<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 September 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
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(Address of principal executive offices)
(Zip Code)
Registrant's telephone number, including area code: (972) 680-9700
----------------------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding twelve months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such requirements
for the past 90 days.
Yes X No
--- ---
----------------------------
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of October 31, 1997:
Class Number of Shares
Outstanding
Common Stock, Par Value $.01 Per Share 10,906,531 shares
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USDATA CORPORATION
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 1997
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
Number
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets at
September 30, 1997 and December 31,
1996 3
Consolidated Statements of Operations
for the Three and Nine Months Ended
September 30, 1997 and 1996 4
Consolidated Statements of Cash Flows
for the Nine Months Ended
September 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 6. Exhibits and Reports on Form 8-K 11
Signatures 12
Computation of Per Share Earnings 13
</TABLE>
2
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USDATA Corporation and Subsidiaries
<TABLE>
<CAPTION>
USDATA Corporation and Subsidiaries
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(In thousands, except share data)
- ---------------------------------------------------------------------------------------------------------------------
September 30, 1997 December 31, 1996
------------------ -----------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 4,334 $ 6,398
Accounts receivable, net of allowance for doubtful
Accounts of $1,374 and $605, respectively 6,828 10,088
Inventories 880 1,067
Income tax receivable -- 1,050
Deferred income taxes 2,838 1,375
Other current assets 334 638
-------- --------
Total current assets 15,214 20,616
Property and equipment, net 3,277 3,164
Other assets 2,313 1,273
-------- --------
Total assets $ 20,804 $ 25,053
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,601 $ 3,516
Deferred revenue 2,238 2,749
Accrued compensation and benefits 671 682
Other accrued liabilities 1,584 948
-------- --------
Total current liabilities 6,094 7,895
Deferred income taxes 510 510
-------- --------
Total liabilities 6,604 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 16,315 16,282
Subscription receivable from officer -- (1,095)
Retained earnings 9,832 12,609
Treasury stock at cost, 3,438,394 shares in 1997 and
3,288,021 shares in 1996 (12,090) (11,291)
-------- --------
Total shareholders' equity 14,200 16,648
-------- --------
Total liabilities and shareholders' equity $ 20,804 $ 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 Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales:
Software $ 4,859 $ 4,807 $ 16,439 $ 17,070
Systems 2,341 4,875 10,430 13,317
-------- -------- -------- --------
Total sales 7,200 9,682 26,869 30,387
Cost of sales 1,780 3,922 8,687 9,361
-------- -------- -------- --------
Gross profit 5,420 5,760 18,182 21,026
Operating expenses:
Selling 4,679 5,857 15,051 16,739
Product development 871 1,133 2,817 3,437
General and administrative 1,942 1,158 4,735 2,817
-------- -------- -------- --------
Total operating expenses 7,492 8,148 22,603 22,993
Loss from operations (2,072) (2,388) (4,421) (1,967)
Interest income 46 105 214 342
-------- -------- -------- --------
Loss before income taxes (2,026) (2,283) (4,207) (1,625)
Income tax benefit 688 696 1,430 482
-------- -------- -------- --------
Net loss $ (1,338) $ (1,587) $ (2,777) $ (1,143)
======== ======== ======== ========
Loss per common share $ (0.12) $ (0.14) $ (0.25) $ (0.10)
======== ======== ======== ========
Weighted average number of shares outstanding 10,852 11,037 11,105 11,004
======== ======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
4
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USDATA Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In thousands)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
Nine months ended
September 30,
-------------------------------
1997 1996
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<S> <C> <C>
Cash flows from operating activities:
Net loss $ (2,777) $ (1,143)
Adjustments to reconcile net income to cash provided by
operating activities:
Depreciation and amortization 1,301 989
Changes in operating assets and liabilities:
Accounts receivable 3,260 1,834
Inventories 187 648
Income tax receivable 1,050 (1,190)
Accounts payable and accrued liabilities (1,120) 330
Deferred revenue (511) 8
Other - net (953) (725)
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Net cash provided by operating activities 437 751
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Cash flows from investing activities:
Capital expenditures (1,220) (1,819)
Related party note receivable - 7,040
Capitalized software development costs (1,422) (719)
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Net cash provided by (used in) investing activities (2,642) 4,502
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Cash flows from financing activities:
Proceeds from issuance of common shares 193 387
Payments on capital lease obligations (52) (45)
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Net cash provided by financing activities 141 342
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Net increase (decrease) in cash and cash equivalents (2,064) 5,595
Cash and cash equivalents, beginning of period 6,398 1,504
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Cash and cash equivalents, end of period $ 4,334 $ 7,099
============ ===========
</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) 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 September 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
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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 14.3% and 12.0%
of Software Operations' net sales during the quarters ended September 30, 1997
and 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 nine months 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. The Company has also restructured its European
operations and hired a new managing director based in the United Kingdom. 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
is currently implementing a new strategic plan with plans for investment
spending over the next several quarters. Under the new strategy, the Company
will be evaluating each of its business lines and how each line will fit with
its new strategic direction.
