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UNITED STATES
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, 1996
OR
/ / 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: 0-26156
NOVADIGM, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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<S> <C>
DELAWARE 22-3160347
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
185 BERRY STREET, SUITE 3515, SAN FRANCISCO, CA 94107
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
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(415) 541-8420
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE
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
filing requirements for the past 90 days. Yes /X/ No / /
On June 30, 1996, there were 17,453,946 shares of the Registrant's Common
Stock outstanding.
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NOVADIGM, INC.
INDEX
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PAGE NO.
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PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets as of June 30, 1996 and March 31,
1996................................................................... 3
Condensed Consolidated Statements of Operations for the three-month
periods ended June 30, 1996 and June 30, 1995.......................... 4
Condensed Consolidated Statements of Cash Flows for the three-month
periods ended June 30, 1996 and June 30, 1995.......................... 5
Notes to Condensed Consolidated Financial Statements..................... 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.......................................................... 7
PART II. OTHER INFORMATION........................................................ 9
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 3. Defaults upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES.......................................................................... 10
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2
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PART I. FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOVADIGM, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
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<CAPTION>
QUARTER ENDED
----------------------
JUNE 30, MARCH 31,
1996 1996
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<S> <C> <C>
(UNAUDITED)
ASSETS
Cash and cash equivalents............................................ $ 11,227 $ 13,361
Short-term marketable securities..................................... 10,325 14,827
Accounts receivable.................................................. 6,239 7,883
Prepaid expenses and other assets.................................... 969 1,057
-------- --------
Total current assets......................................... 28,760 37,128
Property and equipment, net.......................................... 1,789 1,302
Long-term marketable securities...................................... 17,461 11,428
Other assets......................................................... 531 274
-------- --------
$ 48,541 $ 50,132
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and accrued liabilities............................. $ 3,647 $ 3,101
Deferred revenue..................................................... 3,156 4,196
-------- --------
Total current liabilities.................................... 6,803 7,297
Long-term deferred revenue........................................... 257 313
Stockholders' equity:
Preferred stock: 5,000 shares authorized; and no shares
outstanding...................................................... -- --
Common stock: 30,000 shares authorized; 17,454 and 17,402 shares
outstanding...................................................... 11 11
Additional paid-in capital........................................ 64,803 64,552
Cumulative translation adjustment................................. (19) (12)
Accumulated deficit............................................... (23,314) (22,029)
-------- --------
41,481 42,522
-------- --------
$ 48,541 $ 50,132
======== ========
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See accompanying notes.
3
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NOVADIGM, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
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<CAPTION>
FOR THE THREE MONTHS
ENDED JUNE 30,
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1996 1995
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REVENUES:
Licenses........................................................... $ 3,752 $ 3,521
Services........................................................... 2,465 948
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Total revenues.................................................. 6,217 4,469
OPERATING EXPENSES:
Cost of services................................................... 1,504 271
Sales and marketing................................................ 3,788 2,352
Research and development........................................... 1,339 933
General and administrative......................................... 1,302 463
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Total operating expenses........................................ 7,933 4,019
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Operating income (loss).............................................. (1,716) 450
Interest income, net................................................. 450 23
------- -------
Income (loss) before provision for income taxes...................... (1,266) 473
Provision for income taxes........................................... 19 13
------- -------
Net income (loss).................................................... $(1,285) $ 460
======= =======
Net income (loss) per common share................................... $ (0.07) $ 0.03
======= =======
Weighted average common and common equivalent shares................. 17,429 16,124
======= =======
</TABLE>
See accompanying notes.
4
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NOVADIGM, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
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<CAPTION>
FOR THE THREE MONTHS
ENDED JUNE 30,
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1996 1995
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Cash flows from operating activities:
Net income(loss).................................................... $(1,285) $ 460
Adjustments to reconcile net income (loss) to net cash provided by
(used in) operating activities:
Depreciation and amortization expense............................ 196 86
Decrease (increase) in accounts receivable....................... 1,644 (476)
Decrease (increase) in prepaid expenses and other assets......... 88 (277)
Increase in other assets......................................... (257) (494)
Increase in accounts payable and accrued liabilities............. 546 451
Increase (decrease) in deferred revenue.......................... (1,096) 560
------- ------
Net cash provided by (used in) operating activities................. (164) 310
------- ------
Cash flows from investing activities:
Purchases of property and equipment................................. (683) (312)
Purchases of marketable securities.................................. (6,404) --
Proceeds from redemption of marketable securities................... 4,873 --
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Net cash used in investing activities............................... (2,214) (312)
------- ------
Cash flows from financing activities:
Sale of common stock, net of issuance costs......................... 251 --
------- ------
Net cash provided by financing activities........................ 251 --
------- ------
Effect of exchange rate changes on cash............................... (7) 2
------- ------
Net decrease in cash and cash equivalents............................. (2,134) --
Cash and cash equivalents at the beginning of the period.............. 13,361 1,312
------- ------
Cash and cash equivalents at the end of the period.................... $11,227 $1,312
======= ======
</TABLE>
See accompanying notes.
