<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
(Mark One)
X Quarterly Report pursuant to Section 13 or 15(d) of the Securities
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Exchange Act of 1934
For the quarterly period ended March 31, 1997
Transition Report pursuant to Section 13 or 15(d) of the Securities
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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 12 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 April 30, 1997
Class Number of Shares
Outstanding
Common Stock, Par Value $.01 Per Share 11,104,529 shares
<PAGE>
USDATA CORPORATION
FORM 10-Q
QUARTER ENDED MARCH 31, 1997
TABLE OF CONTENTS
Page
Number
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets at
March 31, 1997 and December 31,
1996 3
Consolidated Statements of Operations
for the Three Months Ended
March 31, 1997 and 1996 4
Consolidated Statements of Cash Flows
for the Three Months Ended
March 31, 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 10
Signatures 11
Computation of Per Share Earnings 12
2
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USDATA CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE DATA)
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<TABLE>
<CAPTION>
March 31, 1997 December 31, 1996
--------------- ------------------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 6,749 $ 6,398
Accounts receivable, net of
allowance for doubtful accounts
of $580 and $605, respectively 9,621 10,088
Inventories 1,017 1,067
Income tax receivable - 1,050
Deferred income taxes 1,928 1,375
Other current assets 883 638
----------- ----------
Total current assets 20,198 20,616
Property and equipment, net 3,124 3,164
Other assets 1,734 1,273
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Total assets $ 25,056 $ 25,053
=========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $ 3,897 $ 3,516
Deferred revenue 2,660 2,749
Accrued compensation and 712 682
benefits
Other accrued liabilities 1,320 948
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Total current liabilities 8,589 7,895
Deferred income taxes 510 510
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Total liabilities 9,099 8,405
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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; 143 143
14,343,550 shares issued
Additional paid-in capital 16,311 16,282
Subscription receivable from
officer (1,120) (1,095)
Retained earnings 11,772 12,609
Treasury stock at cost, 3,239,122
shares in 1997 and 3,288,021
shares in 1996. (11,149) (11,291)
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Total shareholders' equity 15,957 16,648
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Total liabilities and
shareholders' equity $ 25,056 $ 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)
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<TABLE>
<CAPTION>
Three Months Ended
March 31,
------------------
1997 1996
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<S> <C> <C>
Net sales
Software $ 5,997 $ 6,912
Systems 4,029 4,089
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Total sales 10,026 11,001
Cost of sales 3,461 2,741
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Gross profit 6,565 8,260
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Operating expenses
Selling 5,677 5,550
Product development 884 1,224
General and administrative 1,310 1,031
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Total operating expenses 7,871 7,805
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Income (loss) from operations (1,306) 455
Interest income 50 120
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Income (loss) before income taxes (1,256) 575
Income tax (provision) benefit 419 (200)
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Net income (loss) $ (837) $ 375
======= =======
Income (loss) per common share $ (0.08) $ 0.03
======= =======
Weighted average number of shares outstanding 11,085 12,424
======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
<TABLE>
<CAPTION>
USDATA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN THOUSANDS)
- -------------------------------------------------------------------------------
Three months ended March 31,
----------------------------
1997 1996
------------ -------------
Cash flows from operating activities:
<S> <C> <C>
Net Income (loss) $ (837) $ 375
Adjustments to reconcile net income
to cash provided by operating activities:
Depreciation and amortization 365 313
Changes in operating assets
and liabilities:
Accounts receivable 467 803
Inventories 50 35
Income tax receivable 1,050 -
Deferred income taxes (553) -
Accounts payable and 770 (313)
accrued liabilities
Deferred revenue (89) 131
Accrued income taxes - 252
Other - net (18) (272)
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Net cash provided by operating activities 1,205 1,324
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Cash flows from investing activities:
Capital expenditures (471) (619)
Related party note receivable - 7,040
Capitalized software development costs (524) (190)
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Net cash provided by (used in)
investing activities (995) 6,231
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Cash flows from financing activities:
Proceeds from issuance of common shares 171 278
Payments on capital lease obligations (30) (15)
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Net cash provided by financing activities 141 263
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Net increase in cash and cash equivalents 351 7,818
Cash and cash equivalents, beginning of period 6,398 1,504
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Cash and cash equivalents, end of period $ 6,749 $ 9,322
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</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 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) RELATED PARTY TRANSACTIONS
--------------------------
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 $30,000 per month. The initial
agreement expired on December 31, 1995, and is renewed annually on a year to
year basis.
