<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------
FORM 10-Q
Quarterly Report pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
<TABLE>
<S> <C>
For the quarterly period ended September 30, 1996 Commission File Number 0-25936
</TABLE>
USDATA Corporation
(Exact name of registrant as specified in its charter)
DELAWARE 75-2405152
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2435 N, Central Expressway, Richardson, TX 75080
- --------------------------------------------------------------------------------
(Address of principal executive offices)
(Zip Code)
Registrant's telephone number, including area code: (972) 680-9700
-----------------------------
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 twelve months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such requirements
for the past 90 days.
Yes X No
-------- -------
-----------------------------
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of October 31, 1996:
Class Number of Shares
Outstanding
Common Stock, Par Value $.01 Per Share 11,040,229
shares
This is Page 1 of a document consisting of 12 pages.
--
The exhibit index appears on page 10.
--
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USDATA CORPORATION
FORM 10-Q
QUARTER ENDED September 30, 1996
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
Number
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets at 3
September 30, 1996 and December 31, 1995
Consolidated Statements of Income 4
for the Three and Nine Months Ended
September 30, 1996 and 1995
Consolidated Statements of Cash Flows 5
for the Nine Months Ended
September 30, 1996 and 1995
Notes to Consolidated Financial 6
Statements
Item 2. Management's Discussion and Analysis 7
of Financial Condition and Results of
Operations
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 10
Signatures 11
</TABLE>
2
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USDATA CORPORATION
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(In thousands, except share data)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
September 30, 1996 December 31, 1995
------------------ -----------------
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 7,099 $ 1,504
Accounts receivable, net of allowance for doubtful
accounts of $523 and $467, respectively 7,369 9,203
Note receivable from related party - 7,040
Inventories 1,474 2,122
Income tax receivable 1,190 -
Deferred income taxes 773 267
Other current assets 862 706
------------ ------------
Total current assets 18,767 20,842
------------ ------------
Property and equipment, net 3,055 2,099
Other assets 1,156 555
------------ ------------
Total assets $ 22,978 $ 23,496
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $ 2,574 $ 2,115
Deferred revenue 2,144 2,136
Accrued compensation and benefits 777 1,185
Other accrued liabilities 884 605
Current portion of capital lease obligations 79 124
------------ ------------
Total current liabilities 6,458 6,165
------------ ------------
Stockholders' equity
Preferred stock, $.01 par value, 2,200,000 shares
authorized; none issued or outstanding - -
Common stock, $.01 par value, 22,000,000 shares
authorized; 14,343,550 shares issued 143 143
Additional paid-in capital 16,274 16,306
Subscription receivable from officer (1,076) (1,021)
Retained earnings 12,522 13,665
Treasury stock, 3,304,571 and 3,450,484
shares at cost, respectively (11,343) (11,762)
------------ ------------
Total stockholders' equity 16,520 17,331
------------ ------------
Total liabilities and stockholders' equity $ 22,978 $ 23,496
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
USDATA CORPORATION
CONSOLIDATED STATEMENTS OF INCOME (UNAUD ITED)
(In thousands, except income per common share data)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1996 1995 1996 1995
----------------------------------- ---------------------------------
<S> <C> <C> <C> <C>
Net sales
Software $ 4,807 $ 5,609 $ 17,070 $ 17,731
Systems 4,875 5,013 13,317 14,306
--------- --------- ---------- ---------
Total sales 9,682 10,622 30,387 32,037
Cost of sales 3,922 3,381 9,361 9,288
--------- --------- ---------- ---------
Gross profit 5,760 7,241 21,026 22,749
Operating expenses
Selling 5,857 5,023 16,739 14,546
Product development 1,133 1,186 3,437 3,656
General and administrative 1,158 972 2,817 2,929
--------- --------- ---------- ---------
Total operating expenses 8,148 7,181 22,993 21,131
--------- --------- ---------- ---------
Income (loss) from oper ations (2,388) 60 (1,967) 1,618
Interest income (expense) 105 116 342 (17)
--------- --------- ---------- ---------
Income (loss) before income taxes (2,283) 176 (1,625) 1,601
Income tax provision (benefit) (696) 63 (482) 546
--------- --------- ---------- ---------
Net income (loss) $ (1,587) $ 113 $ (1,143) $ 1,055
========= ========= ========== =========
Income (loss) per common share $ (0.14) $ 0.01 $ (0.10) $ 0.11
========= ========= ========== =========
Weighted average number of shares outstanding 11,037 10,998 11,004 9,675
========= ========= ========== =========
</TABLE>
See accompanying notes to consolidated financial statements.
