<PAGE> 1
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 SEPTEMBER 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)
<TABLE>
<S> <C>
DELAWARE 22-3160347
-------- ----------
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
</TABLE>
185 BERRY STREET, SUITE 3515, SAN FRANCISCO, CA 94107
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(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 September 30, 1996, there were 17,387,496 shares of the Registrant's
Common Stock outstanding.
1
<PAGE> 2
NOVADIGM, INC.
INDEX
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets as of September 30, 1996
and March 31, 1996........................................... 3
Condensed Consolidated Statements of Operations for the three-
month and six-month periods ended September 30, 1996 and
September 30, 1995........................................... 4
Condensed Consolidated Statements of Cash Flows for the
six-month periods ended September 30, 1996 and September
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
Item 1. Legal Proceedings.............................................. 11
Item 2. Changes in Securities.......................................... 11
Item 3. Defaults upon Senior Securities................................ 11
Item 4. Submission of Matters to a Vote of Security Holders............ 11
Item 5. Other Information.............................................. 12
Item 6. Exhibits and Reports on Form 8-K............................... 12
SIGNATURES.................................................................. 13
</TABLE>
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOVADIGM, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SEPTEMBER 30, MARCH 31,
1996 1996
---- ----
(UNAUDITED)
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 5,995 $ 13,361
Short-term marketable securities 23,260 14,827
Accounts receivable 4,254 7,883
Prepaid expenses and other assets 1,757 1,057
-------- --------
Total current assets 35,266 37,128
Property and equipment, net 1,809 1,302
Long-term marketable securities 5,241 11,428
Other assets 606 274
-------- --------
$ 42,922 $ 50,132
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and accrued liabilities $ 3,807 $ 3,101
Deferred revenue 1,743 4,196
-------- --------
Total current liabilities 5,550 7,297
Long-term deferred revenue 228 313
Stockholders' equity:
Preferred stock: 5,000 shares authorized and no shares outstanding -- --
Common stock: 30,000 shares authorized; 17,387 shares outstanding
at September 30, 1996 and 17,402 shares outstanding at March 31, 1996 10 11
Additional paid-in capital 64,929 64,552
Cumulative translation adjustment (14) (12)
Accumulated deficit (27,781) (22,029)
-------- --------
Total stockholders' equity 37,144 42,522
-------- --------
$ 42,922 $ 50,132
======== ========
</TABLE>
See accompanying notes.
3
<PAGE> 4
NOVADIGM, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED FOR THE SIX MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------- -------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
REVENUES:
Licenses $ 1,413 $ 4,697 $ 5,165 $ 8,218
Services 2,483 667 4,948 1,615
-------- ------- -------- -------
Total revenues 3,896 5,364 10,113 9,833
OPERATING EXPENSES:
Cost of services 1,835 231 3,339 502
Sales and marketing 3,788 2,758 7,576 5,110
Research and development 1,517 1,116 2,856 2,049
General and administrative 1,263 703 2,565 1,166
-------- ------- -------- -------
Total operating expenses 8,403 4,808 16,336 8,827
-------- ------- -------- -------
Operating income (loss) (4,507) 556 (6,223) 1,006
Interest income, net 427 371 877 394
-------- ------- -------- -------
Income (loss) before provision for income taxes (4,080) 927 (5,346) 1,400
Provision for income taxes -- 23 19 36
-------- ------- -------- -------
Net income (loss) $ (4,080) $ 904 $ (5,365) $ 1,364
======== ======= ======== =======
Net income (loss) per common share $ (0.23) $ 0.05 $ (0.31) $ 0.08
======== ======= ======== =======
Weighted average common and
common equivalent shares 17,438 18,317 17,434 17,221
======== ======= ======== =======
</TABLE>
See accompanying notes.
