siemens Rolm Communications, Inc.     Williams Energy Services   
Case Corporation                 Sony                                                              
Delta Faucet Corporation         Stratus Computer, Inc.                Other              
Hasbro Corporation               Sun Microsystems, Inc.                Federal Express     
Herman Miller, Inc.                 Medrad Inc.         
Moen Incorporated                                                      United Defense L.P. 
Whirlpool Corporation                                                  United States Army  

</TABLE> 

   In fiscal 1997, revenue from Case Corporation represented 11% of the
Company's revenue.  In fiscal 1996, revenue from Hitachi, Ltd. accounted for 17%
of the Company's total revenue. The revenue from Hitachi resulted from a one-
time license of source code for a version of the Company's PDM software, after
Hitachi expressed an interest in developing its own PDM product for markets
outside the Company's primary market. Hitachi has no right to upgrades or new
versions of the licensed source code.

Sales and Marketing

   The Company has implemented a multi-channel sales strategy including direct
sales, VARs and OEM partners to efficiently address the global market for its
products.

   The Company has established a direct sales organization in the United States
and Europe to sell to new customers as well as to expand installations within
its existing customer base. The Company 

                                      -9-
<PAGE>
 
provides installation and post-sale consulting services to facilitate customer
implementations and to build long-term customer relationships. As of March 31,
1997, the Company's sales and marketing organization consisted of 33 people
located in the Company's headquarters in Lexington, Massachusetts and in ten
locations throughout the United States and Europe. The Company's total revenue
for fiscal 1995, 1996 and 1997 was primarily derived from the efforts of the
Company's direct sales force. The Company does not believe that its revenue is
materially impacted by seasonality.

   The Company utilizes VARs in North America and Europe to complement its
direct sales force. These VARs have vertical market expertise and focus their
efforts on selling CMS within those markets to new customers as well as to their
own installed base. To avoid channel conflict, direct sales personnel are
compensated both on their performance and that of the VARs in their territory.
As of March 31, 1997, the Company had 9 VARs located throughout North America
and Europe.

   The Company utilizes OEM relationships to complement its direct sales and VAR
channels. The Company has an OEM partnership with Mentor Graphics Corporation.
In addition, the Company has two OEM partners in the Far East, Zuken, Inc. and
Hitachi, Ltd., and one OEM partner in Europe, Sietec Consulting GmbH & Co. OHG,
a subsidiary of Siemens-Nixdorf Informationssysteme AG.  Zuken is one of Japan's
largest independent software suppliers, focused on the ECAD marketplace.  All
OEM partners provide vertical market expertise and sell to customers generally
not targeted by or geographically accessible to the Company's direct sales
force.

   The Company's VARs and OEM partners license the Company's products at a
discount for sublicensing and may provide training, support and consulting
services to their customers. The Company receives fees for support and
maintenance provided to these channel partners. The Company and its VARs and OEM
partners generally market CMS and related services through sales teams
consisting of a sales representative and an applications engineer. To support
the sales process, the Company conducts comprehensive marketing programs that
include public relations, seminars, trade shows, direct mail, telemarketing and
customer communications programs. The Company sponsors user groups, focus groups
and a customer advisory board as a source of feedback about its customers'
requirements.

Customer Support and Consulting

   The Company's customers utilize CMS in mission-critical applications on which
the success of the organization may depend. Therefore, a high level of customer
service and technical support is critical. The Company's customer support
organization provides support through telephone, electronic mail and fax
communications. As of March 31, 1997, the Company's customer support and
consulting organization consisted of 17 people. OEMs and some of the Company's
VARs offer first-level customer support to their end-user customers and rely on
the Company for any additional required support. Additionally, the Company
provides consulting services to those customers seeking assistance in installing
CMS, designing their database structure, designing their workflow templates or
training their employees.

Product Development

   Since its inception, the Company has made substantial investments in research
and development. The Company believes its future success depends in part upon
its ability to enhance its existing products and to develop and introduce
products that address technological developments in the marketplace and the
increasingly sophisticated needs of its customers. The Company uses CMS in the
development of new products and enhancements to existing products, as well as in
the support of its customers.

   While the Company expects that certain of its new products will be developed
internally, the Company may, based upon timing and cost considerations, acquire
technology and/or products from third parties. Additionally, the Company's
Workgroup Partners Program provides the Company's 

                                      -10-
<PAGE>
 
customers with various third party developed applications that are complementary
to the Company's products.

   As of March 31, 1997, the Company's product development staff consisted of 35
employees. The Company's total expense for research and development in fiscal
1995, 1996 and 1997 was $2.1 million, $3.0 million and $4.6 million,
respectively.

Competition

   The PDM market is intensely competitive and is subject to rapid change. The
Company's competitors offer a variety of products and services to address this
market. The Company currently encounters direct competition from a number of
public and private companies such as Computervision Corporation, Hewlett-Packard
Company, International Business Machines Corporation, Parametric Technology
Corporation, Structural Dynamics Research Corporation and Sherpa Corporation. In
addition, the possible entrance of new competitors may intensify competition in
the PDM market. Vendors of RDBMS and enterprise MRP systems, among others, may
compete with the Company in the future. Many of the Company's current and
possible future competitors have significantly greater financial, technical,
marketing and other resources than the Company, and many have well established
relationships with current and potential customers of the Company. It is also
possible that alliances among competitors may emerge and rapidly acquire
significant market share. The Company also expects that competition will
increase as a result of software industry consolidations. Increased competition
may result in price reductions, reduced gross margins and loss of market share,
any of which would materially adversely affect the Company's business, operating
results and financial condition. There can be no assurance that the Company will
be able to compete effectively against current and future competitors.

   The Company believes that the principal competitive factors affecting its
market include product features and functionality, such as flexibility,
scaleability, ease of integration, ease of implementation, ease of use, quality,
performance, price and total cost of ownership; customer service and support;
company reputation and financial viability; and effectiveness of sales and
marketing efforts. Although the Company believes that it currently competes
effectively with respect to such factors, there can be no assurance that the
Company will be able to maintain its competitive position against current and
potential competitors.

Proprietary Rights

   The Company primarily relies upon a combination of copyright, trademark and
trade secret laws, nondisclosure agreements and license agreements to establish
and protect proprietary rights in its products. The Company does not currently
hold any patents. The source code for the Company's products is protected both
as a trade secret and as an unpublished copyrighted work. Despite these
precautions, it may be possible for a third party to copy or otherwise obtain
and use the Company's products or technology without authorization or to develop
similar technology independently. In addition, effective copyright and trade
secret protection may be unavailable or limited in certain foreign countries.
The software development industry is characterized by rapid technological
change. Therefore, the Company believes that factors such as the technological
and creative skills of its personnel, new product developments, frequent product
enhancements, name recognition and reliable product maintenance are more
important to establishing and maintaining a technology leadership position than
the various legal protections of its technology.  The Company is not aware that
any of its products infringes the proprietary rights of third parties. There can
be no assurance, however, that third parties will not claim such infringement by
the Company or its licensers with respect to current or future products. The
Company expects that software product developers will increasingly be subject to
such claims as the number of products and competitors in the Company's market
segment grows and the functionality of products in different market segments
overlaps. Any such claims, with or without merit, could be time-consuming,
result in costly litigation, cause product shipment delays or might require the

                                      -11-
<PAGE>
 
Company to enter into royalty or licensing agreements. Such royalty or licensing
agreements, if required, may not be available on terms acceptable to the
Company.

   Workgroup Technology Corporation, Workgroup, the Company's logo, CMS,
Collaborative Work Management, CMS/Server, CMS/Client, CMS/Work Management,
CMS/Launch, CMS/Workflow, CMS/Pro, CMS/API, CMS/OpenLink and
CMS/ReplicationServer are trademarks of the Company. All other trademarks and
trade names referred to in this report are the property of their respective
owners.

Employees

   As of March 31, 1997, the Company employed 92 persons, including 35 product
development personnel, 26 sales personnel, 17 customer support and consulting
personnel, 7 finance and administration personnel and 7 marketing personnel.
None of the Company's employees is represented by a collective bargaining
arrangement, and the Company has experienced no work stoppages.  The Company
considers its relations with its employees to be good.

