-----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, FRKXjenMphujCkezQAC2EtQGVL7JuavTZ6xLm4t64RNZ1A68EgmMNys9geykuDw4 E/p+ci/eDnb+Z8Qroogr8g== 0000950134-99-010081.txt : 19991117 0000950134-99-010081.hdr.sgml : 19991117 ACCESSION NUMBER: 0000950134-99-010081 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19990930 FILED AS OF DATE: 19991115 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: 99752721 BUSINESS ADDRESS: STREET 1: 2435 NORTH CENTRAL EXPRESSWAY CITY: RICHARDSON STATE: TX ZIP: 75080 BUSINESS PHONE: 9726809700 10-Q 1 FORM 10-Q FOR QUARTER ENDED SEPTEMBER 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 September 30, 1999 Transition Report pursuant to Section 13 or 15(d) of the Securities - --- Exchange Act of 1934. For the transition period from to . -------- -------- Commission File Number 0-25936 USDATA Corporation (Exact name of registrant as specified in its charter) DELAWARE 75-2405152 - -------------------------------------------------------------------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 2435 N Central Expressway, Richardson, TX, 75080 - -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (972) 680-9700 --------------------------------- Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such requirements for the past 90 days. Yes X No --- --- --------------------------------- Indicate the number of shares outstanding of each of the issuer's classes of common stock as of October 31, 1999: Number of Shares Class Outstanding Common Stock, Par Value $.01 Per Share 13,109,480 shares 2 USDATA CORPORATION AND SUBSIDIARIES FORM 10-Q QUARTER ENDED SEPTEMBER 30, 1999 TABLE OF CONTENTS
Page Number PART I. FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Balance Sheets at September 30, 1999 and December 31, 1998 3 Consolidated Statements of Operations and Comprehensive Income for the Three and Nine Months Ended September 30, 1999 and 1998 4 Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 1999 and 1998 5 Notes to Consolidated Financial Statements 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 9 PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K 15 Signatures 16
2 3 USDATA CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
SEPTEMBER 30, DECEMBER 31, 1999 1998 ------------- ----------- (unaudited) ASSETS Current assets: Cash and cash equivalents $ 5,643 $ 1,980 Accounts receivable, net of allowance for doubtful accounts of $794 and $1,150, respectively 4,884 6,095 Deferred income taxes 533 533 Other current assets 564 475 ------------- ----------- Total current assets 11,624 9,083 ------------- ----------- Property and equipment, net 1,738 1,825 Capitalized computer software development costs, net 5,399 4,127 Software held for resale, net 1,139 1,286 Excess of cost over fair value of net assets of acquired business 9,182 -- Other assets 180 80 ------------- ----------- Total assets $ 29,262 $ 16,401 ============= =========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 1,067 $ 755 Deferred revenue 1,972 2,005 Accrued compensation and benefits 1,089 1,274 Short-term and current portion of long-term debt 95 -- Other accrued liabilities 826 2,072 ------------- ----------- Total current liabilities 5,049 6,106 ------------- ----------- Long-term debt, less current portion 399 -- ------------- ----------- Total liabilities 5,448 6,106 ------------- ----------- Commitments and contingencies Stockholders' equity: Preferred stock, $.01 par value, 2,200,000 shares authorized; Series A Cumulative Convertible Preferred stock; shares issued: 50,000 in 1999 1 -- Common stock, $.01 par value, 22,000,000 shares authorized; 15,548,369 issued in 1999 and 14,343,550 issued in 1998 155 143 Additional paid-in capital 26,735 16,534 Retained earnings 6,054 5,106 Treasury stock at cost, 2,438,889 shares in 1999 and 3,106,184 shares in 1998 (8,539) (10,929) Other comprehensive income (592) (559) ------------- ----------- Total stockholders' equity 23,814 10,295 ------------- ----------- Total liabilities and stockholders' equity $ 29,262 $ 16,401 ============= ===========
