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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE YEAR ENDED DECEMBER 31, 1996
COMMISSION FILE NUMBER 0-25936
USDATA CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 75-2405152
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(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
2435 N CENTRAL EXPRESSWAY, RICHARDSON, TEXAS, 75080
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(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES, INCLUDING ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (972) 680-9700
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK , PAR VALUE $.01 PER SHARE
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(TITLE OF CLASS)
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL
REPORTS REQUIRED TO BE FILLED 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 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 INFORMATION
STATEMENTS INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K OR ANY
AMENDMENT OF THIS FORM 10-K. [ ]
THE AGGREGATE MARKET VALUE OF COMMON STOCK HELD BY NON-AFFILIATES OF
THE REGISTRANT WAS APPROXIMATELY $48,580,000 BASED ON THE LAST REPORTED SALE
PRICE OF $4.375 ON THE NASDAQ NATIONAL MARKET ON MARCH 24, 1997.
AS OF MARCH 24, 1997, THERE WERE 11,104,154 SHARES OF COMMON STOCK
OUTSTANDING.
DOCUMENTS INCORPORATED BY REFERENCE
THE REGISTRANT INTENDS to file a definitive proxy statement pursuant
to Regulation 14A within 120 days of the end of the year ended December 31,
1996. Portions of such proxy statement are incorporated by reference into Part
III of this report.
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USDATA CORPORATION
FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 1996
ITEM 1. BUSINESS
GENERAL
USDATA Corporation (the "Company") provides a wide range of software
components, hardware systems and services, design consulting and maintenance
support used by its customers to improve the overall productivity of their
businesses and to monitor their automated processes. The real-time information
provided by the Company's products enables customers to reduce operating costs,
improve product quality and increase overall throughput and productivity.
The Company produces automation software tools that enable an
organization's information systems to supervise, monitor and control
manufacturing and other automated processes and to interface with management
information systems (the "Software Operations"). The Company's family of
software products, marketed under the name FactoryLink(R), provides a powerful
set of software tools designed for users who are technically competent but who
may not be experienced software programmers.
The Company is also engaged in the design and turnkey implementation of
integrated third-party data collection systems that allow remote, real-time data
collection using a variety of automatic identification ("Auto ID") techniques
(the "Systems Operations"). The Company employs various technologies in its
Systems Operations, including supervisory and network management software, to
add value to the hardware components of its turnkey solutions.
During the year ended December 31, 1996, the Company's Software Operations
generated $ 23.9 million of net sales (or 57% of total net sales) and the
Company's Systems Operations generated $ 17.8 million of net sales (or 43% of
total net sales).
SOFTWARE OPERATIONS
Overview
In its Software Operations, the Company develops, markets and supports
software products for customers requiring enterprise-wide, open systems
solutions for supervising, monitoring and controlling data intensive
manufacturing or other automated processes. The Company's software products
enable customers to develop real-time client/server computer applications that
provide interactive, dynamic and graphical interfaces to a manufacturing or
other automated process. These applications gather, analyze and display
information about an automated manufacturing process, typically drawn from
complex operating sources or from multiple sites throughout an enterprise, and
enable the user to interact with and control plant-wide processes. The real-time
information provided by the Company's products enables customers to reduce
operating costs, improve product quality and increase overall throughput and
productivity.
The Company's core software product, FactoryLink, is a family of object
oriented application components used to develop custom "man/machine interfaces"
for the supervision and control of a broad range of automated processes.
FactoryLink communicates with automation equipment, such as programmable logic
controllers ("PLCs"), and provides supervisory and control functions such as
monitoring, data gathering, data trending, statistical process control, alarming
and reporting of real-time and historical data as well as interactive, dynamic
color graphics. The following are several of the distinguishing features of
FactoryLink:
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Operating System Independence - FactoryLink's proprietary open systems
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architecture enables customers to develop their own applications for specific
manufacturing and process automation tasks independent of operating systems or
network protocols;
Multiple Platform Applications - FactoryLink allows customers to deploy
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applications simultaneously across multiple platform systems;
Superior Speed and Performance - FactoryLink is capable of processing in
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real-time, up to 2,000,000 discrete pieces of data, or "tags," a feature that
supports complex systems;
Relational Database Management System Interfaces - FactoryLink supports the
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most widely used relational databases and permits simultaneous access to
multiple databases from a single source;
Object Oriented Programming - FactoryLink's proprietary reusable compound
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objects, called PowerObjects which encapsulates Visual Basic and allows users to
condense multiple, complex instructions into a single action and thereby to
increase the user's productivity; and
Scaleability and Ease of Use - FactoryLink ECS has virtually unlimited
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scaleability and provides easy to use functionality in a multi-platform type
environment.
Background and Market Demand
As companies increasingly automate their manufacturing facilities and seek
to drive costs out of their business, they have become more aware of the
importance of accurate and timely data capture on the factory floor and its use
in decision-making throughout the manufacturing enterprise. Manufacturers
require cost-effective systems to connect the islands of information that have
characterized manufacturing automation throughout the 1980s and early 1990s. In
today' s market, because of rapidly advancing technologies, the proliferation of
new products, consolidation and globalization of industries and the increasing
need for higher productivity and quality, customers are relying on application
software vendors to provide open, flexible solutions that can easily accommodate
and manage these challenges.
The Company believes that the FactoryLink software package with its real-
time, open systems architecture, multi-platform and strong relational database
interface capabilities is well-positioned at the supervisory control level of
the automation software market. The proliferation of PLCs continues to increase
the need to collect, analyze and utilize business information on a real-time
basis to optimize various business processes. At the same time, with developing
enterprise-wide information systems connecting divisions or other business units
that develop information systems autonomously, businesses are increasingly
confronted by the need to accommodate disparate operating systems or to
undertake their wholesale replacement with the attendant costs and conversion
risks. As corporations using disparate operating systems and technologies re-
engineer their businesses, reduce staff and strive to improve cycle time
characteristics, while handling ever-increasing volumes of information, the
requirement for high performance, real-time, open architecture software becomes
increasingly important.
The worldwide market for real-time industrial automation software products
that could be served by the Company is estimated to have been $1.6 billion in
1996, and is estimated to grow approximately 25% annually according to studies
by Advanced Manufacturing Research.
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Products
The Company's core software products are its FactoryLink family of
application software development tools. FactoryLink utilizes an open systems
architecture made possible by the Company's patented "Open Software Bus," an
innovative architecture for real-time application software. The Open Software
Bus is comprised of interchangeable FactoryLink modules and a real-time database
through which all modules link and communicate. Because the modules are
independent of hardware and software standards, the customer's application is
also insulated from changes in these underlying standards and from changes in
hardware and network operating environments.
FactoryLink - Enterprise Control System (ECS) represents a significant
upgrade of FactoryLink that adds important additional features, power and "ease
of use" to the Company's products. Release of FactoryLink ECS on PC platforms
(Microsoft Windows environment) occurred at the end of the first quarter of
1996, and release of the product on UNIX platforms occurred in the fourth
quarter of 1996. The Company also introduced ECS Lite in July 1996. ECS Lite
provides scaled down systems on the Windows platforms designed to support
smaller MMI and OEM applications. WebClient will be released in the second
quarter of 1997. This product allows users to access and control FactoryLink
servers across an intranet or the Internet.
The FactoryLink software enables a customer to:
. Create easy to use, real-time supervisory control applications that provide
dynamic graphical representations of manufacturing and other automated
processes;
. Design, test and build an automation application without computer programming
knowledge through the use of an interactive graphical interface, pull-down
menus, mouse-driven, point-and-click commands and fill-in-the-blank
configuration tables;
. Develop automation applications that are portable and scaleable from low-end
to high-end systems;
. Deploy completed applications easily and economically throughout an enterprise
that may use different types of computer hardware and operating systems;
. Provide an upgrade path by allowing easy modification of applications in
response to customers' changing business needs; and
. Maintain completed applications in an efficient and cost effective manner.
FactoryLink's architecture permits the user to pick and choose the exact
functionality required for a particular application. It allows the user to
design high performance, real-time systems capable of handling large amounts of
data. Techniques for exception processing, message compression and high speed
data transfer achieve optimal functionality under this architectural
arrangement.
In addition, FactoryLink's open systems architecture enables customers to
use without modification the same FactoryLink application on a wide variety of
major computer platforms, operating systems, graphical user interfaces (GUI),
relational database management systems (RDBMS), networking protocols,
proprietary control equipment interface standards and other underlying hardware
and software. FactoryLink runs on Microsoft's, Windows 95, Windows NT, IBM's
OS/2(R), and various versions of UNIX platforms such as IBM's AIX(TM), Hewlett-
Packard's HP-UX(TM), Sun Solaris and DEC UNIX.
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Marketing, Sales and Distribution
The Company's sales and support organization includes a direct sales force
and a corporate telemarketing group as well as authorized value-added resellers,
systems integrators, original equipment manufacturers, independent software
vendors and distributors worldwide that acquire licenses for the Company's
products at a discount for remarketing and may provide training and consulting
services to end-users. The Company's sales and support organization is therefore
able to combine the resources of the direct sales and support approach with the
resources, expertise and customer base of qualified third-party integrators,
remarketers and distributors.
The Company's internal sales and marketing organization for its Software
Operations, consists of 88 persons as of December 31, 1996 and is based in
Richardson, Texas. The Company has field sales locations in 14 other cities in
the United States and in Belgium, England, Denmark, Germany (2), France (2),
Italy and Singapore.
Historically, the Company has sought to promote cooperative sales efforts
and to minimize channel conflicts through a geographical team approach and a
compensation system that rewards sales personnel for total sales generated by
all channels in their respective territories. The Company will periodically
reexamine its distribution channels in the context of targeted markets, product
capabilities and support requirements.
Through all of its sales channels, the Company seeks to attract potential
customers with a solutions approach of meeting their strategic, enterprise-wide
needs of supervising, monitoring and controlling their manufacturing and
automated processes. The Company deploys a sales staff which can be consultative
regarding enterprise wide applications and also highly technical integration
services when specific integration or process jobs are being discussed.