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 Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
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<S> <C> <C> <C> <C>
Net Sales:
Software 67.5 % 49.6 % 61.2 % 56.2 %
Systems 32.5 50.4 38.8 43.8
--------- -------- ---------- --------
Total sales 100.0 100.0 100.0 100.0
Cost of sales 24.7 40.5 32.3 30.8
--------- -------- ---------- --------
Gross profit 75.3 59.5 67.7 69.2
Operating expenses:
Selling 65.0 60.5 56.0 55.1
Product development 12.1 11.7 10.5 11.3
General and administrative 27.0 12.0 17.6 9.3
--------- -------- ---------- --------
Total operating expenses 104.1 84.2 84.1 75.7
--------- -------- ---------- --------
Loss from operations (28.8) (24.7) (16.5) (6.5)
Interest income .6 1.1 .8 1.1
--------- -------- ---------- --------
Loss before income taxes (28.2)% (23.6)% (15.7)% (5.4)%
========= ======== ========== ========
</TABLE>
Comparison of Three Months Ended September 30, 1997 and 1996
- ------------------------------------------------------------
Net sales for the quarter ended September 30, 1997 decreased 26% compared
to the same period in 1996. Software Operations net sales increased 1% compared
to the third quarter of 1996. The increase in software sales is a result of a
14% increase in sales in the United States offset by a 12% decrease in
international sales. International software sales represented 44% of Software
Operations net sales for the quarter ended September 30, 1997, compared to 51%
for the same quarter in 1996. Systems Operations net sales decreased 52%
compared to the third quarter of 1996 primarily due to increased competition,
turnover in sales staff and shipping backlog created in September 1997, while
converting to a new integrated accounting system.
Gross profit margin for the quarter ended September 30, 1997 increased to
75% compared to 59% in the comparable quarter of 1996. The increase in gross
margin is a result of higher third quarter 1997 software sales, which carry a
higher margin, as a percent of total third quarter 1997 sales.
Selling expenses increased to 65.0% of net sales for the quarter ended
September 30, 1997 compared to 60.5% in the comparable period in 1996. The
increase is a result of lower total sales in 1997 compared to 1996. Selling
expenses in absolute dollars decreased $1.2 million when compared to the third
quarter of 1996. The decrease is a result of the Company's efforts to reduce
expenses based upon reductions in revenue.
8
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Product development expenses as a percent of net sales for the quarter
ended September 30, 1997 increased to 12.1% of total sales compared to 11.7% in
the third quarter of 1996. The increase is a result of lower total sales in
1997 compared to 1996. Actual gross product development costs were 1.7 million,
including capitalized development costs of $840,000, for the third quarter of
1997 compared to $1.4 million, including capitalized development costs of
$282,000 in the quarter ended September 30, 1996. This increase is due to
development efforts on the Company's next generation of FactoryLink products. A
portion of the continuing development costs will be capitalized throughout the
remainder of 1997 and into 1998.
General and administrative expenses increased as a percent of net sales and
in absolute dollars for the quarter ended September 30, 1997 compared to the
comparable period in 1996. The increase is due to higher information technology
costs, consulting fees and an increase in allowance for doubtful accounts.
Comparison of Nine Months Ended September 30, 1997 and 1996
- -----------------------------------------------------------
Net sales for the nine months ended September 30, 1997 decreased 12%
compared to the same period in 1996. Software Operations net sales decreased 4%
compared to the nine months ended September 30, 1996. The decrease in software
sales is a result of a 14% increase in sales in the United States offset by a
20% decrease in international sales. International software sales represented
42% of Software Operations net sales for the nine months ended September 30,
1997, compared to 51% for the nine months ended September 30, 1996. Systems
Operations net sales decreased 22% compared to the nine months ended September
30, 1996 primarily due to increased competition and turnover in sales staff.
Gross profit margin for the nine months ended September 30, 1997 decreased
to 68% compared to 69% in the comparable 1996 period.
