<PAGE> 1
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, 1999
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 October 31, 1999:
Number of Shares
Class Outstanding
Common Stock, Par Value $.01 Per Share 13,109,480 shares
<PAGE> 2
USDATA CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 1999
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
Number
<S> <C> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets at
September 30, 1999 and December 31,
1998 3
Consolidated Statements of Operations
and Comprehensive Income
for the Three and Nine Months Ended
September 30, 1999 and 1998 4
Consolidated Statements of Cash Flows
for the Nine Months Ended
September 30, 1999 and 1998 5
Notes to Consolidated Financial
Statements 6
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of
Operations 9
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 15
Signatures 16
</TABLE>
2
<PAGE> 3
USDATA CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
------------- -----------
<S> <C> <C>
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 5,643 $ 1,980
Accounts receivable, net of allowance for doubtful
accounts of $794 and $1,150, respectively 4,884 6,095
Deferred income taxes 533 533
Other current assets 564 475
------------- -----------
Total current assets 11,624 9,083
------------- -----------
Property and equipment, net 1,738 1,825
Capitalized computer software development costs, net 5,399 4,127
Software held for resale, net 1,139 1,286
Excess of cost over fair value of net assets of acquired business 9,182 --
Other assets 180 80
------------- -----------
Total assets $ 29,262 $ 16,401
============= ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,067 $ 755
Deferred revenue 1,972 2,005
Accrued compensation and benefits 1,089 1,274
Short-term and current portion of long-term debt 95 --
Other accrued liabilities 826 2,072
------------- -----------
Total current liabilities 5,049 6,106
------------- -----------
Long-term debt, less current portion 399 --
------------- -----------
Total liabilities 5,448 6,106
------------- -----------
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.01 par value, 2,200,000 shares authorized; Series A
Cumulative Convertible Preferred
stock; shares issued: 50,000 in 1999 1 --
Common stock, $.01 par value, 22,000,000 shares
authorized; 15,548,369 issued in 1999 and 14,343,550
issued in 1998 155 143
Additional paid-in capital 26,735 16,534
Retained earnings 6,054 5,106
Treasury stock at cost, 2,438,889 shares in 1999
and 3,106,184 shares in 1998 (8,539) (10,929)
Other comprehensive income (592) (559)
------------- -----------
Total stockholders' equity 23,814 10,295
------------- -----------
Total liabilities and stockholders' equity $ 29,262 $ 16,401
============= ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
3
<PAGE> 4
USDATA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
September 30, September 30,
---------------------- ----------------------
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales $ 7,086 $ 4,890 $ 19,858 $ 16,336
Cost of sales 343 221 1,197 942
-------- -------- -------- --------
Gross profit 6,743 4,669 18,661 15,394
-------- -------- -------- --------
Operating expenses:
Selling 4,247 4,275 11,134 11,361
Product development 661 707 1,886 2,252
General and administrative 1,678 1,584 4,545 4,555
-------- -------- -------- --------
Total operating expenses 6,586 6,566 17,565 18,168
-------- -------- -------- --------
Income (loss) from operations 157 (1,897) 1,096 (2,774)
Other income , net 33 53 68 167
Amortization of excess of cost over fair value of net assets
of acquired business (116) -- (116) --
-------- -------- -------- --------
Income (loss) from continuing operations before income taxes 74 (1,844) 1,048 (2,607)
Income tax provision -- -- (100) (36)
-------- -------- -------- --------
Income (loss) from continuing operations 74 (1,844) 948 (2,643)
-------- -------- -------- --------
Discontinued operations:
Loss from discontinued Systems Operations -- -- -- (219)
Loss on disposal of discontinued System Operations,
including operating losses of $250 -- -- -- (1,500)
-------- -------- -------- --------
Loss from discontinued operations -- -- -- (1,719)
-------- -------- -------- --------
Net income (loss) $ 74 $ (1,844) $ 948 $ (4,362)
======== ======== ======== ========
Other comprehensive income, net of tax:
Foreign currency translation adjustment 33 -- (33) --
-------- -------- -------- --------
Comprehensive income (loss) $ 107 $ (1,844) $ 915 $ (4,362)
======== ======== ======== ========
Earnings per share:
Basic
Income (loss) from continuing operations $ 0.01 $ (0.16) $ 0.08 $ (0.24)
Loss from discontinued operations -- -- -- (0.15)
-------- -------- -------- --------
Net income (loss) $ 0.01 $ (0.16) $ 0.08 $ (0.39)
======== ======== ======== ========
Diluted
Income (loss) from continuing operations $ 0.01 $ (0.16) $ 0.07 $ (0.24)
Loss from discontinued operations -- -- -- (0.15)
-------- -------- -------- --------
Net income (loss) $ 0.01 $ (0.16) $ 0.07 $ (0.39)
======== ======== ======== ========
Weighted average shares outstanding:
Basic 12,386 11,233 11,687 11,182
Diluted 13,780 11,233 12,939 11,182
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
4
<PAGE> 5
USDATA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
---------------------
1999 1998
------- -------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) from continuing operations $ 948 $(2,643)
------- -------
Adjustments to reconcile net income (loss) from continuing operations
to net cash provided by continuing operations:
Depreciation and amortization 890 1,156
Changes in assets and liabilities:
Accounts receivable 1,781 363
Accounts payable and accrued liabilities (466) 889
Accrued compensation and benefits (266) (94)
Deferred revenue (963) (128)
Other - net (162) (187)
------- -------
Net cash provided by (used in) continuing operations 1,762 (644)
------- -------
Cash flows from investing activities:
Capital expenditures (340) (615)
Acquisition (6,450) --
Purchase of MES software -- (400)
Capitalized software development costs (1,270) (2,234)
------- -------
Net cash used in investing activities (8,060) (3,249)
------- -------
Cash flows from financing activities:
Debt and capital lease payments (15) --
Proceeds from issuance of common shares 5,009 794
Proceeds from issuance of Series A preferred shares 5,000 --
------- -------
Net cash provided by financing activities 9,994 794
------- -------
Cash flows from discontinued operations -- 291
------- -------
Effect of exchange rate changes on cash (33) --
------- -------
Net increase (decrease) in cash and cash equivalents 3,663 (2,808)
Cash and cash equivalents, beginning of period 1,980 5,204
------- -------
Cash and cash equivalents, end of period $ 5,643 $ 2,396
======= =======
SUPPLEMENTAL DISCLOSURE:
Common stock issued for purchase of software
held for resale (see Note 4) $ 782 --
</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. SIGNIFICANT ACCOUNTING POLICIES
The accompanying unaudited consolidated financial statements of USDATA
Corporation and its subsidiaries (the "Company") for the three and nine month
periods ended September 30, 1999 and 1998 have been prepared in accordance with
generally accepted accounting principles. Significant accounting policies
followed by the Company were disclosed in the notes to the consolidated
financial statements included in the Company's Annual Report on Form 10-K for
the year ended December 31, 1998. In the opinion of the Company's management,
the accompanying consolidated financial statements contain the adjustments,
consisting of normal recurring accruals, necessary to present fairly the
consolidated financial position of the Company at September 30, 1999, and the
consolidated results of its operations and comprehensive income, and cash flows
for the periods ended September 30, 1999 and 1998. Operating results for the
three and nine months ended September 30, 1999 are not necessarily indicative of
the results that may be expected for the year ending December 31, 1999.
2. RECENT ACCOUNTING PRONOUNCEMENTS
In December 1998, the AICPA issued Statement of Position 98-9, "Modification of
SOP 97-2, Software Revenue Recognition, with Respect to Certain Transactions"
("SOP 98-9"). SOP 98-9 amends paragraphs 11 and 12 of SOP 97-2, Software Revenue
Recognition, to require recognition of revenue using the "residual method" when
certain criteria are met. SOP 98-9 is effective for transactions entered into in
fiscal years beginning after March 15, 1999. Earlier adoption is permitted. SOP
98-9 is not expected to have a material impact on the Company's consolidated
results of operations, financial position or cash flows.