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 NINE MONTHS ENDED September 30, September 30, ---------------------- ---------------------- 1999 1998 1999 1998 -------- -------- -------- -------- Net sales $ 7,086 $ 4,890 $ 19,858 $ 16,336 Cost of sales 343 221 1,197 942 -------- -------- -------- -------- Gross profit 6,743 4,669 18,661 15,394 -------- -------- -------- -------- Operating expenses: Selling 4,247 4,275 11,134 11,361 Product development 661 707 1,886 2,252 General and administrative 1,678 1,584 4,545 4,555 -------- -------- -------- -------- Total operating expenses 6,586 6,566 17,565 18,168 -------- -------- -------- -------- Income (loss) from operations 157 (1,897) 1,096 (2,774) Other income , net 33 53 68 167 Amortization of excess of cost over fair value of net assets of acquired business (116) -- (116) -- -------- -------- -------- -------- Income (loss) from continuing operations before income taxes 74 (1,844) 1,048 (2,607) Income tax provision -- -- (100) (36) -------- -------- -------- -------- Income (loss) from continuing operations 74 (1,844) 948 (2,643) -------- -------- -------- -------- Discontinued operations: Loss from discontinued Systems Operations -- -- -- (219) Loss on disposal of discontinued System Operations, including operating losses of $250 -- -- -- (1,500) -------- -------- -------- -------- Loss from discontinued operations -- -- -- (1,719) -------- -------- -------- -------- Net income (loss) $ 74 $ (1,844) $ 948 $ (4,362) ======== ======== ======== ======== Other comprehensive income, net of tax: Foreign currency translation adjustment 33 -- (33) -- -------- -------- -------- -------- Comprehensive income (loss) $ 107 $ (1,844) $ 915 $ (4,362) ======== ======== ======== ======== Earnings per share: Basic Income (loss) from continuing operations $ 0.01 $ (0.16) $ 0.08 $ (0.24) Loss from discontinued operations -- -- -- (0.15) -------- -------- -------- -------- Net income (loss) $ 0.01 $ (0.16) $ 0.08 $ (0.39) ======== ======== ======== ======== Diluted Income (loss) from continuing operations $ 0.01 $ (0.16) $ 0.07 $ (0.24) Loss from discontinued operations -- -- -- (0.15) -------- -------- -------- -------- Net income (loss) $ 0.01 $ (0.16) $ 0.07 $ (0.39) ======== ======== ======== ======== Weighted average shares outstanding: Basic 12,386 11,233 11,687 11,182 Diluted 13,780 11,233 12,939 11,182 ======== ======== ======== ========
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)
NINE MONTHS ENDED SEPTEMBER 30, --------------------- 1999 1998 ------- ------- Cash flows from operating activities: Net income (loss) from continuing operations $ 948 $(2,643) ------- ------- Adjustments to reconcile net income (loss) from continuing operations to net cash provided by continuing operations: Depreciation and amortization 890 1,156 Changes in assets and liabilities: Accounts receivable 1,781 363 Accounts payable and accrued liabilities (466) 889 Accrued compensation and benefits (266) (94) Deferred revenue (963) (128) Other - net (162) (187) ------- ------- Net cash provided by (used in) continuing operations 1,762 (644) ------- ------- Cash flows from investing activities: Capital expenditures (340) (615) Acquisition (6,450) -- Purchase of MES software -- (400) Capitalized software development costs (1,270) (2,234) ------- ------- Net cash used in investing activities (8,060) (3,249) ------- ------- Cash flows from financing activities: Debt and capital lease payments (15) -- Proceeds from issuance of common shares 5,009 794 Proceeds from issuance of Series A preferred shares 5,000 -- ------- ------- Net cash provided by financing activities 9,994 794 ------- ------- Cash flows from discontinued operations -- 291 ------- ------- Effect of exchange rate changes on cash (33) -- ------- ------- Net increase (decrease) in cash and cash equivalents 3,663 (2,808) Cash and cash equivalents, beginning of period 1,980 5,204 ------- ------- Cash and cash equivalents, end of period $ 5,643 $ 2,396 ======= ======= SUPPLEMENTAL DISCLOSURE: Common stock issued for purchase of software held for resale (see Note 4) $ 782 --
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 its subsidiaries (the "Company") for the three and nine month periods ended September 30, 1999 and 1998 have been prepared in accordance with generally accepted accounting principles. Significant accounting policies followed by the Company were disclosed in the notes to the consolidated financial statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 1998. In the opinion of the Company's management, the accompanying consolidated financial statements contain the adjustments, consisting of normal recurring accruals, necessary to present fairly the consolidated financial position of the Company at September 30, 1999, and the consolidated results of its operations and comprehensive income, and cash flows for the periods ended September 30, 1999 and 1998. Operating results for the three and nine months ended September 30, 1999 are not necessarily indicative of the results that may be expected for the year ending December 31, 1999. 