<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------
FORM 10-Q
X Quarterly Report pursuant to Section 13 or 15(d) of the Securities
- -----
Exchange Act of 1934.
For the quarterly period ended June 30, 1997
Transition Report pursuant to Section 13 or 15(d) of the Securities
- -----
Exchange Act of 1934.
For the transition period from __________ to __________.
Commission File Number 0-25936
USDATA Corporation
(Exact name of registrant as specified in its charter)
DELAWARE 75-2405152
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2435 N Central Expressway, Richardson, TX, 75080
- --------------------------------------------------------------------------------
(Address of principal executive offices)
(Zip Code)
Registrant's telephone number, including area code: (972) 680-9700
------------------------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding twelve months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such requirements
for the past 90 days.
Yes X No
--- ---
------------------------------
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of July 31, 1997:
Class Number of Shares
Outstanding
Common Stock, Par Value $.01 Per Share 10,836,744 shares
<PAGE>
USDATA CORPORATION
FORM 10-Q
QUARTER ENDED JUNE 30, 1997
TABLE OF CONTENTS
Page
Number
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets at
June 30, 1997 and December 31,
1996 3
Consolidated Statements of Operations
for the Three and Six Months Ended
June 30, 1997 and 1996 4
Consolidated Statements of Cash Flows
for the Six Months Ended
June 30, 1997 and 1996 5
Notes to Consolidated Financial
Statements 6
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of
Operations 7
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 11
Item 6. Exhibits and Reports on Form 8-K 11
Signatures 12
Computation of Per Share Earnings 13
2
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USDATA Corporation and Subsidiaries
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(In thousands, except share data)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
June 30, 1997 December 31, 1996
------------- -----------------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 5,540 $ 6,398
Accounts receivable, net of allowance for doubtful
accounts of $990 and $605, respectively 8,906 10,088
Inventories 858 1,067
Income tax receivable -- 1,050
Deferred income taxes 2,251 1,375
Other current assets 596 638
-------- --------
Total current assets 18,151 20,616
Property and equipment, net 3,370 3,164
Other assets 1,661 1,273
======== ========
Total assets $ 23,182 $ 25,053
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $ 2,594 $ 3,516
Deferred revenue 2,307 2,749
Accrued compensation and benefits 730 682
Other accrued liabilities 1,506 948
-------- --------
Total current liabilities 7,137 7,895
Deferred income taxes 510 510
-------- --------
Total liabilities 7,647 8,405
-------- --------
Shareholders' equity
Preferred stock, $.01 par value, 2,200,000 shares
authorized; none issued or outstanding -- --
Common stock, $.01 par value, 22,000,000 shares
authorized; 14,343,550 shares issued 143 143
Additional paid-in capital 16,314 16,282
Subscription receivable from officer -- (1,095)
Retained earnings 11,170 12,609
Treasury stock at cost, 3,507,556 shares in 1997 and
3,288,021 shares in 1996 (12,092) (11,291)
-------- --------
Total shareholders' equity 15,535 16,648
-------- --------
Total liabilities and shareholders' equity $ 23,182 $ 25,053
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
3
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USDATA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1997 1996 1997 1996
----------- ----------- ------------ -----------
<S> <C> <C> <C> <C>
Net sales
Software $ 5,583 $ 5,351 $ 11,580 $ 12,263
Systems 4,060 4,353 8,089 8,442
---------- --------- --------- --------
Total sales 9,643 9,704 19,669 20,705
Cost of sales 3,446 2,698 6,907 5,439
---------- --------- --------- ---------
Gross profit 6,197 7,006 12,762 15,266
Operating expenses
Selling 4,695 5,332 10,372 10,882
Product development 1,062 1,080 1,946 2,304
General and administrative 1,483 628 2,793 1,659
---------- ---------- --------- ---------
Total operating expenses 7,240 7,040 15,111 14,845
---------- ---------- --------- ---------
Income (loss) from operations (1,043) (34) (2,349) 421
Interest income 118 117 168 237
--------- ---------- --------- ---------
Income (loss) before income taxes (925) 83 (2,181) 658
Income tax (provision) benefit 323 (14) 742 (214)
--------- ---------- --------- ---------
Net income (loss) $ (602) $ 69 $ (1,439) $ 444
========= ========== ========= =========
Income (loss) per common share $ (.05) $ .01 $ (.13) $ .04
========= ========== ========= =========
Weighted average number of shares outstanding 11,380 12,482 11,233 12,455
========= ========== ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
USDATA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN THOUSANDS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six months ended June 30,
------------------------------
1997 1996
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (1,439) $ 444
Adjustments to reconcile net income to cash provided by
(used in) operating activities:
Depreciation and amortization 733 665
Changes in operating assets and liabilities:
Accounts receivable 1,182 1,084
Inventories 209 61
Income tax receivable 1,050 -
Deferred income taxes (876) -
Accounts payable and accrued liabilities (146) (1,840)
Deferred revenue (442) (10)
Other - net 110 (1,148)
------------ ------------