In support of its sales efforts, the Company conducts comprehensive
marketing programs that include direct mail, public relations, advertising,
seminars, trade shows and ongoing customer communications programs. The Company
sponsors user groups and user product direction committees as a source of
feedback about its customers' needs. The Company also seeks to stimulate
interest in FactoryLink and to keep its customers informed of advances in
application development technology through demonstrations, promotional seminars,
publications, technical notes and newsletters.
Customer Service
The Company believes a high level of customer service and technical support
is critical to customer satisfaction, especially since many of the Company's
customers use FactoryLink to develop complex, large-scale applications on which
the success of their organizations may depend. The Company has established, and
intends to continue to enhance and to expand, an integrated, highly-skilled
customer service and technical support organization and a worldwide base of
authorized third-party trainers and consultants.
In addition to field sales and technical support, the Company provides
telephone customer service support staffed by experienced personnel who are
available to answer customers' technical questions. Annual software support
agreements are available to customers in various forms. Many value-added
resellers and systems integrators that sell the Company's products also offer
post-sale customer support. The Company also sponsors a software forum on the
CompuServe on-line information service and in the first quarter of 1996
introduced a World Wide Web Site on the Internet as an efficient avenue for
users to obtain and to share technical information and to communicate with each
other and with the Company's technical support personnel.
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During October 1996, the Company expanded customer support offerings for
FactoryLink on the Web, allowing users access to the latest software fixes,
FAQ's (frequently asked questions), detailed examples and most importantly, on-
line trouble shooting/problem submission. During November 1996, the Company
created its first ever FactoryLink Certified Integrator Program. Charter
members of this program have specific vertical market and industry expertise,
established relationship with prominent hardware and software vendors and a
track record of quality products and successful application implementations.
The Company offers comprehensive training classes to customers and third-
party remarketers. Training classes are offered through in-house training
facilities in Richardson, Texas and in Brussels, Belgium and through its
authorized training partners throughout the world. The training curriculum is a
comprehensive program of application development training in a hands-on lab-
based training environment. The Company can also provide on-site training when
required by customers.
Customers
Since the introduction of the FactoryLink software product in 1986, the
Company has licensed more than 25,000 copies of the product worldwide for use in
the chemical, oil and gas, food, beverage, public utility, pharmaceutical, pulp
and paper, automotive, aerospace, electronics, telecommunications, water
treatment, transportation and numerous other industries. Established end-user
customers include Anheuser-Busch Companies, Inc., Ford Motor Company, Goodyear
Tire & Rubber Company, Hewlett-Packard Company, Michelin Tire Corporation and
Nestle Food Company. In the year ended December 31, 1996, no single end-user of
the Company accounted for greater than 10% of total net sales.
Sales to foreign software clients (primarily in Europe) continue to be a
significant source of revenue for the Company. For the year ended December 31,
1996, the Company realized net sales from its international operations of $12.0
million (29% of total net sales and 50% of software net sales); as compared with
$11.3 million for the comparable 12 month period (25% of total net sales and 46%
of software net sales). Virtually all of these international sales were of the
Company's FactoryLink software products. FactoryLink was made available on
February 7, 1997 for Asia and Japan including double-byte functionality
supporting the large character sets of Japanese, Chinese and Korean languages.
See also Note 8 to Notes to Consolidated Financial Statements for additional
information on export sales.
During 1996, the Company renewed and expanded its relationship with long-
term partner AEG Schneider Automation ("ASA"). ASA and its predecessors have
been purchasing a private label and OEM version of FactoryLink from the Company
since 1989 and, for the year ended December 31, 1996 and 1995 accounted for $1.3
million and $1.8 million or 3% and 4%, respectively, of total net sales.
Product Innovation and Development
The Company's current product development efforts are focused on
maintaining the competitiveness of its current products, including development
of future releases, improvements in the ease of use of its products and creation
of new application modules and development tools. The independence of its
products from underlying hardware platforms, operating systems, GUIs, RDBMSs,
networks and other technologies and standards gives the Company the flexibility
to evaluate a wide range of new opportunities to expand the current scope of its
products. The Company believes that its future success is substantially
dependent on its product innovation and development efforts, and periodic and
timely upgrades to its software. The Company's product development staff
currently consists of approximately 50 employees.
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During the year ended December 31, 1996 and 1995 and the ten-month fiscal
year ended December 31, 1994, product development expenses related to the
Company's Software Operations were approximately $ 4.6 million, $ 4.8 million
and $ 3.4 million, respectively. In the year ended December 31, 1996, 1995 and
the ten-month fiscal year ended December 31, 1994, the Company expended 11.0%,
10.8% and 10.1%, respectively, of its total net sales, and 19.2%, 19.5% and
18.9% of software net sales for such years, respectively, on product
development. The Company anticipates that it will continue to commit substantial
resources to product development in the future. See Note 1 to the Notes to
Consolidated Financial Statements for additional information on how the Company
accounts for such costs.
Competition
The software markets in which the Company participates are intensely
competitive and are subject to rapid changes in technology and frequent
introductions of new computer platforms and software standards. As a result, the
Company must continue to enhance its current products and to develop new
products in a timely fashion to maintain and improve its position in this
industry. The Company competes generally on the basis of product features and
functions, product architecture, the ability to run on a variety of computer
platforms and operating systems, technical support and other related services,
ease of product integration with third party applications software, price and
performance.
The Company competes with a number of independent software suppliers,
including Intellution, owned by Emerson Electric, and publicly held Wonderware
Corporation, as well as large PLC and DCS manufacturers that provide similar
software along with their hardware products. Additionally, certain businesses
develop these types of systems internally. Many of the Company's existing and
potential competitors have longer operating histories and significantly greater
financial, technical, sales, marketing and other resources than the Company.
Certain of these organizations may also have greater name recognition and a
larger installed product base than the Company. The Company's competitors could
introduce products in the future with more features and lower prices than the
Company's product offerings. These organizations could also bundle existing or
new products with other products or systems to compete with the Company. As the
market for industrial automation and process control software products develops,
a number of companies with significantly greater resources than the Company
could attempt to increase their presence in this market by acquiring or forming
strategic alliances with competitors of the Company.
SYSTEMS OPERATIONS
Overview
In its Systems Operations, the Company markets, supports and services
third-party Auto ID and data collection equipment. Auto ID is essentially the
entry of data into computers without the need for manual keyboard entry. Bar
coding is the predominant automatic identification technology. The equipment
includes bar code printers, scanners, data terminals and related data collection
devices to improve the speed and accuracy with which businesses capture data for
computer input. Systems Operations also consults with customers on the options
available to meet the customers' specific needs, provides technical advice on
specialized applications and designs, assembles and installs complete systems
on-site and provides related repair and maintenance services. Where appropriate,
the Company combines its own proprietary or other third party vendor software
products with associated Auto ID equipment to provide a turnkey solution to its
customers.
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Background and Market Demand
Until the 1970s, distribution and materials movement transactions were
manually recorded on logs, invoices and other printed forms for tracking. The
use of Auto ID and data collection equipment, such as bar code scanners, has
allowed businesses to automate data input, to reduce both data entry errors and
manpower requirements and to link operations and staff personnel to computerized
materials management and information systems on a real-time, interactive basis.
As the use of bar code scanning products has expanded, the need for bar
code labeling has also increased. Activities such as labor and material
tracking, inventory and cycle counting, automatic handling and routing and
shipping required labels with container-specific information such as serial, lot
and order numbers. This has created the need for "demand printing" of labels.
Specific and custom characteristics on individual labels distinguish demand
printing applications from other bar code labeling applications. These labels
become more specialized depending on the industry involved.
Industry mandated standardization has been a major catalyst in the rapid
development of the market for automatic bar code data collection solutions.
Products and Services
The Company offers a broad selection of complementary Auto ID products and
associated integration services. Rather than force fit products from a single
manufacturer to meet the customer's needs, the Company attempts to unify best-
of-class products from various manufacturers to deliver solutions that optimally
match customer's needs. The Company provides its customers with a complete range
of services including designing a package of equipment suitable to meet the
customer's technical requirements and specific application, on-site assembly and
installation of the system, and factory-trained and authorized maintenance and
repair service for each of the major products the Company markets. During the
fiscal year ended December 31, 1996, Systems Operations generated $15.5 million
in net sales from the sale of hardware equipment and software and $2.3 million
in net sales from services relating to the implementation, support and
maintenance of such equipment.
The primary hardware products marketed by the Systems Operations include
bar code scanners, wedge decoders, portable data terminals and computers,
portable radio frequency data terminals and systems (spread spectrum and narrow
band), networked data terminals, bar code verifiers, radio frequency ID tags and
sensors and a wide range of printers, labeling systems and software to fit all
applications in the Auto ID arena. The Company also offers immediate
availability of media and supplies for bar code label printing.
The primary software product marketed by the Systems Operations is the
Distribution Execution System by Software Architects ("DES"). DES is a
client/server based application that tracks the movement of material and
inventory in a distribution or manufacturing environment using real time
transaction processing techniques.
Services provided by the Company can include (i) consulting on the
selection of a package of equipment suitable for a specific application
considering both the physical layout of a system as well as the general
environment in which the system will operate, together with the particular
capabilities required by the customer; (ii) designing and assembling an entire
system to meet a customer's specific requirements, including proprietary systems
that include software developed by the Company as well as hardware; (iii)
assisting in the installation of the system, including developing any required
interfaces to other data processing systems; (iv) offering factory-trained and
authorized maintenance and repair services for major products marketed by
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the Company; and (v) providing technical support, including a toll-free
telephone hot line for use by customers. The Company considers this service
capability to be critical in competing effectively against major equipment
manufacturers. The Company's service areas include Dallas, Austin, San Antonio
and Houston, Texas; Oklahoma City, Oklahoma; Little Rock, Arkansas and Detroit,
Michigan.
Principal Suppliers
The Company believes that it is not dependent on any particular supplier.
The products the Company distributes are generally characterized by a large
number of models manufactured by a variety of companies. The Company attempts to
verify best-of-class products from various manufacturers to deliver solutions
that optimally match customers' needs. Therefore, as certain suppliers have lost
their technological lead to other manufacturers, the Company's supplier profile
has changed accordingly.