2. RECENT ACCOUNTING PRONOUNCEMENTS In December 1998, the AICPA issued Statement of Position 98-9, "Modification of SOP 97-2, Software Revenue Recognition, with Respect to Certain Transactions" ("SOP 98-9"). SOP 98-9 amends paragraphs 11 and 12 of SOP 97-2, Software Revenue Recognition, to require recognition of revenue using the "residual method" when certain criteria are met. SOP 98-9 is effective for transactions entered into in fiscal years beginning after March 15, 1999. Earlier adoption is permitted. SOP 98-9 is not expected to have a material impact on the Company's consolidated results of operations, financial position or cash flows. 3. RECLASSIFICATIONS AND BASIS OF PRESENTATION Certain prior year balances have been reclassified to conform to the 1999 presentation. 4. SOFTWARE HELD FOR RESALE In 1998, the Company purchased the underlying code to computer software licenses, which are held for resale in the ordinary course of business. The original purchase costs of such software were capitalized and are being amortized utilizing the straight-line method over the estimated economic life of three years. 5. ACQUISITIONS Effective July 1, 1999, the Company entered into an agreement to purchase substantially all of the assets and certain liabilities of Smart Shop Software, Inc. for $6.4 million in cash and 500,000 shares of the Company's common stock. This acquisition has been accounted for under the purchase method of accounting. The financial statements reflect the preliminary allocation of the purchase price based on estimated fair values at the date of acquisition. The valuation of the acquired business, with the assistance of outside consultants, is currently underway. The valuation process and related charge to earnings for acquired in-process research and development (preliminarily estimated to be in the range of $400,000 to $500,000) will be completed and recorded in the fourth quarter 1999. The results of the acquired business have been included in the consolidated financial statements since the effective acquisition date of July 1, 1999. The 500,000 issued shares of common stock are to be held in escrow as collateral for performance under the Purchase Agreement and shall be disbursed to the shareholders at the rate of one-sixth each six months following the closing date of August 6, 1999. Smart Shop Software, Inc. is a privately held software company located in Post Falls, ID that provides business software to make-to-order small and medium sized manufacturers. 6 7 USDATA CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - -------------------------------------------------------------------------------- The following unaudited pro forma information presents the results of operations of the Company as if the acquisition had occurred on January 1, 1998 and excludes any potential write-off of acquired in-process research and development.
Three Months Ended Nine Months Ended September 30, September 30, (in thousands except -------------------------- -------------------------- per share amounts) 1999 1998 1999 1998 - -------------------------------------- ---------- ----------- ---------- ---------- Net sales $ 7,086 $ 5,489 $ 21,486 $ 18,053 Net income (loss) $ 74 $ (2,121) $ 659 $ (4,945) Earnings (loss) per share: Basic $ 0.01 $ (0.16) $ 0.05 $ (0.38) Diluted $ 0.01 $ (0.15) $ 0.05 $ (0.35)
These pro forma results of operations have been prepared for comparative purposes only and do not purport to be indicative of the results of operations which actually would have resulted had the acquisition occurred on the date indicated, or which may result in the future. 6. CAPITAL STOCK On August 6, 1999, the Company issued through a private placement 1,204,819 shares of the Company's common stock for $5.0 million and 50,000 shares of the Company's Series A convertible preferred stock for $5.0 million to a wholly owned subsidiary of Safeguard Scientifics, Inc., the Company's primary shareholder. The preferred stock is convertible into shares of common stock of the Company or into shares of common stock of any majority owned subsidiary of the Company, at the election of the holder. 7. SEGMENT INFORMATION The Company defines its operations as operating segments based on two distinct product divisions - USDATA product division, which includes its FactoryLink and Xfactory product lines and eMake product division, which develops and distributes Internet applications that deliver integrated production solutions and real-time visibility across the supply chain and includes the Company's recently acquired Smart Shop Software unit. 7 8 USDATA CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - -------------------------------------------------------------------------------- The Company measures segment earnings as income from operations, defined as income before amortization of excess of cost over fair value of net assets of acquired business, discontinued operations, other income and income taxes.