Net cash provided by (used in) operating activities 381 (744)
------------ ------------
Cash flows from investing activities:
Capital expenditures (795) (1,241)
Related party note receivable - 7,040
Capitalized software development costs (582) (437)
------------ -----------
Net cash provided by (used in) investing activities (1,377) 5,362
------------ -----------
Cash flows from financing activities:
Proceeds from issuance of common shares 190 376
Payments on capital lease obligations (52) (30)
------------ -----------
Net cash provided by financing activities 138 346
------------ -----------
Net increase (decrease) in cash and cash equivalents (858) 4,964
Cash and cash equivalents, beginning of period 6,398 1,504
------------ -----------
Cash and cash equivalents, end of period $ 5,540 $ 6,468
============ ===========
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
USDATA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(1) BASIS OF PRESENTATION
---------------------
The accompanying unaudited interim consolidated financial statements were
prepared in accordance with generally accepted accounting principles for interim
financial statements. These financial statements do not include all disclosures
associated with annual financial statements. Accordingly, these statements
should be read in conjunction with the Company's consolidated financial
statements and notes thereto contained in the Company's Form 10-K for the year
ended December 31, 1996.
In the opinion of management, all adjustments (which include only normal
recurring adjustments) necessary to present fairly the financial position,
results of operations and cash flows for all periods presented have been made.
Interim results are not necessarily indicative of results expected for the full
year.
(2) RESTRICTED STOCK GRANT
----------------------
During the second quarter of 1997, the Company agreed to cancel the
outstanding subscription receivable due from a former officer in exchange for
the shares of restricted common stock that secured this receivable. As a result
of this transactions 273,910 shares of common stock were put into treasury and
the subscription receivable was eliminated.
(3) RECENT ACCOUNTING PRONOUNCEMENTS
--------------------------------
In February 1997, Statement of Financial Accounting Standards No. 128,
"Earnings per Share" (FAS 128) was issued. FAS 128 specifies the computation,
presentation and disclosure requirements for earnings per share (EPS) for
entities with publicly held common stock or potential common stock. FAS 128
simplifies the standards for computing EPS previously found in Accounting
Principles Board Opinion No. 15, "Earnings per Share" (APB 15) and makes them
comparable to international EPS standards. It replaces the presentation of
primary EPS with a presentation of basic EPS. It also requires dual
presentation of basic and dilutive EPS on the face of the statement of
operations for all entities with complex capital structures and requires a
reconciliation of the numerator and denominator of the basic EPS computation to
the numerator and denominator of the dilutive EPS computation. FAS 128 is
effective for financial statements issued for periods ending after December 15,
1997, including interim periods; earlier application is not permitted. FAS 128
requires restatement of all prior-period EPS data presented. The Company plans
to adopt FAS 128 in its financial statements as of and for the year ended
December 31, 1997. Based on current circumstances, the adoption of this
pronouncement would not have had a material effect on the June 30, 1997 and 1996
EPS amounts reported. Pro forma basic EPS and pro forma dilutive EPS computed
assuming FAS 128 had been adopted are equivalent to the historical amounts
reported.
Also, during 1997, the FASB issued pronouncements relating to the
presentation and disclosure of information related to the Company's capital
structure, comprehensive income and segment data. The Company is required to
adopt the provisions of these pronouncements, if applicable, for the year ending
December 31, 1998. The adoption of the pronouncements will not have an impact
on the Company's financial position and results of operations but may change the
presentation of certain of the Company's financial statements and related notes
and data thereto.
6
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
- --------
USDATA Corporation (the "Company") provides a wide range of software
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. 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
management information systems (the "Software Operations"). The Company is also
engaged in the sale of automatic identification equipment, distributed
management software and related integration services that allow remote, real-
time data collection using a variety of automatic identification techniques (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 integration services, training classes and customer 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 13.7% and 15.6%
of Software Operations' net sales during the quarters ended June 30, 1997 and
June 30, 1996 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.
During the first half of 1997, the Company released several significant new
products, including the international release of FactoryLink ECS 6.0.3, which
introduced double-byte functionality supporting the complex character sets of
the Japanese, Chinese and Korean languages. Additionally, the Company released
French and German language development and run-time versions of FactoryLink ECS.