3. RECLASSIFICATIONS AND BASIS OF PRESENTATION
Certain prior year balances have been reclassified to conform to the 1999
presentation.
4. SOFTWARE HELD FOR RESALE
In 1998, the Company purchased the underlying code to computer software
licenses, which are held for resale in the ordinary course of business. The
original purchase costs of such software were capitalized and are being
amortized utilizing the straight-line method over the estimated economic life of
three years.
5. ACQUISITIONS
Effective July 1, 1999, the Company entered into an agreement to purchase
substantially all of the assets and certain liabilities of Smart Shop Software,
Inc. for $6.4 million in cash and 500,000 shares of the Company's common stock.
This acquisition has been accounted for under the purchase method of accounting.
The financial statements reflect the preliminary allocation of the purchase
price based on estimated fair values at the date of acquisition. The valuation
of the acquired business, with the assistance of outside consultants, is
currently underway. The valuation process and related charge to earnings for
acquired in-process research and development (preliminarily estimated to be in
the range of $400,000 to $500,000) will be completed and recorded in the fourth
quarter 1999. The results of the acquired business have been included in the
consolidated financial statements since the effective acquisition date of July
1, 1999.
The 500,000 issued shares of common stock are to be held in escrow as collateral
for performance under the Purchase Agreement and shall be disbursed to the
shareholders at the rate of one-sixth each six months following the closing date
of August 6, 1999. Smart Shop Software, Inc. is a privately held software
company located in Post Falls, ID that provides business software to
make-to-order small and medium sized manufacturers.
6
<PAGE> 7
USDATA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
- --------------------------------------------------------------------------------
The following unaudited pro forma information presents the results of operations
of the Company as if the acquisition had occurred on January 1, 1998 and
excludes any potential write-off of acquired in-process research and
development.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
(in thousands except -------------------------- --------------------------
per share amounts) 1999 1998 1999 1998
- -------------------------------------- ---------- ----------- ---------- ----------
<S> <C> <C> <C> <C>
Net sales $ 7,086 $ 5,489 $ 21,486 $ 18,053
Net income (loss) $ 74 $ (2,121) $ 659 $ (4,945)
Earnings (loss) per share:
Basic $ 0.01 $ (0.16) $ 0.05 $ (0.38)
Diluted $ 0.01 $ (0.15) $ 0.05 $ (0.35)
</TABLE>
These pro forma results of operations have been prepared for comparative
purposes only and do not purport to be indicative of the results of operations
which actually would have resulted had the acquisition occurred on the date
indicated, or which may result in the future.
6. CAPITAL STOCK
On August 6, 1999, the Company issued through a private placement 1,204,819
shares of the Company's common stock for $5.0 million and 50,000 shares of the
Company's Series A convertible preferred stock for $5.0 million to a wholly
owned subsidiary of Safeguard Scientifics, Inc., the Company's primary
shareholder. The preferred stock is convertible into shares of common stock of
the Company or into shares of common stock of any majority owned subsidiary of
the Company, at the election of the holder.
7. SEGMENT INFORMATION
The Company defines its operations as operating segments based on two distinct
product divisions - USDATA product division, which includes its FactoryLink and
Xfactory product lines and eMake product division, which develops and
distributes Internet applications that deliver integrated production solutions
and real-time visibility across the supply chain and includes the Company's
recently acquired Smart Shop Software unit.