Three Months Ended Nine Months Ended September 30, September 30, ----------------------- ----------------------- 1999 1998 1999 1998 ---------- --------- ----------- -------- Net sales: USDATA Division $ 6,074 $ 4,890 $ 18,846 $ 16,336 eMake Division 1,012 -- 1,012 - ---------- --------- ----------- -------- $ 7,086 $ 4,890 $ 19,858 $ 16,336 ========== ========= =========== ======== Income (loss) from operations: USDATA Division $ 1,127 $ (1,897) $ 2,066 $ (2,774) eMake Division (970) -- (970) - ---------- --------- ----------- -------- $ 157 $ (1,897) $ 1,096 $ (2,774) ========== ========= =========== ======== Total assets: USDATA Division $ 19,377 $ 17,220 $ 19,377 $ 17,220 eMake Division 9,885 -- 9,885 -- ---------- --------- ----------- -------- $ 29,262 $ 17,220 $ 29,262 $ 17,220 ========== ========= =========== ========
8 9 USDATA CORPORATION AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - -------------------------------------------------------------------------------- OVERVIEW USDATA Corporation (the "Company"), is a global supplier of component-based production software that is designed to help customers reduce operating costs, shorten cycle times and improve product quality in their manufacturing operations. The Company's software enables manufacturers to access accurate and timely information - whether they are on the plant-floor, in the office, or around the globe. The Company's solutions span the full range of manufacturing, from monitoring equipment to tracking product flow, and are designed to integrate seamlessly with customers' existing manufacturing and business software. This combination of product breadth and ease of integration provides a total plant solution that defines new levels of manufacturing performance and gives customers a distinct competitive advantage. Now in its 25th year, the Company has a strong global presence with more than 41,000 installs located in more than 50 countries throughout the world, 13 offices worldwide and a global network of distribution and support partners. Net sales are generated primarily from licenses of the FactoryLink(R) family of products, Xfactory(TM) and Smart Manager business software, which is the software product from the Company's recent acquisition, and secondarily from technical support and service agreements, training classes and product related integration services. The support and service agreements are generally one-year, renewable contracts entitling a customer to certain software upgrades and technical support. Support and service revenue for the three and nine months ended September 30, 1999 represented approximately 13% and 11% of net sales, respectively, compared to 16% and 13% of net sales for the same periods in 1998. Included in the FactoryLink family of products are versions 6.5 and 6.6, real-time information Windows NT and Windows 95 platforms, supporting powerful client access environments and technologies and providing Year 2000 ("Y2K") readiness. In addition, the Company offers FactoryLink WebClient, which provides the ability to view and control any FactoryLink server running Microsoft Windows NT using a simple web browser. Xfactory, which was introduced in mid-1998, is a manufacturing execution software ("MES") product that incorporates Microsoft's newest technologies and is built on Microsoft's Distributed Internet Applications ("DNA") architecture. Xfactory enables manufacturing plants to more easily and quickly automate their production processes and is the first visual object modeling MES. The Xfactory software product enables customers to develop versatile and flexible MES applications for production management, product tracking, product scheduling and genealogy tracking for manufacturing and production processes. Effective July 1, 1999, the Company acquired the business of Smart Shop Software, Inc., which provides business software to make-to-order small and medium sized manufacturers. This unit is included in the Company's recently announced eMake division that is focused on the "make" or production area of manufacturing and will develop and distribute Internet applications that deliver integrated product solutions and real-time visibility across the supply chain. The Company's strategy is to leverage its extensive manufacturing knowledge through Internet applications to help companies maximize their back office production and create the eMake portal for front office visibility into the production operations of the supply chain. Initial product availability is targeted for early 2000 and the division will focus on horizontal make-to-order solutions for smaller manufacturers and industry solutions for larger-scale automotive and electronics assembly. The Company focuses its sales efforts through selected distributors capable of providing the level of support and expertise required in the real-time manufacturing and process control application market. The Company currently has seven channel support locations in the United States and six internationally to support its sales efforts through its network of distributors. 9 10 USDATA CORPORATION AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - -------------------------------------------------------------------------------- CONSOLIDATED RESULTS OF OPERATIONS The following table sets forth, for the periods indicated, selected statement of operations data as a percentage of net sales:
Three Months Ended Nine Months Ended September 30, September 30, ----------------------- --------------------- 1999 1998 1999 1998 -------- -------- -------- -------- Net sales 100.0% 100.0% 100.0% 100.0% Cost of sales 4.8% 4.5% 6.0% 5.8% -------- -------- -------- -------- Gross profit 95.2% 95.5% 94.0% 94.2% -------- -------- -------- -------- Operating expenses: Selling 60.0% 87.4% 56.1% 69.5% Product development 9.3% 14.5% 9.5% 13.8% General and administrative 23.7% 32.4% 22.9% 27.9% -------- -------- -------- -------- Total operating expenses 93.0% 134.3% 88.5% 111.2% -------- -------- -------- -------- Income (loss) from operations 2.2% (38.8)% 5.5% (17.0)% Interest income 0.5% 1.1% 0.4% 1.0% Amortization of excess of cost over fair value of net assets of acquired business (1.6)% 0.0% (0.6)% 0.0% -------- -------- -------- -------- Income (loss) from continuing operations before income taxes 1.1% (37.7)% 5.3% (16.0)% Income tax provision 0.0% 0.0% (0.5)% (0.2)% -------- -------- -------- -------- Income (loss) from continuing operations 1.1% (37.7)% 4.8% (16.2)% -------- -------- -------- -------- Discontinued operations: Loss from discontinued Systems Operations 0.0% 0.0% 0.0% (1.3)% Loss on disposal of discontinued System Operations 0.0% 0.0% 0.0% (9.2)% -------- -------- -------- -------- Loss from discontinued operations 0.0% 0.0% 0.0% (10.5)% -------- -------- -------- -------- -------- -------- -------- -------- Net income (loss) 1.1% (37.7)% 4.8% (26.7)% -------- -------- -------- --------
Comparison of Three Months Ended September 30, 1999 and 1998 Net sales for the quarter ended September 30, 1999, were $7.1 million, an increase of $2.2 million or 45% compared to the same quarter in 1998. The increase was primarily a result of a $1.1 million increase in software licensing revenue related to the Company's USDATA product division, which includes its FactoryLink and Xfactory product lines, as well as $1.0 million of revenues from the Company's eMake product division, which includes Smart Shop Software Inc. Gross profit as a percentage of net sales decreased slightly to 95.2% for the quarter ended September 30, 1999 from 95.5% for the same period in 1998. 10 11 USDATA CORPORATION AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - -------------------------------------------------------------------------------- Selling expenses as a percentage of net sales decreased to 60.0% for the quarter ended September 30, 1999 from 87.4% for the same period in 1998 primarily due to increased revenues in 1999. Selling expenses in 1999 included approximately $1.2 million of incremental marketing and sales expenses to launch and expand the new eMake division, which were virtually offset by decreases in USDATA division selling expenses due to increased efficiencies resulting from the Company's completion of its transition from a mixed direct and indirect sales model to a predominately indirect sales model. Product development expenses (net of capitalized software development costs), which consisted primarily of labor costs, decreased $.2 million for USDATA division for the quarter ended September 30, 1999 compared to the same period in 1998. The decrease was attributable to a reduction in the Company's contract engineering development activities related to the FactoryLink product line, offset by increased development efforts for the Xfactory product line and eMake development expenses of $.2 million in 1999. The Company capitalized $.8 million of development expenses primarily related to the next major version of FactoryLink for the quarters ended September 30, 1999 and 1998. General and administrative expenses increased $.1 million for the quarter ended September 30, 1999 compared to the same period in 1998. Income from continuing operations was $74 thousand for the three months ended September 30, 1999 versus a loss from continuing operations of $1.8 million for the same period in 1998. The increase in income from continuing operations was primarily generated by an increase in net sales of $2.2 