4
<PAGE> 5
NOVADIGM, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED
SEPTEMBER 30,
-------------
1996 1995
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) ............................................ $ (5,365) $ 1,364
Adjustments to reconcile net income (loss) to net cash
used in operating activities:
Depreciation and amortization expense...................... 442 203
Provision for losses on accounts receivable................ 117 --
Decrease (increase) in accounts receivable ................ 3,512 (1,738)
Increase in prepaid expenses and other assets ............. (700) (591)
Increase in other assets .................................. (332) (161)
Increase in accounts payable and accrued liabilities ...... 706 306
Increase (decrease) in deferred revenue ................... (2,538) 572
-------- --------
Net cash used in operating activities ........................ (4,158) (45)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment .......................... (949) (674)
Purchases of marketable securities ........................... (13,057) (18,873)
Proceeds from redemption of marketable securities ............ 10,811 --
-------- --------
Net cash used in investing activities ........................ (3,195) (19,547)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sale of common stock, net of issuance costs .... 659 32,201
Proceeds from loan repayment ................................. 99 --
Purchase of treasury stock ................................... (769) --
-------- --------
Net cash provided by (used in) financing activities .......... (11) 32,201
-------- --------
Effect of exchange rate changes on cash ........................ (2) (50)
-------- --------
Net increase (decrease) in cash and cash equivalents ........... (7,366) 12,559
Cash and cash equivalents at the beginning of the period ....... 13,361 1,312
-------- --------
Cash and cash equivalents at the end of the period ............. $ 5,995 $ 13,871
======== ========
</TABLE>
5
<PAGE> 6
NOVADIGM, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements have been
prepared by Novadigm, Inc. (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 Company's management, 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 in the Company's Form 10-K filed
with the Commission on June 28, 1996 (Registration 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. 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 selling 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.
4. AMENDMENT TO STOCK OPTION PLAN
In September 1996, the stockholders 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 to an aggregate of 4,700,000 shares.
6
<PAGE> 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The information below, which anticipates the Company's results of
operations for fiscal periods after the quarter ended September 30, 1996,
contains forward-looking statements that involve a number of risks and
uncertainties. The Company's quarterly operating results have fluctuated
significantly in the past, and may fluctuate in the future, due to a number of
factors, including the number, size and timing of customer orders, the timing
and market acceptance of the Company's new products, 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 of efforts by the Company's direct sales personnel
to meet annual quotas, lower international revenues in the summer months when
many European businesses experience lower sales, the establishment of calendar
year capital budgets by prospective customers, as well as other factors.
RESULTS OF OPERATIONS
The Company generates revenues 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.
For the periods indicated, the following table sets forth the percentage of
total revenues represented by the respective line items in the Company's
condensed consolidated statements of operations (unaudited):
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED FOR THE SIX MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------- -------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
REVENUES:
Licenses ................... 36.3% 87.6% 51.1% 83.6%
Services ................... 63.7 12.4 48.9 16.4
----- ----- ----- -----
Total revenues ......... 100.0 100.0 100.0 100.0
----- ----- ----- -----
OPERATING EXPENSES:
Cost of services ........... 47.1 4.3 33.0 5.1
Sales and marketing ........ 97.2 51.4 74.9 52.0
Research and development ... 39.0 20.8 28.2 20.8
General and administrative . 32.4 13.1 25.4 11.9
----- ----- ----- -----
Total operating expenses 215.7 89.6 161.5 89.8
----- ----- ----- -----
Operating income (loss) ....... (115.7) 10.4 (61.5) 10.2
----- ----- ----- -----
Interest income, net .......... 11.0 6.9 8.6 4.0
----- ----- ----- -----
Income (loss) before provision
for income taxes ........... (104.7) 17.3 (52.9) 14.2
Provision for income taxes .... -- 0.4 0.2 0.3
----- ----- ----- -----
Net income (loss) ............. (104.7)% 16.9% (53.1)% 13.9%
----- ----- ----- -----
</TABLE>
7
<PAGE> 8
Total revenues for the quarter ended September 30, 1996 were $3,896,000
compared to $5,364,000 for the same quarter of the previous year. The lower
total revenues were due to $3,284,000 lower license revenues, partially offset
by $1,816,000 higher service revenues. Total revenues for the six months ended
September 30, 1996 were $10,113,000 compared to $9,833,000 for the same
six-month period of the previous year. The higher total revenues were due to
higher service revenues associated with the increasing contribution of
maintenance revenues from a larger installed base and from professional services
rendered to customers. This increase in service revenues was partially offset by
a decrease in license revenues. License revenues were 36.3% and 51.1% of total
revenues for the three and six-month periods ended September 30, 1996,
respectively, compared to 87.6% and 83.6% for the comparable periods of the
prior fiscal year, respectively.
