<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 June 30, 2000
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 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 July 31, 2000
<TABLE>
<CAPTION>
Number of Shares
Class Outstanding
<S> <C>
Common Stock, Par Value $.01 Per Share 13,974,596 shares
</TABLE>
<PAGE> 2
USDATA CORPORATION AND SUBSIDIARIES
FORM 10-Q
THREE AND SIX MONTHS ENDED JUNE 30, 2000
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
Number
<S> <C> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets at
June 30, 2000 and December 31,
1999 3
Condensed Consolidated Statements of
Operations and Comprehensive Income (Loss)
for the Three and Six Months Ended
June 30, 2000 and 1999 4
Condensed Consolidated Statements of
Cash Flows for the Six Months Ended
June 30, 2000 and 1999 5
Notes to Condensed Consolidated Financial
Statements 6
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of
Operations 10
Item 3. Quantitative and Qualitative Disclosures about
Market Risk 17
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 17
Signatures 18
</TABLE>
2
<PAGE> 3
USDATA CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
2000 1999
------------ ------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 697 $ 2,962
Accounts receivable, net of allowance for doubtful
accounts of $624 and $453, respectively 2,706 6,626
Other current assets 1,225 727
------------ ------------
Total current assets 4,628 10,315
------------ ------------
Property and equipment, net 4,216 2,162
Computer software development costs, net 8,462 6,645
Software held for resale, net 955 1,079
Cost in excess of fair value of tangible net assets purchased, net 4,225 4,742
Intangible and other assets 1,797 1,924
------------ ------------
Total assets $ 24,283 $ 26,867
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable $ 3,579 $ 1,746
Deferred revenue 2,046 2,170
Accrued compensation and benefits 1,694 2,226
Stockholder notes payable 11,500 --
Current portion of long-term debt 52 62
Other accrued liabilities 2,153 1,021
------------ ------------
Total current liabilities 21,024 7,225
------------ ------------
Long-term debt, less current portion 368 388
------------ ------------
Total liabilities 21,392 7,613
------------ ------------
Commitments and contingencies
Redeemable convertible preferred stock, Series A, $.01 par value,
with a redemption and liquidation value of $108 per share and
$103 per share in 2000 and 1999, respectively; 100,000 shares
authorized; 50,000 shares issued and outstanding 5,383 5,167
Stockholders' equity (deficit):
Common stock, $.01 par value, 22,000,000 shares
authorized; 16,324,189 issued in 2000 and 15,625,951
issued in 1999 163 156
Additional paid-in capital 24,339 21,952
Deferred compensation (612) (1,278)
Retained earnings(accumulated deficit) (17,332) 2,523
Treasury stock at cost, 2,355,924 shares in 2000
and 2,452,316 shares in 1999 (8,093) (8,434)
Accumulated other comprehensive loss (957) (832)
------------ ------------
Total stockholders' equity (deficit) (2,492) 14,087
------------ ------------
Total liabilities and stockholders' equity (deficit) $ 24,283 $ 26,867
============ ============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
<PAGE> 4
USDATA CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME (LOSS)
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------- --------------------
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues:
Product license $ 3,118 $ 5,632 $ 6,135 $ 11,147
Services 785 862 1,834 1,625
-------- -------- -------- --------
Total revenues 3,903 6,494 7,969 12,772
-------- -------- -------- --------
Operating expenses:
Selling and product materials 8,216 3,886 15,266 7,741
Product development 3,482 615 5,006 1,225
General and administrative 3,034 1,485 4,916 2,867
Severance and other charges 777 -- 777 --
Non-cash stock compensation 378 -- 666 --
Amortization of intangible assets 359 -- 719 --
-------- -------- -------- --------
Total operating expenses 16,246 5,986 27,350 11,833
-------- -------- -------- --------
Income (loss) from operations (12,343) 508 (19,381) 939
Other income (expense), net (232) 15 (258) 35
-------- -------- -------- --------
Income (loss) before income taxes (12,575) 523 (19,639) 974
Income tax provision -- (50) -- (100)
-------- -------- -------- --------
Net income (loss) (12,575) 473 (19,639) 874
Dividends on preferred stock (108) -- (216) --
-------- -------- -------- --------
Net income (loss) applicable to common stockholders $(12,683) $ 473 $(19,855) $ 874
======== ======== ======== ========
Other comprehensive income (loss):
Net income (loss) $(12,575) $ 473 $(19,639) $ 874
Foreign currency translation adjustment (56) (90) (125) (66)
======== ======== ======== ========
Comprehensive income (loss) $(12,631) $ 383 $(19,764) $ 808
======== ======== ======== ========
Net income (loss) per common share:
Basic and diluted $ (0.96) $ 0.04 $ (1.53) $ 0.08
======== ======== ======== ========
Weighted average shares outstanding:
Basic 13,154 11,402 13,013 11,332
Diluted 13,154 11,403 13,013 11,333
