<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended March 31, 1998
[ ] 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 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, 1998
Class Number of Shares
Outstanding
Common Stock, Par Value $.01 Per Share 11,210,166 shares
<PAGE> 2
USDATA CORPORATION
FORM 10-Q
QUARTER ENDED MARCH 31, 1998
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
Number
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets at
March 31, 1998 and December 31,
1997 3
Consolidated Statements of Operations
for the Three Months Ended
March 31, 1998 and 1997 4
Consolidated Statements of Cash Flows
for the Three Months Ended
March 31, 1998 and 1997 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 10
Computation of Per Share Earnings 11
</TABLE>
2
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USDATA CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) 1998 1997
================================================================================================
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 4,616 $ 5,204
Accounts receivable, net of allowance for doubtful
accounts of $1,315 and $1,158, respectively 5,271 4,573
Deferred income taxes 2,345 2,345
Other current assets 697 436
- ------------------------------------------------------------------------------------------------
Total current assets 12,929 12,558
- ------------------------------------------------------------------------------------------------
Property and equipment, net 3,359 2,416
Capitalized computer software development costs,
net of accumulated amortization of $2,346
and $2,161, respectively 2,326 1,938
Other assets 92 90
Net assets of discontinued operations 207 2,252
- ------------------------------------------------------------------------------------------------
Total assets $ 18,913 $ 19,254
================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,673 $ 952
Deferred revenue 1,369 1,257
Accrued compensation and benefits 766 955
Other accrued liabilities 2,189 1,488
- ------------------------------------------------------------------------------------------------
Total current liabilities 5,997 4,652
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Deferred income taxes 731 729
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Total liabilities 6,728 5,381
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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 in 1998 and 1997 143 143
Additional paid-in capital 16,430 16,365
Retained earnings 6,754 8,919
Treasury stock at cost, 3,179,684 shares in 1998
and 3,321,894 shares in 1997 (11,142) (11,554)
- ------------------------------------------------------------------------------------------------
Total stockholders' equity 12,185 13,873
- ------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 18,913 $ 19,254
================================================================================================
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
3
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USDATA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) 1998 1997
=====================================================================================================
<S> <C> <C>
Net sales $ 5,640 $ 5,917
Cost of sales 368 533
- -----------------------------------------------------------------------------------------------------
Gross profit 5,272 5,384
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Operating expenses:
Selling 3,784 4,622
Product development 822 884
General and administrative 1,168 1,246
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Total operating expenses 5,774 6,752
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Loss from operations (502) (1,368)
Interest income 58 50
- -----------------------------------------------------------------------------------------------------
Loss from continuing operations before income taxes (444) (1,318)
Income tax (provision) benefit (2) 440
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Loss from continuing operations (446) (878)
- -----------------------------------------------------------------------------------------------------
Discontinued operations:
Income (loss) from discontinued Systems Operations
(net of income taxes of $21 in 1997) (219) 41
Estimated loss on disposal of discontinued System Operations,
including provision for operating losses of $250 (1,500) --
- -----------------------------------------------------------------------------------------------------
Income (loss) from discontinued Systems Operations (1,719) 41
- -----------------------------------------------------------------------------------------------------
Net Loss $ (2,165) $ (837)
=====================================================================================================
Earnings per share (basic & dilutive):
Loss from continuing operations $ (0.04) $ (0.08)
Loss from discontinued operations (0.16) --
- -----------------------------------------------------------------------------------------------------
Net Loss $ (0.20) $ (0.08)
=====================================================================================================
Weighted average shares outstanding: 11,100 11,085
=====================================================================================================
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
4
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USDATA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
(IN THOUSANDS) 1998 1997
================================================================================================================
<S> <C> <C>
Cash flows from operating activities:
Net loss from continuing operations $ (446) $ (878)
- ----------------------------------------------------------------------------------------------------------------
Adjustments to reconcile net loss from continuing operations to net cash
provided by (used in) continuing operations:
Depreciation and amortization 507 312
Changes in assets and liabilities:
Accounts receivable (698) 696
Income tax receivable -- 1,050
Deferred income taxes 2 (826)
Accounts payable and accrued liabilities 640 1,006
Deferred revenue 112 (189)
Accrued compensation and benefits (189) 66
Accrued income taxes -- --
Other - net (292) 39
- ----------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) continuing operations (364) 1,276
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Cash flows from investing activities:
Capital expenditures (53) (521)
Purchase of MES software (400) --
Capitalized software development costs (573) (524)
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Net cash used in investing activities (1,026) (1,045)
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Cash flows from financing activities:
Proceeds from issuance of common shares 477 171
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Net cash provided by financing activities 477 171
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Cash flows from discontinued operations 326 (51)
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Net increase (decrease) in cash and cash equivalents (587) 351
Cash and cash equivalents, beginning of period 5,203 6,398
- ----------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of period $ 4,616 $ 6,749
================================================================================================================
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
5
<PAGE> 6
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, 1997.
