<PAGE> 1
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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, 1997
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 June 30, 1997 there were 17,254,334 shares of the Registrant's Common
Stock outstanding.
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<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 June 30, 1997 and March 31,
1997..................................................................... 3
Condensed Consolidated Statements of Operations for the three month
periods ended June 30, 1997 and June 30, 1996............................ 4
Condensed Consolidated Statements of Cash Flows for the three month
periods ended June 30, 1997 and June 30, 1996............................ 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.. 11
</TABLE>
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOVADIGM, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
MARCH
31,
1997
JUNE 30, --------
1997
-----------
(UNAUDITED)
<S> <C> <C>
Cash and cash equivalents.............................................. $ 5,744 $ 7,984
Short-term marketable securities....................................... 20,667 18,205
Accounts receivable.................................................... 4,466 4,932
Prepaid expenses and other current assets.............................. 262 404
-------- --------
Total current assets......................................... 31,139 31,525
Property and equipment, net............................................ 1,457 1,586
Long-term marketable securities........................................ -- 2,529
Other assets........................................................... 710 702
-------- --------
$ 33,306 $ 36,342
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and accrued liabilities............................... $ 4,128 $ 4,202
Accrued restructuring cost............................................. 388 1,394
Deferred revenue....................................................... 1,502 946
-------- --------
Total current liabilities.................................... 6,018 6,542
Stockholders' equity:
Common stock: 30,000 shares authorized; 17,254 and 17,316
outstanding....................................................... 11 11
Additional paid-in capital........................................... 64,697 65,000
Cumulative translation adjustment.................................... (6) 4
Accumulated deficit.................................................. (37,414) (35,215)
-------- --------
Total stockholders' equity................................... 27,288 29,800
-------- --------
$ 33,306 $ 36,342
======== ========
</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
JUNE 30,
-------------------
1997 1996
------- -------
<S> <C> <C>
REVENUES:
Licenses............................................................... $ 2,608 $ 3,752
Services............................................................... 1,883 2,465
------- -------
Total revenues................................................. 4,491 6,217
OPERATING EXPENSES:
Cost of services....................................................... 1,516 1,504
Sales and marketing.................................................... 2,652 3,788
Research and development............................................... 1,656 1,339
General and administrative............................................. 1,152 1,302
------- -------
Total operating expenses....................................... 6,976 7,933
------- -------
Operating loss........................................................... (2,485) (1,716)
Interest income, net..................................................... 344 450
------- -------
Loss before provision for income taxes................................... (2,141) (1,266)
Provision for (benefit from) income taxes................................ (90) 19
------- -------
Net loss................................................................. $(2,051) $(1,285)
======= =======
Net loss per common share................................................ $ (0.12) $ (0.07)
======= =======
Weighted average common and
common equivalent shares............................................... 17,276 17,429
======= =======
</TABLE>
See accompanying notes.
4
<PAGE> 5
NOVADIGM, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE
MONTHS
ENDED
JUNE 30,
-------------------
1997 1996
------- -------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss............................................................... $(2,051) $(1,285)
Adjustments to reconcile net loss to net cash used in operating
activities--
Depreciation and amortization....................................... 289 196
Decrease in accounts receivable..................................... 466 1,644
Decrease in prepaid expenses and other current assets............... 142 88
Increase in other assets............................................ (8) (257)
Increase (decrease) in accounts payable and accrued liabilities..... (74) 546
Decrease in accrued restructuring costs............................. (1,006) --
Increase (decrease) in deferred revenue............................. 556 (1,096)
------- -------
Net cash used in operating activities.......................... (1,686) (164)
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment................................. (160) (683)
Purchases of held-to-maturity securities............................ (5,037) (6,404)
Proceeds from redemptions of held-to-maturity securities............ 5,104 4,873
------- -------
Net cash used in investing activities.......................... (93) (2,214)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from the sale of common stock and exercise of options..... 113 251
Purchase of treasury stock............................................. (570) --
------- -------
Net cash provided by (used in) financing activities............ (457) 251
------- -------
Effect of exchange rate on changes in cash............................... (4) (7)
------- -------
Net decrease in cash and cash equivalents................................ (2,240) (2,134)
Cash and cash equivalents at the beginning of the period................. 7,984 13,361
------- -------
Cash and cash equivalents at the end of the period....................... $ 5,744 $11,227
======= =======
</TABLE>
See accompanying notes.
