-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, PmAhwb+uaxYj0efKchmn0ueioBp6at23xLlD63S8Wjzo6Kuoh830JdP1WeuqFZkt iGrRebc6kj7n1r/RUoTwIw== 0000950134-99-007587.txt : 19990817 0000950134-99-007587.hdr.sgml : 19990817 ACCESSION NUMBER: 0000950134-99-007587 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19990630 FILED AS OF DATE: 19990816 FILER: COMPANY DATA: COMPANY CONFORMED NAME: USDATA CORP CENTRAL INDEX KEY: 0000943895 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-PREPACKAGED SOFTWARE [7372] IRS NUMBER: 752405152 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-25936 FILM NUMBER: 99693821 BUSINESS ADDRESS: STREET 1: 2435 NORTH CENTRAL EXPRESSWAY CITY: RICHARDSON STATE: TX ZIP: 75080 BUSINESS PHONE: 2146809700 10-Q 1 FORM 10-Q FOR QUARTER ENDED JUNE 30, 1999 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 - -------------------------------------------------------------------------------- (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 July 31, 1999: Number of Shares Class Outstanding Common Stock, Par Value $.01 Per Share 11,404,661 shares 2 USDATA CORPORATION AND SUBSIDIARIES FORM 10-Q QUARTER ENDED JUNE 30, 1999 TABLE OF CONTENTS
Page Number ------ 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
2 3 USDATA CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
JUNE 30, DECEMBER 31, 1999 1998 --------- --------- (unaudited) 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 ========= =========
The accompanying notes are an integral part of the consolidated financial statements. 3 4 USDATA CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (In thousands, except per share data) (Unaudited)
THREE MONTHS ENDED SIX MONTHS ENDED June 30, June 30, ------------------------ ------------------------ 1999 1998 1999 1998 --------- --------- --------- --------- 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 ========= ========= ========= =========
The accompanying notes are an integral part of the consolidated financial statements. 4 5 USDATA CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS) (UNAUDITED)
SIX MONTHS ENDED JUNE 30, ---------------------- 1999 1998 -------- -------- 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 --
The accompanying notes are an integral part of the consolidated financial statements. 5 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 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 7 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 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 8 USDATA CORPORATION AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - ------------------------------------------------------------------------------- RESULTS OF OPERATIONS The following table sets forth, for the periods indicated, selected statement of operations data as a percentage of net sales:
THREE MONTHS ENDED SIX MONTHS ENDED June 30, JUNE 30, ------------------ ------------------ 1999 1998 1999 1998 ----- ----- ----- ----- 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)% ----- ----- ----- -----
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 9 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 10 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 11 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 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 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:
I. ELECTION OF DIRECTORS FOR AGAINST WITHHELD --------- ------- -------- 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
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 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 15 INDEX TO EXHIBITS
Exhibit Number Description ------ ----------- 11.1 Computation of Per Share Earnings 27.1 Financial Data Schedule (Edgar Version Only)
EX-11.1 2 COMPUTATION OF PER SHARE EARNINGS 1 USDATA CORPORATION AND SUBSIDIARIES EXHIBIT 11.1 - COMPUTATION OF PER SHARE EARNINGS
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, --------------------- --------------------- (IN THOUSANDS, EXPECT PER SHARE DATA) 1999 1998 1999 1998 -------- -------- -------- -------- 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) ======== ======== ======== ========
15 EX-27.1 3 FINANCIAL DATA SCHEDULE
5 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. 1,000 6-MOS DEC-31-1999 JAN-01-1999 JUN-30-1999 3,078 0 5,769 840 96 9,108 7,307 5,674 16,690 4,805 0 0 0 143 11,742 16,690 12,772 12,772 854 10,979 0 0 0 974 100 874 0 0 0 874 0.08 0.08
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