Selling expenses increased to 56.0% of net sales for the nine months ended
September 30, 1997 compared to 55.1% in the comparable period in 1996. The
slight decrease is due to lower total sales in 1997 compared to 1996. Selling
expenses in absolute dollars decreased $1.7 million when compared to the third
quarter of 1996. The decrease is a result of the Company's efforts to reduce
expenses based upon reductions in revenue.
Product development expenses as a percent of net sales for the nine months
ended September 30, 1997 decreased to 10.5% of total sales compared to 11.3% in
the first nine months of 1996. The decrease is primarily due to higher
capitalized software development costs in 1997. Actual gross product
development costs were $4.2 million, including capitalized development costs of
$1.4 million for the nine months ended September 30, 1997, compared to $4.2
million, including $.7 million in capitalized development costs in the nine
months ended September 30, 1996. A portion of the continuing development costs
will be capitalized throughout the remainder of 1997 and into 1998.
General and administrative expenses increased as a percent of net sales and
in absolute dollars for the nine months ended September 30, 1997 compared to the
comparable period in 1996. The increase is due to lower net sales in for the
first nine 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 $437,000 of cash during the
nine months ended September 30, 1997. Offsetting the net loss for the nine
months ended September 30, 1997 was the collection of an income tax receivable
of approximately $1.1 million and decreased accounts receivable. During the
nine months ended September 30, 1997, the Company invested $1.2 million in
capital equipment, primarily computers, and capitalized $1.4 million 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 is in the process of securing a similar facility.
9
<PAGE>
The Company believes cash on hand and cash generated from operations will
be sufficient to satisfy its operating cash needs into the future. In addition,
the Company could consider seeking additional public or private debt or equity
financing to fund future growth opportunities or acquisitions.
FORWARD LOOKING STATEMENTS
- --------------------------
This report includes "forward-looking statements" within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. All statements other than
statements of historical fact included in this report, including without
limitation, certain statements in this Item 2 under the captions "Results of
Operations" and "Liquidity and Capital Resources" may constitute forward looking
statements. Although the Company believes that the expectations reflected in
such forward-looking statements are reasonable, it can give no assurance that
such expectations will prove to be correct. Important factors that could cause
actual results to differ materially from the Company's expectations ("cautionary
statements") are disclosed in this report and the Company's Annual Report on
Form 10-K for the year ended December 31, 1996 (under the caption "Business Risk
Factors" and elsewhere). All subsequent written and oral forward-looking
statements attributable to the Company or persons acting on its behalf are
expressly qualified in their entirety by these cautionary statements.
10
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PART II. OTHER INFORMATION
ITEM 6. EXHIBITS
(a) Exhibits (filed as part of this report).
Number Description
------ -----------
11 Computation of Income Per Common Share
27 Financial Data Schedule
(Edgar Version Only)
(b) Reports on Form 8-K
No reports on Form 8-K have been filed by the Registrant during
the quarter ended September 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: November 14, 1997 /s/ Robert A. Merry
-------------------
Robert A. Merry
President and Chief Executive Officer
Date: November 14, 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 Nine Months Ended
September 30, September 30,
-------------------------------- -------------------------------
1997 1996 1997 1996
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net loss $ (1,338) $ (1,587) $ (2,777) $ (1,143)
============= ============= ============= =============
Average common shares outstanding 10,852 11,037 11,105 11,004
Average common share equivalents - - - -
------------- ------------- ------------- -------------
Average number of common shares and
Common share equivalents outstanding 10,852 11,037 11,105 11,004
============= ============= ============= =============
Loss per common share $ (.12) $ (.14) $ (.25) $ (.10)
============= ============= ============= =============
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL 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> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 4,334
<SECURITIES> 0
<RECEIVABLES> 8,202
<ALLOWANCES> 1,374
<INVENTORY> 880
<CURRENT-ASSETS> 15,214
<PP&E> 8,758
<DEPRECIATION> 5,481
<TOTAL-ASSETS> 20,804
<CURRENT-LIABILITIES> 6,094
<BONDS> 0
0
0
<COMMON> 143
<OTHER-SE> 14,057
<TOTAL-LIABILITY-AND-EQUITY> 14,200
<SALES> 26,869
<TOTAL-REVENUES> 26,869
<CGS> 8,687
<TOTAL-COSTS> 22,603
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (4,207)
<INCOME-TAX> (1,430)
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,777)
<EPS-PRIMARY> (0.25)
<EPS-DILUTED> (0.25)
</TABLE>