======== ======== ======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
<PAGE> 5
USDATA CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
--------------------
2000 1999
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $(19,639) $ 874
Adjustments to reconcile net income (loss)
to net cash provided by (used in) operating activities:
Depreciation and amortization 1,532 515
Non-cash stock compensation 666 --
Changes in assets and liabilities:
Accounts receivable, net 3,920 1,166
Other assets, net (606) (160)
Accounts payable and other accrued liabilities 3,294 (41)
Accrued compensation and benefits (414) (383)
Deferred revenue (124) (95)
-------- --------
Net cash provided by (used in) operating activities (11,371) 1,876
-------- --------
Cash flows from investing activities:
Capital expenditures (2,862) (200)
Capitalized software development costs (1,818) (512)
-------- --------
Net cash used in investing activities (4,680) (712)
-------- --------
Cash flows from financing activities:
Proceeds from stock warrant exercise 2,109 --
Proceeds from stock option exercises 332 --
Proceeds from stockholder notes payable 11,500 --
Payments on long-term debt (30) --
-------- --------
Net cash provided by financing activities 13,911 --
-------- --------
Translation adjustments and effect of exchange rate changes on cash (125) (66)
-------- --------
Net increase (decrease) in cash and cash equivalents (2,265) 1,098
Cash and cash equivalents, beginning of period 2,962 1,980
-------- --------
Cash and cash equivalents, end of period $ 697 $ 3,078
======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
<PAGE> 6
USDATA CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
--------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
The accompanying unaudited condensed consolidated financial statements
of USDATA Corporation and its subsidiaries (the "Company") for the three and six
month periods ended June 30, 2000 and 1999 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, 1999. In the opinion of the Company's management,
the accompanying consolidated financial statements contain the adjustments,
consisting of normal recurring adjustments, necessary to present fairly the
consolidated financial position of the Company at June 30, 2000 and the
consolidated results of its operations and comprehensive income (loss), and cash
flows for the periods ended June 30, 2000 and 1999. Operating results for the
three and six months ended June 30, 2000 are not necessarily indicative of the
results that may be expected for the year ending December 31, 2000.
2. STOCKHOLDER NOTES PAYABLE
On February 8, 2000 and March 24, 2000, the Company, through its
subsidiary eMake Corporation, entered into two convertible promissory note
agreements with a subsidiary of Safeguard Scientifics, Inc. ("Safeguard"), the
Company's primary stockholder, for $2.5 million each, totaling $5.0 million in
borrowings. The promissory notes bear interest at a rate of 12% per annum and
are due in full on February 8, 2001 and March 24, 2001, respectively. The
outstanding principal balances of these notes are convertible at any time into
shares of common stock of eMake Corporation at an initial conversion price of
$4.00 per share. The conversion price is equal to the estimated fair value of
the subsidiary's common stock at the dates of the issuance of the promissory
notes. If the notes payable are paid in full at maturity, interest will be
forgiven.
On April 26, 2000, a subsidiary of Safeguard provided $5.0 million in
financing to the Company in exchange for a demand note due the earlier of one
year from the date of the note or 60 days following the date of demand for
payment. The note bears interest at a specified bank prime rate plus one
percent, which was 10.5% at June 30, 2000.
On June 29, 2000, a subsidiary of Safeguard provided $1.5 million in
financing to the Company's subsidiary eMake Corporation in exchange for a demand
note due the earlier of one year from the date of the note or 60 days following
the date of demand for payment. The note bears interest at a specified bank
prime rate plus one percent, which was 10.5% at June 30, 2000.
3. INCOME (LOSS) PER SHARE
Net income (loss) per share of common stock is presented in accordance
with the provisions of SFAS No. 128, Earnings Per Share. Under SFAS No. 128,
basic income (loss) per share excludes dilution for potentially dilutive
securities and is computed by dividing income or loss available to common
stockholders by the weighted average number of common shares outstanding during
the period. Diluted income (loss) per share reflects the potential dilution that
could occur if securities or other contracts to issue common stock were
exercised or converted into common stock. Potentially dilutive securities are
excluded from the computation of diluted income (loss) per share when their
inclusion would be antidilutive. Options to acquire a total of 1,773,858 shares
have been excluded from the computation of diluted loss per share for the three
and six months ended June 30, 2000, as their inclusion would be antidilutive.