4
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<TABLE>
<CAPTION>
USDATA CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In thousands)
- ---------------------------------------------------------------------------------------
Nine months ended September 30,
1996 1995
---------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net Income (loss) $ (1,143) $ 1,055
Adjustments to reconcile net income to cash flow
from operating activities:
Depreciation and amortization 989 752
Changes in operating assets and liabilities:
Accounts receivable 1,834 (1,259)
Inventories 648 (1,313)
Accounts payable 459 671
Deferred revenue 8 132
Accrued liabilities (129) 626
Income tax receivable (1,190) -
Other - net (725) (431)
---------- ---------
Net cash provided by operating activities 751 233
---------- ---------
Cash flows from investing activities:
Capital expenditures (1,819) (908)
Related party note receivable 7,040 (7,041)
Capitalized software development costs (719) (260)
---------- ---------
Net cash provided by (used in)
investing activities 4,502 (8,209)
---------- ---------
Cash flow from financing activities:
Payments on long-term debt - (4,000)
Proceeds from issuance of common shares 387 13,682
Payments on capital lease obligations (45) (58)
---------- ---------
Net cash provided by
financing activities 342 9,624
---------- ---------
Net increase in cash and cash equivalents 5,595 1,648
Cash and cash equivalents, beginning of period 1,504 939
---------- ---------
Cash and cash equivalents, end of period $ 7,099 $ 2,587
========== =========
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
USDATA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(A) Basis of Presentation
---------------------
The accompanying unaudited interim consolidated financial statements
were prepared in accordance with generally accepted accounting principles for
interim financial statements. These financial statements do not include all
disclosures associated with annual financial statements. Accordingly, these
statements should be read in conjunction with the Company's financial statements
and notes thereto contained in the Company's Form 10-K for the year ended
December 31, 1995.
In the opinion of management, all adjustments (which include only
normal recurring adjustments) necessary to present fairly the financial
position, results of operations and cash flows for all periods presented have
been made. Interim results are not necessarily indicative of results expected
for the full year.
(B) Earnings Per Share
-------------------
Earnings per common share were computed by dividing net income (loss) by
the weighted average number of shares outstanding during each period. Weighted
average common and common equivalent shares include common shares, stock options
and warrants using the treasury method except when such inclusion is dilutive in
effect.
(C) Related Party Transactions
--------------------------
Effective January 1, 1996, the Company and Safeguard Scientifics, Inc.
("Safeguard"), a stockholder of the Company, renewed an administrative services
agreement whereby Safeguard provides the Company with day-to-day business and
organizational strategy, legal, financial, investment management, merchant and
investment banking services. The agreement provides for the payment of an
administrative services fee of $30,000 per month and will expire on December 31,
1996. It is renewable for one year terms thereafter by mutual agreement between
the parties.
In August 1995, Safeguard and the Company entered into an agreement
whereby the Company would lend to Safeguard a portion of its excess cash and
receive a negotiated interest rate which was higher than the rate the Company
might realize by independently investing the funds, but which was less than
Safeguard's cost of funds. The loan was fully repaid to the Company on March
8, 1996.
(D) Credit Arrangements
-------------------
In June 1996, the Company negotiated a $5 million line of credit which
is renewed on a yearly basis with interest payable on the unpaid balance at the
LIBOR rate plus 2.0%. The credit facility contains restrictions on the
Company's ability to pay dividends on its common stock and also contains a
number of financial covenants, including certain working capital requirements.
The Company does not have any borrowing under the facility.
6
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USDATA CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
- --------
USDATA Corporation (the "Company") provides a wide range of software,
hardware, consulting services, and technical support used by its customers to
improve the overall productivity of their businesses and to monitor their
automated processes. Specifically, the Company produces automation software
tools, marketed under the name FactoryLink(R), that enable an organization's
information systems to supervise, monitor and control manufacturing and other
automated processes and to interface with corporate information systems (the
"Software Operations"). The Company is also engaged in the sale of automatic
identification (Auto ID) equipment, warehouse management software and related
integration services (the "Systems Operations").