7
<PAGE> 8
USDATA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
- --------------------------------------------------------------------------------
The Company measures segment earnings as income from operations, defined as
income before amortization of excess of cost over fair value of net assets of
acquired business, discontinued operations, other income and income taxes.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------- -----------------------
1999 1998 1999 1998
---------- --------- ----------- --------
<S> <C> <C> <C> <C>
Net sales:
USDATA Division $ 6,074 $ 4,890 $ 18,846 $ 16,336
eMake Division 1,012 -- 1,012 -
---------- --------- ----------- --------
$ 7,086 $ 4,890 $ 19,858 $ 16,336
========== ========= =========== ========
Income (loss) from operations:
USDATA Division $ 1,127 $ (1,897) $ 2,066 $ (2,774)
eMake Division (970) -- (970) -
---------- --------- ----------- --------
$ 157 $ (1,897) $ 1,096 $ (2,774)
========== ========= =========== ========
Total assets:
USDATA Division $ 19,377 $ 17,220 $ 19,377 $ 17,220
eMake Division 9,885 -- 9,885 --
---------- --------- ----------- --------
$ 29,262 $ 17,220 $ 29,262 $ 17,220
========== ========= =========== ========
</TABLE>
8
<PAGE> 9
USDATA CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
- --------------------------------------------------------------------------------
OVERVIEW
USDATA Corporation (the "Company"), is a global supplier of component-based
production software that is designed to help customers reduce operating costs,
shorten cycle times and improve product quality in their manufacturing
operations. The Company's software enables manufacturers to access accurate and
timely information - whether they are on the plant-floor, in the office, or
around the globe. The Company's solutions span the full range of manufacturing,
from monitoring equipment to tracking product flow, and are designed to
integrate seamlessly with customers' existing manufacturing and business
software. This combination of product breadth and ease of integration provides a
total plant solution that defines new levels of manufacturing performance and
gives customers a distinct competitive advantage. Now in its 25th year, the
Company has a strong global presence with more than 41,000 installs located in
more than 50 countries throughout the world, 13 offices worldwide and a global
network of distribution and support partners.
Net sales are generated primarily from licenses of the FactoryLink(R) family of
products, Xfactory(TM) and Smart Manager business software, which is the
software product from the Company's recent acquisition, and secondarily from
technical support and service agreements, training classes and product related
integration services. The support and service agreements are generally one-year,
renewable contracts entitling a customer to certain software upgrades and
technical support. Support and service revenue for the three and nine months
ended September 30, 1999 represented approximately 13% and 11% of net sales,
respectively, compared to 16% and 13% of net sales for the same periods in 1998.
Included in the FactoryLink family of products are versions 6.5 and 6.6,
real-time information Windows NT and Windows 95 platforms, supporting powerful
client access environments and technologies and providing Year 2000 ("Y2K")
readiness. In addition, the Company offers FactoryLink WebClient, which provides
the ability to view and control any FactoryLink server running Microsoft Windows
NT using a simple web browser.
Xfactory, which was introduced in mid-1998, is a manufacturing execution
software ("MES") product that incorporates Microsoft's newest technologies and
is built on Microsoft's Distributed Internet Applications ("DNA") architecture.
Xfactory enables manufacturing plants to more easily and quickly automate their
production processes and is the first visual object modeling MES. The Xfactory
software product enables customers to develop versatile and flexible MES
applications for production management, product tracking, product scheduling and
genealogy tracking for manufacturing and production processes.
Effective July 1, 1999, the Company acquired the business of Smart Shop
Software, Inc., which provides business software to make-to-order small and
medium sized manufacturers. This unit is included in the Company's recently
announced eMake division that is focused on the "make" or production area of
manufacturing and will develop and distribute Internet applications that deliver
integrated product solutions and real-time visibility across the supply chain.
The Company's strategy is to leverage its extensive manufacturing knowledge
through Internet applications to help companies maximize their back office
production and create the eMake portal for front office visibility into the
production operations of the supply chain. Initial product availability is
targeted for early 2000 and the division will focus on horizontal make-to-order
solutions for smaller manufacturers and industry solutions for larger-scale
automotive and electronics assembly.