million, partially offset by the amortization of the excess of cost over fair value of net assets of the acquired business. Comparison of Nine Months Ended September 30, 1999 and 1998 Net sales for the nine months ended September 30, 1999, were $19.9 million, an increase of $3.5 million or 22% compared to the same period in 1998. The increase was a result of a $2.6 million increase in software licensing revenues related to the Company's USDATA product division and $1.0 million related to the Company's eMake product division. Gross profit as a percentage of net sales decreased slightly to 94.0% for the nine months ended September 30, 1999 from 94.2% for the same period in 1998. Selling expenses as a percentage of net sales decreased to 56.1% for the nine months ended September 30, 1999 from 69.5% for the same period in 1998 primarily due to increased revenues in 1999. Selling expenses decreased $.2 million or 2% for the nine months ended September 30, 1999. Product development expenses (net of capitalized software development costs), which consisted primarily of labor costs, decreased $.4 million for the nine months ended September 30, 1999 compared to the same period in 1998. $.6 million of the decrease is attributable to a reduction in the Company's contract engineering development activities related to the FactoryLink product line, offset by increased development efforts for the Xfactory product line and eMake development expenses of $.2 million for the nine months ended September 30, 1999. The Company capitalized $1.3 million of development expenses primarily related to the next major version of FactoryLink compared to $2.2 million for the same period in 1998. 11 12 USDATA CORPORATION AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - -------------------------------------------------------------------------------- General and administrative expenses in total for the nine months ended September 30, 1999, is comparable to the same period in 1998. Income from continuing operations was $.9 million for the nine months ended September 30, 1999 versus a loss from continuing operations of $2.6 million for the same period in 1998. The increase in income from continuing operations was primarily generated by the increase in net sales of $3.5 million. LIQUIDITY AND CAPITAL RESOURCES The Company's operating activities provided $1.8 million of cash during the nine months ended September 30, 1999 compared to a use of cash of $.6 million for the same period in 1998, primarily due to profitable operations and improved collections on accounts receivable. Cash used in investing activities was $8.1 million for the nine months ended September 30, 1999 primarily due to the acquisition of Smart Shop Software, Inc for $6.4 million in cash (see Note 5 "Acquisitions"). In addition, the Company invested $.3 million in capital equipment, primarily computers and equipment, and $1.3 million in capitalized software development cost as described above. The Company received $10.0 million in cash related to the issuance of 1,204,819 shares its common stock for $5.0 million and 500,000 shares of its Series A convertible preferred stock for $5.0 million (see Note 6 "Capital Stock"). The Company currently anticipates that its available cash, together with cash generated from operations, will be sufficient to satisfy its operating cash needs in 1999. The Company is in the process of establishing a new credit facility, which could be used to fund operating and capital requirements should the business expand more rapidly than expected. In addition, the Company could consider seeking additional public or private debt or equity financing to fund future growth opportunities or acquisitions. No assurance can be given, however, that such credit facility or debt or equity financing will be available to the Company on terms and conditions acceptable to the Company, if at all. IMPACT OF YEAR 2000 ISSUE The Company is continuing to address the Year 2000 ("Y2K") issue, which results from the fact that many computer programs were previously written using two digits rather than four to define the applicable year. Programs written in this way may recognize a date ending in "00" as the year 1900 rather than the year 2000. This could result in a system failure or miscalculations causing disruptions of operations. During 1998, the Company completed its conversion to a new integrated business software solution, which provides order processing, sales administration, accounts receivable, accounts payable and general ledger systems. During the second quarter of 1999, the Company completed its upgrade to the most recent version of this software, which is Y2K ready. The Company is in the process of conducting transaction based testing to confirm the system's ability to handle transactions related to the Y2K. The Company has not estimated the cost of completing this upgrade, but currently believes it will not be material. The Company's internal network server, both hardware and software, are Y2K ready. Outside of its integrated business software applications, the Company has very few systems that are interfaced together and therefore believes that its exposure is relatively low that a Y2K problem with any one system or application can adversely affect the entire IT environment. 