5
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NOVADIGM, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements have been
prepared by the Company, without audit, pursuant to the rules and regulations of
the Securities and Exchange Commission (the "Commission"). Certain information
or footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to such rules and regulations. In the opinion of the management
of Novadigm, Inc. (the "Company"), the statements include all adjustments (which
are of a normal and recurring nature) necessary for the fair presentation of the
financial information set forth therein. These financial statements should be
read in conjunction with the Company's audited consolidated financial statements
included within the Company's Form 10-K filed with the Commission on June 28,
1996 (Reg. No. 0-26156). The interim results presented herein are not
necessarily indicative of the results of operations that may be expected for the
full fiscal year ending March 31, 1997, or any other future period.
2. NET INCOME (LOSS) PER SHARE
Net income (loss) per share is computed using the weighted average number
of outstanding shares of common stock and common stock equivalents from
outstanding stock options (when dilutive using the treasury stock method).
Primary and fully diluted earnings per common share were substantially the same
in all periods presented.
3. STOCK REPURCHASE PROGRAM
During the quarter, the Board of Directors approved the repurchase of up to
500,000 shares of the Company's common stock on the open market.
4. UNITED STATES INITIAL PUBLIC OFFERING
In July of 1995, the Company completed a public offering in the United
States of 2,875,000 shares of common stock at $15 per share (which included
500,000 shares sold by stockholders), resulting in net proceeds to the Company
of approximately $32.2 million after offering costs. The Company's shares trade
on the Nasdaq National Market.
5. AMENDMENT TO STOCK OPTION PLAN
In June 1996, the Board of Directors, subject to stockholder ratification,
approved an amendment to the Company's 1992 Stock Option Plan to increase the
number of shares reserved for issuance by an additional 1,500,000 shares for an
aggregate of 4,700,000 shares.
6
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
The Company generates revenues principally from licensing the rights to use
its software products to end users and from sublicense fees received from
resellers. The Company also generates service revenues from consulting and
training activities performed for license customers and maintenance revenues
from support and software update rights. Revenues for the first quarter of
fiscal 1997 ended June 30, 1996 were $6,217,000 compared to $4,469,000 in the
same quarter of the previous year. The higher revenues were due primarily to
higher service revenues associated with the increasing contribution of
maintenance revenue from a larger installed base of customers and from
professional services rendered to customers. Forty percent (40%) of revenues for
the quarter were attributable to services compared to 21% in the comparable
quarter of fiscal 1996. The higher percentage of service revenues to license
revenues in the quarter ended June 30, 1996 is due primarily to the Company's
agreement with International Business Machines Corporation (IBM) which provides
payment for ongoing services through the fourth quarter of fiscal 1997. Revenues
from the indirect channels were 44% of total revenues in the first quarter of
both fiscal 1997 and fiscal 1996. License revenue in the current year quarter
included revenue from a multi-year, non-exclusive OEM agreement with BMC
Software, Inc. The non-exclusive OEM and distribution agreement with Amdahl
Corporation provided no license revenues in the current year quarter and
$1,700,000 of guaranteed sublicense fees in the prior year quarter.
Cost of services includes the direct and indirect costs of providing
training, technical support and consulting services to the Company's customers.
Cost of services consists primarily of payroll and benefits for field engineers
and support personnel, other related overhead and third party consulting fees.
The cost of services were $1,504,000 or 61% of service revenues in the first
quarter of this year compared to $271,000 or 29% of service revenues for the
same period last year. Cost of services were higher in the current year quarter
due primarily to the addition of field engineers and support personnel since
June 1995. The additional personnel support the growing installed base of
license customers. The Company expects cost of services as a percent of service
revenues to remain approximately at the same percentage rate throughout fiscal
1997.
Sales and marketing expenses consist primarily of salaries, related
benefits, commissions, travel and other costs associated with the Company's
sales and marketing efforts. Sales and marketing expenses were $3,788,000 for
the first fiscal quarter of this fiscal year compared to $2,352,000 for the same
period last year. Employees were added to the sales and marketing departments
accounting for the higher payroll expense and related higher travel expense in
the fiscal 1997 first quarter. The additional personnel were hired since June
1995 to develop the indirect distribution channel, including opening
distribution in Japan and Latin America, and to expand the direct sales and
pre-sales field engineer staffs in both the U.S. and in Europe. The Company
expects to continue to expand its sales and marketing department throughout the
current fiscal year.