(3) CREDIT ARRANGEMENTS
-------------------
In June 1996, the Company negotiated a $5 million line of credit which is
renewed on a yearly basis with interest payable on the unpaid balance at the
LIBOR rate plus 2.0%. The credit facility contains restrictions on the
Company's ability to pay dividends on its common stock and also contains a
number of financial covenants, including certain working capital requirements.
The Company does not have any borrowing under the facility.
(4) 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 March 31, 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.
6
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USDATA CORPORATION AND SUBSIDIARIES
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,
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 services 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 10% and 4% of
Software Operations' net sales during the quarters ended March 31, 1997 and
March 31, 1996, respectively. The Systems 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 1997, the Company released or announced 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. During the first quarter of 1997, the Company also announced
the worldwide release of FactoryLink ECS WebClient, which was released on May 1,
1997. The Company has received significant interest in WebClient and expects
this product to increase net sales during 1997. Additionally, the Company
restructured its European operations during the first quarter and hired a new
managing director based in London.
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 March
31, 1997 and 1996, represented 19% and 31%, 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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USDATA CORPORATION AND SUBSIDIARIES
-----------------------------------
RESULTS OF OPERATIONS
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The following table sets forth, for the periods indicated, selected
statements of income data as a percentage of net sales:
<TABLE>
<CAPTION>
Three Months Ended
March 31,
----------------------------
1997 1996
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<S> <C> <C>
Net sales
Software 59.8% 62.8%
Systems 40.2 37.2
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Total sales 100.0 100.0
Cost of sales 34.5 24.9
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Gross profit 65.5 75.1
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Operating expenses
Selling 56.6 50.4
Product development 8.8 11.1
General and administrative 13.1 9.4
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Total operating expenses 78.5 70.9
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Income (loss) from operations (13.0) 4.2
Interest income 0.5 1.1
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Income (loss) before income taxes (12.5)% 5.3%
======== ======
</TABLE>
Net sales for the quarter ended March 31, 1997 decreased 9% compared to the
same period in 1996. Software Operations, net sales for the quarter ended March
31, 1997 decreased 13% compared to the same period in 1996. The decrease is
primarily a result of weak international sales in Asia, the Middle East and
Europe offset by a 21% increase in the Americas. International sales
represented 31% of Software Operations sales for the quarter ended March 31,
1997, as compared to 50% for the same quarter last year. Systems Operations,
net sales for the quarter ended March 31, 1997 decreased 1% compared to the same
period in 1996.
Gross profit as a percentage of net sales for the quarter ended March 31,
1997 decreased to 65.5%. Contributing to this decrease was the increase in the
Systems Operation's net sales as an overall percent of net sales, which have
lower gross margins than software sales. Additionally, the Systems business
experienced lower gross margins in the first quarter of 1997 versus the first
quarter of 1996 due to increased competition.
8
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USDATA CORPORATION AND SUBSIDIARIES
Selling expenses increased to 56.6% of net sales for the quarter ended
March 31, 1997 compared to 50.4% in the comparable period in 1996. The increase
in absolute dollars primarily related to additional integrators and consultants
on staff as the Company continued to build its consulting and integration
capacity, as well as overall salaries and benefit increases. During the quarter
ended March 31, 1997, the Company employed 22 integrators and consultants versus
12 in the comparable period of 1996. This increase was offset by lower spending
in marketing and promotional activities. The increase as a percent of net sales
is a result of lower than anticipated net sales.