In the opinion of management, all 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) DISCONTINUED OPERATIONS
During the first quarter of 1998, the Systems Operations incurred an
operating loss of $219,000. In addition, the Company revised its previous
estimate related to the disposal of this business and recorded an additional
$1,500,000 loss, which included estimated operating losses from March 31, 1998
through disposal date of $250,000.
(3) RECENT ACCOUNTING PRONOUNCEMENTS
Effective January 1, 1998, the Company adopted pronouncements issued by
the Financial Accounting Standards Board ("FASB") relating to the presentation
and disclosure of information related to comprehensive income (SFAS 130),
segment data (SFAS 131) and pensions and other postretirement benefits (SFAS
132). The adoption of these provisions did not have a material effect on the
Company's financial position or results of operations for the first quarter of
1998 and the Company does not anticipate it will have a material impact in the
future, but may change the presentation of certain of the Company's financial
statements and related notes and data thereto.
Also, effective 1-1-98, the Company adopted a Statement of Position
(SOP) on software revenue recognition (SOP 97-2) issued by the Accounting
Standards Executive Committee of the American Institute of Certified Public
Accountants that supersedes SOP 91-1. The adoption of SOP 97-2 did not have a
material effect on the Company's financial position or results of operations for
the first quarter of 1998 and the Company does not anticipate it will have a
material impact in the future.
6
<PAGE> 7
USDATA CORPORATION AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
USDATA Corporation (the "Company") is a global supplier of real-time
manufacturing application software and development tools, and related consulting
services. The Company's products and services help automate manufacturing and
process control applications. Its real-time data management capabilities enable
customers to reduce operating costs, shorten cycle times, improve product
quality and increase productivity. 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").
In early 1998, the Company disclosed its intention to dispose of its
system integration and hardware servicing business (the "Systems Operations").
This business has historically been engaged in the sale of automatic
identification (Auto ID) equipment, distributed management software and related
integration services that allow remote, real-time data collection using a
variety of automatic identification techniques. The System Operations' net sales
are generated from sales of third-party automated data collection equipment,
distributed management software and related repair, installation and integration
services. As a result of this decision, the Company's revenues and operating
expenses for the periods presented herein reflect only the Software Operations
with the net results of the Systems Operations reported on its statements of
operations under the caption Discontinued Operations.
The Company currently derives all of its net sales from the Software
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, 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 11%, and 10% of Software Operations' net sales
during the three months ended March 31, 1998 and 1997, respectively.
In February 1998, the Company began shipping FactoryLink ECS 6.5, which
provides a number of enhancements and is year 2000 compliant. FactoryLink ECS
6.5 is the server platform for FactoryLink ECS WebClient, which allows users to
view and control their production processes using a simple Web browser.
FactoryLink ECS 6.5 supports OPC (Object Linking and Embedding for Process
Control) to provide connectivity to data collection devices such as PLC's
(Programmable Logic Controllers) and RTU's (Remote Terminal Units). FactoryLink
ECS 6.5 also supports MicroSoft Windows Terminal Server.
Effective January 12, 1998, the Company entered into an agreement to
purchase a Manufacturing Execution Systems ("MES") software product, for
$400,000 cash and 165,000 shares of the Company's common stock for $.01 per
share. The common stock is expected to be issued in the second quarter of 1998
and will be restricted from sale. Restrictions on the sale of the stock will
lapse upon the achievement of certain performance factors and time. The Company
recorded $782,000 in accrued liabilities at March 31, 1998, which reflects the
value of the stock to be issued based upon the closing price of the Company's
common stock on January 12, 1998. The total purchase price of $1,182,000 is
included in property and equipment at March 31, 1998.
7
<PAGE> 8
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>
THREE MONTHS ENDED
MARCH 31,
1998 1997
=========================================================================================================
<S> <C> <C>
Net sales 100.0% 100.0%
Cost of sales 6.5% 9.0%
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Gross profit 93.5% 91.0%
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Operating expenses:
Selling 67.1% 78.1%
Product development 14.6% 14.9%
General and administrative 20.7% 21.1%
- ---------------------------------------------------------------------------------------------------------
Total operating expenses 102.4% 114.1%
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Loss from operations (8.9)% (23.1)%
Interest income 1.0% 0.8%
- ---------------------------------------------------------------------------------------------------------
Loss from continuing operations before income taxes (7.9)% (22.3)%
Income tax (provision) benefit (0.0)% 7.4%
- ---------------------------------------------------------------------------------------------------------
Loss from continuing operations (7.9)% (22.3)%
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Discontinued operations:
Income (loss) from discontinued Systems Operations (3.9)% 0.7%
Estimated loss on disposal of discontinued System Operations, (26.6)% 0.0%
- ---------------------------------------------------------------------------------------------------------
Income (loss) from discontinued Systems Operations (30.5)% 0.7%
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
Net Loss (38.4)% (14.1)%
=========================================================================================================
</TABLE>
Net sales for the quarter ended March 31, 1998 decreased 5% compared to
the same period in 1997 primarily as a result of lower consulting revenues
partially offset by higher software product sales.