   The Company's future success depends in large part on the ability to continue
to motivate and retain highly qualified employees, including management
personnel, and to attract and retain a significant number of additional
qualified personnel, including sales personnel and product development and
operations staff.  Competition for qualified personnel in the Company's industry
is intense, and many of the companies with which the Company competes for
qualified personnel have substantially greater financial and other resources
than the Company.  Furthermore, competition for qualified personnel can be
expected to become more intense as competition in the Company's industry
increases.  There can be no assurance that the Company will be able to recruit,
retain and motivate a sufficient number of qualified personnel to compete
successfully.  The loss of any of the Company's senior management personnel or
any material failure to recruit, retain and motivate a sufficient number of
qualified personnel would have a material adverse effect on the Company.

ITEM 2.    PROPERTIES

   The Company's headquarters are located in approximately 29,000 square feet of
office space in Lexington, Massachusetts.  This facility accommodates research,
marketing, sales, customer support and corporate administration.  The lease on
this facility expires in September 2001. The Company also leases office space in
Europe to support its field sales and support operations.  The Company believes
that its existing facilities are adequate for its current needs and that
additional facilities are available for lease to meet future needs.

ITEM 3.    LEGAL PROCEEDINGS

   The Company is not a part 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

   During the fourth quarter of the year ended March 31, 1997, no matters were
submitted to a vote of security holders of the Company through the solicitation
of proxies or otherwise.

                                      -12-
<PAGE>
 
                                    PART II

ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SECURITY HOLDER
         MATTERS

   The Company's Common Stock trades on the Nasdaq National Market under the
symbol "WKGP". On June 16, 1997, the closing price of the Company's Common Stock
was $3.94 per share.

   As of June 16, 1997, there were approximately 113 holders of record of the
Company's Common Stock and at least 1,500 beneficial holders, based on
information obtained from the Company's transfer agent.

   The following table sets forth quarterly high and low prices of the Common
Stock for the indicated periods of fiscal 1997:

<TABLE>
<CAPTION>
 
                                             High          Low
                                             ----          ---
                      <S>                   <C>          <C>
                      First Quarter         $30.75       $21.50
                      Second Quarter         25.00         5.13
                      Third Quarter           7.13         5.00
                      Fourth Quarter          7.25         3.94

</TABLE>

   During the fourth quarter of 1996 (March 21 to March 31, 1996), the high bid
quotation for the Company's Common Stock was $22.50 per share, and the low bid
quotation was $17.75 per share, as reported on the Nasdaq National Market.

   The Company has never paid cash dividends on its Common Stock.  The Company
currently intends to retain earnings, if any, for use in its business and does
not anticipate paying any cash dividend in the foreseeable future.  Any future
declaration and payment of dividends will be subject to the discretion of the
Company's Board of Directors, will be subject to applicable law and will depend
upon the Company's results of operations, earnings, financial condition,
contractual limitations, cash requirements, future prospects and other factors
deemed relevant by the Company's Board of Directors.

                                      -13-
<PAGE>
 
ITEM 6.  SELECTED FINANCIAL DATA

   The selected financial data presented below are derived from the financial
statements of the Company, and should be read in connection with those
statements, which are included herein.

<TABLE>
<CAPTION>

                                                                                                 Period from 
                                                                                                May 11, 1992   
                                                                                              (date of inception)
                                                    Fiscal Year Ended March 31,                    through
                                        1997           1996           1995           1994       March 31, 1993
                                    -----------    -----------    -----------     ----------- -------------------
                                                       (in thousands, except per share data)
<S>                                   <C>            <C>            <C>            <C>        <C> 
Statement of Operations Data:

Revenue                               $ 10,439       $ 10,477       $ 4,616        $ 2,531          $   731
Gross profit                             7,969          8,794         3,404          1,836              180
Operating expenses                      12,255          7,405         4,692          3,599            2,150
Income (loss) from operations           (4,286)         1,389        (1,289)        (1,763)          (1,970)
Net income (loss)                       (2,407)         1,448        (1,437)        (1,781)          (1,922)
Net income (loss) per common share    $  (0.30)      $   0.24       $ (0.50)       $ (0.63)         $ (0.69)
Weighted average number of common
  and common equivalent shares
  outstanding                            7,994          6,011         2,855          2,807            2,798

<CAPTION> 

                                                                       March 31,
                                        1997           1996           1995           1994             1993
                                    -----------    -----------    -----------     -----------     -----------
                                                                         (in thousands)
<S>                                   <C>            <C>            <C>            <C>              <C> 
Balance Sheet Data:

Working capital (deficit)             $ 36,560       $ 39,426       $(1,161)       $  (336)         $   549
Total assets                            41,796         44,073         4,588          1,735            1,895
Convertible preferred stock                  -              -         4,290          3,700            3,000
Total stockholders' equity (deficit)    37,927         40,114        (5,113)        (3,678)          (1,905)
 
</TABLE>

ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF
         FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview

   The following discussion and analysis of the financial condition and results
of operations of the Company should be read in conjunction with the financial
statements and related notes thereto.

   The Company does not provide forecasts of the future financial performance of
the Company.  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 this
Form 10-K 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.

                                      -14-
<PAGE>
 
   The software industry is highly competitive and rapidly evolving.  The PDM
market in particular is subject to short product life cycles and evolving market
standards due to the relative immaturity of the market.  Accordingly, the
Company's ability to continue to develop and market new or enhanced products and
deliver them to customers in a timely fashion and the acceptance of these
products in the PDM market as well as the continued growth of the PDM market
will significantly affect the Company's results of operations.  The Company's
results of operations will also be subject to its ability to continue to attract
and retain qualified personnel and effectively manage its growth and the
expansion of its product offerings.  In addition, demand for the Company's
product is subject to general economic conditions and an increase in the cost of
capital or an economic decline could cause potential customers to delay or
cancel planned purchases of the Company's products.

Results of Operations

   The following table sets forth for the periods indicated, certain
consolidated financial data as a percentage of revenue:

<TABLE>
<CAPTION>
 
                                                         Percentage of Revenue
                                                ---------------------------------------
                                                       Fiscal Year Ended March 31,
                                                ---------------------------------------
                                                  1997           1996            1995
                                                -------       ---------        --------
   <S>                                           <C>              <C>             <C> 
   Revenue:
      Software licenses                            62.8%           73.1%           69.1%
      Maintenance and services                     37.2            26.9            30.9
                                                -------       ---------        --------
          Total revenue                           100.0           100.0           100.0
   Cost of revenue:
      Software licenses                             3.3             4.3             9.4
      Maintenance and services                     20.4            11.8            16.9
                                                -------       ---------        --------
          Total cost of revenue                    23.7            16.1            26.3
   Gross profit                                    76.3            83.9            73.7
   Operating expenses:
      Selling and marketing                        57.5            34.5            44.3
      Research and development                     44.4            28.8            44.5
      General and administrative                   15.5             7.3            12.8
                                                -------       ---------        --------
          Total operating expenses                117.4            70.6           101.6
   Income (loss) from operations                  (41.1)           13.3           (27.9)
   Interest income (expense), net                  18.5             0.9            (0.3)
                                                -------       ---------        --------
   Income (loss) before income taxes              (22.6)           14.2           (28.2)
   Provision for income taxes                       0.5             0.3             2.9
                                                -------       ---------        --------
   Net income (loss)                              (23.1)%          13.9%          (31.1)% 
                                                =======       =========        ========
 
</TABLE>

Fiscal 1997 Compared to Fiscal 1996

   Revenue.  The Company's revenue consists of license fees for its CMS family
of product data management software products and fees for professional services
and software maintenance.  The Company had total revenue of  $10,439,000 in
fiscal 1997 as compared to total revenue of $10,477,000 in fiscal 1996, a
decrease of less than 1%.

International revenue decreased 59.5% to $1,088,000 in fiscal 1997 from
$2,686,000 in fiscal 1996.  This decrease was primarily due to non-recurring
license fees received from Hitachi, Ltd. in connection with a 

                                      -15-
<PAGE>
 
source code license and maintenance that amounted to $1,800,000 in fiscal 1996.
International revenue accounted for 10.4% and 25.6% of total revenue in fiscal
1997 and fiscal 1996, respectively.