During the year ended December 31, 1996, the Company derived significant
revenue from the sale of Zebra, Printronix and Datamax Corporation printers,
Symbol and Norand RF systems, Symbol and UBI data collection terminals and Linx
and Computer Identics fixed network terminals.
Generally, the Company operates under standard non-exclusive distributor
agreements with its suppliers. Through stock rotation rights and price
protection agreements, the Company is able to reduce the risk of holding
obsolete over-priced inventory. Stock rotation rights allow distributors to
return a certain portion of their purchases in the event that the equipment does
not sell. The Company has such arrangements with Symbol and Printronix. A price
protection program gives the distributor a rebate on purchases during a
specified prior period when the manufacturer subsequently lowers its prices. The
price protection period usually covers any purchases made within the most recent
60 to 90 days prior to such a price reduction. The Company has such arrangements
with Symbol, Zebra, Printronix and Datamax Corporation as well as most major
suppliers.
Marketing and Sales
The Company's sales and marketing organization for its Systems Operations
consisted of 16 persons as of December 31, 1996 with field sales locations in
San Jose, California; Chicago, Illinois; and Dallas, Texas. The Company
generates the vast majority of its sales either from direct end-users or through
various master value-added reseller agreements. The Company's sales
representatives are responsible for the sale of parts, consumables, labels and
other products, which provide a steady source of recurring revenue. Most of the
Company's marketing efforts consist of participation in as many as 15 trade
shows conducted annually in the United States. Vendors with which the Company
does business provide an ongoing source of lead generation.
Customers
Given its early history as a hardware reseller, principally of printer
products, followed by its increasing focus on integrated, turnkey solutions in
warehouse management applications, the Company has built a substantial customer
list. In the fiscal year ended December 31, 1996, no single customer accounted
for greater than 10% of total net sales.
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Competition
The Company faces competition from (i) other value-added distributors and
systems integrators of Auto ID equipment, (ii) manufacturers (including certain
of the Company's own suppliers) who, in some cases, sell directly to the
Company's customer base and (iii) other software applications companies.
The Company's prices may vary from that of other distributors or direct
selling manufacturers based on the level of any volume commitments from large
customers and the Company's assessment of the value of the services provided by
the Company. The consulting and installation services that the Company provides
and which differentiate it from the competition are not typically charged for
separately.
In the manufacturing, warehouse and general bar code and RF data collection
markets, the Company believes that it is in the same pricing range as its
competitors but is differentiated because of its consulting skills, its ability
to design a customized solution and its technical support.
BACKLOG
In its Software Operations, the Company typically ships software products
within a short period of time after acceptance of purchase orders. Accordingly,
the Company typically does not have a material backlog of unfilled orders for
its software products, and revenues in any quarter are substantially dependent
on orders booked in the quarter. Any significant weakening in customer demand
would therefore have an almost immediate adverse impact on the Company's
operating results and on the Company's ability to maintain profitability.
In its Systems Operations, the Company works off manufacturers' lead times.
Deliveries range from five days to 120 days. The Company's objective is to
minimize lead times for its customers without financing excess stock levels or
risking technological obsolescence. The Company typically ships customer orders
immediately when product is available unless the customer requests shipment at a
later date. The Company's backlog for its Systems Operations orders totaled
approximately $.7 million as of December 31, 1996, all of which are expected to
be shipped in 1997.
INTELLECTUAL PROPERTY
The Company holds a patent in the United States covering control systems
that employ the features embodied in its FactoryLink product. The Company has
registered its "USDATA" and "FactoryLink" trademarks with the U.S. Patent and
Trademark office, as well as in several foreign countries.
The Company regards its software as proprietary and attempts to protect it
with a combination of patent, copyright, trademark and trade secret law, license
agreements, nondisclosure and other contractual provisions and technical
measures. The Company requires employees to sign an agreement not to disclose
trade secrets and other proprietary information.
The Company's software products are licensed to end customers under a
perpetual non-transferable, nonexclusive license that stipulates which modules
can be used and how many concurrent controllers may use them. The Company relies
primarily on "shrink wrap" licenses for the protection of its FactoryLink
product line. A shrink wrap license agreement is a printed license agreement
included with the packaged software that sets forth the terms and conditions
under which the purchaser can use the product and binds the purchaser by its
acceptance and purchase of the software to such terms and conditions. In
addition, in some instances the Company licenses its products under agreements
that give licensees limited access to the source code of the Company's products.
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The Company believes that existing intellectual property laws and other
protective measures afford only limited practical protection for the Company's
software. Furthermore, the laws of some foreign countries do not protect the
Company's proprietary rights to the same extent as do the laws of the United
States. Shrink wrap licenses typically are not signed by the licensee and
therefore may be unenforceable under the laws of certain jurisdictions.
Accordingly, despite precautions taken by the Company, it may be possible for
unauthorized third parties to copy or reverse-engineer certain portions of the
Company's products or to obtain and use information that the Company regards as
proprietary.
While the Company's competitive position could be threatened by its
inability to protect its proprietary information, the Company believes that,
because of the rapid pace of innovation within its industry, factors such as the
technological and creative skills of the Company's personnel are more important
to establishing and maintaining a technology leadership position within the
industry than are the various legal protections available for its technology.
As the number of software products in the industry increases and the
functionality of these products further overlaps, the Company believes that
software programs could increasingly become the subject of infringement claims.
Although the Company's products have never been the subject of an infringement
claim, there can be no assurance that third parties will not assert infringement
claims against the Company in the future or that any such assertion will not
result in costly litigation or require the Company to obtain a license to use
the intellectual property rights of such parties. In addition, there can be no
assurance that such a license would be available on reasonable terms or at all.
EMPLOYEES
As of December 31, 1996, the Company had approximately 232 full-time
employees. None of the Company's employees is subject to a collective bargaining
agreement, and the Company has not experienced any work stoppage. The Company
believes that its relations with its employees are good.
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EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of the Company are elected annually by the Board of
Directors and hold office until their successors are elected and qualified. The
following persons were executive officers of the Company at March 31, 1997:
Name Age Position
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Bill E. Newell 57 Acting President and Chief Executive Officer
Jay B. Shipowitz 34 Sr. Vice President of Finance and Administration, CFO
H. Kenneth Whitaker 44 Sr. Vice President of Product Development
Mark S. Grefer 44 Sr. Vice President of Worldwide Sales
Bill E. Newell - Mr. Newell joined the Company in March of 1997 as Acting
President and Chief Executive Officer. Mr. Newell has also served as a Vice
President of Safeguard Scientifics, Inc. since November 1996. From September
1993 through October 1996, Mr. Newell served as President and Chief Executive
Officer of another Safeguard partnership company, Micro Dynamics, Ltd. Micro
Dynamics, a developer of document management and imaging software, was recently
merged into FormMaker Software, Inc., a document automation software company.
Prior to his service at Micro Dynamics, Mr. Newell served as a Vice President of
Danka Industries, from June 1992 to September 1993 and as President and Chief
Executive Officer of Husky Computers, Inc. from February 1990 to June 1992.
Jay B. Shipowitz, - Mr. Shipowitz joined the Company in July 1996 as Vice
President of Finance, Chief Financial Officer. He was promoted to Senior Vice
President of Finance and Administration in March of 1997. From July 1993 until
he joined the Company, Mr. Shipowitz was Vice President of Finance and
Administration and CFO for Westinghouse Security Systems, Inc. From 1987 to
1993, Mr. Shipowitz worked at Price Waterhouse in Baltimore, Maryland, in
various positions, the last of which he was senior manager. From 1985 to 1987,
Mr. Shipowitz worked at KPMG Peat Marwick in Greensboro, NC, in various
positions, the last of which was senior accountant.
H. Kenneth Whitaker - Mr. Whitaker joined the Company and has served as Vice
President of Product Development since October 1993. He was promoted to Senior
Vice President in March of 1997. Mr. Whitaker also served as Vice President of
Operations from October 1993 to January 1996. From March 1990 to October 1993,
Mr. Whitaker served as Vice President, Applications Development for A. C.
Neilsen Marketing Research. Prior to that time, Mr. Whitaker served as Vice
President, Research and Development for Software Publishing Corporation.
Mark S. Grefer - Mr. Grefer joined the Company in May 1995 as Vice President
of Worldwide Sales. He was promoted to Senior Vice President in March of 1997.
From June 1989 to May 1995, Mr. Grefer was employed at Convex Computer
Corporation, most recently as Regional Manager. From 1985 to 1989, Mr. Grefer
was employed by Gould Computer Systems as National Accounts Manager and from
1981 to 1985, he served as Sales Representative and Market Analyst for
Scientific Systems Services.
12
<PAGE>
ITEM 2. PROPERTIES
The Company leases approximately 65,000 square feet of office space and
7,600 square feet of warehouse and depot repair space in Richardson, Texas. The
lease agreement with respect to the office space expires in 2000, and the lease
agreement with respect to the warehouse space expires in 1998. The Company
leases additional office space in major cities in the United States and in
Europe. The Company considers its leased real property adequate for its current
and reasonably foreseeable needs. The Company believes that suitable additional
or alternative space will be available as needed to accommodate the expansion of
corporate operations and additional sales offices.
ITEM 3. LEGAL PROCEEDINGS
The Company is involved in various legal actions incidental to the normal
conduct of its business. The Company does not believe that the ultimate
resolution of these actions will have a material adverse effect on the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
13
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's common stock, par value $.01 per share (the "Common Stock"),
has been listed on the Nasdaq National Market since June 16, 1995, under the
symbol "USDC". The following table sets forth, on a per share basis for the
periods shown, the range of high and low closing prices of the Company's Common
Stock compiled from published sources:
<TABLE>
<CAPTION>
High Low
----- -----
<S> <C> <C>
1996:
Fourth Quarter 11.50 5.50
Third Quarter 19.00 9.50
Second Quarter 24.75 17.00
First Quarter 18.50 14.50
1995: High Low
----- -----
Fourth Quarter 24.00 13.50
Third Quarter 24.25 14.00
</TABLE>
As of December 31, 1996, there were approximately 5,400 beneficial holders
of record of the Company's Common Stock (which amounts do not include the number
of stockholders whose shares are held of record by brokerage houses or clearing
agencies but include each such brokerage house or clearing agency as one
stockholder).