Research and development expenses consist primarily of salaries, related
benefits, consultant fees and other costs associated with the Company's research
and development efforts. Research and development expenses were $1,339,000 in
the first quarter of fiscal 1997 compared to $933,000 for the same period last
year. The higher expense in the first quarter of this year is primarily due to
the hiring of additional employees in the department to support ongoing and new
product development, the development of EDM for different platforms, the
development of EDM "Adapters" and research and development in relation to the
Company's internet activities. Additional employees were also hired within the
quality assurance and documentation departments. The Company anticipates further
increases in payroll costs as the Company continues to channel resources into
product development.
General and administrative expenses consist primarily of salaries, related
benefits, travel and fees for professional services such as legal and
accounting. General and administrative expenses were $1,302,000 in the first
quarter of fiscal 1997 compared to $463,000 for the comparable period of last
year. The primary reasons for the higher expense is due to hiring additional
employees in connection with building the infrastructure for the continued
growth of the Company's business, including increases in accounting, purchasing
and data processing departments, and higher expenses for professional fees. The
Company anticipates further increases in costs as the Company's growth requires
a supporting infrastructure.
7
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Net interest income was $450,000 for the quarter ending June 30, 1996
compared to $23,000 for the same period last year. Interest income is comprised
primarily of interest earned on the Company's cash equivalents and marketable
securities. Interest income increased this fiscal year due primarily to interest
income earned on the investment of the proceeds from the sale of common stock in
the Company's initial public offering in July 1995. Interest income is offset by
interest expense and bank fees.
The provision for income taxes for the first quarter of fiscal 1997
reflects foreign taxes paid of $19,000.
The information above which anticipates the Company's results of operations
for fiscal periods after the quarter ended June 30, 1996 are forward-looking
statements that involve a number of risks and uncertainties. The Company's
quarterly operating results have in the past, and may in the future, fluctuate
significantly due to a number of factors, including the number, size and timing
of customer orders, the timing and market acceptance of new products by the
Company, the level and pricing of international sales, foreign currency exchange
rates, changes in the level of operating expenses, technological advances and
new product introductions by the Company's competitors and competitive
conditions in the industry. In addition, the sales cycle for the Company's
products is lengthy and unpredictable depending upon the interest of the
prospective customer in the Company's products, the size of the order, the
decision-making and acceptance procedures within the customer's organization,
the complexity of implementation and other factors. The Company's operating
results may also vary significantly due to seasonal trends, as a result, in part
to, efforts of the Company's direct sales personnel to meet annual quotas, lower
international revenues in the summer months when many European businesses
experience lower sales, establishing of calendar year capital budgets by
prospective customers, as well as other factors. In addition, reference should
be made to other risk factors described from time to time in the Company's
periodic reports filed with the SEC under the Securities and Exchange Act of
1934, as amended.
LIQUIDITY AND CAPITAL RESOURCES
Cash used in operations in the quarter ended June 30, 1996 was $164,000
compared to cash provided by operations of $310,000 in the same period last
year. This decrease in the cash flows from operating activities is primarily due
to the reported net loss and the decrease in the deferred revenue balance during
the current year quarter. The decrease in operating cash flows in the first
quarter this year compared to the same quarter last year was partially offset by
decreases in the accounts receivable and prepaid expenses and other assets
balances during the quarter this year as well as a smaller increase in the other
assets balance this year compared to last year.
As of June 30, 1996, the Company had working capital of $21,957,000,
including $21,552,000 of cash and short-term marketable securities. In addition,
at June 30, 1996, the Company had invested $17,461,000 in long-term marketable
securities. The Company's revolving line of credit was renewed in December 1995
and extended to July 1, 1996. The revolving line of credit permits unsecured
borrowings up to $1,000,000. As of June 30, 1996, there were no borrowings under
the line of credit and the Company was in compliance with the terms of the
agreement. It is the Company's intention to renew the revolving line of credit.
Although it is difficult for the Company to predict future liquidity
requirements with certainty, the Company believes that its existing cash and
marketable securities balances, together with cash from operations will be
adequate to finance its operations for at least the next twelve months.
8
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
None
(b) The Company has not filed any Form 8-K during the quarter ended June
30, 1996.
9
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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 its behalf by the
undersigned, thereunto duly authorized.
Dated: August 12, 1996 NOVADIGM, INC.
By: /s/ Wallace D. Ruiz
------------------------------------
Wallace D. Ruiz
Vice President & Chief Financial
Officer
(principal financial and chief
accounting officer)
10
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<CIK> 0000888358
<NAME> NOVADIGM, INC.
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> APR-01-1996
<PERIOD-END> JUN-30-1996
<EXCHANGE-RATE> 1
<CASH> 11,227
<SECURITIES> 10,325
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0
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