The Company currently derives all of its net sales from the Software
Operations and the Systems Operations. The Software Operations' net sales are
generated substantially from licenses of the FactoryLink family of products and
also from related consulting services, training classes and technical support
and service agreements. These support and services agreements are generally
one-year, renewable contracts entitling a customer to certain software upgrades
and technical support. Support and service revenue represented 12.0% and 7.8%
of Software Operations' net sales during the quarters ended September 30, 1996
and September 30, 1995 respectively. The System Operations' net sales are
generated from sales of third-party automated data collection equipment,
warehouse management software and related repair, installation and integration
services.
In the latter part of the first quarter of 1996, the Company began
marketing FactoryLink ECS for PC platforms. Although the Company had initially
planned a second quarter release of the UNIX version of FactoryLink ECS, the
Company decided to delay this release because of the time required to launch and
support the PC platform version. The Company released the HP and Sun versions
of UNIX in September 1996 and it believes that the remaining UNIX versions will
be released in the fourth quarter of 1996.
For the second consecutive quarter, revenues fell below expectation as the
Company continues its transition from old to new product. The Company is
finding that enterprise wide deployments of its product, which generally involve
multiple sites, is producing a longer sales cycle than the traditional industry
selling model of single site licenses. While both products (Windows NT and UNIX
versions) have been well received by end users, system integrators and the
worldwide distribution network, volume orders for FactoryLink ECS have taken
longer than anticipated. The Company believes this is largely a function of a
more complex decision making process by Fortune 1000 class customers.
The Company's profitability declined during both the three and nine months
ended September 30, 1996 compared to September 30, 1995 due primarily to lower
Systems Operations' sales margin and increased selling and marketing expenses.
The Company believes that FactoryLink ECS has been well received in the
marketplace and continued to invest in selling and marketing expenses during the
third quarter. The decline in profitability during the three months ended
September 30, 1996 versus the comparable period in 1995 was also affected by a
decrease in software sales, which carry a higher margin, as a percent of total
sales.
7
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USDATA CORPORATION
------------------
Results of Operations
- ---------------------
The following table sets forth, for the periods indicated, selected
statement of income data as a percentage of net sales:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30,
1996 1995 1996 1995
------------------ ----------------
<S> <C> <C> <C> <C>
Net Sales
Software 49.6% 52.8% 56.2% 55.3%
Systems 50.4 47.2 43.8 44.7
-------- ------ ------ ------
Total sales 100.0 100.0 100.0 100.0
Cost of sales 40.5 31.8 30.8 29.0
-------- ------ ------ ------
Gross profit 59.5 68.2 69.2 71.0
Operating expenses
Selling 60.5 47.3 55.1 45.4
Product development 11.7 11.2 11.3 11.4
General and administrative 12.0 9.1 9.3 9.1
-------- ------ ------ ------
Total operating expenses 84.2 67.6 75.7 65.9
-------- ------ ------ ------
Income (loss) from operations (24.7) 0.6 (6.5) 5.1
Interest income (expense) 1.1 1.1 1.1 (0.1)
-------- ------ ------ ------
Income (loss) before income taxes (23.6)% 1.7% (5.4)% 5.0%
======== ======= ====== ======
</TABLE>
Net sales for the quarter and nine months ended September 30, 1996 decreased
8.9% and 5.2% respectively compared to the same period in 1995. Software
Operations' net sales for the quarter and nine months ended September 30, 1996
decreased 14.3% and 3.7% respectively compared to the same period in 1995. The
Company believes the decrease in net sales, which has occurred primarily in
North America, is a result of customers evaluating the new version of
FactoryLink ECS and thus postponing purchases of the older version along with
the delay in the UNIX release of FactoryLink ECS. International sales
represented 50.6% of Software Operations' net sales for the quarter ended
September 30, 1996, as compared to 45.6% the same quarter last year. The
international growth has occurred in the Pacific Rim, while sales to Europe and
Latin America remained flat. Systems Operations' net sales for the quarter
ended September 30, 1996 decreased 2.8% compared to the same period in 1995.
Gross profit as a percentage of net sales for the quarter ended September
30, 1996 decreased to 59.5% compared to 68.2% in the comparable quarter of 1995.
Gross profit as a percent of sales decreased for the nine months ended September
30, 1996 to 69.2% from 71.0% in 1995. The decrease in gross profit margin for
the quarter was primarily attributable to lower software sales, which carry a
higher margin, as a percent of total sales and lower hardware margins.