License revenues were $1,413,000 and $5,165,000 for the three and six-month
periods ended September 30, 1996, respectively, compared to $4,697,000 and
$8,218,000 for the same periods last year, respectively. The lower license
revenues were primarily attributable to the timing of sublicense fees from
Amdahl Corporation ("Amdahl"), the lengthening of direct sales cycles caused by
competitive factors in the marketplace, the consideration by prospective
customers regarding alternative network configurations and possible
architectural transitions to intranet computing, as well as the long lead times
required to close the larger, more complex indirect sales transactions. The
non-exclusive OEM and distribution agreement with Amdahl provided no license
revenues in the current year and $3,042,000 and $4,742,000 in the three and
six-month periods ended September 30, 1995, respectively.
Service revenues were $2,483,000 and $4,948,000 for the three and six-month
periods ended September 30, 1996, respectively, compared to $667,000 and
$1,615,000 for the three and six-month periods ended September 30, 1995,
respectively. The higher service revenues for the three and six-month periods
ended September 30, 1996 compared to the same periods last year were due
primarily to the Company's agreement with International Business Machines
Corporation ("IBM"), signed in December 1995, which provides payment for ongoing
services through the fourth quarter of fiscal 1997. For the three and six-month
periods ended September 30, 1996, service revenues provided by the IBM agreement
were $1,267,000 and $2,534,000, respectively. In addition, the higher service
revenues reflect higher maintenance fees associated with a growing installed
base. The Company expects services revenues to grow moderately throughout the
remainder of the current fiscal year.
Revenues from indirect channels were 40% of total revenues for the
three-month period ending September 30, 1996 and 59% for the comparable period
of the prior year. Indirect channels provided 43% of total revenues for the
six-month period ending September 30, 1996 and 52% for the comparable period of
the prior year. The decrease in revenues from indirect channels as a percentage
of total revenues for both the three and six-month periods ending September 30,
1996 over the comparable periods of the prior year was primarily due to revenue
provided by the Amdahl agreement in the prior year.
8
<PAGE> 9
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.
Cost of services were $1,835,000 or 74% of service revenues for the quarter
ended September 30, 1996, and $3,339,000 or 67% of service revenues for the
first six months ended September 30, 1996, compared to $231,000 or 35% of
service revenues and $502,000 or 31% of service revenues for the same periods
last year, respectively. The higher cost of services in the three and six-month
periods ended September 30, 1996, as compared to the same periods for the prior
year, was primarily due to the increase in the professional services staff, and
the related cost of training new personnel. 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. The cost of services as a percentage of
service revenues is expected to increase after the agreement with IBM expires in
March 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 and
$7,576,000 for the three and six-month periods ended September 30, 1996,
respectively. This compares to $2,758,000 and $5,110,000 for the same periods
last year, respectively. 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 and second quarters. The additional personnel
were hired to develop the indirect distribution channels, including opening
distribution in Japan and in Latin America, and to expand the direct sales and
pre-sales field engineering staffs in both the U.S. and in Europe. The Company
expects sales and marketing expenses to increase throughout the current fiscal
year in response to changes in the marketplace and to expand product awareness.
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
$1,517,000 and $2,856,000 in the three and six-month periods ended September
30, 1996, respectively, compared to $1,116,000 and $2,049,000 for the same
periods last year, respectively. The higher expenses for the first six months
of this fiscal year were primarily due to the hiring of additional employees in
the department to support ongoing and new product development, the development
of Enterprise Desktop Manager ("EDM") for different platforms, the development
of EDM "Adapters" and research and development relating to the Company's
intranet and 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 $1,263,000 and $2,565,000
for the three and six-month periods ended September 30, 1996, respectively,
compared to $703,000 and $1,166,000 for the same period of last year,
respectively. The primary reasons for the higher expenses were due to the hiring
of 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 a moderate increase in future costs as the
Company's growth requires a supporting infrastructure.
Net interest income was $427,000 and $877,000 for the three and six-month
periods ending September 30, 1996, respectively, compared to $371,000 and
$394,000 for the same periods of last year, respectively. Interest
9
<PAGE> 10
income is comprised primarily of interest earned on the Company's cash
equivalents and marketable securities. Interest income increased for the three
and six-month periods ended September 30, 1996 over the comparable periods for
the prior year as a result of 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 three and six-month periods ended
September 30, 1996 reflects foreign taxes paid of $0 and $19,000, respectively.