DIVIDEND POLICY
To date, the Company has not paid any cash dividends on its Common Stock.
The Company currently intends to retain future earnings for use in its business
and, therefore, does not anticipate paying any cash dividends in the foreseeable
future. Future dividends, if any, will depend on, among other things, the
Company's results of operations, capital requirements, restrictions in loan
agreements and financial condition and on such other factors as the Company's
Board of Directors may, in its discretion, consider relevant. The Company's bank
credit facility currently contains restrictions on dividends.
14
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The following table presents selected financial information relating to the
financial condition and results of operations of the Company and should be read
in conjunction with the financial statements and notes included herein.
<TABLE>
<CAPTION>
Ten Month
Fiscal Year
Years Ended December 31, Ended Years Ended February 28,
-------------------------- December 31, --------------------------
1996 1995 1994 1994 1993
-----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME
(In thousands, except income per
common share)
Net sales
Software $23,885 $24,407 $18,019 $18,240 $16,661
Systems 17,838 19,960 15,870 18,865 16,177
------- ------- ------- ------- -------
Total net sales 41,723 44,367 33,889 37,105 32,838
Gross profit 29,100 31,196 23,406 24,787 22,566
Income (loss) before income taxes and
cumulative effect of accounting change (1,613) 2,503 3,958 4,223 59
Net income (loss) (1,056) 1,626 2,689 3,204 149
Income (loss) per share $ (0.10) $ 0.16 $ 0.24 $ 0.27 $ 0.01
BALANCE SHEET DATA (at period end)
(in thousands)
Working capital $12,721 $14,789 $ 3,227 $ 8,142 $ 4,932
Total assets 25,053 23,608 11,550 14,664 11,172
Long term debt, incl. current portion - - 4,000 - 539
Shareholders equity $16,648 $17,331 $ 2,024 $ 9,856 $ 6,552
</TABLE>
Effective March 1, 1994, the Company changed its fiscal year-end from February
28 to December 31.
15
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION
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 9.5%, 7.0% and
5.4% of Software Operations' net sales during the years ended December 31, 1996,
1995 and the ten month fiscal year ended December 31, 1994, 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 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 the third
quarter of 1996 and released the remaining UNIX versions in the fourth quarter
of 1996.
The Company employs multiple channels of distribution which combine the
Company's direct sales and support resources with qualified third-party
remarketers. The Company currently has 14 sales locations in the United States.
The Company also sells internationally through nine field locations and a
network of distributors and value added-resellers. Export sales are a
significant element of the Company's activities and, in the year ended December
31, 1996, 1995 and the ten-month fiscal year ended December 31, 1994,
represented 29%, 25% and 21%, respectively, of total net sales.
Except for the historical information contained herein, the matters
discussed are forward-looking statements that involve risks and uncertainties.
Potential risks and uncertainties include market responses to pricing actions
and promotional programs, continued competitive factors and pricing pressures,
changes in product mix, the timely development and acceptance of new products,
and inventory risks due to shifts in market demand.
16
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated selected
statements of income data as a percentage of net sales:
<TABLE>
<CAPTION>
Ten Month
Fiscal
Year
Years Ended December 31, Ended
------------------------ December 31,
1996 1995 1994
--------------------------------------
<S> <C> <C> <C>
Net sales
Software 57.2% 55.0% 53.2%
Systems 42.8 45.0 46.8
------ ------ ------
Total sales 100.0 100.0 100.0
Cost of sales 30.3 29.7 30.9
------ ------ ------
Gross profit 69.7 70.3 69.1
Operating expenses
Selling 54.1 45.8 39.4
Product development 11.0 10.7 10.1
General and administrative 9.5 8.5 6.3
Stock compensation 0.0 0.0 1.8
------ ------ ------
Total operating expenses 74.6 65.0 57.6
------ ------ ------
Income (loss) from operations (4.9) 5.3 11.5
Interest income 1.1 0.3 0.2
------ ------ ------
Income (loss) before income taxes (3.8)% 5.6% 11.7%
====== ====== ======
</TABLE>
Effective March 1, 1994, the Company changed its fiscal year-end from
February 28 to December 31. As a result, the comparison of the year ended
December 31, 1995 to the ten-month fiscal year ended December 31, 1994 is not
meaningful on an absolute dollar basis.
COMPARISON OF TWELVE MONTHS ENDED DECEMBER 31, 1996 AND 1995
Net sales for 1996 were $41.7 million, a decrease of $2.6 million or 6.0%
compared to 1995. Software sales and Systems sales were lower by $.5 million
and $2.1 million respectively. The overall decline in software revenues from
1995 to 1996 was caused by the introduction and customer evaluation of
FactoryLink ECS. In the latter part of the first quarter of 1996, the Company
began marketing FactoryLink ECS (FLECS) for PC platforms and released the
product on UNIX and Sun platforms in the fourth quarter of 1996. During the
second and third quarters of 1996, the Company experienced significant declines
in software revenue while sales personnel and the distribution network were
trained on the new product. Current and potential customers delayed new
purchases of older versions while evaluating the new product.
17
<PAGE>
Systems sales declined during 1996 due to turnover of sales personnel
during 1996, a slowdown in the overall hardware reseller industry and increased
competition in the auto identification, bar code scanners and the printer
business.
Gross profit declined slightly from 70.3% in 1995 to 69.7% in 1996. While
software net sales increased to 57.2% from 55.0% of total net sales in 1996, the
increase, with the associated higher gross margin, was offset by lower margin,
more competitively priced systems' sales. Additionally, the Company expects
continued pressures on systems' margins as the business becomes more
competitive.
Selling expenses as percent of sales increased to 54.1% in 1996 from 45.8%
in 1995 or $2.3 million. The higher costs were incurred to increase the
awareness of the Company's product including the promotion of FactoryLink ECS in
anticipation of increased sales. These expenditures included advertising,
international and domestic trade shows, demonstration CD's, sales collateral
material, seminars and travel and training expenses for new sales people.
Additionally, as discussed previously, the Company experienced lower than
anticipated net sales from both Software and Systems.
Product development expenses (exclusive of capitalized software development
cost), which consist primarily of labor costs, decreased $.2 million or 4% in
1996 compared to 1995. Actual product development expenditures including
capitalized software development costs of $884 in 1996 and $524 in 1995,
increased $.2 million or 4% in 1996 compared to 1995. The increase in absolute
dollars is primarily due to the development efforts on FactoryLink ECS, in both
the PC and UNIX platforms as well as the translation of FLECS into French and
German languages.
General and administrative costs increased $.2 million or 5% in 1996
compared to 1995. As a percent of sales, general and administrative increased to
9.5% in 1996 versus 8.5% in 1995. The increase over 1995 is primarily
attributable to higher travel, compensation and professional fees. The increase
as a percent of sales is due to the increased expenses noted above and lower
than anticipated net sales.
The Company experienced a loss from operations of $2.1 million in 1996
versus income from operations of $2.3 million in 1995. The loss was primarily
generated by $2.1 million lower gross profit due to lower overall net sales and
decreased gross margins, particularly in the Systems operations, and $2.3
million higher selling expenses.
TWELVE MONTHS ENDED DECEMBER 31, 1995 COMPARED TO TEN MONTHS ENDED DECEMBER 31,
1994
If the year ended December 31, 1995 were compared with the comparable
twelve month period in 1994, sales would have increased 11.3% to $44.4 million
in 1995 from $39.9 million in 1994. Software Operations sales increased 15.7%
during this period, principally as a result of increased sales of the Company's
FactoryLink product. These increases were a result of new software releases in
the year, expanded sales and marketing efforts, increased revenue from support
services and growth in the overall market for the Company's products. Systems
Operations sales increased 6.0% reflecting increased demand for the Company's
full line of Auto ID products, particularly the radio frequency data collection
devices.
Gross profit as a percentage of sales improved to 70.3% for the year ended
December 31, 1995 compared to 69.1% for the ten-month fiscal year ended December
31, 1994. The improvement reflects the increased level, as a percentage of
total net sales, of Software Operations sales, which carry a higher gross profit
than Systems Operations sales.
18
<PAGE>
Selling expenses as a percentage of sales increased to 45.8% for the year
ended December 31, 1995 from 39.4% for the ten-month fiscal year ended December
31, 1994. The higher costs were incurred to significantly increase awareness of
the Company's products and include, among other costs, hiring and training new
salespeople, opening new sales locations in the U.S. and Europe, advertising in
trade publications, participating in more trade shows and expenditures on
corporate marketing and communications resources.
Product development expenses increased as a percentage of sales to 10.7%
for the year ended December 31, 1995 from 10.1% for the ten-month fiscal year
ended December 31, 1994. Product development efforts in the year ended December
31, 1995 were directed to development of FactoryLink "ease of use" enhancements,
network connectivity, additional power and object oriented development. For the
year ended December 31, 1995, the Company capitalized $ 524,000 in software
development costs.
General and administrative expenses as a percentage of net sales increased
from 6.3% for the ten-month fiscal year ended December 31, 1994 to 8.5% for the
year ended December 31, 1995. The increase reflects additions to the Company's
management and executive staff, the execution of an administrative services
agreement with Safeguard Scientifics Inc. ("Safeguard"), a consulting agreement
with one of the Company's major stockholders and the expansion and upgrade of
the Company's corporate data processing center.
The Company's effective tax rate was 35.0% for the year ended December 31,
1995 compared to 32.1% for the ten-month fiscal year ended December 31,1994,
primarily due to lower federal research and development tax credits in the year
ended December 31, 1995.