Software license revenue decreased 14.5% in fiscal 1997 to $6,553,000 from
$7,661,000 in fiscal 1996.  The revenue decline resulted from a delay in
shipment of a server product for the Windows NT operating system, lower than
expected revenue in the European market and lower revenue from prospective and
existing customers as customers delayed orders in anticipation of the release of
the Company's new CMS 7 Series of products.

Maintenance and services revenue increased 38.0% to $3,886,000 from $2,816,000
for fiscal 1996.  This increase resulted primarily from an increase in the
number of customers with maintenance agreements as well as an increase in usage
of the Company's professional services.

   Cost of Revenue and Gross Profit.  The Company's cost of software license
revenue consists primarily of royalties payable upon the license of products as
well as costs associated with media, packaging, documentation and delivery of
the Company's product.  Gross profit associated with software license revenue
for fiscal 1997 was $6,213,000 or 94.8% of software license revenue versus
$7,211,000 or 94.1% of software license revenue in fiscal 1996. The decrease in
gross margin of $998,000 resulted primarily from lower software revenue in
fiscal 1997.

Cost of maintenance and services revenue consists primarily of personnel costs
for the Company's customer support and professional services organizations. The
Company's gross profit on maintenance and services revenue increased to
$1,756,000 in fiscal 1997 from $1,583,000 fiscal 1996. As a percentage of
maintenance and services revenue the gross margin decreased to 45.2% in fiscal
year 1997 from 56.2% in fiscal year 1996.  This decrease was due to a greater
utilization of the professional services organization on support, training and
other projects in fiscal 1997 as well as costs associated with hiring and
training additional staff for the Company's customer support organization.

   Selling and Marketing.  Selling and marketing expenses increased 65.9% in
fiscal year 1997 to $5,999,000 from $3,617,000 fiscal 1996. Selling and
marketing expenses as a percentage of revenue increased to 57.5% in fiscal 1997
from 34.5% in fiscal 1996.  These increases resulted primarily from costs
incurred as a result of an increase in sales and marketing personnel and
programs as well as an increase in international selling expenses due to the
costs associated with the Company's subsidiaries in Europe.

   Research and Development.  Research and development expenses increased 53.5%
in fiscal 1997 to $4,635,000 from $3,020,000 in fiscal 1996. Research and
development expenses as a percentage of revenue increased to 44.4% in fiscal
1997 from 28.8% in fiscal 1996.  These increases in fiscal 1997 resulted
primarily from employment of additional staff and independent contractors to
develop and enhance the Company's products, expand the integration of its
products with other applications and provide quality assurance.

   General and Administrative.  In fiscal 1997, general and administrative
expenses increased 111.1% to $1,621,000 from $768,000 in fiscal 1996.  As a
percentage of revenue, general and administrative expenses increased to 15.5% in
fiscal 1997 from 7.3% in fiscal year 1996.  General and administrative expenses
increased primarily as a result of severance related and other personnel
expenses as well as additional administrative expenses attributable to the
Company's status as a public company.

   Interest Income, (Net).  Interest income, (net) consists of interest earned
on cash and cash equivalents, offset by interest expense associated with
equipment financing.  Interest income for fiscal 1997 increased to $1,827,000
from $94,000 in fiscal 1996 due to higher cash and cash equivalent balances
during fiscal 1997 as a result of the Company's initial public offering.

                                      -16-
<PAGE>
 
   Provision for Income Taxes.  For fiscal 1997, the provision for income taxes
increased to $55,000 from $35,000 for fiscal 1996. The provision for taxes
results primarily from taxable income in the Company's foreign subsidiaries as
well as certain state taxes.


Fiscal 1996 Compared to Fiscal 1995

   Revenue. The Company's total revenue increased 127% in fiscal 1996 to $10.5
million from $4.6 million in fiscal 1995.

   Software license revenue increased 140.2% in fiscal 1996 to $7.7 million from
$3.2 million in fiscal 1995. This revenue increase resulted from an increase in
the number of customers licensing the Company's software products, an increase
in the number of incremental software licenses purchased by existing customers
and an increase in the average sales value of software orders from customers, as
well as revenue attributable to a one-time source code license agreement with
Hitachi, Ltd. The increase in the number of customers licensing the Company's
software products resulted primarily from increases in the size and productivity
of the Company's direct sales force and increased sales by the Company's VARs
and OEM partners. The increase in the number of incremental software licenses
purchased by existing customers was primarily due to the licensing by customers
of additional users as well as the licensing of additional CMS products. The
increase in the average sales value of orders was primarily due to larger
initial implementations by customers as well as the introduction of new CMS
clients and modules for Windows and Mac/OS.

   Maintenance and services revenue increased 97.4% in fiscal 1996 to $2.8
million from $1.4 in fiscal 1995. This increase resulted from an increase in the
customer maintenance base and increased usage of the Company's professional
services, as well $238,000 of revenue attributable to the maintenance related to
a one time source code license agreement with Hitachi, Ltd.

   International revenue increased 380% in fiscal 1996 to $2.7 million from $0.6
million in fiscal 1995 and accounted for 25.6% and 12.1% of total revenue in
fiscal 1996 and fiscal 1995, respectively. This increase was primarily due to
revenue attributable to Hitachi, Ltd., which accounted for $1.8 million, or 17%
of revenue in fiscal 1996.

   Cost of Revenue and Gross Profit. The Company's gross profit associated with
software license revenue increased 161.6% in fiscal 1996 to $7.2 million, or
94.1% of software license revenue, from $2.8 million, or 86.5% of software
license revenue, in fiscal 1995.

   The Company's cost of maintenance and services revenue consists primarily of
personnel costs for the Company's customer support and professional services
organizations. The Company's gross profit on maintenance and services revenue
increased 145.1% in fiscal 1996 to $1.6 million, or 56.2% of maintenance and
services revenue, from $0.6 million, or 45.3% of maintenance and services
revenue, in fiscal 1995. Gross profit increased primarily due to increased
efficiencies and productivity achieved by the customer support and professional
services organizations.

   Selling and Marketing.  Selling and marketing expenses consist primarily of
personnel costs as well as commissions and travel expenses of direct sales and
marketing personnel, and costs associated with marketing programs. Selling and
marketing expenses increased 77.0% in fiscal 1996 to $3.6 million from $2.0
million in fiscal 1995. The increase in selling and marketing expenses resulted
primarily from employment of additional staff in the sales and marketing
organizations as well as an increase in marketing programs such as trade shows,
conferences and public relations activities. In addition, international sales
expenses increased due to the opening of the Company's subsidiaries in Germany
and 

                                      -17-
<PAGE>
 
the United Kingdom. As a result of increased revenue, selling and marketing
expenses decreased as a percentage of revenue to 34.5% in fiscal 1996 from 44.3%
in fiscal 1995.

   Research and Development. Research and development expenses consist primarily
of personnel costs as well as fees for development services provided by
independent contractors. Research and development expenses increased 46.9% in
fiscal 1996 to $3.0 million from $2.1 million in fiscal 1995. The increase in
research and development expenses in fiscal 1996 resulted primarily from
employment of additional staff and independent contractors to develop and
enhance the Company's products and provide quality assurance. Qualifying
capitalizable software development costs were immaterial in both years and,
therefore, the Company did not capitalize such costs. Research and development
expenses as a percentage of revenue decreased to 28.8% in fiscal 1996 from 44.5%
in fiscal 1995 as a result of increased revenue.

   General and Administrative. General and administrative expenses consist
primarily of personnel costs for finance, administrative and general management
personnel, as well as accounting and legal expenses. General and administrative
expenses increased 29.5% in fiscal 1996 to $768,000 from $593,000 in fiscal
1995. The increase in general and administrative expenses resulted primarily
from the employment of additional staff as well as an increase in accounting and
legal expenses in support of the Company's increased level of operations.  As a
result of increases in revenue, general and administrative expenses as a
percentage of revenue decreased to 7.3% in fiscal 1996 from 12.8% in fiscal
1995.

   Interest Income (Expense), Net. Interest income (expense), net consists of
interest earned on cash and cash equivalents, offset by interest expense
associated with equipment financing. During fiscal 1996, the Company had net
interest income of $94,000 as compared to a net interest expense of $13,000 in
fiscal 1995.  The increase in interest income is due to higher average cash
balances during fiscal 1996.