6
<PAGE> 7
USDATA CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------- --------------------
(in thousands, except per share data) 2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net income (loss) applicable to
common stockholders $(12,683) $ 473 $(19,855) $ 874
======== ======== ======== ========
Weighted average common shares outstanding 13,154 11,402 13,013 11,332
Effect of dilutive securities:
Common stock options and warrants -- 1 -- 1
-------- -------- -------- --------
Weighted average common shares and common
share equivalents (if dilutive) outstanding 13,154 11,403 13,013 11,333
======== ======== ======== ========
Net income (loss) per common share:
Basic and diluted $ (0.96) $ 0.04 $ (1.53) $ 0.08
======== ======== ======== ========
</TABLE>
4. SEVERANCE AND OTHER CHARGES
In June 2000, the Company implemented a reduction in its workforce of
approximately 6% and recorded a one-time charge of $777 thousand, primarily
consisting of employee severance and related benefits. Other charges included in
the $777 thousand are $85 thousand for vacated office space that the Company is
obligated to pay through September 2001 and $73 thousand for legal and other
related costs.
Severance costs were determined based upon employees' years of service
as well as level within the organization. The reduction in workforce included 16
employees, primarily from the selling group. Of the total amount expensed in the
second quarter, approximately $378 thousand was paid through June 30, 2000. At
June 30, 2000, accrued severance costs totaled $241 thousand which are expected
to be paid in full by July 2001. The majority of this extended payment is to one
terminated employee. All affected employees have been terminated as of June 30,
2000.
In addition, $144 thousand in non-cash charges were accrued related to
releasing shares from escrow, in accordance with the Smart Shop Software, Inc.
purchase agreement, which were held as collateral for certain performance
requirements. The $144 thousand is included in non-cash compensation in the
Company's 2000 Condensed Consolidated Statement of Operations.
5. SEGMENT INFORMATION
The Company defines its operating segments based on two distinct
operating units - the USDATA Products Division, which includes its FactoryLink
and Xfactory product lines, and the Company's eMake Corporation subsidiary,
which develops and distributes Internet applications that deliver integrated
production solutions and real-time visibility across the supply chain. The
Company uses revenues and income (loss) from operations, which consists of
revenues less operating expenses, to measure segment operations.
7
<PAGE> 8
USDATA CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
--------------------------------------------------------------------------------
The following summarizes information related to the Company's segments.
All significant intersegment activity has been eliminated. Assets are the owned
or allocated assets used by each operating segment.
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
---------------------- ----------------------
(in thousands) 2000 1999 2000 1999
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenues:
USDATA Products Division $ 3,761 $ 6,494 $ 7,306 $ 12,772
eMake Corporation 142 -- 663 --
--------- --------- --------- ---------
$ 3,903 $ 6,494 $ 7,969 $ 12,772
========= ========= ========= =========
Income (loss) from operations:
USDATA Products Division $ (5,089) $ 508 $ (7,464) $ 939
eMake Corporation (7,254) -- (11,917) --
--------- --------- --------- ---------
(12,343) 508 (19,381) 939
Other income (expense), net (232) 15 (258) 35
--------- --------- --------- ---------
Income (loss) from operations before income taxes $ (12,575) $ 523 $ (19,639) $ 974
========= ========= ========= =========
Depreciation and amortization:
USDATA Products Division $ 290 $ 243 $ 566 $ 515
eMake Corporation 553 -- 966 --
--------- --------- --------- ---------
$ 843 $ 243 $ 1,532 $ 515
========= ========= ========= =========
Total assets:
USDATA Products Division $ 15,615 $ 16,690
eMake Corporation 8,668 --
--------- ---------
$ 24,283 $ 16,690
========= =========
</TABLE>
6. SUBSEQUENT EVENTS
On July 13, 2000 and July 28, 2000, a subsidiary of Safeguard provided
$1.75 and $2.5 million, respectively, in financings to the Company's subsidiary
eMake Corporation, in exchange for two demand notes each due the earlier of one
year from the date of the note or 60 days following the date of demand for
payment. The notes bear interest at a specified bank prime rate plus one
percent, which was 10.5% at June 30, 2000.