LIQUIDITY AND CAPITAL RESOURCES
Prior to its public offering of common stock in 1995, the Company had
financed its operations through a combination of cash flow from operations, bank
lines of credit and private equity financing. In the third quarter of 1995, the
Company received $13.6 million of net proceeds from an initial public offering
of 2,926,180 shares of its common stock. The Company used a portion of the
proceeds for repayment of notes payable and for capital expenditures,
principally for computer equipment. The Company anticipates that capital
expenditures will be approximately $2.0 million in 1997, due to continued
expansion of facilities, equipment, software and computer upgrades in product
development, sales and marketing. During the year ended December 31, 1996, the
Company continued to invest in software development projects resulting in $.9
million of software capitalization.
For the year ended December 31, 1996, operating activities provided
$572,000 of cash. Inventories decreased due to more aggressive inventory
management. Deferred revenue increased as the Company sold more customer
support contracts which are typically paid for annually, in advance of service.
The Company's accounts payable increased as it better managed its daily cash
receipts and payments. Additionally, the Company overpaid income taxes in the
first and second quarter of 1996. The Company expects to receive a refund of
$1.1 million during the first quarter of 1997. During 1996, the Company
received $3.9 million of cash from investing activities, including $7.0 million
repaid from Safeguard (discussed below) offset by $2.2 million of capital
expenditures and $.9 million of capitalized software development costs. Also
during 1996, the Company received $.4 million from financing activities,
primarily related to the exercise of stock options offset slightly by payments
on capital lease obligations.
In connection with the 1994 Stock Purchase, the Company negotiated a $15.0
million bank credit facility, comprised of a $10.0 million term loan and a $5.0
million revolving line of credit. During 1994, the Company used the term loan
and existing cash balances to fund the repurchase of $11.8 million of the
Company's Common Stock. The Company repaid $6.0 million
19
<PAGE>
of the term loan late in 1994. The remaining balance under the term loan was
repaid in full with proceeds from the Company's initial public offering. No
amounts have been drawn down on the revolving line of credit. The $5.0 million
revolving line of credit expired in June 1996. The Company renewed the facility
with a new bank in June 1996. The Company did not have any borrowings under
either facility during 1996.
In 1995, the Company lent a portion of its excess cash to its affiliate,
Safeguard, and obtained a rate of interest which was higher than the rate the
Company could have realized from independently investing the funds. The loan
accrued interest at a rate equal to Safeguard's effective borrowing rate less
one percent. The outstanding principal balance plus accrued interest as of
December 31, 1995 was $ 7.0 million, which amount was repaid to the Company in
the first quarter of 1996.
The Company currently anticipates that its available cash, together with
cash generated from operations and availability under its unused $5 million bank
revolving credit facility will be sufficient to satisfy its operating cash needs
in 1997. Should the business expand more rapidly than expected, the Company
believes that an additional bank credit facility would be available to fund
operating and capital requirements. In addition, the Company could consider
seeking additional public or private debt or equity financing to fund future
growth opportunities or acquisitions.
20
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Accountants for the Years Ended
December 31, 1996, 1995 and the Ten Months Ended F-1
December 31, 1994
Consolidated Balance Sheets as of
December 31,1996 and 1995 F-2
Consolidated Statements of Income for the Years Ended
December 31, 1996, 1995 and the Ten Months Ended F-3
December 31, 1994
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1996, 1995 and the Ten Months Ended
December 31, 1994 F-4
Consolidated Statements of Stockholders' Equity for the Years Ended
December 31, 1996, 1995 and the Ten Months Ended
December 31, 1994 F-5
Notes to Consolidated Financial Statements F-6
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
None
21
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
of USDATA Corporation
In our opinion, the accompanying consolidated financial statements listed in the
index appearing under Item 8 present fairly, in all material respects, the
financial position of USDATA Corporation and its subsidiaries at December 31,
1996 and 1995, and the results of their operations and their cash flows for each
of the two years in the period ended December 31, 1996 and the ten months ended
December 31, 1994, in conformity with generally accepted accounting principles.
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 of these financial statements in
accordance with generally accepted auditing standards which 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, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for the opinion expressed
above.
PRICE WATERHOUSE LLP
Dallas, Texas
January 25, 1997
F-1
<PAGE>
USDATA CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(in thousands, except share DECEMBER 31,
and per share data) 1996 1995
- -------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 6,398 $ 1,504
Note receivable - related party - 7,040
Accounts receivable, net of allowance
for doubtful accounts of $605 and
$467, respectively 10,088 9,203
Inventories 1,067 2,122
Income tax receivable 1,050 -
Deferred income taxes 1,375 379
Other current assets 638 706
- -------------------------------------------------------------------
Total current assets 20,616 20,954
- -------------------------------------------------------------------
Property and equipment, net 3,164 2,099
Capitalized computer software develop-
ment costs net of accumulated amort-
ization of $759 and $584, respect-
ively 1,180 471
Other assets 93 84
- -------------------------------------------------------------------
Total assets $ 25,053 $ 23,608
- -------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilites:
Accounts payable $ 3,516 $ 2,115
Deferred revenue 2,749 2,136
Accrued compensation and
benefits 682 1,185
Other accrued liabilities 948 729
- -------------------------------------------------------------------
Total current liabities 7,895 6,165
- -------------------------------------------------------------------
Deferred income taxes 510 112
- -------------------------------------------------------------------
Total liabilities $ 8,405 $ 6,277
- -------------------------------------------------------------------
Commitments and contingencies - -
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 issued and outstanding
in 1996 and 1995 143 143
Additional paid-in capital 16,282 16,306
Subscription receivable from
officer (1,095) (1,021)
Retained earnings 12,609 13,665
Treasury stock at cost, 3,288,021
shares in 1996 and 3,450,484
shares in 1995 (11,291) (11,762)
- -------------------------------------------------------------------
Total stockholders' equity $ 16,648 $ 17,331
- -------------------------------------------------------------------
Total liabilities and
stockholders' equity $ 25,053 $ 23,608
- -------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-2
<PAGE>
USDATA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
TEN-MONTH FISCAL
YEAR ENDED
YEAR ENDED DECEMBER 31, DECEMBER 31,
(in thousands, except per share data) 1996 1995 1994
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales:
Software $23,885 $24,407 $18,019
Systems 17,838 19,960 15,870
- -----------------------------------------------------------------------------
Total sales 41,723 44,367 33,889
- -----------------------------------------------------------------------------
Cost of sales 12,623 13,171 10,483
- -----------------------------------------------------------------------------
Gross profit 29,100 31,196 23,406
- -----------------------------------------------------------------------------
Operating expenses:
Selling 22,587 20,322 13,340
Product development 4,590 4,770 3,411
General and administrative 3,984 3,759 2,150
Stock compensation - - 602
- -----------------------------------------------------------------------------
Total operating expenses 31,161 28,851 19,503
- -----------------------------------------------------------------------------
Income (loss) from operations (2,061) 2,345 3,903
Interest income 448 158 55
- -----------------------------------------------------------------------------
Income (loss) before income taxes (1,613) 2,503 3,958
Income tax provision (benefit) (557) 877 1,269
- -----------------------------------------------------------------------------
Net income (loss) $(1,056) $ 1,626 $ 2,689
- -----------------------------------------------------------------------------
Net income (loss) per common share $ (.10) $ .16 $ .24
- -----------------------------------------------------------------------------
Weighted average number of common and
common equivalent shares outstanding 11,014 10,354 11,198
- -----------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-3
<PAGE>
USDATA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
TEN-MONTH FISCAL
YEAR ENDED
YEAR ENDED DECEMBER 31, DECEMBER 31,
(in thousands) 1996 1995 1994
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $(1,056) $ 1,626 $ 2,689
- -----------------------------------------------------------------------------------------------------------
Adjustments to reconcile net income
(loss) to cash flow from operating activities:
Depreciation and amortization 1,348 1,050 955
Stock compensation expense - - 602
Changes in assets and liabilities:
Accounts receivable (885) (2,541) (1,188)
Income tax receivable (1,050) - -
Inventories 1,055 (1,060) 378
Deferred income taxes (598) 215 (165)
Accounts payable and
accrued liabilities 1,401 451 368
Deferred revenue 613 145 285
Accrued compensation and benefits (503) 406 (30)
Accrued income taxes 35 (508) 312
Other - net 212 (67) (136)
- -----------------------------------------------------------------------------------------------------------
Net cash provided by (used in)
operating activities 572 (283) 4,070
- -----------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Capital expenditures (2,218) (1,256) (816)
Net sales of short-term investments - - 3,603
Related party note receivable 7,040 (7,040) -
Capitalized software development costs (884) (524) (320)
- -----------------------------------------------------------------------------------------------------------
Net cash provided by (used in)
investing activites 3,938 (8,820) 2,467
- -----------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Proceeds from issuance of long-term debt - - 10,000
Payments on long-term debt - (4,000) (6,000)
Proceeds from issuance of common shares 447 13,743 649
Purchase of common shares - - (11,762)
Payments on capital lease obligations (63) (75) (77)
- -----------------------------------------------------------------------------------------------------------
Net cash provided by (used in)
financing activities 384 9,668 (7,190)
- -----------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash
equivalents 4,894 565 (653)
Cash and cash equivalents, beginning
beginning of period 1,504 939 1,592
- -----------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of period 6,398 $ 1,504 $ 939
- -----------------------------------------------------------------------------------------------------------
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 0 $ 187 $ 70
- -----------------------------------------------------------------------------------------------------------
Income taxes $ 1,147 $ 1,400 $ 1,400
- -----------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
F-4
<PAGE>
USDATA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock Additional Subscription Teasury Stock Total
---------------- Paid-in Receivable Retained ------------------- Stockholders'
(in thousands) Shares Amount Capital from Officer Earnings Shares Amount Equity
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at
February 28, 1994 10,605 $106 $ 400 $ 9,350 $ 9,856
Exercise of stock
options 440 4 1,237 1,241
Purchase of treasury
shares (3,450) $(11,762) (11,762)
Net income 2,689 2,689
- ----------------------------------------------------------------------------------------------------------------------------------
Balance, at
December 31, 1994 11,045 110 1,637 12,039 (3,450) (11,762) 2,024
Exercise of stock
options 98 1 172 173
Issuance of common
stock, net 2,926 29 13,541 13,570
Restricted stock grant 274 3 956 $ (959) -
Interest on
subscription
receivable from
officer (62) (62)
Net income 1,626 1,626
- ----------------------------------------------------------------------------------------------------------------------------------
Balance, at
December 31, 1995 14,343 143 16,306 (1,021) 13,665 (3,450) (11,762) 17,331
Exercise of stock
options (24) 162 471 447
Issuance of common
stock, net
Interest on
subscription
receivable from
officer (74) (74)
Net income (1,056) (1,056)
- ----------------------------------------------------------------------------------------------------------------------------------
Balance, at
December 31, 1996 14,343 $143 $16,282 $(1,095) $12,609 (3,288) $(11,291) $ 16,648
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-5
<PAGE>
USDATA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share data)
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
DESCRIPTION OF BUSINESS
USDATA Corporation (the Company or USDATA) is a global supplier of real-time
application development tools, distribution management software, automatic
identification equipment and related integration services. The Company's
products and services help automate manufacturing, distribution and inventory
business processes. Its real-time data management capabilities enable customers
to reduce operating costs, improve product quality and increase productivity.