   Provision for Income Taxes. The provision for income taxes decreased to
$35,000 in fiscal 1996 from $135,000 fiscal 1995. This decrease was primarily
the result of decreased revenue from one of the Company's Japanese OEM partners,
which revenue was subject to withholding taxes for sales to Japanese customers.
Net operating losses were used to offset all federal and state income taxes in
fiscal 1996 as well as fiscal 1995.


Liquidity and Capital Resources

   Cash and cash equivalents at March 31, 1997 decreased $3,008,000 to
$37,951,000 from $40,959,000 at March 31, 1996.  This decrease results primarily
from a net loss of $2,407,000 for fiscal 1997 as well as capital expenditures of
$1,160,000.  In addition, the Company exercised its option to buyout certain of
its capital leases in fiscal year 1997 for approximately $355,000.

   The Company believes its existing cash and cash equivalent balances, together
with cash flows from operations, will be sufficient to meet its cash
requirements for at least the next fiscal year.

   To date, neither foreign currency exposure nor inflation has had a material
impact on the Company's financial results.

                                      -18-
<PAGE>
 
ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

   Financial statements and supplementary data are included herein and are
indexed under Item 14 (a) (1) - (2).


ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
         FINANCIAL DISCLOSURE

   There have been no changes in or disagreements with accountants on accounting
or financial disclosure matters in the last two years.



                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

   The information required by this item may be found under the sections
captioned "Election of Directors," "Occupations of Directors and Executive
Officers" and "Section 16 Reporting" in the Company's Proxy Statement (the "1997
Proxy Statement") for the Company's Annual Meeting of Stockholders to be held on
July 31, 1997, and is incorporated herein by reference.  The 1997 Proxy
Statement will be filed with the Securities and Exchange Commission not later
than 120 days after the close of the Company's year ended March 31, 1997.

ITEM 11. EXECUTIVE COMPENSATION

   The information required by this item may be found under the section
captioned "Compensation and Other Information Concerning Directors and Officers"
in the 1997 Proxy Statement, and is incorporated herein by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
         MANAGEMENT

   The information required by this item may be found under the section
captioned "Management and Principal Holders of Voting Securities" in the 1997
Proxy Statement, and is incorporated herein by reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

   The information required by this item may be found under the section
captioned "Certain Relationships and Related Transactions" in the 1997 Proxy
Statement, and is incorporated hereby by reference.

                                      -19-
<PAGE>
 
                                    PART IV

ITEM  14.    EXHIBITS,  FINANCIAL STATEMENT SCHEDULES AND
             REPORTS ON FORM 8-K

   (a)(1)    Financial Statements.

   The following financial statements are filed as part of this report:

<TABLE> 
<CAPTION> 

                                                                            Page
                                                                            ----
<S>                                                                         <C>
Report of Independent Accountants.........................................   F-1
 
Consolidated Balance Sheets at March 31, 1997 and 1996....................   F-2
 
Consolidated Statements of Operations for the years ended March 31, 1997,
 1996 and 1995............................................................   F-3
 
Consolidated Statements of Changes in Stockholders' Equity (Deficit) for
 the years ended March 31, 1997, 1996 and 1995............................   F-4
 
Consolidated Statements of Cash Flows for the years ended March 31, 1997,
 1996 and 1995............................................................   F-5
 
Notes to Consolidated Financial Statements................................   F-6
 
</TABLE>

   (a)(2)    Financial Statement Schedules:
 
   All schedules for which provisions made in the applicable accounting
regulation of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable, and therefore have been omitted.

                                      -20-
<PAGE>
 
(a)(3)    List of Exhibits.

     The following exhibits are filed as part of and incorporated by reference
into, this Annual Report on Form 10-K:

<TABLE>
<CAPTION>

 Exhibit
 Number    Description
 ------    -----------
<C>        <S>
  3.1(1)   Amended and Restated Certificate of Incorporation of the Company
  3.2(1)   Amended and Restated By-Laws of the Company
  4.1(1)   Specimen certificate representing the Common Stock
 10.1(1)+  1996 Stock Plan
 10.2(2)+  Form of Incentive Stock Option Agreement under the 1996 Stock Plan
 10.3(2)+  Form of Non-Qualified Stock Option Agreement under the 1996 Stock 
           Plan
 10.4(1)+  1996 Employee Stock Purchase Plan
 10.5(2)+  1996 Employee Stock Purchase Plan Enrollment Authorization Form
 10.6(1)+  1996 Non-Employee Director Stock Option Plan
 10.7(2)+  Form of Non-Qualified Stock Option Agreement under the 1996 Non-
           Employee Director Stock Option Plan of the Registrant
 10.8(1)   Registration Rights Agreement between the Company and the Preferred
           Stockholders, James Carney and James Simmons, as amended as of
           November 27, 1995
 10.9*     Master Lease Agreement between the Company and Mortimer B. Zuckerman
           and Edward H. Linde, Trustees of 91 Hartwell Avenue Trust dated July
           30, 1996
 10.10*+   Employment Agreement between the Company and James Carney
 10.11(1)+ Form of Executive Management Incentive Compensation Plan of the 
           Company
 10.12(1)  Form of Non-Competition Agreement between the Company, its executive
           officers and founders
 11.1*     Statement re: computation of per share earnings
 21.1(1)   Subsidiaries of the Company
 23.1*     Consent of Independent Accountants (Coopers & Lybrand)
 24.1*     Power of Attorney (see page 22)
 27.1      Financial Data Schedule
</TABLE> 
---------
  (1)  Incorporated herein by reference to the exhibits to the Company's
       Registration Statement on Form S-1 (File No. 333-00810).
  (2)  Incorporated herein by reference to the Company's Annual Report on Form
       10-K for the fiscal year ended March 31, 1996.
   *   Filed herewith.
   +   Indicates a management contract or any compensatory plan, contract or 
       arrangement.

(b) Reports On Form 8-K

   There were no reports on Form 8-K filed by the Company for the quarter ended
March 31, 1997.

   (c)  Exhibits.

   The Company hereby files as part of this Annual Report on Form 10-K the
exhibits listed in Item 14(a)(3) set forth above.

                                      -21-
<PAGE>
 
                                   SIGNATURES


     Pursuant to the requirements of Section 13 or 15(d) 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.


Date: June 24, 1997                    By: /s/ James M. Carney
                                           ----------------------------------
                                           James M. Carney
                                           Chief Executive Officer and Chairman

                        POWER OF ATTORNEY AND SIGNATURES

     We, the undersigned officers and directors of Workgroup Technology
Corporation, hereby severally constitute and appoint James M. Carney and George
R. McHorney, and each of them singly, our true and lawful attorneys, with the
power to them and each of them singly, to sign for us and in our names in the
capacities indicated below, any amendments to this Report on Form 10-K, and
generally to do all things in our names and on our behalf in such capacities to
enable Workgroup Technology Corporation to comply with the provisions of the
Securities Exchange Act of 1934, as amended, and all the requirements of the
Securities and Exchange Commission.

   Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant, in the capacities indicated, on the 24th day of June, 1997.

<TABLE>
<CAPTION>
 
         Signature                             Title(s)
         ---------                             --------
<S>                          <C>
/s/ James M. Carney          Chief Executive Officer (Principal Executive
---------------------------  Officer) and Chairman
James M. Carney

/s/ John P. McDonough        President, Chief Operating Officer and
---------------------------  Secretary (Principal Financial Officer)
John P. McDonough

/s/ Diane M. Marcou          Vice President- Finance and Administration
---------------------------  and Treasurer  (Principal Accounting Officer)
Diane M. Marcou

/s/ Stephen J. Gaal          Director
---------------------------
Stephen J. Gaal

/s/ Ernest C. Parizeau       Director
---------------------------
Ernest C. Parizeau

</TABLE>

                                      -22-
<PAGE>
 
WORKGROUP TECHNOLOGY CORPORATION
--------------------------------------------------------------------------------


                       REPORT OF INDEPENDENT ACCOUNTANTS


  To the Board of Directors and Stockholders of
  Workgroup Technology Corporation:

      We have audited the accompanying consolidated balance sheets of Workgroup
  Technology Corporation as of March 31, 1997 and 1996 and the related
  consolidated statements of operations, stockholders' equity (deficit) and cash
  flows for each of the three years in the period ended March 31, 1997. These
  financial statements are the responsibility of the Company's management. Our
  responsibility is to express an opinion on these financial statements based on
  our audits.

