<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 June 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
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(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 July 31, 1999:
Number of Shares
Class Outstanding
Common Stock, Par Value $.01 Per Share 11,404,661 shares
<PAGE> 2
USDATA CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED JUNE 30, 1999
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
Number
------
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets at
June 30, 1999 and December 31,
1998 3
Consolidated Statements of Operations
and Comprehensive Income
for the Three and Six Months Ended
June 30, 1999 and 1998 4
Consolidated Statements of Cash Flows
for the Six Months Ended
June 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 7
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 13
Item 5. Other Information 13
Item 6. Exhibits and Reports on Form 8-K 13
Signatures 14
Computation of Per Share Earnings 15
</TABLE>
2
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USDATA CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
--------- ---------
(unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 3,078 $ 1,980
Accounts receivable, net of allowance for doubtful
accounts of $840 and $1,150, respectively 4,929 6,095
Deferred income taxes 533 533
Other current assets 568 475
--------- ---------
Total current assets 9,108 9,083
--------- ---------
Property and equipment, net 1,633 1,825
Capitalized computer software development costs, net 4,641 4,127
Software held for resale, net 1,168 1,286
Other assets 140 80
--------- ---------
Total assets $ 16,690 $ 16,401
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 893 $ 755
Deferred revenue 1,910 2,005
Accrued compensation and benefits 891 1,274
Other accrued liabilities 1,111 2,072
--------- ---------
Total current liabilities 4,805 6,106
--------- ---------
Total liabilities 4,805 6,106
--------- ---------
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 1999 and 1998 143 143
Additional paid-in capital 16,719 16,534
Retained earnings 5,980 5,106
Treasury stock at cost, 2,941,184 shares in 1999
and 3,106,184 shares in 1998 (10,332) (10,929)
Other comprehensive income (625) (559)
--------- ---------
Total stockholders' equity 11,885 10,295
--------- ---------
Total liabilities and stockholders' equity $ 16,690 $ 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 SIX MONTHS ENDED
June 30, June 30,
------------------------ ------------------------
1999 1998 1999 1998
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net sales $ 6,494 $ 5,806 $ 12,772 $ 11,446
Cost of sales 424 353 854 721
--------- --------- --------- ---------
Gross profit 6,070 5,453 11,918 10,725
--------- --------- --------- ---------
Operating expenses:
Selling 3,462 3,515 6,887 7,086
Product development 615 723 1,225 1,545
General and administrative 1,485 1,590 2,867 2,971
--------- --------- --------- ---------
Total operating expenses 5,562 5,828 10,979 11,602
--------- --------- --------- ---------
Income (loss) from operations 508 (375) 939 (877)
Interest income 15 56 35 114
--------- --------- --------- ---------
Income (loss) from continuing operations before income taxes 523 (319) 974 (763)
Income tax provision (50) (34) (100) (36)
--------- --------- --------- ---------
Income (loss) from continuing operations 473 (353) 874 (799)
--------- --------- --------- ---------
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) $ 473 $ (353) $ 874 $ (2,518)
========= ========= ========= =========
Other comprehensive income, net of tax:
Foreign currency translation adjustment (90) -- (66) --
--------- --------- --------- ---------
Comprehensive income (loss) $ 383 $ (353) $ 808 $ (2,518)
========= ========= ========= =========
Earnings per share (basic & dilutive):
Income (loss) from continuing operations $ 0.04 $ (0.03) $ 0.08 $ (0.07)
Loss from discontinued operations -- -- -- (0.16)
--------- --------- --------- ---------
Net income (loss) $ 0.04 $ (0.03) $ 0.08 $ (0.23)
========= ========= ========= =========
Weighted average shares outstanding:
Basic 11,402 11,211 11,332 11,156
Diluted 11,403 11,211 11,333 11,156
========= ========= ========= =========
</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>
SIX MONTHS ENDED
JUNE 30,
----------------------
1999 1998
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) from continuing operations $ 874 $ (799)
Adjustments to reconcile net income (loss) from continuing
operations to net cash provided by continuing operations:
Depreciation and amortization 515 894
Changes in assets and liabilities:
Accounts receivable 1,166 (800)
Deferred income taxes -- (133)
Accounts payable and accrued liabilities (41) 1,322
Accrued compensation and benefits (383) (162)
Currency translation adjustment (66) --
Deferred revenue (95) 61
Other - net (160) (83)
-------- --------
Net cash provided by continuing operations 1,810 300
-------- --------
Cash flows from investing activities:
Capital expenditures (200) (298)
Purchase of MES software -- (400)
Capitalized software development costs (512) (1,469)
-------- --------
Net cash used in investing activities (712) (2,167)
-------- --------
Cash flows from financing activities:
Proceeds from issuance of common shares -- 712
-------- --------
Net cash provided by financing activities -- 712
-------- --------
Cash flows from discontinued operations -- (152)
-------- --------
Net increase (decrease) in cash and cash equivalents 1,098 (1,307)
Cash and cash equivalents, beginning of period 1,980 5,204
-------- --------
Cash and cash equivalents, end of period $ 3,078 $ 3,897
======== ========
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)
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1. SIGNIFICANT ACCOUNTING POLICIES
The accompanying unaudited consolidated financial statements of USDATA
Corporation and it's subsidiaries (the "Company") for the three and six month
periods ended June 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 June 30, 1999 and the
consolidated results of its operations and comprehensive income, and cash flows
for the periods ended June 30, 1999 and 1998. Operating results for the three
and six months ended June 30, 1999 is 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
On January 12, 1998, the Company purchased the underlying code to computer
software licenses which are held for resale in the ordinary course of business,
for $400,000 cash and 165,000 shares of the Company's common stock at a price
of $.01 per share. The stock was valued at $782,000, which reflects the closing
price of the Company's common stock on January 12, 1998. The common stock was
issued in March 1999 subject to certain restrictions regarding the sale or
transfer of such shares until January 2001.