USDATA products are noted for high-performance and support of multi-platform
computing environments. The Company's customers are in a wide variety of
industries, including chemical, oil and gas, food, beverage, pharmaceutical,
automotive, aerospace, telecommunications, electronics, transportation, and
other industries.
USE OF ESTIMATES
The consolidated financial statements are prepared in accordance with
generally accepted accounting principles which require the use of estimates made
by the Company's management. Actual results may differ from those estimates.
PRINCIPALS OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiaries. All intercompany accounts and transactions have
been eliminated.
REVENUE RECOGNITION
Revenue is recognized from product sales upon shipment. Revenue from the
licensing of software products is recognized upon execution of a contract and
delivery of documentation or system software. Revenue from software support
maintenance and equipment service agreements are recognized ratably over the
contract term, generally not exceeding one year. Sales return options are
provided to certain customers, under specified conditions. Sales are presented
net of estimated returns, which historically have not been significant.
Included in total net sales for the year ended December 31, 1996, 1995, and
the ten months ended December 31, 1994 are hardware and software service
revenues of approximately $4.6 million, $4.3 million and $3.1 million,
respectively.
CASH EQUIVALENTS
The Company considers all highly liquid investments purchased with original
maturities of three months or less to be cash equivalents.
INVENTORIES
Inventories consist primarily of goods held for resale and are stated at the
lower of cost or market. Cost is determined by the first-in, first-out method.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Maintenance and repairs are
charged to expense as incurred, and the costs of additions and betterments are
capitalized. Depreciation is provided in amounts which amortize costs over the
useful lives of the related assets, generally three to five years utilizing the
straight-line method. Leasehold improvements are amortized over the terms of
the respective leases or useful lives of the improvements, whichever is shorter.
CAPITALIZED SOFTWARE
The Company capitalizes software development costs in accordance with the
Statement of Financial Accounting Standards No. 86. Software development costs
incurred prior to establishing technological feasibility are charged to
operations and included in product development costs. Software development
costs incurred after establishing technological feasibility, and purchased
software costs, are capitalized and amortized on a product-by-product basis when
the product is available for general release to customers. Annual amortization,
charged to cost of sales, is the greater of the amount computed using the ratio
that current gross revenues for a product bear to the total of current and
anticipated future gross revenues for that product, or the straight-line
F-6
<PAGE>
USDATA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(in thousands, except share data)
method over the remaining estimated economic life of the product. The total
computer software development costs capitalized in fiscal 1996, 1995 and 1994
were $884, $524 and $320, respectively. The total costs amortized and charged
to operations in fiscal 1996, 1995 and 1994 were $175, $155 and $269
respectively.
STOCK-BASED COMPENSATION
In 1996, the Company adopted Statement of Financial Accounting Standards No.
123, "Accounting for Stock-Based Compensation" (SFAS 123"), which gives
companies the option to adopt the fair value method for expense recognition of
employee stock options and other stock-based awards or to continue to account
for such items using the intrinsic value method as outlined under Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees"
("APB 25") with pro forma disclosures of net income as if the fair value method
had been applied. The Company has elected to continue to apply APB 25 for stock
options and other stock based awards and has disclosed pro forma net income as
if the fair value method had been applied.
INCOME TAXES
The Company follows Financial Accounting Standards Board Statement No. 109
(SFAS 109), Accounting for Income Taxes, which requires an asset and liability
approach that results in the recognition of deferred tax liabilities and assets
for the expected future tax consequences of temporary differences between the
carrying amounts and the tax basis of assets and liabilities.
ADVERTISING COSTS
The Company's policy for advertising costs is to expense such costs as
incurred. Advertising expenses for fiscal 1996, 1995 and 1994, were $2,801,
$2,414 and $961, respectively.
FINANCIAL INSTRUMENTS
The carrying amounts of the Company's financial instruments reflected in the
consolidated balance sheet at December 31, 1996 approximate their respective
fair values.
EARNINGS PER SHARE
Earnings per common share is computed by dividing income (loss) by the
weighted average number of shares outstanding during each period after giving
retroactive effect to the stock split including common stock equivalents
(unless antidilutive) which would arise from the exercise of stock options and
warrants.
RECLASSIFICATIONS
Certain prior year balances have been reclassified to conform to 1996
presentation.
2. PROPERTY AND EQUIPMENT
The components of property and equipment are as follows:
<TABLE>
<CAPTION>
1996 1995
- --------------------------------------------------------------------
<S> <C> <C>
Equipment $ 6,985 $ 4,937
Furniture and fixtures 404 404
Leasehold improvements 153 153
Vehicles 343 343
Assets under capital leases 185 185
- --------------------------------------------------------------------
8,070 6,022
Accumulated depreciation
and amortization (4,906) (3,923)
- --------------------------------------------------------------------
Net property and equipment $ 3,164 $ 2,099
- --------------------------------------------------------------------
</TABLE>
F-7
<PAGE>
USDATA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(in thousands, except share data)
3. INCOME TAXES
The components of income (loss) before income taxes and cumulative effect of
accounting change for the years ended December 31, 1996 and 1995 and the ten
months ended December 31, 1994 included the following:
<TABLE>
<CAPTION>
1996 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
United States $ (568) $ 2,847 $ 3,743
Foreign (1,045) (344) 215
- --------------------------------------------------------------------------------
$ (1,613) $ 2,503 $ 3,958
- --------------------------------------------------------------------------------
</TABLE>
The components of income tax expense (benefit) are:
<TABLE>
<CAPTION>
1996 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Current
Federal $ (10) $ 615 $ 1,317
State 40 36 118
Foreign 11 11 (2)
- --------------------------------------------------------------------------------
41 662 1,433
Deferred
Federal (523) 172 (126)
State (75) 43 (38)
- --------------------------------------------------------------------------------
Income tax provision
(benefit) $ (557) $ 877 $ 1,269
- --------------------------------------------------------------------------------
</TABLE>
The following is a reconciliation of the effective tax rate to the federal
statutory income tax rate:
<TABLE>
<CAPTION>
1996 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Income tax expense (benefit)
at federal statutory rate $ (548) $ 851 $ 1,346
Research and development
credit - (18) (56)
State taxes, net of federal
benefit (22) 67 80
Tax exempt interest - (8) (52)
Other 13 (15) (49)
- --------------------------------------------------------------------------------
Income tax provision
(benefit) $ (557) $ 877 $ 1,269
- --------------------------------------------------------------------------------
</TABLE>
The components of the net deferred tax asset were as follows:
<TABLE>
<CAPTION>
1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax asset (liability)
Net operating loss $ 873
Inventory reserves 212 $105
Allowance for doubtful accounts 223 175
Accrued vacation - 83
Depreciation (70) 56
Capitalized software (440) (168)
Other 67 16
- --------------------------------------------------------------------------------
Net deffered tax asset $ 865 $ 267
- --------------------------------------------------------------------------------
</TABLE>
F-8
<PAGE>
USDATA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(in thousands, except share data)
4. STOCKHOLDERS' EQUITY
STOCK PURCHASE AGREEMENT
In November 1994, a majority interest in the Company was acquired by a
group of outside investors in a series of transactions pursuant to a stock
purchase agreement (the "Agreement") between the existing stockholders of the
Company (the "stockholders"), the outside investors (the "investors") and the
Company, whereby the investors acquired a portion of the outstanding stock of
the Company directly from the stockholders. In addition, the Company
repurchased 3,450,484 shares of outstanding stock directly from the
stockholders for $11.8 million. Funding for the Company's repurchase was
provided by a $10 million bank loan and available cash. There was no change
in the historical basis of the Company's assets and liabilities as a result
of this transaction.
WARRANTS TO PURCHASE COMMON STOCK
In connection with the Agreement discussed above, the Company issued
warrants to investors and a director of the Company to purchase common stock
of the Company. The warrants entitle the investors and the director to
purchase 698,238 and 77,582 shares, respectively, of common stock of the
Company at a purchase price of $3.02 per share. These warrants expire in
November 2001. No warrants were exercised as of December 31, 1996.
PUBLIC OFFERING
On July 31, 1995, the Company completed an initial public offering to sell
2,926,180 shares of the Company's common stock at $5.00 a share. The Company
received approximately $13.6 million after deducting expenses from the sale
and utilized a portion of the proceeds to repay $2.7 million under its bank
term loan.
PREFERRED STOCK
The board of directors is authorized, subject to certain limitations and
without stockholder approval, to issue up to an aggregate 2,200,000 shares in
one or more series and to fix the rights and preferences of the shares of
each series. No shares of preferred stock have been issued.
RESTRICTED STOCK GRANT
In February 1995, 273,910 shares of the Company's common stock were
purchased by an officer in the form of a restricted stock grant. The purchase
was funded by a $959 full recourse promissory note payable to the Company
with interest at 7.75% and payable in February 2003 or within 30 days of
termination of employment. The note is secured by Company stock. The
subscription receivable of $1,095 which includes accrued interest, is
presented on the consolidated balance sheet as a reduction to stockholders'
equity.