      We conducted our audits in accordance with generally accepted auditing
  standards. Those standards require that we plan and perform the audit to
  obtain reasonable assurance about whether the financial statements are free of
  material misstatement. An audit includes examining, on a test basis, evidence
  supporting the amounts and disclosures in the financial statements. An audit
  also includes assessing the accounting principles used and significant
  estimates made by management, as well as evaluating the overall financial
  statement presentation. We believe that our audits provide a reasonable basis
  for our opinion.

      In our opinion, the financial statements referred to above present fairly,
  in all material respects, the consolidated financial position of Workgroup
  Technology Corporation as of March 31, 1997 and 1996 and the consolidated
  results of its operations and its cash flows for each of the three years in
  the period ended March 31, 1997 in conformity with generally accepted
  accounting principles.



                                               COOPERS & LYBRAND L.L.P.

  Boston, Massachusetts
  May 6, 1997

                                      F-1
<PAGE>
 
WORKGROUP TECHNOLOGY CORPORATION
--------------------------------------------------------------------------------

                          CONSOLIDATED BALANCE SHEETS
                            March 31, 1997 and 1996
(dollars in thousands)

<TABLE>
<CAPTION>
 
 
                 ASSETS                                     1997      1996
                                                          --------  --------
<S>                                                       <C>       <C>
Current assets:
 Cash and cash equivalents                                 $37,951   $40,959
 Accounts receivable (net of allowance of $50 in 1997)       2,179     2,075
 Prepaid expenses and other current assets                     294       234
                                                           -------   -------
 
    Total current assets                                    40,424    43,268
 
 Property and equipment, net                                 1,339       761
 Other assets                                                   33        44
                                                           -------   -------
 
     Total assets                                          $41,796   $44,073
                                                           =======   =======

            LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
 Accounts payable                                          $   660   $   890
 Accrued expenses                                              944       749
 Accrued vacation                                              271       203
 Accrued royalties                                             181       140
 Capital lease obligations                                      14       219
 Deferred revenue                                            1,794     1,641
                                                           -------   -------
 
    Total current liabilities                                3,864     3,842
 
Capital lease obligations                                        5       116
 
Commitments (Note G)
 
Stockholders' equity:
 Common stock, $.01 par value; 30,000,000 shares
  authorized, 8,114,084 and 7,926,390 shares issued and
  outstanding at March 31, 1997 and 1996, respectively          81        79
 Additional paid-in capital                                 43,955    43,727
 Officers' notes receivable                                      -        (7)
 Cumulative translation adjustment                             (10)        7
 Accumulated deficit                                        (6,099)   (3,692)
                                                           -------   -------
 
    Total stockholders' equity                              37,927    40,114
                                                           -------   -------
 
     Total liabilities and stockholders' equity            $41,796   $44,073
                                                           =======   =======
 
</TABLE>



    The accompanying notes are an integral part of the financial statements.

                                      F-2
<PAGE>
WORKGROUP TECHNOLOGY CORPORATION
--------------------------------------------------------------------------------
 
                     CONSOLIDATED STATEMENTS OF OPERATIONS
               for the years ended March 31, 1997, 1996 and 1995
(in thousands, except per share data)

<TABLE>
<CAPTION>
 
 
                                                      1997      1996      1995
                                                    --------  --------  --------
<S>                                                 <C>       <C>       <C>
 
  Revenue:
    Software licenses                               $ 6,553   $ 7,661   $ 3,189
    Maintenance and services                          3,886     2,816     1,427
                                                    -------   -------   -------
 
           Total revenue                             10,439    10,477     4,616
 
  Cost of revenue:
    Cost of software licenses                           340       450       432
    Cost of maintenance and services                  2,130     1,233       780
                                                    -------   -------   -------
 
           Total cost of revenue                      2,470     1,683     1,212
 
    Gross profit                                      7,969     8,794     3,404
 
  Operating expenses:
    Selling and marketing                             5,999     3,617     2,043
    Research and development                          4,635     3,020     2,056
    General and administrative                        1,621       768       593
                                                    -------   -------   -------
 
           Total operating expenses                  12,255     7,405     4,692
                                                    -------   -------   -------
 
  Income (loss) from operations                      (4,286)    1,389    (1,289)
 
  Interest income                                     1,957       130        27
  Interest expense                                      (23)      (36)      (40)
                                                    -------   -------   -------
 
  Income (loss) before income taxes                  (2,352)    1,483    (1,302)
 
  Provision for income taxes                             55        35       135
                                                    -------   -------   -------
 
  Net income (loss)                                 $(2,407)  $ 1,448   $(1,437)
                                                    =======   =======   =======
 
  Net income (loss) per common share                 $(0.30)    $0.24    $(0.50)
                                                    =======   =======   =======
 
  Weighted average number of common and
       common equivalent shares outstanding           7,994     6,011     2,855
                                                    =======   =======   =======
 
</TABLE>



    The accompanying notes are an integral part of the financial statements.

                                      F-3
<PAGE>

WORKGROUP TECHNOLOGY CORPORATION
--------------------------------------------------------------------------------
 
           CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
               for the years ended March 31, 1997, 1996 and 1995
(in thousands)

<TABLE>
<CAPTION>
 
 
                                                          
                                     Common Stock           Additional    Officers'    Cumulative                       Total
                                     ------------            Paid-In       Notes      Translation   Accumulated    Stockholders'
                                        Shares     Amount    Capital     Receivable    Adjustment     Deficit     Equity (Deficit)
                                     ---------------------------------------------------------------------------------------------
<S>                                  <C>           <C>      <C>          <C>           <C>           <C>             <C>
Balance at March 31, 1994              1,709      $ 17      $    16       $ (7)                      $ (3,704)         $ (3,678)
Sale of stock under stock plans           13                      2                                                           2
Net loss                                                                                               (1,437)           (1,437)
                                     ---------------------------------------------------------------------------------------------
 
Balance at March 31, 1995              1,722       17           17           (7)                       (5,140)           (5,113)
Issuance of common stock               2,664       27       36,429                                                       36,456
Conversion of preferred 
stock (Note D)                         3,298       33        6,857                                                        6,890
Exercise of warrants                     133        1          399                                                          400
Sale of stock under stock plans          110        1           25                                                           26
Foreign currency translation adjustment                                                 $  7                                  7
Net income                                                                                              1,448             1,488
                                     ---------------------------------------------------------------------------------------------
 
Balance at March 31, 1996              7,926       79       43,727           (7)           7           (3,692)           40,114
Sale of stock under stock plans          188        2           72                                                           74
Stock option compensation                                      156                                                          156
Collection of officers' notes                                                 7                                               7
Foreign currency translation adjustment                                                  (17)                               (17)
Net loss                                                                                               (2,407)           (2,407)
                                     ---------------------------------------------------------------------------------------------
 
Balance at March 31, 1997              8,114      $ 81     $43,955          $ -        $ (10)        $ (6,099)          $37,927
                                     =============================================================================================
 
</TABLE>



    The accompanying notes are an integral part of the financial statements.