5. SUBSEQUENT EVENTS
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
valued at $1.8 million, reflecting the closing price of the Company's stock on
July 1, 1999, for total consideration of $8.2 million. The 500,000 issued
shares 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.
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.
6
<PAGE> 7
USDATA CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
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OVERVIEW
USDATA Corporation (the "Company") is a global supplier of real-time
manufacturing application development software that enables information
integration, decision support and supervisory control throughout the
manufacturing enterprise. The Company's component-based products help automate
manufacturing and process control applications, allowing customers to reduce
operating costs, shorten cycle times and improve product quality. The Company
provides this knowledge through software products and services, and delivers it
through a community of business partners. The Company brings nearly a
quarter-century of expertise in manufacturing performance improvement to its
partners and end-users.
Net sales are generated primarily from licenses of the FactoryLink(R) family of
products and Xfactory(TM), the Company's newest software product 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 six months ended June 30, 1999 represented approximately 9% and 10%
of net sales, respectively, compared to 11% 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 which 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 product will be an important part of the
Company's recently announced eMake division which 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 in the year 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.
7
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USDATA CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
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RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, selected statement
of operations data as a percentage of net sales:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
June 30, JUNE 30,
------------------ ------------------
1999 1998 1999 1998
----- ----- ----- -----
<S> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 6.5% 6.1% 6.7% 6.3%
----- ----- ----- -----
Gross profit 93.5% 93.9% 93.3% 93.7%
----- ----- ----- -----
Operating expenses:
Selling 53.3% 60.5% 53.9% 61.9%
Product development 9.5% 12.5% 9.6% 13.5%
General and administrative 22.9% 27.4% 22.5% 26.0%
----- ----- ----- -----
Total operating expenses 85.7% 100.4% 86.0% 101.4%
----- ----- ----- -----
Income (loss) from operations 7.8% (6.5)% 7.3% (7.7)%
Interest income 0.2% 1.0% 0.3% 1.0%
----- ----- ----- -----
Income (loss) from continuing operations before income taxes 8.0% (5.5)% 7.6% (6.7)%
Income tax provision (0.7)% (0.6)% (0.8)% (0.3)%
----- ----- ----- -----
Income (loss) from continuing operations 7.3% (6.1)% 6.8% (7.0)%
----- ----- ----- -----
Discontinued operations:
Loss from discontinued Systems Operations 0.0% 0.0% 0.0% (1.9)%
Loss on disposal of discontinued System Operations 0.0% 0.0% 0.0% (13.1)%
----- ----- ----- -----
Loss from discontinued operations 0.0% 0.0% 0.0% (15.0)%
----- ----- ----- -----
Net income (loss) 7.3% (6.1)% 6.8% (22.0)%
----- ----- ----- -----
</TABLE>
Comparison of Three Months Ended June 30, 1999 and 1998
Net sales for the quarter ended June 30, 1999, were $6.5 million, an increase
of $.7 million or 12% compared to the same quarter in 1998. The increase is a
result of higher software licensing revenue, partially offset by lower revenue
from training, reflecting the Company's decision to refer nearly all such
activity to its channel distribution partners.
Gross profit as a percentage of net sales decreased slightly to 93.5% for the
quarter ended June 30, 1999 from 93.9% for the same period in 1998.