The Company focuses its sales efforts through selected distributors capable of
providing the level of support and expertise required in the real-time
manufacturing and process control application market. The Company currently has
seven channel support locations in the United States and six internationally to
support its sales efforts through its network of distributors.
9
<PAGE> 10
USDATA CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
- --------------------------------------------------------------------------------
CONSOLIDATED 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,
----------------------- ---------------------
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 4.8% 4.5% 6.0% 5.8%
-------- -------- -------- --------
Gross profit 95.2% 95.5% 94.0% 94.2%
-------- -------- -------- --------
Operating expenses:
Selling 60.0% 87.4% 56.1% 69.5%
Product development 9.3% 14.5% 9.5% 13.8%
General and administrative 23.7% 32.4% 22.9% 27.9%
-------- -------- -------- --------
Total operating expenses 93.0% 134.3% 88.5% 111.2%
-------- -------- -------- --------
Income (loss) from operations 2.2% (38.8)% 5.5% (17.0)%
Interest income 0.5% 1.1% 0.4% 1.0%
Amortization of excess of cost over fair value of net assets
of acquired business (1.6)% 0.0% (0.6)% 0.0%
-------- -------- -------- --------
Income (loss) from continuing operations before income taxes 1.1% (37.7)% 5.3% (16.0)%
Income tax provision 0.0% 0.0% (0.5)% (0.2)%
-------- -------- -------- --------
Income (loss) from continuing operations 1.1% (37.7)% 4.8% (16.2)%
-------- -------- -------- --------
Discontinued operations:
Loss from discontinued Systems Operations 0.0% 0.0% 0.0% (1.3)%
Loss on disposal of discontinued System Operations 0.0% 0.0% 0.0% (9.2)%
-------- -------- -------- --------
Loss from discontinued operations 0.0% 0.0% 0.0% (10.5)%
-------- -------- -------- --------
-------- -------- -------- --------
Net income (loss) 1.1% (37.7)% 4.8% (26.7)%
-------- -------- -------- --------
</TABLE>
Comparison of Three Months Ended September 30, 1999 and 1998
Net sales for the quarter ended September 30, 1999, were $7.1 million, an
increase of $2.2 million or 45% compared to the same quarter in 1998. The
increase was primarily a result of a $1.1 million increase in software licensing
revenue related to the Company's USDATA product division, which includes its
FactoryLink and Xfactory product lines, as well as $1.0 million of revenues from
the Company's eMake product division, which includes Smart Shop Software Inc.
Gross profit as a percentage of net sales decreased slightly to 95.2% for the
quarter ended September 30, 1999 from 95.5% for the same period in 1998.
10
<PAGE> 11
USDATA CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
- --------------------------------------------------------------------------------
Selling expenses as a percentage of net sales decreased to 60.0% for the quarter
ended September 30, 1999 from 87.4% for the same period in 1998 primarily due to
increased revenues in 1999. Selling expenses in 1999 included approximately $1.2
million of incremental marketing and sales expenses to launch and expand the new
eMake division, which were virtually offset by decreases in USDATA division
selling expenses due to increased efficiencies resulting from the Company's
completion of its transition from a mixed direct and indirect sales model to a
predominately indirect sales model.
Product development expenses (net of capitalized software development costs),
which consisted primarily of labor costs, decreased $.2 million for USDATA
division for the quarter ended September 30, 1999 compared to the same period in
1998. The decrease was attributable to a reduction in the Company's contract
engineering development activities related to the FactoryLink product line,
offset by increased development efforts for the Xfactory product line and eMake
development expenses of $.2 million in 1999. The Company capitalized $.8 million
of development expenses primarily related to the next major version of
FactoryLink for the quarters ended September 30, 1999 and 1998.
General and administrative expenses increased $.1 million for the quarter ended
September 30, 1999 compared to the same period in 1998.