EQUITY COMPENSATION PLANS
In 1994, the Company adopted the 1994 Equity Compensation Plan (the 1994
Plan), which provides for stock options to be granted to employees,
independent contractors and directors. The 1994 Plan provides for the
issuance of up to 1,500,000 shares of common stock pursuant to the grant of
incentive stock options (ISO), non-qualified stock options (NSO), stock
appreciation rights (SARs) and restricted stock awards.
F-9
<PAGE>
USDATA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(in thousands, except share data)
Options issued under the 1994 Plan vest over a four-year period and are
exercisable up to eight years from the date of grant at a price per share
equal to the fair market value of the underlying stock on the date of grant.
The 1994 Plan also authorizes an automatic grant of options to purchase
15,000 shares of common stock to certain eligible directors upon initial
election to the board of directors and a further grant of options to purchase
3,000 shares of common stock following the completion of each two-year period
of service. Options granted to directors have an eight-year term and vest
over four years. At December 31, 1996, there were 10,230 shares available for
future grant under the 1994 Plan.
A 1992 Incentive and Non-statutory Option Plan (the 1992 Plan) provides
for the grant of stock options to key employees at prices not less than the
fair market value of the underlying stock at the date of grant. Options are
exercisable during a ten-year period. The 1992 Plan was terminated in
February 1995; however, 11,194 stock options granted thereunder were
outstanding as of December 31, 1996.
The Company applies APB Opinion No. 25 and related Interpretations in
accounting for its stock option plans, which are described below.
Accordingly, no compensation cost has been recognized for its stock option
plans. If compensation cost for the Company's stock option plans had been
determined based on the fair market value at the grant dates for awards under
those plans consistent with the method provided by SFAS 123, the Company's
net income (loss) per share would have been reflected by the following pro
forma amounts for the years ended December 31, 1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income (loss) As reported $(1,056) $1,626
Pro forma $(1,220) $1,392
Primary net income (loss) per share As reported $ (.10) $ .16
Pro forma $ (.11) $ .13
</TABLE>
The per share weighted-average value of stock options issued by the Company
during 1996 and 1995 was $6.93 and $1.24, respectively, on the date of grant.
The following assumptions were used by the Company to determine the fair
value of stock options granted using the Black Scholes option-pricing model:
<TABLE>
<CAPTION>
1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C>
Dividend yield 0 0
Expected volatility 60% 0% to 60%
Risk-free rate of return 5.8% to 6.5% 5.4% to 7.1%
Expected life 5 years 5 years
</TABLE>
Pro forma net income reflects only options granted in 1996 and 1995. Therefore,
the full impact of calculating compensation cost for stock options under SFAS
123 is not reflected in the pro forma net income amounts presented above because
compensation cost is reflected over the options' vesting period and compensation
costs for options granted prior to January 1, 1995 is not considered.
F-10
<PAGE>
USDATA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(in thousands, except share data)
Option activity under the Company's Plans is summarized below:
<TABLE>
<CAPTION>
Ten-Months Ended
Year Ended December 31, December 31,
- ------------------------------------------------------------------------------------------------------
1996 1995 1994
------------------ ----------------- -----------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
------ -------- ------ -------- ------ --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of
period 1,220 $ 3.76 316 $ 2.30 574 $ 1.46
Options granted 216 12.11 1,050 4.04 182 2.93
Options exercised, expired
and canceled (307) 5.74 (146) 2.57 (440) 1.47
----- ----- -----
Outstanding at end of period 1,129 $ 4.82 1,220 $ 3.76 316 $ 2.30
===== ===== =====
Options exercisable at
year-end 339 259 316
Shares available for future
grant 10 81 1,358
</TABLE>
The following summarizes information about the Company's stock options
outstanding at December 31, 1996:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
--------------------------------------------- -------------------------
Range of Number Weighted Avg. Weighted Number Weighted
Exercise Outstanding Remaining Avg. Exercisable Avg.
Prices Contractual Life Exercise Price Exercise Price
(in years)
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 2.50 - 3.50 812 5.8 $ 3.40 302 $ 3.22
5.00 - 7.50 219 7.0 5.93 34 5.00
11.00 - 23.50 98 7.4 14.15 3 19.34
----- --- ------ --- ------
1,129 6.2 $ 4.82 339 $ 3.54
</TABLE>
5. LINE OF CREDIT
In June 1996, the Company's previous $5 million revolving credit facility
expired and the Company entered into a new $5 million facility with a new
bank. The Company did not have any borrowings during 1996.
The credit facility requires the Company to maintain certain financial
covenants. Interest is payable monthly at a floating rate based on the
bank's LIBOR rate plus 2%, as established by the bank. The credit facility
contains restrictions on the Company's ability to pay dividends on its common
stock.
6. RETIREMENT PLAN
The Company maintains a discretionary defined contribution plan (401(k)
Plan) covering substantially all employees. During the years ended December
31, 1996 and 1995 and the ten months ended December 31, 1994, the Company
made contributions of approximately $128, $113 and $81, respectively, to this
plan.
7. RELATED PARTY TRANSACTIONS
Safeguard Scientifics, Inc. (Safeguard) owns approximately 20% of the
Company's outstanding common stock.
F-11
<PAGE>
USDATA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(in thousands, except share data)
Effective January 1, 1995, the Company and Safeguard entered into an
administrative services agreement whereby Safeguard provides the Company with
business and organizational strategy, legal and investment management, and
merchant and investment banking services. The agreement provides for the
payment of an administrative services fee of $30 per month. The initial
agreement expired on December 31, 1995, and is renewed annually on a year to
year basis. General and administrative expenses on the consolidated
statement of income includes $360 of such administrative services fees for
the years ended December 31, 1996 and 1995.
In August 1995, the Company and Safeguard entered into an agreement whereby
the Company loaned to Safeguard a portion of its excess cash from the
proceeds of its stock offering. The loan was fully repaid on March 8, 1996.
During the years ended December 31, 1996 and 1995, the Company earned $43 and
$196, respectively, of interest income from this unsecured lending
arrangement.
8. EXPORT SALES
Included in the consolidated statements of income are export sales
aggregating $11,958, $11,346 and $6,978 for the years ended December 31, 1996
and 1995 and the ten months ended December 31, 1994, respectively. These
sales were made primarily in Europe and, to a lesser extent, Canada, Latin
America and Asia.
9. COMMITMENTS AND CONTINGENCIES
LEASES
The Company leases office space, equipment and automobiles under non-
cancellable capital and operating lease agreements which expire at various
dates through the year 2000. Certain capital leases contain bargain purchase
options which may be exercised at the end of the lease term. Assets recorded
under capital leases, primarily equipment, were $185 at December 31, 1996 and
1995 and the related accumulated amortization was $118 and $50 at December
31, 1996 and 1995, respectively. Amortization of capital lease assets of $68,
$52 and $54 was included in depreciation expense for the years ended December
31, 1996 and 1995 and the ten months ended December 31, 1994, respectively.
Minimum future payments under capital lease obligations are not significant.
Future minimum lease payments at December 31, 1996 under operating leases
were as follows:
1997 $ 879
1998 796
1999 761
2000 495
2001
-------
Thereafter -
-------------------------------
Total minimum lease
commitments $ 2,931
-------------------------------
Total rent expense charged to earnings was approximately $1,159, $1,354
and $1,106 during the years ended December 31, 1996 and 1995 and the ten
months ended December 31, 1994, respectively.
F-12
<PAGE>
USDATA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(in thousands, except share data)
EMPLOYMENT AGREEMENTS
In November 1994, the Company executed an employment agreement covering a
key management employee for a period of three years with successive one-year
renewal options. The agreement allows for the termination of the employee
for cause with written notice and includes a non-competition clause over the
agreement duration. The Company is committed to provide annual payments of
$360 under the agreement, plus costs for certain additional benefits.
OTHER
The Company has other contingent liabilities resulting from litigation,
claims and commitments incident to the ordinary course of business.
Management believes that the ultimate resolution of such contingencies will
not have a materially adverse effect on the financial position or results of
operations of the Company.
F-13
<PAGE>
USDATA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(in thousands, except share data)
10. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
First Second Third Fourth
1996 Quarter Quarter Quarter Quarter
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $ 11,001 $ 9,704 $ 9,682 $ 11,336
- --------------------------------------------------------------------------------------------
Gross profit $ 8,260 $ 7,006 $ 5,760 $ 8,074
- --------------------------------------------------------------------------------------------
Income (loss) from
operations $ 455 $ (34) $ (2,388) $ (94)
- --------------------------------------------------------------------------------------------
Net income (loss) $ 375 $ 69 $ (1,587) $ 87
- --------------------------------------------------------------------------------------------
Net income (loss) per
share $ .03 $ .01 $ (.14) $ .01
- --------------------------------------------------------------------------------------------
Stock prices (in dollars)
High 18.50 24.75 19.00 11.50
Low 14.50 17.00 9.50 5.50
- --------------------------------------------------------------------------------------------
First Second Third Fourth
1995 Quarter Quarter Quarter Quarter
- --------------------------------------------------------------------------------------------
Net sales $ 10,366 $ 11,049 $ 10,622 $ 12,330
- --------------------------------------------------------------------------------------------
Gross profit $ 7,661 $ 7,847 $ 7,241 $ 8,447
- --------------------------------------------------------------------------------------------
Income from operations $ 947 $ 611 $ 60 $ 727
- --------------------------------------------------------------------------------------------
Net income $ 586 $ 356 $ 113 $ 571
- --------------------------------------------------------------------------------------------
Net income per share $ .07 $ .04 $ .01 $ .05
- --------------------------------------------------------------------------------------------
Stock prices (in dollars)
High - - 25.25 24.00
Low - - 14.00 13.50
- --------------------------------------------------------------------------------------------
</TABLE>
All income per share amounts reflect the two-for-one stock split which was
approved by the board of directors in March 1995 (see Note 1). Earnings per
share calculations for each period are based on the weighted average number
of shares outstanding in each period; therefore, the sum of the quarters
does not necessarily equal the year-to-date earnings per share.