                                      F-4
<PAGE>

WORKGROUP TECHNOLOGY CORPORATION
--------------------------------------------------------------------------------


                     CONSOLIDATED STATEMENTS OF CASH FLOWS
               for the years ended March 31, 1997, 1996 and 1995
(dollars in thousands)
<TABLE>
<CAPTION>

 
                                                                 1997            1996              1995
                                                                 ----            ----              ----   
<S>                                                            <C>              <C>              <C>         
 Cash flows from operating activities:                                                    
   Net (loss) income                                           $ (2,407)        $  1,448         $ (1,437)
   Adjustments to reconcile net income(loss) to net cash  
      provided by (used in) operating activities:                                         
     Depreciation and amortization                                  582              399              314
     Equity-based compensation                                      156                -                -
     Changes in operating assets and liabilities:                                         
      Accounts receivable                                          (104)             437           (2,014)
      Prepaid expenses and other current assets                     (60)            (190)              59
      Other assets                                                   11              (13)             (21)
      Accounts payable                                             (230)             468              131
      Accrued expenses                                              195              381              246
      Accrued vacation                                               68               95               36
      Accrued royalties                                              40               40              (36)
      Customer deposits                                               -             (100)              73
      Deferred revenue                                              153           (2,349)           3,144
                                                               --------         --------         -------- 
                                                                                          
      Net cash provided by (used in) operating activities        (1,596)             616              495
                                                                                          
 Cash flows from investing activities:                                                    
   Purchases of property and equipment                           (1,160)            (442)             (32)
                                                                                          
 Cash flows from financing activities:                                                    
   Proceeds from issuance of preferred stock                          -            2,600               83
   Proceeds from issuance of bridge note                              -                -              500
   Proceeds from issuance of common stock                            74           36,882                2
   Proceeds from the collection of officers' notes                    7                -                -
   Payments of capital lease obligations                           (316)            (251)            (202)
                                                               --------         --------         -------- 
                                                                                          
      Net cash provided by (used in) financing activities          (235)          39,231              383
                                                                                          
 Effect of exchange rate changes on cash                            (17)               7                -
                                                               --------         --------         -------- 
 Net increase (decrease) in cash and cash equivalents            (3,008)          39,412              846
 Cash and cash equivalents, beginning of year                    40,959            1,547              701
                                                               --------         --------         -------- 
                                                                                          
 Cash and cash equivalents, end of year                        $ 37,951         $ 40,959         $  1,547
                                                               ========         ========         ========
                                                                                          
 Supplemental cash flow information:                                                      
   Interest paid                                               $     23         $     36         $     32
   Income taxes paid                                           $     55         $     35         $    135
 Supplemental disclosure for non-cash transactions:                                                                           
   Acquisition of property and equipment                                                  
      under capital lease obligations                                 -         $    264         $    312
   Conversion of bridge note and accrued interest to 
      Series C convertible redeemable preferred stock                 -                -         $    507   
   Conversion of preferred stock                                      -         $  6,890                -
 
</TABLE>
    The accompanying notes are an integral part of the financial statements

                                      F-5
<PAGE>
 
WORKGROUP TECHNOLOGY CORPORATION
--------------------------------------------------------------------------------

                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

A. Nature of the Business
   ----------------------
 
   Workgroup Technology Corporation (the "Company"), incorporated on 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 any type of electronic data including
   CAD models, bills of material, word processing, spreadsheet, voice video and
   multimedia files.

B. Summary of Significant Accounting Policies
   ------------------------------------------
 
   Principles of Consolidation

   The consolidated financial statements include the accounts of the Company and
   its wholly-owned subsidiaries. All significant intercompany transactions and
   balances have been eliminated.

   Certain amounts from prior years have been reclassified to conform to the
   current year's presentation.

   Revenue Recognition

   Revenue is recognized from the license of software upon shipment provided
   that no significant vendor or postcontract support obligations remain
   outstanding and collection of the resulting receivable is deemed probable.
   The estimated costs of insignificant support obligations, if any, are accrued
   upon shipment. Payments received in advance for services, development or
   product are initially recorded as deferred revenue. Revenue from training and
   consulting is recognized as the services are performed. Maintenance and
   support revenue is recognized ratably over the contract term, typically one
   year.

   Foreign Currency Translation

   The functional currency of the Company's foreign subsidiaries is the local
   currency. Assets and liabilities are translated into U.S. dollars at the
   exchange rates in effect at the balance sheet date and income and expense
   items are translated at the average rates for the period. The effect of such
   translations are excluded from net earnings and accumulated as a separate
   component of stockholders' equity. Transaction gains and losses from foreign
   currency transactions have not been material to date.

   Cash Equivalents

   Cash equivalents consist of commercial paper and money market mutual funds
   with remaining maturities at acquisition of three months or less and are
   carried at cost plus accrued interest which approximates market value.

   The Company has approximately $155,000 of restricted cash included in the
   March 31, 1997 cash balance. This restricted cash serves as collateral for a
   letter of credit obtained in fiscal year 1997 related to the Company's
   property lease.

   Property and Equipment

   Property and equipment are stated at cost.  Depreciation is provided under
   the straight-line method based upon the following estimated useful lives:

       Computer software          3 years
       Furniture and fixtures     3 years
       Equipment                  3 years
       Leasehold improvements     Estimated useful life of the
         and equipment under        asset or term of the lease
         capital leases             whichever is shorter.

   Major replacements of, or improvements to, property and equipment are
   capitalized. Minor replacements, repairs and maintenance are charged to
   expense as incurred. Upon retirement or sale, the cost of the assets disposed
   and the related accumulated depreciation are removed from the accounts and
   any resulting gain or loss is recorded in operations.

   Research and Development Costs

   Research and development expenditures are charged to operations as incurred.
   The Company capitalizes eligible software costs incurred after technological
   feasibility of the product has been established. The Company believes it has
   achieved technological feasibility when the working model has been
   established, which is typically demonstrated by beta shipment. Qualifying
   capitalized costs for the years ended March 31, 1997, 1996 and 1995 have been
   immaterial and, therefore, the Company has not capitalized such costs.

   Royalty Expense

   Royalty expense with respect to sales of product under royalty agreements is
   recorded when the revenue is recognized.

   Warranty Costs

   The Company provides for warranty expenses, based on past experience, on an
   accrual basis.

                                      F-6
<PAGE>
 
WORKGROUP TECHNOLOGY CORPORATION
--------------------------------------------------------------------------------

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
 

   Income Taxes

   The Company uses the asset and liability approach in its method of accounting
   for income taxes which requires the recognition of deferred tax liabilities
   and assets for expected future tax consequences of temporary differences
   between the carrying amounts and the tax basis of assets and liabilities. A
   valuation allowance against deferred tax assets is recorded if, based upon
   weighted available evidence, it is more likely than not that some or all of
   the deferred tax assets will not be realized.

   Net Income (Loss) Per Common Share

   Net income (loss) per common share on a historical basis is computed based
   upon the weighted average number of common shares and common equivalent
   shares (using the treasury stock method) outstanding after certain
   adjustments described below. Common equivalent shares consist of common stock
   options and warrants outstanding and are excluded in loss periods. In
   accordance with Securities and Exchange Commission Staff Accounting Bulletin
   No. 83, the common and common equivalent shares issued during the twelve-
   month period prior to the initial public offering, have been included in the
   calculation as if they were outstanding for all periods prior to the initial
   public offering ("IPO") using the treasury stock method and the assumed IPO
   price of $14.50 per share.

   Supplementary net loss per common share has been computed in the same manner,
   except that all outstanding shares of Redeemable Convertible Preferred Stock
   converted into common stock upon the closing of the IPO are treated as having
   been converted into common stock at the date of original issuance.

   Net loss per common share on a supplementary basis for the year ended March
   31, 1995 is $(0.27) with 5,343,000 weighted average common and common
   equivalent shares outstanding.

   Fully diluted net income (loss) per common share is the same as primary net
   income (loss) per common share.

   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.

   The Company invests its cash primarily in commercial paper and money market
   mutual funds with a large commercial bank. The Company has not experienced
   any losses to date on its invested cash.

   The Company sells its product to a wide variety of customers in a variety of
   industries. The Company performs ongoing credit evaluations of its customers
   but does not require collateral or other security to support customer
   receivables. The Company believes any credit losses will not be material.

   New Accounting Standards

   In February 1997, the Financial Accounting Standards Board issued SFAS 128,
   "Earnings per Share," and SFAS 129, "Disclosure of Information about Capital
   Structure." SFAS 128, which is effective for fiscal years ending after
   December 15, 1997, including interim periods, requires the presentation of
   basic and diluted earnings per share ("EPS"). Basic EPS, which replaces
   primary EPS, excludes dilution and is computed by dividing income available
   to common stockholders by the weighted-average number of common shares
   outstanding for the period. Diluted EPS reflects the potential dilution that
   could occur if securities or other contracts to issue common stock were
   exercised or converted into common stock or resulted in the issuance of
   common stock that then shared in the earnings of the entity. Diluted EPS is
   computed similarly to fully diluted EPS under the existing rules. SFAS 128
   requires restatement of all prior period EPS amounts presented after the
   effective date. The Company will adopt the provisions of SFAS 128 in fiscal
   1998; however, the impact of adoption has not yet been determined. SFAS 129,
   which is also effective for fiscal years ending after December 15, 1997,
   establishes standards for disclosing information about an entity's capital
   structure. The Company will adopt the disclosure requirements of SFAS 129
   during the fiscal year ending March 31, 1998.