Income from continuing operations was $74 thousand for the three months ended
September 30, 1999 versus a loss from continuing operations of $1.8 million for
the same period in 1998. The increase in income from continuing operations was
primarily generated by an increase in net sales of $2.2 million, partially
offset by the amortization of the excess of cost over fair value of net assets
of the acquired business.
Comparison of Nine Months Ended September 30, 1999 and 1998
Net sales for the nine months ended September 30, 1999, were $19.9 million, an
increase of $3.5 million or 22% compared to the same period in 1998. The
increase was a result of a $2.6 million increase in software licensing revenues
related to the Company's USDATA product division and $1.0 million related to the
Company's eMake product division.
Gross profit as a percentage of net sales decreased slightly to 94.0% for the
nine months ended September 30, 1999 from 94.2% for the same period in 1998.
Selling expenses as a percentage of net sales decreased to 56.1% for the nine
months ended September 30, 1999 from 69.5% for the same period in 1998 primarily
due to increased revenues in 1999. Selling expenses decreased $.2 million or 2%
for the nine months ended September 30, 1999.
Product development expenses (net of capitalized software development costs),
which consisted primarily of labor costs, decreased $.4 million for the nine
months ended September 30, 1999 compared to the same period in 1998. $.6 million
of the decrease is attributable to a reduction in the Company's contract
engineering development activities related to the FactoryLink product line,
offset by increased development efforts for the Xfactory product line and eMake
development expenses of $.2 million for the nine months ended September 30,
1999. The Company capitalized $1.3 million of development expenses primarily
related to the next major version of FactoryLink compared to $2.2 million for
the same period in 1998.
11
<PAGE> 12
USDATA CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
- --------------------------------------------------------------------------------
General and administrative expenses in total for the nine months ended September
30, 1999, is comparable to the same period in 1998.
Income from continuing operations was $.9 million for the nine months ended
September 30, 1999 versus a loss from continuing operations of $2.6 million for
the same period in 1998. The increase in income from continuing operations was
primarily generated by the increase in net sales of $3.5 million.
LIQUIDITY AND CAPITAL RESOURCES
The Company's operating activities provided $1.8 million of cash during the nine
months ended September 30, 1999 compared to a use of cash of $.6 million for the
same period in 1998, primarily due to profitable operations and improved
collections on accounts receivable. Cash used in investing activities was $8.1
million for the nine months ended September 30, 1999 primarily due to the
acquisition of Smart Shop Software, Inc for $6.4 million in cash (see Note 5
"Acquisitions"). In addition, the Company invested $.3 million in capital
equipment, primarily computers and equipment, and $1.3 million in capitalized
software development cost as described above. The Company received $10.0 million
in cash related to the issuance of 1,204,819 shares its common stock for $5.0
million and 500,000 shares of its Series A convertible preferred stock for $5.0
million (see Note 6 "Capital Stock").
The Company currently anticipates that its available cash, together with cash
generated from operations, will be sufficient to satisfy its operating cash
needs in 1999. 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. In addition, the Company could
consider seeking additional public or private debt or equity financing to fund
future growth opportunities or acquisitions. No assurance can be given, however,
that such credit facility or debt or equity financing will be available to the
Company on terms and conditions acceptable to the Company, if at all.
IMPACT OF YEAR 2000 ISSUE
The Company is continuing to address the Year 2000 ("Y2K") issue, which results
from the fact that many computer programs were previously written using two
digits rather than four to define the applicable year. Programs written in this
way may recognize a date ending in "00" as the year 1900 rather than the year
2000. This could result in a system failure or miscalculations causing
disruptions of operations.
During 1998, the Company completed its conversion to a new integrated business
software solution, which provides order processing, sales administration,
accounts receivable, accounts payable and general ledger systems. During the
second quarter of 1999, the Company completed its upgrade to the most recent
version of this software, which is Y2K ready. The Company is in the process of
conducting transaction based testing to confirm the system's ability to handle
transactions related to the Y2K. The Company has not estimated the cost of
completing this upgrade, but currently believes it will not be material.