The Company also announced the worldwide release of FactoryLink ECS WebClient,
which has received significant interest and the Company expects this product to
increase net sales during 1997. The Company has also \restructured its European
operations and hired a new managing director based in London. In addition,
effective July 30, 1997 the Company announced the appointment of Robert A. Merry
as its new president and chief executive officer.
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 quarters ended June
30, 1997 and 1996, represented 24% and 30%, respectively, of total net sales.
The statements made above regarding WebClient are forward-looking
statements that involve risks and uncertainties. Potential risks and
uncertainties include market acceptance, promotional programs and the possible
introduction of competitive products.
7
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RESULTS OF OPERATIONS
- ---------------------
The following table sets forth, for the periods indicated, selected
statement of operations data as a percentage of net sales:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net Sales
Software 57.9% 55.1% 58.9% 59.2%
Systems 42.1 44.9 41.1 40.8
-------- -------- -------- --------
Total sales 100.0 100.0 100.0 100.0
Cost of sales 35.7 27.8 35.1 26.3
-------- -------- -------- --------
Gross profit 64.3 72.2 64.9 73.7
Operating expenses
Selling 48.7 54.9 52.7 52.6
Product development 11.0 11.1 9.9 11.1
General and administrative 15.4 6.5 14.2 8.0
-------- -------- -------- --------
Total operating expense 75.1 72.5 76.8 71.7
-------- -------- -------- --------
Income (loss) from operations (10.8) (.3) (11.9) 2.0
Interest income 1.2 1.2 .9 1.1
-------- -------- -------- --------
Income (loss) before income taxes (9.6)% 0.9% 11.0% 3.1%
======== ======== ======== ========
</TABLE>
Comparison of Three Months Ended June 30, 1997 and 1996
- -------------------------------------------------------
Net sales for the quarter ended June 30, 1997 decreased 1% compared to the
same period in 1996. Software Operations net sales increased 4% compared to the
second quarter of 1996. The increase is a result of a 33% increase in sales in
the United States offset by a 20% decrease in international sales.
International sales represented 41% of Software Operations net sales for the
quarter ended June 30, 1997, compared to 54% for the same quarter in 1996.
Systems Operations net sales decreased 7% compared to the second quarter of 1996
primarily due to increased competition.
Gross profit margin for the quarter ended June 30, 1997 decreased to 64.3%
compared to 72.2% in the comparable quarter of 1996. The decrease in gross
margin is a result of competitive pressures on margins in the Systems
Operations.
Selling expenses decreased to 48.7% of net sales for the quarter ended June
30, 1997 compared to 54.9% in the comparable period in 1996. The decrease is a
result of the Company's efforts to reduce expenses in the second quarter of
1997, and higher 1996 expenditures to promote FactoryLink ECS. These
expenditures include sales seminars throughout the U.S., advertising,
international and domestic trade shows, sales collateral material, demonstration
CD's, sales videos, travel and training expenses for new salespeople.
8
<PAGE>
Product development expenses as a percent of net sales for the quarter
ended June 30, 1997 approximated the comparable period in 1996. Actual product
development expenses, including capitalized development costs of $58,000 and
$247,000 in the quarter ended June 30, 1997 and 1996, respectively, were lower,
as compared to the second quarter of 1996. This decrease is due to a decrease
in the number of engineers on staff. The decrease in capitalized software
development costs related to the completion of development efforts on
FactoryLink ECS for Asia and Japan and FactoryLink ECS WebClient in the first
quarter of 1997.
General and administrative expenses increased as a percent of net sales for
the quarter ended June 30, 1997 compared to the comparable period in 1996. The
increase is due to higher information technology costs and an increase in
allowance for doubtful accounts.
Comparison of Six Months Ended June 30, 1997 and 1996
- -----------------------------------------------------
Net sales for the six months ended June 30, 1997 decreased 5% compared to
the same period in 1996. Software Operations net sales decreased 6% compared to
the six months ended June 30, 1996. The decrease is a result of a 24% increase
in sales in the United States offset by a 33% decrease in international sales.
International sales represented 36% of Software Operations net sales for the six
months ended June 30, 1997, compared to 52% for the six months ended June 30,
1996. Systems Operations net sales decreased 4% compared to the six months
ended June 30, 1996 primarily due to increased competition.
Gross profit margin for the six months ended June 30, 1997 decreased to
64.9% compared to 73.7% in the comparable 1996 period. The decrease in gross
margin is a result of competitive pressures on margins in the Systems
Operations.
Selling expenses remained consistent at 52.7% of net sales for the six
months ended June 30, 1997 compared to 52.6% in the comparable period in 1996.