LIQUIDITY AND CAPITAL RESOURCES
Cash used in operations for the six months ended September 30, 1996 was
$4,158,000 compared to cash used in operations of $45,000 for the same period
last year. This increase in cash used in operations was due to the reported
net loss of $5,365,000 and the decrease in deferred revenue of $2,538,000 during
the current fiscal year. The decrease in operating cash flows was partially
offset by a decrease in accounts receivable of $3,512,000.
As of September 30, 1996, the Company had working capital of $29,716,000,
including $29,255,000 of cash and short-term marketable securities. In addition,
at September 30, 1996, the Company had invested $5,241,000 in long-term
marketable securities. The revolving line of credit, which was renewed in July
1996, permits unsecured borrowings up to $2,000,000 through August 1997. As of
September 30, 1996, there were no borrowings under the line of credit and the
Company was in compliance with the terms of the agreement.
Property and equipment expenditures for the six months ended September 30,
1996 were $949,000. The Company has no material commitments to purchase property
and equipment and expects to purchase property and equipment throughout the
remainder of the year at a rate consistent with the first six months of fiscal
1997.
During the first quarter of fiscal 1997, the Board of Directors
approved the repurchase of up to 500,000 shares of the Company's stock on the
open market. During the quarter ended September 30, 1996, $769,000 was expended
to repurchase common shares. The Company expects to purchase additional shares
of its common stock throughout the remainder of the fiscal year.
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 and funds
available under the existing line of credit, will be adequate to finance its
operations for at least the next twelve months.
10
<PAGE> 11
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
The Company held its 1996 Annual Meeting of Stockholders on September
13, 1996. The following matters were approved by the stockholders by the
votes indicated below:
<TABLE>
<CAPTION>
BROKER
VOTES VOTES NON-
FOR AGAINST ABSTAIN VOTES
--- ------- ------- -----
<S> <C> <C> <C> <C>
a. election of five directors to serve for the
ensuing year as follows:
Albion J. Fitzgerald 13,281,212 --- 48,677 ---
Robert B. Anderson 13,282,512 --- 47,377 ---
Dennis DeCoste 13,281,812 --- 48,077 ---
Brian J. McAlister 13,282,012 --- 47,877 ---
H. Kent Petzhold 13,244,646 --- 85,243 ---
---
b. amendment to the 1992 Stock Option Plan to
increase the number of shares of common stock
reserved for issuance thereunder by 1,500,000
shares 10,371,484 461,256 16,707 2,480,442
c. ratify the appointment of Arthur Andersen LLP
as independent auditors of the Company for the
fiscal year ending March 31, 1997 13,309,282 11,250 9,357 ---
</TABLE>
11
<PAGE> 12
ITEM 5. OTHER INFORMATION
In October 1996, Michele L. Axelson joined the Company's board of
directors, subject to a majority vote at the next annual meeting of
stockholders.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 27.1 Financial Data Schedule
(b) The Company has not filed any Form 8-K during the quarter ended
September 30, 1996.
12
<PAGE> 13
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: November 13, 1996 NOVADIGM, INC.
By: /s/ Wallace D. Ruiz
------------------------------------
Wallace D. Ruiz
Vice President & Chief Financial
Officer (principal financial and chief
accounting officer)
13
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000888358
<NAME> NOVADIGM, INC.
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> SEP-30-1996
<EXCHANGE-RATE> 1
<CASH> 5,995
<SECURITIES> 23,260
<RECEIVABLES> 4,325
<ALLOWANCES> 71
<INVENTORY> 0
<CURRENT-ASSETS> 35,266
<PP&E> 3,222
<DEPRECIATION> 1,413
<TOTAL-ASSETS> 42,922
<CURRENT-LIABILITIES> 5,550
<BONDS> 0
0
0
<COMMON> 10
<OTHER-SE> 37,134
<TOTAL-LIABILITY-AND-EQUITY> 42,922
<SALES> 0
<TOTAL-REVENUES> 10,113
<CGS> 0
<TOTAL-COSTS> 3,339
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 117
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<INCOME-PRETAX> (5,346)
<INCOME-TAX> 19
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<EPS-PRIMARY> (.31)
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</TABLE>