C. Property and Equipment
   ----------------------

   Property and equipment consisted of the following:
   (in thousands) 
<TABLE>
<CAPTION>
                                              March 31,
                                         -------------------
                                           1997        1996
                                           ----        ----
       <S>                               <C>          <C>
       Computer software                 $   477      $  311
       Furniture and fixtures                 79           2
       Equipment                           1,732         944
       Leasehold improvements                 96          15
                                         -------      ------
                                           2,384       1,272
       Less accumulated                 
        depreciation and amortization     (1,045)       (511)
                                         -------      ------
                                         $ 1,339      $  761
                                         =======      ======
</TABLE>

                                      F-7
<PAGE>
 
WORKGROUP TECHNOLOGY CORPORATION
--------------------------------------------------------------------------------

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED


   As of March 31, 1997 and 1996, the Company had approximately $71,000 and
   $632,000, respectively, of computer and office equipment, under capital
   leases. Total accumulated amortization on such equipment was $54,000 and
   $222,000 at March 31, 1997 and 1996, respectively.

D. Stockholders' Equity
   --------------------
 
   Initial Public Offering

   On March 21, 1996, the Company completed its IPO and sold an aggregate of
   2,663,668 shares of Common Stock at $15.00 per share, resulting in net
   proceeds to the Company of approximately $36,500,000. In addition, upon the
   closing of the IPO all issued and outstanding shares of Series A, B, C and D
   Redeemable Convertible Preferred Stock were automatically converted into
   3,297,566 shares of Common Stock in accordance with the underlying
   agreements.

   Preferred Stock

   The Board of Directors was authorized upon the closing of the IPO, subject to
   certain limitations prescribed by law, without further stockholder approval,
   to issue from time to time up to an aggregate of 1,000,000 shares of
   preferred stock in one or more series and to fix or alter the designations,
   preferences, rights and any qualifications, limitations or restrictions of
   the shares of each such series thereof, including the dividend rights,
   dividend rates, conversion rights, voting rights, terms of redemption
   (including sinking fund provisions), redemption price or prices, liquidation
   preferences and the number of shares constituting any series or designation
   of such series.

   Common Stock

   All share and per share amounts have been restated to reflect a three into
   two reverse stock split of its common stock which was approved by the Board
   of Directors on January 26, 1996.

   In January 1996, the Company amended its Certificate of Incorporation to
   increase the number of authorized shares to 30,000,000.

   Stock Plans

   At March 31, 1997, the Company has four stock-based compensation plans which
   are described below. In October 1995, the Financial Accounting Standards
   Board issued SFAS 123, "Accounting for Stock-Based Compensation." SFAS 123
   requires that companies either recognize compensation expense for grants of
   stock, stock options and other equity instruments based on fair value or
   provide a pro forma basis disclosure of net income (loss) and earnings (loss)
   per share which reflects such compensation expense in the notes to the
   financial statements. The Company adopted the disclosure provisions of SFAS
   123 in fiscal year 1997 and has continued to apply APB Opinion 25 and related
   Interpretations in accounting for its plans. The Company recognized $156,000
   of compensation cost for its fixed stock option plans and no compensation
   cost for its employee stock purchase plan in fiscal year 1997. Had
   compensation cost for the Company's four stock-based compensation plans been
   determined based on the fair value at the grant dates for awards under those
   plans consistent with the method of SFAS 123, the Company's net income (loss)
   and earnings (loss) per share would have been on a pro forma basis:

   (in thousands, except per share amounts)
<TABLE>
<CAPTION>
 
                                          1997      1996
                                          ----      ----
    <S>                                 <C>       <C>
     Net income (loss)             
             As reported                $(2,407)   $1,448
             Pro forma                  $(3,020)   $1,377
     Net income (loss) per share   
             As reported                $ (0.30)   $ 0.24
             Pro forma                  $ (0.38)   $ 0.23
</TABLE>

   For fiscal year 1997, the fair value of each option grant is estimated on the
   date of grant using the Black-Scholes option-pricing model with the following
   weighted-average assumptions used for grants in 1997: expected volatility of
   93.5%; risk-free interest rates of 6.4%; dividend rate of zero percent; and
   expected life of 5 years. Because the Company went public on March 21, 1996,
   the fair value of each option grant for fiscal year 1996 is estimated on the
   date of grant using the minimum value method assuming a risk-free interest
   rate of 6%, an expected life of 5 years and no dividend yield or volatility.

   The weighted-average fair value of options granted during fiscal year 1997
   and 1996 is estimated as $7.21 and $0.78, respectively. The effects of
   applying SFAS 123 in this pro-forma disclosure are not an indication of
   future amounts. SFAS 123 does not apply to awards prior to 1995 and
   additional awards in future years are anticipated.

   Stock Option Plans

   The Company has three fixed stock option plans. The 1992 and 1996 Stock
   Option Plans provide for the granting of incentive stock options to employees
   to purchase commons stock at not less than the fair market value per share of
   common stock on the date of the grant. The Plans also provide for the
   granting of nonqualified stock options, stock awards and purchase rights to
   employees, consultants, directors and officers of the Company. The options
   generally become exercisable ratably over four or five years from the date of
   grant and expire ten years for the date of grant. The maximum number shares
   for which options may be granted under 1992 Plan is 938,317. At March 31,
   1997, the Board of Directors had terminated granting of options under the
   1992 plan. At March 31, 1997, 2,651,792 were available for grant under the
   1996 Plan.

                                      F-8
<PAGE>
 
WORKGROUP TECHNOLOGY CORPORATION
--------------------------------------------------------------------------------

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED

   The Company's 1996 Non-Employee Director Stock Option Plan (the "Director
   Option Plan") provides for the granting of options to purchase a maximum of
   100,000 shares of Common Stock of the Company to non-employee directors of
   the Company. Under the Director Option Plan, each non-employee director shall
   receive an option to purchase 15,000 shares of the Company's Common Stock
   upon the later of (i) the effective date of an initial public offering, or
   (ii) the date on which the director first is elected to the board of
   Directors. Each non-employee director who is still a member of the Board of
   Directors upon the full vesting of this most recently granted option under
   the Director Option Plan shall receive additional options to purchase 15,000
   shares of Common Stock. All options granted under the Director Option Plan
   vest in twelve equal quarterly installments beginning three months from the
   date of grant. All options granted under the Director Option Plan will have
   an exercise price equal to the fair market value of the Common Stock on the
   date of grant. The term of each option will be for a period of ten years from
   the date of grant. At March 31, 1997, 70,000 shares were available for grant
   under the Director Option Plan.

   During fiscal year 1997, the Board of Directors approved the repricing of
   certain outstanding stock options previously granted under the 1992 and 1996
   Plans. Certain options outstanding at prices ranging from $8.50 to $25.75
   were canceled and reissued as new grants on October 18, 1996 to reduce their
   exercise price to $6.375, the fair market value of the stock on that date. A
   total of 145,833 were granted under this repricing.