On August 7, 2000, the Company and eMake Corporation, executed a
Securities Purchase Agreement that is expected to provide $26.5 million in
funding from Safeguard and SCP Private Equity Partners II, L.P. ("SCP"). This
funding includes an investment by Safeguard and SCP of $26.5 million in eMake
Corporation preferred stock, which is convertible into eMake Corporation common
stock or a new series of the Company's preferred stock and a warrant to purchase
additional shares of its preferred stock. Due to the number of shares of common
stock that potentially may be issued upon a conversion into the Company's
preferred stock, the Company's stockholders must approve the transaction in a
special stockholder meeting.
8
<PAGE> 9
USDATA CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
--------------------------------------------------------------------------------
On August 14, 2000, SCP provided $6.0 million in financing to the
Company's subsidiary eMake Corporation in exchange for a demand note due the
earlier of one year from the date of the note or 60 days following the date of
demand for payment. The note bears interest at a specified bank prime rate plus
one percent, which was 10.5% at June 30, 2000, Immediately following this
funding, the Company will repay the $2.5 million demand note dated July 28, 2000
plus accrued interest to Safeguard.
9
<PAGE> 10
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 real-time
component-based production software and Internet-based production applications,
eBusiness and supply chain portals. These products and services are designed to
help customers manage their business in real time, reduce operating costs,
shorten cycle times, and improve quality in their manufacturing operations. Now
in its 25th year, the Company has a strong global presence with more than 45,000
installs located in more than 60 countries throughout the world, 19 offices
worldwide and a global network of distribution and support partners.
The Company conducts its operations in two operating units, the USDATA
Products Division, and the Company's eMake Corporation subsidiary. Each unit has
its own sales, marketing, customer support and service, product development and
selected general management and administrative functions. Certain general and
administrative functions (such as corporate management, accounting, human
resources and information technology) provide services to both units with the
costs of these shared services allocated between the two units.
USDATA Products Division
The USDATA Products Division ("USDATA") 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. USDATA's software enables manufacturers to access more
accurate and timely information - whether they are on the plant floor, in the
office, or around the globe. USDATA's solutions span a wide range of
manufacturing processes, 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
is intended to provide a total plant solution that defines new levels of
manufacturing performance and gives customers a distinct competitive advantage.
Revenues have been generated primarily from licenses of USDATA's
FactoryLink and Xfactory software and secondarily from technical support and
service agreements, training classes and product related 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, 2000 represented
approximately 16% for both periods compared to 9% and 10%, respectively, for the
same periods in 1999.
Included in the FactoryLink family of products are versions 6.5 and
6.6, real-time information Windows NT and Windows 98/95 platforms, supporting
powerful client access environments and technologies and providing Year 2000
("Y2K") readiness. In addition, USDATA offers FactoryLink WebClient, which
provides the ability to view and control any FactoryLink server running
Microsoft Windows NT using a simple web browser.
In late June 2000, USDATA released FactoryLink 7, a multi-user,
real-time SCADA (Supervisory Control and Data Acquisition) product, developed to
run on the Windows 2000 and Windows NT operating systems. FactoryLink 7 was
designed specifically to give businesses access to a solution with the lowest
total cost of integration, installation, and support.
10
<PAGE> 11
Xfactory 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.
In December 1999, USDATA released Xfactory version 1.4, which gives
manufacturers of all sizes the ability to track and improve production processes
"on the fly." Version 1.4 is intended to deliver unparalleled performance and
reliability for even the most demanding large-scale production processes.
In the latter part of 1999, the Company introduced the USDATA Connector
product. USDATA Connector links the plant floor to the supply chain and
higher-level business systems. USDATA Connector is designed to enable disparate
systems throughout the enterprise to operate as one and, in conjunction with the
Company's production suite of software, to provide visibility to the status of
the customers order at any point in the manufacturing process. In this regard,
USDATA Connector assists manufacturers in achieving a real-time supply chain
allowing them to better meet changing customer needs and increasing market
demands.
Also in late 1999, the Company introduced USDATA Analysis, the newest
module in Xfactory. USDATA Analysis turns production data into valuable
information available from any web browser. This product is the result of
USDATA's intuitive production modeling environment coupled with the capabilities
of TopTier Software's hyper-relational technology. USDATA Analysis integrates
the supply and demand chains by providing visibility to issues surrounding the
requirements of the shop floor and resource planning. As a result, the module is
intended to provide improved information to the supply chain, tighter inventory
control and increased profitability.