As a percent of net sales, product development expenses for the quarter
ended March 31, 1997 of 8.8% was below the comparable period of 1996, at 11.1%
primarily due to a decrease in the number of engineers on staff. Actual product
development expenditures, including capitalized development costs of $524,000
and $190,000 in the quarter ended March 31, 1997 and 1996, respectively, were
approximately the same at $1.4 million. The increase in capitalized development
costs in the quarter ended March 31, 1997 compared to March 31, 1996 related to
development efforts on FactoryLink ECS for Asia and Japan and FactoryLink ECS
WebClient. These development efforts were effectively completed in the first
quarter of 1997. As a result, capitalized development costs will be
significantly reduced in the second quarter, resulting in an increase in net
product development expenses.
General and administrative expenses increased to 13.1% of net sales for the
quarter ended March 31, 1997 compared to 9.4% in the quarter ended March 31,
1996. The increase as a percent of net sales is due to lower than expected net
sales in the first quarter of 1997. The increase in absolute dollars of
$279,000 is due to increased salaries, benefits and taxes in 1997 versus 1996.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
The Company's operating activities generated $1.2 million of cash during
the quarter ended March 31, 1997. Offsetting the net loss for the quarter
ended March 31, 1997 was the collection of an income tax receivable of
approximately $1.1 million, decreased accounts receivable, inventory reductions
and increased accounts payable. During the quarter ended March 31, 1997, the
Company invested $471,000 in capital equipment, primarily computers, and
$524,000 in capitalized software development costs as described above.
The Company believes cash on hand and cash generated from operations
together with the existing bank line of credit will be sufficient to satisfy its
operating cash needs in 1997. In addition, the Company could consider seeking
additional public or private debt or equity financing or increased bank credit
lines to fund future growth opportunities.
9
<PAGE>
USDATA CORPORATION AND SUBSIDIARIES
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits (filed as part of this report).
Number Description
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11 Computation of Per Share Earnings
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 March 31, 1997.
10
<PAGE>
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: May 12, 1997 /s/ Bill E. Newell
-------------------------------------
Bill E. Newell
President and Chief Executive Officer
Date: May 12, 1997 /s/ Jay B. Shipowitz
-------------------------------------
Jay B. Shipowitz
Senior Vice President Finance &
Administration, Chief Financial Officer
Treasurer and Secretary (Principal
Financial and Accounting Officer)
11
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EXHIBIT 11
USDATA CORPORATION AND SUBSIDIARIES
EXHIBIT 11 - COMPUTATION OF PER SHARE EARNINGS
(in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
------------------
1997 1996
-------- --------
<S> <C> <C>
Net income (loss) $ (837) $ 375
======== ========
Weighted average common shares
outstanding 11,085 10,961
Common share equivalents - 1,463
-------- --------
Weighted average number of common
shares outstanding and common share
equivalents 11,085 12,424
======== =======
Income (loss) per common share $ (0.08) $ 0.03
======== =======
</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 MARCH 31, 1997
(UNAUDITED) AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 6,749
<SECURITIES> 0
<RECEIVABLES> 10,201
<ALLOWANCES> 580
<INVENTORY> 1,017
<CURRENT-ASSETS> 20,198
<PP&E> 8,251
<DEPRECIATION> 5,127
<TOTAL-ASSETS> 25,056
<CURRENT-LIABILITIES> 8,589
<BONDS> 0
0
0
<COMMON> 143
<OTHER-SE> 15,814
<TOTAL-LIABILITY-AND-EQUITY> 25,056
<SALES> 10,026
<TOTAL-REVENUES> 10,026
<CGS> 3,461
<TOTAL-COSTS> 7,871
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1,256)
<INCOME-TAX> (419)
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (837)
<EPS-PRIMARY> (0.08)
<EPS-DILUTED> (0.08)
</TABLE>