8
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USDATA CORPORATION
Selling expenses increased to 60.5% of net sales for the quarter ended
September 30, 1996 compared to 47.3% in the comparable period in 1995. This
increase is a result of lower sales and the continued investment and spending in
selling and marketing in order to promote FactoryLink ECS. These expenditures
include advertising, international and domestic trade shows, sales collateral
material, demonstration CD's, sales videos, travel and training expenses for new
salespeople.
Product development expenses as a percent of net sales for the quarter
ended September 30, 1996 were slightly higher at 11.7% versus 11.2% in the
comparable period in 1995. The increase in expenses as a percent of sales was
due to lower sales as the absolute dollars spent on product development were
less due to fewer developers on staff.
General and administrative expenses increased to 12.0% of net sales for the
quarter ended September 30, 1996 compared to 9.1% in the comparable period in
1995. This increase is due to lower sales, higher travel, compensation and
professional fees. For the nine months ended September 30, 1996, general and
administrative costs are lower in absolute dollars than the comparable period in
1995.
The Company's interest income in 1996 is a result of the continued
investment of the proceeds of its July 1995 public offering. Interest expense in
1995 was a result of a bank term loan which was repaid with the proceeds of the
Company's public offering.
Liquidity and Capital Resources
- -------------------------------
The Company's operating activities provided $751,000 of cash during the
nine months ended September 30, 1996, primarily a result of decreased
inventories and accounts receivable and an increase in outstanding accounts
payable partially offset by an income tax receivable. Management anticipates
that capital expenditures for 1996 will be higher than 1995 due to computer
system upgrades in the product development and customer service areas and the
expansion of the corporate computer systems and databases.
The Company believes cash on hand and cash generated from operations
together with the existing unused bank line of credit will be sufficient to
satisfy its operating cash needs in 1996. Should the business expand more
rapidly than expected, the Company believes that additional bank credit facility
would be available to fund operating and cash requirements. In addition, the
Company could consider seeking additional public or private debt or equity
financing to fund future growth opportunities or acquisitions.
9
<PAGE>
USDATA CORPORATION
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS
(a) Exhibits (filed as part of this report).
Number Description
------ -----------
11 Computation of Income Per Common Share
27 Financial Data Schedule
(EDGAR Version only)
(b) Reports on 8-K
No reports on 8-K have been filed by the Registrant during the quarter
ended September 30, 1996.
10
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USDATA CORPORATION
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on behalf by the undersigned
thereunto duly authorized.
USDATA CORPORATION, INC.
Date: November 13, 1996 /s/ Jay B. Shipowitz
--------------------- ------------------------------------------
Jay B. Shipowitz
Vice President of Finance, Chief Financial
Officer, Treasurer and Secretary (Principal
Financial and Principal Accounting Officer)
11
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USDATA CORPORATION
EXHIBIT 11 - COMPUTATION OF INCOME PER COMMON SHARE
(in thousands, except income per common share data)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------- ---------------------
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Net income (loss) $ (1,587) $ 113 $ (1,143) $ 1,055
======== ========= ======== ==========
Average common shares outstanding 11,037 9,410 11,004 8,445
Average common share equivalents
net of shares assumed to be repurchased - 1,588 - 1,230
-------- --------- -------- ---------
Average number of common shares and
common share equivalents outstanding 11,037 10,998 11,004 9,675
======== ========= ======== ==========
Income (loss) per common share $ (0.14) $ 0.01 $ (0.10) $ 0.11
======== ========= ======== ==========
</TABLE>
12
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDING SEPTEMBER 30,
1996 (UNAUDITED) AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 7,099
<SECURITIES> 0
<RECEIVABLES> 7,369
<ALLOWANCES> 523
<INVENTORY> 1,474
<CURRENT-ASSETS> 18,767
<PP&E> 7,709
<DEPRECIATION> 4,654
<TOTAL-ASSETS> 22,978
<CURRENT-LIABILITIES> 6,458
<BONDS> 0
0
0
<COMMON> 143
<OTHER-SE> 16,377
<TOTAL-LIABILITY-AND-EQUITY> 22,978
<SALES> 30,387
<TOTAL-REVENUES> 30,387
<CGS> 9,361
<TOTAL-COSTS> 22,993
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1625)
<INCOME-TAX> (482)
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1143)
<EPS-PRIMARY> (.10)
<EPS-DILUTED> (.10)
</TABLE>