USDATA 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 division currently has
seven channel support locations in the United States and six internationally to
support its sales efforts through its network of distributors.
eMake Corporation
eMake Corporation ("eMake") was created to reinvent the way
manufacturers do business, by providing Internet-based, real-time production
applications, eBusiness and supply chain portals. eMake's services enables
customers to more efficiently manage their business in real time, using Internet
technologies to tap into a community of ideas, information and applications
uniquely tailored to fit the needs of the discrete make-to-order manufacturer.
eMake was formed in July 1999 by combining the Company's acquired Smart Shop
Software operations with a team of USDATA personnel with expertise in real time
production and Internet technologies. eMake's services are uniquely designed for
make-to-order manufacturers responding to changing orders, demanding customers,
shorter production cycles and increasing technology needs. eMake's services are
intended to provide a cost-effective, easy-to-implement business and production
solution with secure, real-time visibility through the Internet to customers,
suppliers and partners.
In mid-April 2000, eMake launched the first components of a suite of
Internet applications that include integrated product solutions and real-time
visibility across the supply chain. eMake'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.
eMake's focus is on horizontal make-to-order solutions for smaller to medium
sized manufacturers with less than $50 million in annual revenue.
eMake focuses its sales efforts through the Internet, a direct sales
force, and telemarketing.
11
<PAGE> 12
RESULTS OF OPERATIONS
The following table presents selected financial information relating to
the financial condition and results of operations of the Company and should be
read in conjunction with the consolidated financial statements and notes
included herein. The table sets forth, for the periods indicated, the Company's
statement of operations as a percentage of revenues.
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
--------------------- ---------------------
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues:
Product license 80% 87% 77% 87%
Services 20% 13% 23% 13%
-------- -------- -------- --------
Total revenues 100% 100% 100% 100%
-------- -------- -------- --------
Operating expenses:
Selling and product materials 210% 60% 191% 61%
Product development 89% 9% 63% 10%
General and administrative 78% 23% 62% 22%
Severance and other charges 20% 0% 10% 0%
Non-cash compensation 10% 0% 8% 0%
Amortization of intangible assets 9% 0% 9% 0%
-------- -------- -------- --------
Total operating expenses 416% 92% 343% 93%
-------- -------- -------- --------
Income (loss) from operations (316)% 8% (243)% 7%
Other income (expense), net (6)% 0% (3)% 0%
-------- -------- -------- --------
Income (loss) from operations before income taxes (322)% 8% (246)% 7%
Income tax provision 0% (1)% 0% (1)%
-------- -------- -------- --------
Net income (loss) (322)% 7% (246)% 6%
Dividends on preferred stock (3)% 0% (3)% 0%
-------- -------- -------- --------
Net income (loss) applicable to common stockholders (325)% 7% (249)% 6%
========= ======== ======== ========
</TABLE>
Comparison of Three Months Ended June 30, 2000 and 1999
Total revenues for the quarter ended June 30, 2000, were $3.9 million,
a decrease of $2.6 million or 40% compared to the same period in 1999. The
decrease was primarily a result of $2.5 million in lower software licensing
revenues. The Company believes that the decrease in software licensing revenues
was primarily due to a temporary industry-wide decline in new software projects
experienced in the first half of 2000. Additionally, while FactoryLink 7 was
released on June 30, 2000, it was substantially later than originally planned
and adversely affected revenues during the first half of 2000. While the Company
anticipates an improvement in USDATA revenues going forward, these market
dynamics could affect buying decisions for at least another two quarters, making
revenues and operating results more difficult to forecast.
Selling and product materials expenses increased $4.3 million from $3.9
million for the quarter ended June 30, 1999 to $8.2 million for the same period
in 2000. The increase was a result of eMake's selling and product materials
expenses of $4.5 million, partially offset by a decrease in USDATA's selling and
product materials expenses of $.2 million. Selling and product materials
expenses as a percentage of revenues increased to 210% for the quarter ended
June 30, 2000 from 60% for the same period in 1999 primarily resulting from the
increase in selling expenses from eMake in addition to the decrease in revenues.
Product development expenses, which consisted primarily of labor costs,
increased $2.9 million from $.6 million for the quarter ended June 30, 1999 to
$3.5 million for the same period in 2000. Compared to the second quarter 1999,
the Company increased its engineering development activities related to the
FactoryLink and Xfactory product lines. Capitalization of software development
costs ceased during the quarter ended June 30, 2000, as FactoryLink 7 became
available
12
<PAGE> 13
for general release. The Company capitalized $.3 million for the quarter ended
June 30, 1999, primarily related to the next major version of the FactoryLink
product line.