Selling expenses as a percentage of net sales decreased to 53.3% for the
quarter ended June 30, 1999 from 60.5% for the same period in 1998 primarily
due to increased revenues in 1999. Selling expenses decreased 2% for the
quarter
8
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USDATA CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
- -------------------------------------------------------------------------------
ended June 30, 1999 related to the Company's transition from a mixed direct and
indirect sales model to a predominately indirect sales model. The decrease was
partially offset by higher marketing expenses.
Product development expenses (net of capitalized software development costs),
which consisted primarily of labor costs, decreased $.1 million for the quarter
ended June 30, 1999 compared to the same period in 1998. The decrease is
attributable to a reduction in the Company's contract engineering development
activities related to the FactoryLink product line, partially offset by
increased development efforts for the Xfactory product line in 1999. During the
second quarter 1999, the Company capitalized $.3 million of development
expenses related to the next major version of FactoryLink compared to $.9
million in the second quarter 1998.
General and administrative expenses decreased $.1 million for the quarter ended
June 30, 1999 compared to the same period in 1998, primarily due to a reduction
in the Company's provision for doubtful accounts, due to improvements in the
overall quality of the Company's accounts receivable.
Income from continuing operations was $.5 million for the three months ended
June 30, 1999 versus a loss from continuing operations of $.4 million for the
same period in 1998. The increase in income from continuing operations was
primarily generated by an increase in net sales as well as the decrease in
operating expenses, partially offset by an increase in the income tax
provision.
Comparison of Six Months Ended June 30, 1999 and 1998
Net sales for the six months ended June 30, 1999, were $12.8 million, an
increase of $1.3 million or 12% compared to the same period in 1998. The
increase is a result of higher software licensing revenues, partially offset by
lower revenues from training, reflecting the Company's decision to refer nearly
all such activity to its channel distribution partners.
Gross profit as a percentage of net sales decreased slightly to 93.3% for the
six months ended June 30, 1999 from 93.7% for the same period in 1998.
Selling expenses as a percentage of net sales decreased to 53.9% for the six
months ended June 30, 1999 from 61.9% for the same period in 1998 primarily due
to increased revenues in 1999. Selling expenses decreased $.2 million or 3% for
the six months ended June 30, 1999 related to the Company's transition from a
mixed direct and indirect sales model to a predominately indirect sales model.
The decrease was partially offset by higher marketing expenses.
Product development expenses (net of capitalized software development costs),
which consisted primarily of labor costs, decreased $.3 million for the six
months ended June 30, 1999 compared to the same period in 1998. The decrease is
attributable to a reduction in the Company's contract engineering development
activities related to the FactoryLink product line, partially offset by
increased development efforts for the Xfactory product line in 1999. For the
six months ended June 30, 1999, the Company capitalized $.5 million of
development expenses related to the next major version of FactoryLink compared
to $1.5 million for the same period in 1998.
General and administrative expenses for the six months ended June 30, 1999,
decreased $.1 million compared to the same period in 1998, primarily due to a
decrease in the provision for doubtful accounts, due to improvements in the
overall quality of the Company's accounts receivable balance.
Income from continuing operations was $.9 million for the six months ended June
30, 1999 versus a loss from continuing operations of $.8 million for the same
period in 1998. The increase in income from continuing
9
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USDATA CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
- -------------------------------------------------------------------------------
operations was primarily generated by an increase in net sales and a decrease
in operating expenses, partially offset by an increase in the income tax
provision.
LIQUIDITY AND CAPITAL RESOURCES
The Company's operating activities provided $1.8 million of cash during the six
months ended June 30, 1999 compared to $.3 million for the same period in 1998,
primarily due to profitable operations. In addition, during the six months ended
June 30, 1999, the Company invested $.2 in capital equipment, primarily
computers and equipment, and $.5 million in capitalized software development
costs as described above.
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
valued at $1.8 million, reflecting the closing price of the Company's stock on
July 1, 1999, for total consideration of $8.2 million. See note 5 "Subsequent
Events".
On August 6, 1999, the Company sold 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 in a private placement to a wholly owned
subsidiary of Safeguard Scientifics, Inc., the Company's primary shareholder.
See Note 5 "Subsequent Events".
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 planning on
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.
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
10
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USDATA CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
- -------------------------------------------------------------------------------
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 clearly 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 directly 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.
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.
11
<PAGE> 12
USDATA CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
- -------------------------------------------------------------------------------
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.