   The following is a summary of the Company's stock option plans as of March
   31, 1995, 1996 and 1997 and changes during the years ending on those dates:

   (in thousands, except per share amounts)
<TABLE>
<CAPTION>
                                                                 Weighted
                                              Number             Average 
                                            of Shares         Exercise Price
                                            ---------         --------------
<S>                                         <C>               <C>            
 Balance at March 31, 1994                     439                $0.16
  Granted                                      388                 0.30
  Exercised                                    (13)                0.15
  Canceled                                    (198)                0.16
                                             -----                
 Balance at March 31, 1995                     616                 0.25
  Granted                                      841                 2.95
  Exercised                                   (110)                0.24
  Canceled                                     (38)                0.86
                                             -----
 Balance at March 31, 1996                   1,309                 1.79
  Granted                                      487                 9.62
  Exercised                                   (173)                0.25
  Canceled                                    (307)                9.79
                                             -----
 Balance at March 31, 1997                   1,316                $3.03
                                             =====
<CAPTION> 
                                                                 Weighted
                                              Number             Average 
                                            of Shares         Exercise Price
                                            ---------         --------------
<S>                                         <C>               <C>            
 Options exercisable, March 31
  1995                                          94                $0.17
  1996                                         156                 0.22
  1997                                         332                 1.34
 
</TABLE>
   The following table summarizes information about stock options outstanding at
   March 31, 1997:
<TABLE>
<CAPTION>
 
                              Range of Exercise Prices
                              ------------------------
                            $  0.15-  $ 4.125-  $ 15.00-
                            $  1.95   $  8.50   $ 25.75
                            --------  --------  --------
<S>                         <C>       <C>       <C>
   Options outstanding
   -------------------
     Number outstanding      852,263   414,637   49,625
     Remaining contractual
       life                      8.7       9.7      9.0
     Weighted average
       exercise price       $   0.47  $   6.34  $ 19.25
 
   Options exercisable
   -------------------
     Number exercisable      300,471    21,421   10,000
     Weighted average
       exercise price       $   0.41  $   7.99  $ 15.00
 
</TABLE>

   Employee Stock Purchase Plan

   The 1996 Employee Stock Purchase Plan provides for the issuance of up to
   350,000 shares of Common Stock to eligible employees. The shares are issuable
   at the lesser of 85% of the average market price on the first or last
   business day of semiannual periods. During fiscal 1997, 14,660 shares were
   issued under this plan. Compensation cost is recognized for the fair value of
   the employees' purchase rights, which was estimated using the Black-Scholes
   model with the following assumptions: dividend yield of zero percent; an
   expected life of one year; expected volatility of 93.5% percent; and risk-
   free interest rate of 6.4% percent. The weighted average fair value of the
   purchase rights granted in fiscal 1997 was $1.81.

   Warrants

   In conjunction with the sale of certain demand notes subsequently exchanged
   for shares of Series C Redeemable Convertible Preferred Stock, the Company
   issued warrants to purchase 133,330 shares of common stock at $3.00 per
   share. The warrants were exercised at the closing of the Company's IPO.

                                      F-9
<PAGE>
 
WORKGROUP TECHNOLOGY CORPORATION
--------------------------------------------------------------------------------

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED


E. Benefit Plan
   ------------

   The Company established the Workgroup Technology Corporation 401(k) Plan (the
   "401(k) Plan") which provides for matching employer contributions determined
   annually by the Board of Directors. There have been no matching employer
   contributions made to the 401(k) Plan as of March 31, 1997.

F. Income Taxes
   ------------

   In fiscal year 1997, the provision for income taxes reflects foreign and
   state income taxes. In fiscal years 1996 and 1995, the provision for income
   taxes reflects foreign taxes on royalties from customers in Japan and
   Germany.

   Deferred income taxes represent the tax effects of transactions which are
   reported in different periods for financial and tax reporting purposes. The
   components of deferred tax assets and liabilities are as follows:

   (in thousands)
<TABLE>
<CAPTION>
                                                            March 31,  
                                                         ---------------
                                                         1997       1996
                                                         ----       ---- 
    <S>                                                  <C>      <C> 
    Deferred tax assets:
      Loss carryforward                                  $1,723   $1,306
      Research and development
        credit carryforwards                                612      521
      Depreciation and amortization                         187       94
      Vacation accrual                                      212       73
      Rent                                                   20       -   
                                                         ------   ------   
      Gross deferred tax asset                            2,754    1,994
    Valuation allowance                                  (2,754)  (1,994)
                                                         ------   ------
 
    Net                                                      -        -
                                                         ======   ======
</TABLE>

   At March 31, 1997, the Company has available net operating loss carryforwards
   of $4,100,000 which it may use to offset future federal taxable income. The
   net operating loss carryforwards, if not utilized, will begin to expire in
   2008. The utilization of the net operating loss carryforwards and credit
   carryforwards for income tax purposes may be restricted due to limitations
   which arise because of a change of ownership. Additionally, the Company also
   has available research and development credits of $380,000 and $352,000 for
   federal and state purposes, respectively. The research and development
   credits, if not utilized, will expire from 2008 through 2011. Due to the
   uncertainty of the realization of deferred tax assets, a full valuation
   allowance has been recorded.

G. Commitments
   -----------

   Lease Commitments

   The Company leases the facility it occupies under a noncancelable operating
   lease agreement which expires September 30, 2001. Total rent expense for the
   years ended March 31, 1997, 1996 and 1995 was $457,000, $135,000 and
   $105,000, respectively. The future minimum payments under such commitments as
   of March 31, 1997 are as follows:

   (in thousands)
<TABLE>
<CAPTION>
                  <S>                    <C>
                   1998                  $581
                   1999                   610
                   2000                   639
                   2001                   668
                   2002                  $341
 
</TABLE>

   Equipment Financing Arrangements

   The Company has entered into various lease agreements for computer and office
   equipment which have been recorded as capital leases. During fiscal year
   1997, the Company exercised its option to buyout several of its existing
   capital equipment leases.

H. Significant Customers
   ---------------------

   During fiscal year 1995, the Company entered into a one-time source code
   license agreement with Hitachi, Ltd. Pursuant to this agreement and related
   transactions, the Company recognized revenue of $1.8 million, which
   represented 17% of the total revenue for the year ended March 31, 1996.
   Additionally, different customers represented 11% and 10% of total revenue
   for the years ended March 31, 1997 and 1995, respectively.

   The Company operates in one industry segment. Export sales for the years
   ended March 31, 1997, 1996 and 1995 were approximately $1,088,000, $2,686,000
   and $560,000, respectively (including $679,000, $2,024,000, and $329,000 of
   sales into Japan, respectively).

I. Related Party Transactions
   --------------------------

   The Company recognized revenue in fiscal 1995 of $278,000 from sales to
   Workgroup Solutions, Inc. Until January 1995, the president of the Company
   was the Chairman and principal stockholder of Workgroup Solutions, Inc. Gross
   margins on related party transactions approximated those realized on similar
   transactions with unrelated parties.

                                      F-10
<PAGE>
 
                        WORKGROUP TECHNOLOGY CORPORATION
                     INDEX TO EXHIBITS FILED WITH FORM 10-K
                           YEAR ENDED MARCH 31, 1997

<TABLE>
<CAPTION>

Exhibit
Number     Description
------     -----------
<S>        <C> 
  3.1(1)   Amended and Restated Certificate of Incorporation of the Company
  3.2(1)   Amended and Restated By-Laws of the Company
  4.1(1)   Specimen certificate representing the Common Stock
 10.1(1)+  1996 Stock Plan
 10.2(2)+  Form of Incentive Stock Option Agreement under the 1996 Stock Plan
 10.3(2)+  Form of Non-Qualified Stock Option Agreement under the 1996 Stock 
           Plan
 10.4(1)+  1996 Employee Stock Purchase Plan
 10.5(2)+  1996 Employee Stock Purchase Plan Enrollment Authorization Form
 10.6(1)+  1996 Non-Employee Director Stock Option Plan
 10.7(2)+  Form of Non-Qualified Stock Option Agreement under the 1996 Non-
           Employee Director Stock Option Plan of the Registrant
 10.8(1)   Registration Rights Agreement between the Company and the Preferred
           Stockholders, James Carney and James Simmons, as amended as of
           November 27, 1995
 10.9*     Master Lease Agreement between the Company and Mortimer B. Zuckerman
           and Edward H. Linde, Trustees of 91 Hartwell Avenue Trust dated July
           30, 1996
 10.10*+   Employment Agreement between the Company and James Carney
 10.11(1)+ Form of Executive Management Incentive Compensation Plan of the
           Company
 10.12(1)  Form of Non-Competition Agreement between the Company, its executive
           officers and founders
 11.1*     Statement re: computation of per share earnings
 21.1(1)   Subsidiaries of the Company
 23.1*     Consent of Independent Accountants (Coopers & Lybrand)
 24.1*     Power of Attorney (see page 22)
 27.1*     Financial Data Schedule

</TABLE>

  (1) Incorporated herein by reference to the exhibits to the Company's
      Registration Statement on Form S-1 (File No. 333-00810).

  (2) Incorporated herein by reference to the Company's Annual Report on Form 
      10-K for the fiscal year ended March 31, 1996.
   *  Filed herewith.
   +  Indicates a management contract or any compensatory plan, contract or
      arrangement.