General and administrative expenses increased $1.5 million from $1.5
million for the quarter ended June 30, 1999 to $3.0 million for the same period
in 2000. The increase is primarily due to eMake's general and administrative
expenses of $.7 million as well as incremental consulting fees associated with
refining the Company's longer-term business plan. General and administrative
expenses as a percentage of revenues increased to 78% for the quarter ended June
30, 2000 from 23% for the same period in 1999, primarily due to the decrease in
revenues in the second quarter of 2000 combined with the fixed cost nature of a
majority of general and administrative costs.
In June 2000, the Company implemented a reduction in its workforce of
approximately 6% and recorded a one-time charge of $.8 million, primarily
consisting of employee severance and related benefits. Of the total amount of
severance expensed in the second quarter, approximately $.4 million was paid
through June 30, 2000. At June 30, 2000, accrued severance costs totaled $.2
million which are expected to be paid in full by July 2001. Other charges
included in the $.8 million are $85 thousand for vacated office space that the
Company is obligated to pay through September 2001 and $73 thousand in legal and
other related costs.
In connection with the acquisition of Smart Shop Software in 1999, the
Company recorded $.7 million in charges for the quarter ended June 30, 2000
related to non-cash compensation and amortization of acquired intangible assets.
Included in non-cash compensation is $.1 million related to releasing shares
from escrow, in accordance with the Smart Shop purchase agreement, which were
held as collateral for certain performance requirements
The Company experienced a loss from operations of $12.3 million for the
quarter ended June 30, 2000 compared to income from operations of $.5 million
for the same period in 1999. The decrease in income from operations was
primarily the result of a decrease in revenues of $2.6 million, acquisition
related charges of $.7 million, severance and other charges of $.8 million and
eMake related costs associated with developing technology, building the
infrastructure, start-up, market development and operating costs.
Comparison of Six Months Ended June 30, 2000 and 1999
Total revenues for the six months ended June 30, 2000, were $8.0
million, a decrease of $4.8 million or 38% compared to the same period in 1999.
The decrease was primarily a result of $5.0 million in lower software licensing
revenues, offset by a $.2 million increase in technical support services. The
Company believes that the decrease in software licensing revenues was primarily
due to a temporary industry-wide decline in new projects experienced in the
first half of 2000. Additionally, while FactoryLink 7 was released on June 30,
2000, it was substantially later than originally planned and adversely affected
revenues during the first half of 2000. While the Company anticipates an
improvement in USDATA revenues going forward, these market dynamics could affect
buying decisions for at least another two quarters, making revenues and
operating results more difficult to forecast.
Selling and product materials expenses increased $7.6 million from $7.7
million for the six months ended June 30, 1999 to $15.3 million for the same
period in 2000. The increase was a result of eMake's selling and product
materials expenses of $8.0 million, partially offset by a decrease in USDATA's
selling and product materials expenses of $.4 million. Selling and product
materials expenses as a percentage of revenues increased to 191% for the six
months ended June 30, 2000 from 61% for the same period in 1999 primarily
resulting from the increase in selling expenses from eMake in addition to the
decrease in revenues.
Product development expenses, which consisted primarily of labor costs,
increased $3.8 million from $1.2 million for the six months ended June 30, 1999
to $5.0 million for the same period in 2000. Compared to the six months ended
June 30, 1999, the Company increased its engineering development
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<PAGE> 14
activities related to the FactoryLink and Xfactory product lines. The Company
capitalized $1.8 million and $.5 million for the six months ended June 30, 2000
and 1999, primarily related to the next major version of the FactoryLink product
line and development efforts related to eMake during 2000.
General and administrative expenses increased $2.0 million from $2.9
million for the six months ended June 30, 1999 to $4.9 million for the same
period in 2000. The increase is primarily due to eMake's general and
administrative expenses of $1.0 million as well as incremental consulting fees
associated with refining the Company's longer-term business plan. General and
administrative expenses as a percentage of revenues increased to 62% for the six
months ended June 30, 2000 from 22% for the same period in 1999, primarily due
to the decrease in revenues for the six months ended June 30, 2000 combined with
the fixed cost nature of a majority of general and administrative costs.
The Company experienced a loss from operations of $19.4 million for the
six months ended June 30, 2000, compared to income from operations of $.9
million for the same period in 1999. The decrease in income from operations was
primarily the result of a decrease in revenues of $4.8 million, acquisition
related charges of $1.4 million, severance and other charges of $.8 million and
eMake related costs associated with developing technology, building the
infrastructure, start-up, market development and operating costs.