Gross profit as a percentage of net sales increased primarily due to
the replacement of printed product documentation with CD based product
documentation.
Selling expenses decreased in 1998 compared to 1997 primarily related
to cost reduction efforts and organizational changes, as the Company focuses its
sales efforts on selected distributors and VARs.
Gross product development expenditures, including capitalized software
development costs of $573,000 and $524,000, in the quarter ended March 31, 1998
and 1997, respectively, were approximately the same in both periods. During
1998, the Company will continue to capitalize development costs related to its
next major version of FactoryLink ECS software.
General and administrative expenses decreased slightly in 1998 compared
to 1997. The decrease is primarily due to lower consulting fees, salaries and
bonuses partially offset by an increase in the provision for doubtful accounts.
8
<PAGE> 9
The Company did not record an income tax benefit for the first quarter
of 1998, as it would be based upon the future operating results of the Company.
During the first quarter of 1997, the company recorded a deferred income tax
benefit based on its ability to carryback losses to profitable periods
LIQUIDITY AND CAPITAL RESOURCES
The Company's operating activities used $364,00 of cash during the
quarter ended March 31, 1998. Also, during the first quarter of 1998, the
Company invested $53,000 in capital equipment, primarily computers, $400,000 for
the purchase of an MES software product and $573,000 in capitalized software
development costs as described above. The Company also received $477,000 related
to proceeds from exercise of stock options during the first quarter of 1998.
Total cash usage for the first quarter of 1998 was $587,000.
The Company believes cash on hand and cash generated from operations
will be sufficient to satisfy its operating cash needs into the future. The
Company is in the process of establishing a new credit facility which could be
used to fund operating and capital requirements should the business expand more
rapidly than expected. The Company is also in the process of selling the Systems
Operations and believes such sale could generate additional cash available for
use in the business. 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 the Company's Annual Report on Form 10-K for the
year ended December 31, 1997. 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.
9
<PAGE> 10
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
11.1 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, 1998.
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 15, 1998 /s/ Robert A. Merry
---------------------------------------
Robert A. Merry
President and Chief Executive Officer
Date: May 15, 1998 /s/ Robert L. Drury
---------------------------------------
Robert L. Drury
Vice President Finance, Chief Financial
Officer Treasurer and Secretary
(Principal Financial and
Accounting Officer)
10
<PAGE> 11
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Number Description
- ------ -----------
<S> <C>
11.1 Computation of Per Share Earnings
27 Financial Data Schedule
(EDGAR Version only)
</TABLE>
<PAGE> 1
USDATA CORPORATION AND SUBSIDIARIES
EXHIBIT 11.1 - COMPUTATION OF PER SHARE EARNINGS
(in thousands, expect per share data)
<TABLE>
<CAPTION>
THREE MONTHS ENDED, MARCH 31,
----------------------------
1998 1997
----------------------------
<S> <C> <C>
Net earnings (loss):
Continuing operations $ (446) $ (878)
Discontinued operations (1,719) 41
----------------------------
Net loss $ (2,165) $ (837)
============================
Weighted average common shares outstanding 11,100 11,085
Common share equivalents -- --
----------------------------
Weighted average common shares and common share
equivalents (if dilutive) outstanding 11,100 11,085
============================
Net loss per common share (Basic & Dilutive)
Continuing operations $ (0.04) $ (0.08)
Discontinued operations (0.16) --
----------------------------
Net loss $ (0.20) $ (0.08)
============================
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD MARCH 31, 1998 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-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 4,616
<SECURITIES> 0
<RECEIVABLES> 6,586
<ALLOWANCES> 1,315
<INVENTORY> 275
<CURRENT-ASSETS> 12,929
<PP&E> 9,051
<DEPRECIATION> 5,692
<TOTAL-ASSETS> 18,913
<CURRENT-LIABILITIES> 5,997
<BONDS> 0
0
0
<COMMON> 143
<OTHER-SE> 23,184
<TOTAL-LIABILITY-AND-EQUITY> 12,185
<SALES> 5,640
<TOTAL-REVENUES> 5,640
<CGS> 368
<TOTAL-COSTS> 5,774
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (444)
<INCOME-TAX> (2)
<INCOME-CONTINUING> (446)
<DISCONTINUED> (1,719)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,165)
<EPS-PRIMARY> (0.20)
<EPS-DILUTED> (0.20)
</TABLE>