* * * *
F-14
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information called for by Item 10, Directors and Executive Officers of
the Registrant (except for the information regarding executive officers called
for by Item 401 of Regulation S-K which is included in Part I in accordance with
General Instruction G(3)), is hereby incorporated by reference to the
Registrant's definitive Proxy Statement for its Annual Meeting of Stockholders
presently scheduled to be held in May 1996, which shall be filed with the
Securities and Exchange Commission within 120 days of the end of the
Registrant's last fiscal year.
ITEM 11. EXECUTIVE COMPENSATION
The information concerning executive compensation and transactions with
management is set forth in the Proxy Statement, which information is
incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information concerning security ownership of certain beneficial owners
and management is set forth in the Proxy Statement, which information is
incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
The information concerning relationships and related transactions is set
forth in the Proxy Statement, which information is incorporated herein by
reference.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Financial Statement Schedules
Report of Independent Accountants on Financial Statement Schedules
Schedule II - Valuation and Qualifying Accounts
All other schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission are not
required under the related instructions or are inapplicable and, therefore,
have been omitted.
(b) Reports on Form 8-K
No reports on Form 8-K have been filed during the last quarter of the
period covered by this report.
22
<PAGE>
(c) Exhibits
Exhibit No. Description
----------- -----------
3.1 Certificate of Incorporation of the Company.*
3.2 By-laws of the Company.*
4.1 Specimen stock certificate representing the Common Stock.***
10.1 1982 Incentive Stock Option Plan.*
10.2 1992 Incentive and Nonstatutory Option Plan.*
10.3 1994 Equity Compensation Plan, as amended.*
10.4 Office Lease Agreement, dated as of June 1992, by and
between Carter - Crowley Properties, Inc. and the Company.*
10.5 Full Service Distributor Agreement, dated as of June 1,
1991, by and between the Company and Printronix, Inc.*
10.6 Employment Agreement, dated as of November 8, 1994, between
the Company and Bob B. Midyett, Jr.*
10.7 Promissory Note, dated February 20, 1995, by William G.
Moore, Jr. to the Company.*
10.8 Administrative Services Agreement between Safeguard
Scientifics, Inc. and the Company.***
11.1 Statement regarding computation of earnings per share.#
21.1 Subsidiaries of the Registrant.*
23.1 Consent of Price Waterhouse LLP.#
24.1 Power of Attorney (included on signature page).
27.1 Financial data schedule.
- ------------
# Filed herewith
* Filed on April 12, 1995 as an exhibit to the Company's Registration
Statement on Form S-1 (File No. 33-91124) and incorporated by reference
herein.
** Filed on June 1, 1995 and an exhibit to Amendment No. 1 to the Company's
Registration Statement on Form S-1 (File No. 33-91124) and incorporated by
reference herein.
*** Filed on June 15, 1995 and an exhibit to Amendment No. 2 to the Company's
Registration Statement on Form S-1 (File No. 33-91124) and incorporated by
reference herein.
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, in the City of
Richardson, State of Texas, on the 31st day of March, 1997.
USDATA Corporation
By: /s/ Bill E. Newell
-----------------------------------
Bill E. Newell
Acting President and
Chief Executive Officer
23
<PAGE>
POWER OF ATTORNEY AND SIGNATURES
We, the undersigned officers and directors of USDATA Corporation, hereby
severally constitute and appoint Bill E. Newell and Jay B. Shipowitz, and each
of them singly, our true and lawful attorneys, with full power to them and each
of them singly, to sign for us in our names in the capacities indicated below,
amendments to this report, and generally to do all things in our names and on
our behalf in such capacities to enable USDATA Corporation to comply with the
provisions of the Securities Exchange Act of 1934, as amended, and all
requirements of the Securities and Exchange Commission.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons in the capacities and on the
dates indicated.
Signature
/s/ ARTHUR R. SPECTOR Chairman of the Board March 31, 1997
- -----------------------------
Arthur R. Spector
/s/ BILL E. NEWELL Acting President and Chief March 31, 1997
- ----------------------------- Executive Officer (Principal
Bill E. Newell Executive Officer)
/s/ JAY B. SHIPOWITZ Senior Vice President and March 31, 1997
- ----------------------------- Chief Financial Officer,
Jay B. Shipowitz Treasurer and Secretary
(Principal Financial and
Accounting Officer)
/s/ GARY J. ANDERSON, M.D. Director March 31, 1997
- -----------------------------
Gary J. Anderson, M.D.
/s/ JAMES W. DIXON Director March 31, 1997
- -----------------------------
James W. Dixon
/s/ JACK L. MESSMAN Director March 31, 1997
- -----------------------------
Jack L. Messman
/s/ CHARLES A. ROOT Director March 31, 1997
- -----------------------------
Charles A. Root
/s/ MAX D. HOPPER Director March 31, 1997
- -----------------------------
Max D. Hopper
24
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULE
To the Board of Directors
of USDATA Corporation
Our audits of the consolidated financial statements referred to in our report
dated January 25, 1997 appearing on page F-1 of this Annual Report on Form 10-K
also included an audit of the Financial Statement Schedule listed in Item 14(a)
of this Form 10-K. In our opinion, this Financial Statement Schedule presents
fairly, in all material respects, the information set forth therein when read in
conjunction with the related consolidated financial statements.
PRICE WATERHOUSE LLP
Dallas, Texas
January 25, 1997
<PAGE>
<TABLE>
<CAPTION>
Schedule II - Valuation and Qualifying Accounts
For the Fiscal Years Ended December 31, 1996, 1995 and December 31, 1994 (Ten Months)
Description Balance at Charged to Deductions Balance
beginning of costs and at end of
year expenses year
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
December 31, 1994 (Ten Months)
Allowance for doubtful accounts $204,000 $164,000 $ (57,000) $311,000
December 31, 1995
Allowance for doubtful accounts $311,000 $274,000 $(118,000) $467,000
December 31, 1996
Allowance for doubtful accounts 467,000 230,000 (92,000) 605,000
</TABLE>
<PAGE>
EXHIBIT INDEX
Exhibit No. Description Page No.
----------- ----------- --------
3.1 Certificate of Incorporation of the Company.*
3.2 By-laws of the Company.*
4.1 Specimen stock certificate representing the
Common Stock.***
10.1 1982 Incentive Stock Option Plan.*
10.2 1992 Incentive and Nonstatutory Option Plan.*
10.3 1994 Equity Compensation Plan, as amended.*
10.4 Office Lease Agreement, dated as of June 1992, by
and between Carter - Crowley Properties, Inc. and
the Company.*
10.5 Full Service Distributor Agreement, dated as of
June 1, 1991, by and between the Company and
Printronix, Inc.*
10.6 Employment Agreement, dated as of November 8,
1994, between the Company and Bob B. Midyett, Jr.*
10.7 Promissory Note, dated February 20, 1995, by William
G. Moore, Jr. to the Company.*
10.8 Administrative Services Agreement between
Safeguard Scientifics, Inc. and the Company.***
11.1 Statement regarding computation of earnings
per share.#
21.1 Subsidiaries of the Registrant.*
23.1 Consent of Price Waterhouse LLP.#
24.1 Power of Attorney (included on signature page).
27.1 Financial data schedule.
- ------------
# Filed herewith
* Filed on April 12, 1995 as an exhibit to the Company's Registration
Statement on Form S-1 (File No. 33-91124) and incorporated by reference
herein.
** Filed on June 1, 1995 and an exhibit to Amendment No. 1 to the Company's
Registration Statement on Form S-1 (File No. 33-91124) and incorporated by
reference herein.
*** Filed on June 15, 1995 and an exhibit to Amendment No. 2 to the Company's
Registration Statement on Form S-1 (File No. 33-91124) and incorporated by
reference herein.
<PAGE>
EXHIBIT 11.1 - COMPUTATION OF PER SHARE EARNINGS
(in thousands except per share data)
<TABLE>
<CAPTION>
Ten Month
Fiscal Year
Ended
Years Ended December 31, December
1996 1995 31, 1994
-------------------------------------------
<S> <C> <C> <C>
Net earnings (loss) $(1,056) $ 1,626 $ 2,689
======= ======= =======
Average common shares outstanding 11,014 9,010 10,003
Average common share equivalents - 1,344 1,195
------- ------- -------
Average number of common shares and
common share equivalents (if dilutive) 11,014 10,354 11,198
outstanding
======= ======= =======
Net earnings (loss) per common share $ (.10) $ 0.16 $ 0.24
======= ======= =======
</TABLE>
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
----------------------------------
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 of USDATA Corporation for the 1994 Equity Compensation
Plan of our report dated January 25, 1997 appearing on page F-1 of this Form 10-
K. We also consent to the incorporation by reference of our report on the
Financial Statement Schedule, listed under Item 14(a) of this Form 10-K.
PRICE WATERHOUSE LLP
Dallas, Texas
March 31, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1995
<PERIOD-START> JAN-01-1996 JAN-01-1995
<PERIOD-END> DEC-31-1996 DEC-31-1995
<CASH> 6,398 1,504
<SECURITIES> 0 0
<RECEIVABLES> 10,693 16,710
<ALLOWANCES> 605 467
<INVENTORY> 1,067 2,122
<CURRENT-ASSETS> 20,616 20,954
<PP&E> 8,070 6,022
<DEPRECIATION> 4,960 3,923
<TOTAL-ASSETS> 25,053 23,608
<CURRENT-LIABILITIES> 7,895 6,165
<BONDS> 0 0
0 0
0 0
<COMMON> 143 143
<OTHER-SE> 16,505 17,188
<TOTAL-LIABILITY-AND-EQUITY> 25,053 23,608
<SALES> 41,723 44,367
<TOTAL-REVENUES> 41,723 44,367
<CGS> 12,623 13,171
<TOTAL-COSTS> 43,784 42,022
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 230 274
<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> (1,613) 2,503
<INCOME-TAX> (557) 877
<INCOME-CONTINUING> (1,056) 1,626
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (1,056) 1,626
<EPS-PRIMARY> (.10) .16
<EPS-DILUTED> 0 0
</TABLE>