LIQUIDITY AND CAPITAL RESOURCES
The Company's operating activities used $11.4 million of cash for the
six months ended June 30, 2000 compared to providing $1.9 million for the same
period in 1999, primarily due to a loss from operations in the six months ended
June 30, 2000, partially offset by improved collections on accounts receivable
in 2000 and an increase in accounts payable and other accrued liabilities from
1999. Cash used in investing activities was $4.7 million for the six months
ended June 30, 2000 resulting from capital expenditures of $2.9 million and
software development costs of $1.8 million. The capital expenditures were
primarily attributable to $2.3 million in costs for computer equipment and
software development related to the Internet applications for eMake and $.4
million in computers and equipment for USDATA.
On February 8, 2000 and March 24, 2000, eMake entered into two
convertible promissory note agreements with a subsidiary of Safeguard
Scientifics, Inc. ("Safeguard"), the Company's primary stockholder, for $2.5
million each, totaling $5.0 million in borrowings. The promissory notes bear
interest at a rate of 12% per annum and are due in full on February 8, 2001 and
March 24, 2001, respectively. The outstanding principal balances of these notes
are convertible at any time into shares of common stock of eMake at an initial
conversion price of $4.00 per share. The conversion price is equal to the
estimated fair value of the subsidiary's common stock at dates of the issuance
of the promissory notes. If the notes payable are paid in full at maturity,
interest will be forgiven.
On April 26, 2000, a subsidiary of Safeguard provided $5.0 million in
financing to the Company in exchange for a demand note due the earlier of one
year from the date of the note or 60 days following the date of demand for
payment. The note bears interest at a specified bank prime rate plus one
percent, which was 10.5% at June 30, 2000.
On June 29, 2000, a subsidiary of Safeguard provided $1.5 million in
financing to eMake in exchange for a demand note due the earlier of one year
from the date of the note or 60 days following the date of demand for payment.
The note bears interest at a specified bank prime rate plus one percent, which
was 10.5% at June 30, 2000.
On July 13, 2000 and July 28, 2000, a subsidiary of Safeguard provided
an additional $1.75 and $2.5 million, respectively, in financings to eMake in
exchange for two demand notes each due the earlier of one year from the date of
the note or 60 days following the date of demand for payment. The notes bear
interest at a specified bank prime rate plus one percent, which was 10.5% at
June 30, 2000.
On August 14, 2000, SCP Private Equity Partners II, L.P. ("SCP")
provided $6.0 million in financing to eMake in exchange for a demand note due
the earlier of one year from the date of the note or 60 days following the date
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<PAGE> 15
of demand for payment. The note bears interest at a specified bank prime rate
plus one percent, which was 10.5% at June 30, 2000. Immediately following this
funding, the Company will repay the $2.5 million demand note dated July 28, 2000
plus accrued interest to Safeguard.
The development and launch of the Company's new subsidiary eMake has
significantly increased the Company's operating expenses and cash requirements.
To date, the Company has been able to satisfy these incremental cash
requirements through the aforementioned convertible promissory and demand notes
with Safeguard. In order for the Company to continue its promotion and launch of
eMake, additional cash investments will be required.
On August 7, 2000, the Company and eMake executed a Securities Purchase
Agreement that is expected to provide $26.5 million in funding from Safeguard
and SCP. This funding includes an investment by Safeguard and SCP of $26.5
million in eMake preferred stock, which is convertible into eMake common stock
or a new series of the Company's preferred stock and a warrant to purchase
additional shares of its preferred stock. Due to the number of shares of common
stock that potentially may be issued upon a conversion into the Company's
preferred stock, the Company's stockholders must approve the transaction in a
special stockholder meeting.
On the closing date, scheduled shortly after the receipt of the
stockholder approval described above, SCP and Safeguard are expected to purchase
5,300,000 shares each, totaling 10,600,000 shares, of eMake Corporation Series
A-1 and Series A-2 preferred stock, respectively, and a warrant to purchase an
additional 5,300,000 shares each of eMake Corporation Series A-1 and Series A-2
preferred stock, respectively, for an aggregate purchase price of $7,250,000 in
cash and cancellation of $19,250,000 of the indebtedness described above.
Although the Company and eMake Corporation has executed the Securities
Purchase Agreement, no assurance can be given that this equity financing will be
concluded on terms and conditions acceptable to the Company, if at all. The
failure to close this anticipated financing will have a material adverse affect
on the future of eMake Corporation and could adversely affect the Company's
operations.
YEAR 2000
The Company has not encountered any material problems in its critical
systems or products subsequent to December 31, 1999 related to the Year 2000
("Y2K") issue and has not encountered any material problems with its third party
vendors and suppliers. The Company will continue to monitor new issues or
concerns relative to Y2K.