12 13 USDATA CORPORATION AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - -------------------------------------------------------------------------------- For primarily operational purposes, the Company had been upgrading PCs and individual applications running thereon. The upgraded PCs and application software are Y2K ready and the Company believes it has minimal exposure to any business interruption from out-of-date PC's, network equipment or related software. In addition, the Company has a backup process in place under which data is backed up to an IT controlled server. Therefore, if any one application does not function due to Y2K issues, the data can easily be moved to another desktop station that is Y2K ready. The Company's primary products are manufacturing related software. The Company has established a process for testing and certifying these software products for Y2K readiness. During 1998, the Company released a Y2K ready version of FactoryLink(R) for all major platforms supported by the Company. The Company has used and plans on continuing to use its own internal development and support resources to test and remediate its product software for Y2K readiness. All new products of the Company introduced since 1997 are Y2K ready. The Company has also established a special section on its World Wide Web site devoted to Y2K readiness. The site indicates what the Company means when it states a product is Y2K ready, which specific products are Y2K ready and what the upgrade path is, if required, to bring older versions of its products up to Y2K readiness. Customers who are covered under the Company's service and support agreements are eligible to receive Y2K versions of the Company's products at no additional cost. The Company has instituted specific marketing and pricing programs to identify and assist customers who are not covered under the Company's service and support agreements in upgrading to Y2K ready versions of its software products. Additionally, the Company has added specific language to its standard product warranty addressing Y2K. The Company has not obtained, nor does it anticipate obtaining any insurance coverage for Y2K problems. To date, the Company has not incurred any material expense solely related to Y2K readiness for its internal IT and non-IT computer systems. Activities and expenses associated with conversion to new or upgraded systems have been driven primarily by operational considerations. The Company plans to use its internal resources to address any Y2K readiness issues, which are currently planned or may yet arise. The Company has not separately tracked these types of expense, but does not currently believe they have been or will be material. The Company has incurred costs in terms of time spent on research, modification, testing and remediation for its manufacturing related software products but has not determined the magnitude of such costs to date. Additional internal resources will be utilized during the remainder of 1999, however, the Company does not currently expect such expenses to be material to its financial position or results of operations. The Company does not currently believe it is dependent on any significant suppliers for which there may be Y2K readiness issues. Services such as banking and insurance are conducted with companies that either are or will be Y2K ready. 13 14 USDATA CORPORATION AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - -------------------------------------------------------------------------------- RECENT ACCOUNTING PRONOUNCEMENTS In December 1998, the AICPA issued Statement of Position 98-9, "Modification of SOP 97-2, Software Revenue Recognition, with Respect to Certain Transactions" ("SOP 98-9"). SOP 98-9 amends paragraphs 11 and 12 of SOP 97-2, Software Revenue Recognition, to require recognition of revenue using the "residual method" when certain criteria are met. SOP 98-9 is effective for transactions entered into in fiscal years beginning after March 15, 1999. Earlier adoption is permitted. SOP 98-9 is not expected to have a material impact on the Company's consolidated results of operations, financial position or