As a percent of net sales, product development expenses for the six months
ended June 30, 1997 of 9.9% were below the comparable period in 1996, at 11.1%,
primarily due to a decrease in the number of engineers on staff and higher
capitalized software development costs. Actual product development expenses,
including capitalized development costs of $582,000 and $437,000 in the six
months ended June 30, 1997 and 1996, respectively, were lower, as compared to
the six months ended June 30, 1996. This decrease is due to a decrease in the
number of engineers on staff. The increase in capitalized software development
costs related to development efforts on FactoryLink ECS for Asia and Japan and
FactoryLink ECS WebClient.
General and administrative expenses increased as a percent of net sales for
the six months ended June 30, 1997 compared to the comparable period in 1996.
The increase is due to lower net sales in for the first six months of 1997
compared to 1996, higher information technology costs and an increase in
allowance for doubtful accounts.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
The Company's operating activities provided $381,000 of cash during the
six months ended June 30, 1997. Offsetting the net loss for the six months
ended June 30, 1997 was the collection of an income tax receivable of
approximately $1.1 million, decreased accounts receivable and inventory
reductions. During the six months ended June 30, 1997, the Company invested
$795,000 in capital equipment, primarily computers, and capitalized $582,000 in
software development costs.
During June of 1997, the Company's previous $5 million revolving credit
facility expired. The Company did not make any borrowings under this facility
and intends on securing a similar facility during the second half of 1997.
9
<PAGE>
The Company believes cash on hand and cash generated from operations will
be sufficient to satisfy its operating cash needs into the first half of 1998.
In addition, the Company could consider seeking additional public or private
debt or equity financing to fund future growth opportunities or acquisitions.
10
<PAGE>
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held its Annual Meeting of Shareholders on June 24, 1997. At
this meeting, the shareholders voted in favor of electing as directors the six
nominees named in the Proxy Statement dated May 28, 1997. One nominee named in
the Proxy Statement resigned from the Board of Directors for personal reasons
prior to the Annual Meeting of Shareholders. The number of votes cast were as
follows:
I. ELECTION OF DIRECTORS
FOR WITHHELD
--- --------
Arthur R. Spector 8,281,691 155,196
Gary J. Anderson, M.D. 8,281,741 155,146
James W. Dixon 8,281,841 155,046
Max D. Hopper 8,281,591 155,296
Jerry L. Johnson 8,262,324 174,563
Jack L. Messman 8,094,929 341,958
ITEM 6. EXHIBITS
(a) Exhibits (filed as part of this report).
Number Description
------ -----------
11 Computation of Income Per Common Share
27 Financial Data Schedule
(Edgar Version Only)
(b) Reports on Form 8-K
No reports on Form 8-K have been filed by the Registrant
during the quarter ended June 30, 1997
11
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USDATA CORPORATION AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on behalf by the undersigned
thereunto duly authorized.
USDATA CORPORATION, INC.
Date: August 12, 1997 /s/ Robert A. Merry
--------------------------------------------------
Robert A. Merry
President and Chief Executive Officer
Date: August 12, 1997 /s/ Freddy L. Holder
--------------------------------------------------
Freddy L. Holder
Controller
(Principal Financial and Accounting Officer)
12
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USDATA CORPORATION AND SUBSIDIARIES
EXHIBIT 11 - COMPUTATION OF PER SHARE EARNINGS
(in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------------ -----------------------
1997 1996 1997 1996
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net income (loss) $ (602) $ 69 $ (1,439) $ 444
========= ========= ========= =========
Average common shares outstanding 11,380 11,024 11,233 10,990
Average common share equivalents - 1,458 - 1,465
--------- --------- --------- ---------
Average number of common shares and
common share equivalents outstanding 11,380 12,482 11,233 12,455
========= ========= ========= =========
Income (loss) per common share $ (.05) $ 0.01 $ (.13) $ 0.04
========= ========= ========= =========
</TABLE>
13
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE COMPANY'S
CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD ENDED JUNE 30, 1997 (UNAUDITED)
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 5,540
<SECURITIES> 0
<RECEIVABLES> 9,896
<ALLOWANCES> 990
<INVENTORY> 1,578
<CURRENT-ASSETS> 18,151
<PP&E> 9,129
<DEPRECIATION> 5,759
<TOTAL-ASSETS> 23,182
<CURRENT-LIABILITIES> 7,137
<BONDS> 0
0
0
<COMMON> 143
<OTHER-SE> 15,392
<TOTAL-LIABILITY-AND-EQUITY> 23,182
<SALES> 19,669
<TOTAL-REVENUES> 19,669
<CGS> 6,907
<TOTAL-COSTS> 15,111
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (2,181)
<INCOME-TAX> (742)
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,439)
<EPS-PRIMARY> (0.13)
<EPS-DILUTED> (0.13)
</TABLE>