Although the Company to date has not experienced any significant
problems associated with Y2K, the Company cannot be certain that unexpected Y2K
compliance problems of its products, computer systems or the systems of its
vendors, customers and service providers, will not occur. Any such problems
could have a material adverse affect on the Company's business, financial
condition or operating results.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board released
Statement No. 133, "Accounting for Derivative Instruments and Hedging
Activities" ("SFAS 133"), as amended by SFAS No. 137, which is effective for
fiscal years beginning after June 15, 2000. Earlier application for certain
provisions of this standard is permitted. SFAS 133 establishes accounting and
reporting standards for derivative instruments. The Statement requires that an
entity recognize all derivatives as either assets or liabilities in the
financial statements and measure those instruments at fair value, and it defines
the accounting for changes in the fair value of the derivatives depending on the
intended use of the derivative. SFAS 133 is not expected to have a material
impact on the Company's consolidated results of operations, financial position
or cash flows.
In December 1999, the SEC staff issued Staff Accounting Bulletin No.
101, "Revenue Recognition in Financial Statements" ("SAB 101"). SAB 101
summarizes certain of the staff's views in applying generally accepted
accounting principles to revenue transactions and accounting for deferred costs
15
<PAGE> 16
in the financial statements. The Company is required to adopt the provisions of
SAB 101 in the quarter ending December 31, 2000. Based on our current revenue
recognition policies, SAB 101 is not expected to materially impact our financial
position, results of operations, or cash flows.
FASB issued Interpretation No. 44, "Accounting for Certain Transactions
Involving Stock Compensation - an Interpretation of APB Opinion No. 25"
("FIN 44") in March 2000. Among other things, this interpretation clarifies the
definition of employee for purposes of applying APB Opinion No. 25, "Accounting
for Stock Issued to Employees" ("APB 25"), the criteria for determining whether
a plan qualifies as a non-compensatory plan, the accounting consequence of
various modifications to the terms of previously fixed stock options or awards
and the accounting for an exchange of stock compensation awards in a business
combination. The Interpretation is effective July 1, 2000, but certain
conclusions in the Interpretation cover specific events that occurred after
either December 15, 1998 or January 12, 2000. Management believes that FIN 44
will not have a material effect on our financial position and consolidated
results of operations upon adoption.
FORWARD LOOKING STATEMENTS
This document contains "forward-looking statements" within the meaning
of the Private Securities Litigation Reform Act of 1995 regarding revenues,
margins, operating expenses, earnings, growth rates and certain business trends
that are subject to risks and uncertainties that could cause actual results to
differ materially from the results described herein. Specifically, the ability
to grow product and service revenues may not continue and the Company may not be
successful in developing new products, product enhancements or services on a
timely basis or in a manner that satisfies customers needs or achieves market
acceptance. Other factors that could cause actual results to differ materially
are: competitive pricing and supply, market acceptance and success for service
offerings similar to eMake, short-term interest rate fluctuations, general
economic conditions, employee turnover, possible future litigation, the impact
of Y2K and the related uncertainties may have on future revenue and earnings as
well as the risks and uncertainties set forth from time to time in the Company's
other public reports and filings and public statements. Recipients of this
document are cautioned to consider these risks and uncertainties and to not
place undue reliance on these forward-looking statements. 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.
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<PAGE> 17
USDATA CORPORATION AND SUBSIDIARIES
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's exposure to market risk associated with changes in
interest rates relates to its variable rate bank note payable of $246,000.
Interest rate risk is estimated as the potential impact on the Company's results
of operations or financial position due to a hypothetical change of 50 basis
points in quoted market prices. This hypothetical change would not have a
material effect on the Company's results of operations and financial position.
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits (filed as part of this report).
<TABLE>
<CAPTION>
Number Description
------ -----------
<S> <C>
10.15 Demand Note dated June 29, 2000
27 Financial Data Schedule
(EDGAR Version only)
</TABLE>
(b) Reports on Form 8-K
No reports on Form 8-K have been filed by the Registrant
during the three months ended June 30, 2000.
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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
Date: August 14, 2000 /s/ Robert A. Merry
-----------------------------------------
Robert A. Merry
President, Chief Executive Officer
and Director
Date: August 14, 2000 /s/ Robert L. Drury
-----------------------------------------
Robert L. Drury
Vice President Finance, Chief Financial
Officer Treasurer and Secretary
(Principal Financial and Accounting
Officer)
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INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Number Description
------ -----------
<S> <C>
10.15 Demand Note dated June 29, 2000
27 Financial Data Schedule
</TABLE>