cash flows. FORWARD LOOKING STATEMENTS This report includes "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements other than statements of historical fact included in this report, including without limitation, certain statements in this Item 2 under the captions "Results of Operations" and "Liquidity and Capital Resources" may constitute forward looking statements. Although the Company believes that the expectations reflected in such forward-looking statements are reasonable, it can give no assurance that such expectations will prove to be correct. Important factors that could cause actual results to differ materially from the Company's expectations ("cautionary statements") are disclosed in the Company's Annual Report on Form 10-K for the year ended December 31, 1998. All subsequent written and oral forward-looking statements attributable to the Company or persons acting on its behalf are expressly qualified in their entirety by these cautionary statements. 14 15 PART II. OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits (filed as part of this report). Number Description 2.1 Asset Purchase Agreement, dated as of July 29, 1999, by and among USDATA Corporation, Smart Shop Software, Inc. (Delaware), Smart Shop Software, Inc. (Idaho) and James Dickman, Michael Maloof and Michelle Dickman (filed on August 19, 1999 as Exhibit 2.1 to Form 8-K and incorporated herein by reference). 11.1 Computation of Per Share Earnings 27.1 Financial Data Schedule (Edgar Version Only) (b) Reports on Form 8-K 1. On August 16, 1999, the Company filed a Current Report on Form 8-K to announce its acquisition of substantially all of the assets and the assumption of certain liabilities of Smart Shop Software, Inc. 15 16 USDATA CORPORATION AND SUBSIDIARIES SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on behalf by the undersigned thereunto duly authorized. USDATA CORPORATION, INC. Date: November 15, 1999 /s/ Robert A. Merry --------------------------------------- Robert A. Merry President and Chief Executive Officer Date: November 15, 1999 /s/ Robert L. Drury --------------------------------------- Robert L. Drury Vice President Finance, Chief Financial Officer Treasurer and Secretary (Principal Financial and Accounting Officer) 16 17 INDEX TO EXHIBITS
EXHIBIT NUMBER DESCRIPTION - ------- ----------- 2.1 Asset Purchase Agreement, dated as of July 29, 1999, by and among USDATA Corporation, Smart Shop Software, Inc. (Delaware), Smart Shop Software, Inc. (Idaho) and James Dickman, Michael Maloof and Michelle Dickman (filed on August 19, 1999 as Exhibit 2.1 to Form 8-K and incorporated herein by reference). 11.1 Computation of Per Share Earnings 27.1 Financial Data Schedule (Edgar Version Only)
EX-11.1 2 STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS 1 USDATA CORPORATION AND SUBSIDIARIES EXHIBIT 11.1 - COMPUTATION OF PER SHARE EARNINGS
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, --------------------- ----------------------- (IN THOUSANDS, EXCEPT PER SHARE DATA) 1999 1998 1999 1998 - ------------------------------------------------------------------------------------ ----------------------- Net income (loss): Continuing operations $ 74 $ (1,844) $ 948 $ (2,643) Discontinued operations -- -- -- (1,719) -------- -------- -------- ---------- Net income (loss) $ 74 $ (1,844) $ 948 $ (4,362) ======== ======== ======== ========== Weighted average common shares outstanding 12,386 11,233 11,687 11,182 Effect of dilutive securities: Common stock options 121 51 Convertible Series A preferred stock 1,075 1,075 Warrants 198 125 -------- -------- -------- ---------- Common share equivalents 1,394 -- 1,251 -- -------- -------- -------- ---------- Weighted average common shares and common share equivalents (if dilutive) outstanding 13,780 11,233 12,938 11,182 ======== ======== ======== ========== Earnings per share: Basic Income (loss) from continuing operations $ 0.01 $ (0.16) $ 0.08 $ (0.24) Loss from discontinued operations -- -- -- (0.15) -------- -------- -------- ---------- Net income (loss) $ 0.01 $ (0.16) $ 0.08 $ (0.39) ======== ======== ======== ========== Diluted Income (loss) from continuing operations $ 0.01 $ (0.16) $ 0.07 $ (0.24) Loss from discontinued operations -- -- -- (0.15) -------- -------- -------- ---------- Net income (loss) $ 0.01 $ (0.16) $ 0.07 $ (0.39) ======== ======== ======== ==========
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 SEPTEMBER 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 9-MOS DEC-31-1999 JAN-01-1999 SEP-30-1999 5,643 0 5,678 794 59 11,624 7,913 6,175 29,262 5,049 0 0 1 155 23,658 29,292 19,858 19,858 1,197 17,565 0 0 0 1,048 100 948 0 0 0 948 0.08 0.07
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