The Company's internal network server, both hardware and software, are Y2K
ready. Outside of its integrated business software applications, the Company has
very few systems that are interfaced together and therefore believes that its
exposure is relatively low that a Y2K problem with any one system or application
can adversely affect the entire IT environment.
12
<PAGE> 13
USDATA CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
- --------------------------------------------------------------------------------
For primarily operational purposes, the Company had been upgrading PCs and
individual applications running thereon. The upgraded PCs and application
software are Y2K ready and the Company believes it has minimal exposure to any
business interruption from out-of-date PC's, network equipment or related
software. In addition, the Company has a backup process in place under which
data is backed up to an IT controlled server. Therefore, if any one application
does not function due to Y2K issues, the data can easily be moved to another
desktop station that is Y2K ready.
The Company's primary products are manufacturing related software. The Company
has established a process for testing and certifying these software products for
Y2K readiness. During 1998, the Company released a Y2K ready version of
FactoryLink(R) for all major platforms supported by the Company. The Company has
used and plans on continuing to use its own internal development and support
resources to test and remediate its product software for Y2K readiness. All new
products of the Company introduced since 1997 are Y2K ready.
The Company has also established a special section on its World Wide Web site
devoted to Y2K readiness. The site indicates what the Company means when it
states a product is Y2K ready, which specific products are Y2K ready and what
the upgrade path is, if required, to bring older versions of its products up to
Y2K readiness. Customers who are covered under the Company's service and support
agreements are eligible to receive Y2K versions of the Company's products at no
additional cost. The Company has instituted specific marketing and pricing
programs to identify and assist customers who are not covered under the
Company's service and support agreements in upgrading to Y2K ready versions of
its software products. Additionally, the Company has added specific language to
its standard product warranty addressing Y2K. The Company has not obtained, nor
does it anticipate obtaining any insurance coverage for Y2K problems.
To date, the Company has not incurred any material expense solely related to Y2K
readiness for its internal IT and non-IT computer systems. Activities and
expenses associated with conversion to new or upgraded systems have been driven
primarily by operational considerations. The Company plans to use its internal
resources to address any Y2K readiness issues, which are currently planned or
may yet arise. The Company has not separately tracked these types of expense,
but does not currently believe they have been or will be material.
The Company has incurred costs in terms of time spent on research, modification,
testing and remediation for its manufacturing related software products but has
not determined the magnitude of such costs to date. Additional internal
resources will be utilized during the remainder of 1999, however, the Company
does not currently expect such expenses to be material to its financial position
or results of operations.
The Company does not currently believe it is dependent on any significant
suppliers for which there may be Y2K readiness issues. Services such as banking
and insurance are conducted with companies that either are or will be Y2K ready.
13
<PAGE> 14
USDATA CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
- --------------------------------------------------------------------------------
RECENT ACCOUNTING PRONOUNCEMENTS
In December 1998, the AICPA issued Statement of Position 98-9, "Modification of
SOP 97-2, Software Revenue Recognition, with Respect to Certain Transactions"
("SOP 98-9"). SOP 98-9 amends paragraphs 11 and 12 of SOP 97-2, Software Revenue
Recognition, to require recognition of revenue using the "residual method" when
certain criteria are met. SOP 98-9 is effective for transactions entered into in
fiscal years beginning after March 15, 1999. Earlier adoption is permitted. SOP
98-9 is not expected to have a material impact on the Company's consolidated
results of operations, financial position or cash flows.
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, 1998. 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.
14
<PAGE> 15
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits (filed as part of this report).
Number Description
2.1 Asset Purchase Agreement, dated as of July 29, 1999, by
and among USDATA Corporation, Smart Shop Software, Inc.
(Delaware), Smart Shop Software, Inc. (Idaho) and James
Dickman, Michael Maloof and Michelle Dickman (filed on
August 19, 1999 as Exhibit 2.1 to Form 8-K and
incorporated herein by reference).