12
<PAGE> 13
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held its Annual Meeting of Shareholders on June 18, 1999. At this
meeting, the shareholders voted in favor of electing as directors the seven
nominees named in the Proxy Statement dated May 7, 1999. In addition, the
shareholders voted in favor of the adoption of an Employee Stock Purchase Plan
and approved an amendment to the Company's 1994 Equity Compensation Plan to
increase the number of shares authorized for issuance under the plan. The
number of votes cast were as follows:
<TABLE>
<CAPTION>
I. ELECTION OF DIRECTORS FOR AGAINST WITHHELD
--------- ------- --------
<S> <C> <C> <C>
Gary J. Anderson, M.D. 9,291,838 1,695 228,907
Stephen J. Andriole 9,287,083 6,450 233,662
James W. Dixon 9,292,633 900 228,112
Max D. Hopper 9,287,183 6,350 233,562
Robert A. Merry 9,283,335 10,198 237,410
Jack L. Messman 9,292,533 1,000 228,212
Arthur R. Spector 9,260,788 32,745 259,957
II. EMPLOYEE STOCK PURCHASE PLAN 7,893,297 69,386 11,609
III. THE 1994 EQUITY COMPENSATION PLAN 7,422,742 540,368 11,182
</TABLE>
ITEM 5. OTHER INFORMATION
Stockholders intending to present proposals at the next Annual Meeting of
Stockholders to be held in 2000 must notify the Company of the proposal no
later than December 30, 1999, if they wish to include the proposal on the
Company's proxy card and, along with any supporting statement, in the Company's
proxy statement. As to any proposal presented by a stockholder at the Annual
Meeting of Stockholders that has not been included in the Proxy Statement, the
management proxies will be allowed to use their discretionary voting authority
unless notice of such proposal is received by the Company no later than March
15, 2000.
ITEM 6. EXHIBITS
(a) Exhibits (filed as part of this report).
Number Description
------ -----------
11.1 Computation of Per Share Earnings
27.1 Financial Data Schedule
(Edgar Version Only)
(b) Reports on Form 8-K
No reports on Form 8-K have been filed by the Registrant
during the quarter ended June 30, 1999
13
<PAGE> 14
USDATA CORPORATION AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on behalf by the undersigned
thereunto duly authorized.
USDATA CORPORATION, INC.
Date: August 16, 1999 /s/ Robert A. Merry
-----------------------------------------------
Robert A. Merry
President and Chief Executive Officer
Date: August 16, 1999 /s/ Robert L. Drury
-----------------------------------------------
Robert L. Drury
Vice President Finance, Chief Financial Officer
Treasurer and Secretary (Principal Financial
and Accounting Officer)
14
<PAGE> 15
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description
------ -----------
<S> <C>
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 SIX MONTHS ENDED
JUNE 30, JUNE 30,
--------------------- ---------------------
(IN THOUSANDS, EXPECT PER SHARE DATA) 1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net income (loss):
Continuing operations $ 473 $ (353) $ 874 $ (799)
Discontinued operations -- -- -- (1,719)
-------- -------- -------- --------
Net income (loss) $ 473 $ (353) $ 874 $ (2,518)
======== ======== ======== ========
Weighted average common shares outstanding 11,402 11,211 11,332 11,156
Common share equivalents 1 -- 1 --
-------- -------- -------- --------
Weigted average common shares and common share
equivalents (if dilutive) outstanding 11,403 11,211 11,333 11,156
======== ======== ======== ========
Net income (loss) per common share (Basic & Dilutive)
Continuing operations $ 0.04 $ (0.03) $ 0.08 $ (0.07)
Discontinued operations -- -- -- (0.16)
-------- -------- -------- --------
Net income (loss) $ 0.04 $ (0.03) $ 0.08 $ (0.23)
======== ======== ======== ========
</TABLE>
15
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD JUNE 30, 1999 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 3,078
<SECURITIES> 0
<RECEIVABLES> 5,769
<ALLOWANCES> 840
<INVENTORY> 96
<CURRENT-ASSETS> 9,108
<PP&E> 7,307
<DEPRECIATION> 5,674
<TOTAL-ASSETS> 16,690
<CURRENT-LIABILITIES> 4,805
<BONDS> 0
0
0
<COMMON> 143
<OTHER-SE> 11,742
<TOTAL-LIABILITY-AND-EQUITY> 16,690
<SALES> 12,772
<TOTAL-REVENUES> 12,772
<CGS> 854
<TOTAL-COSTS> 10,979
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 974
<INCOME-TAX> 100
<INCOME-CONTINUING> 874
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 874
<EPS-BASIC> 0.08
<EPS-DILUTED> 0.08
</TABLE>