11.1 Computation of Per Share Earnings
27.1 Financial Data Schedule
(Edgar Version Only)
(b) Reports on Form 8-K
1. On August 16, 1999, the Company filed a Current Report on
Form 8-K to announce its acquisition of substantially all of
the assets and the assumption of certain liabilities of Smart
Shop Software, Inc.
15
<PAGE> 16
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 15, 1999 /s/ Robert A. Merry
---------------------------------------
Robert A. Merry
President and Chief Executive Officer
Date: November 15, 1999 /s/ Robert L. Drury
---------------------------------------
Robert L. Drury
Vice President Finance, Chief Financial Officer
Treasurer and Secretary (Principal Financial and
Accounting Officer)
16
<PAGE> 17
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
2.1 Asset Purchase Agreement, dated as of July 29, 1999, by and among
USDATA Corporation, Smart Shop Software, Inc. (Delaware), Smart
Shop Software, Inc. (Idaho) and James Dickman, Michael Maloof and
Michelle Dickman (filed on August 19, 1999 as Exhibit 2.1 to Form
8-K and incorporated herein by reference).
11.1 Computation of Per Share Earnings
27.1 Financial Data Schedule
(Edgar Version Only)
</TABLE>
<PAGE> 1
USDATA CORPORATION AND SUBSIDIARIES
EXHIBIT 11.1 - COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------- -----------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA) 1999 1998 1999 1998
- ------------------------------------------------------------------------------------ -----------------------
<S> <C> <C> <C> <C>
Net income (loss):
Continuing operations $ 74 $ (1,844) $ 948 $ (2,643)
Discontinued operations -- -- -- (1,719)
-------- -------- -------- ----------
Net income (loss) $ 74 $ (1,844) $ 948 $ (4,362)
======== ======== ======== ==========
Weighted average common shares outstanding 12,386 11,233 11,687 11,182
Effect of dilutive securities:
Common stock options 121 51
Convertible Series A preferred stock 1,075 1,075
Warrants 198 125
-------- -------- -------- ----------
Common share equivalents 1,394 -- 1,251 --
-------- -------- -------- ----------
Weighted average common shares and common share equivalents
(if dilutive) outstanding 13,780 11,233 12,938 11,182
======== ======== ======== ==========
Earnings per share:
Basic
Income (loss) from continuing operations $ 0.01 $ (0.16) $ 0.08 $ (0.24)
Loss from discontinued operations -- -- -- (0.15)
-------- -------- -------- ----------
Net income (loss) $ 0.01 $ (0.16) $ 0.08 $ (0.39)
======== ======== ======== ==========
Diluted
Income (loss) from continuing operations $ 0.01 $ (0.16) $ 0.07 $ (0.24)
Loss from discontinued operations -- -- -- (0.15)
-------- -------- -------- ----------
Net income (loss) $ 0.01 $ (0.16) $ 0.07 $ (0.39)
======== ======== ======== ==========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD SEPTEMBER 30, 1999
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-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 5,643
<SECURITIES> 0
<RECEIVABLES> 5,678
<ALLOWANCES> 794
<INVENTORY> 59
<CURRENT-ASSETS> 11,624
<PP&E> 7,913
<DEPRECIATION> 6,175
<TOTAL-ASSETS> 29,262
<CURRENT-LIABILITIES> 5,049
<BONDS> 0
0
1
<COMMON> 155
<OTHER-SE> 23,658
<TOTAL-LIABILITY-AND-EQUITY> 29,292
<SALES> 19,858
<TOTAL-REVENUES> 19,858
<CGS> 1,197
<TOTAL-COSTS> 17,565
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,048
<INCOME-TAX> 100
<INCOME-CONTINUING> 948
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 948
<EPS-BASIC> 0.08
<EPS-DILUTED> 0.07
</TABLE>