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 within the Company's Form 10-K filed with the Commission on
June 27, 1997 (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, 1998, or any other future period.
2. NET LOSS PER SHARE
Net loss per share is computed using the weighted average number of
outstanding shares of common stock. Common equivalent shares were excluded from
the calculations of loss per share because the effect of including such shares
in the computation would be anti-dilutive. In February 1997, the Financial
Accounting Standards Board issued Statement No. 128 ("SFAS 128"), "Earnings Per
Share" and requires adoption of such provisions in the Company's quarter ending
December 31, 1997. The pro forma basic and diluted earnings per share would not
differ from reported earnings per share in either period presented if SFAS 128
had been adopted.
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 June 30, 1997, 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 dependence on resellers, the level and pricing
of international sales, changes in the level of operating expenses,
technological advances and new product introductions by the Company's
competitors, competitive conditions in the industry and foreign currency
exchange rates. 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 principally from licensing the rights to use
its software products to end users and from sublicense fees reported to the
Company by resellers, including certain guaranteed sublicense fees. 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 revenue represented by the respective line items in the Company's
condensed consolidated statements of operations (unaudited):
<TABLE>
<CAPTION>
FOR THE THREE
MONTHS
ENDED
JUNE 30,
---------------
1996 1997
----- -----
<S> <C> <C>
REVENUES:
Licenses................................................... 58.1% 60.4%
Services................................................... 41.9 39.6
----- -----
Total revenues..................................... 100.0 100.0
----- -----
OPERATING EXPENSES:
Cost of services........................................... 33.8 24.2
Sales and marketing........................................ 59.0 61.0
Research and development................................... 36.9 21.5
General and administrative................................. 25.6 20.9
----- -----
Total operating expenses........................... 155.3 127.6
----- -----
Operating loss............................................... (55.3) (27.6)
Interest income, net......................................... 7.6 7.2
Loss before provision for income taxes....................... (47.7) (20.4)
Provision for income taxes................................... (2.0) 0.3
----- -----
Net Loss..................................................... (45.7)% (20.7)%
----- -----
</TABLE>
Total revenues for the Company's first fiscal quarter ended June 30, 1997
were $4,491,000 compared to $6,217,000 for the same quarter of the previous
year. Total revenues declined $1,726,000 or 27.8% comparing the first quarter of
1997 with the comparable quarter of last year. Revenues from indirect channels
were approximately $2,410,000 or 54% of total revenues for the quarter ended
June 30, 1997 and $2,744,000 or 44% for the comparable period of the prior year.
The Company anticipates revenues from indirect channels to grow as a percent of
total revenues as the Company continues to develop relationships with
distribution partners. International revenues were approximately $2,317,000 or
52% of total revenues in the quarter ended June 30,
7
<PAGE> 8
1997 compared to approximately $813,000 or 13% in the comparable quarter of last
year. The principal reason for the higher international revenues in the current
year fiscal quarter was the cooperative effort between the Company and its
largest distributor, Amdahl Corporation ("Amdahl") in closing several European
accounts.
License revenues were $2,608,000 or 58.1% of total revenues for the quarter
ended June 30, 1997 compared to $3,752,000 or 60.4% of total revenues for the
same period last year. The decline in license revenues between the two periods
was primarily attributable to closing fewer contracts in the North America
direct channel as a result of the lengthening of direct sales cycles and smaller
initial contract sizes committed to by customers caused by competitive factors
in the marketplace. To a lesser extent, the decline in license revenues was also
due to the recognition of a lower level of guaranteed sublicense fees from
distributors. From time to time, the Company accepts guaranteed sublicense fees
from distributors. Distributors pay guaranteed sublicense fees in order to have
the right to sublicense the Company's products to its customers and to receive
training and support services from the Company. At June 30, 1997, a substantial
percentage of guaranteed sublicense fees received by the Company, had not yet
been relicensed by the Company's distributors to end-users.
Service revenues were $1,883,000 for the quarter ended June 30, 1997 compared to
$2,465,000 for the comparable quarter last year. The lower service revenues for
the quarter ended June 30, 1997 compared to the same period last year was due
primarily to the expiration of the Company's agreement with International
Business Machines Corporation ("IBM") in March 1997, which provided
approximately $1,267,000 in service revenues in the quarter ended June 30, 1996.
Higher maintenance fees associated with a growing installed base and higher
billable hours from services performed by the Company's professional services
staff in the quarter ended June 30, 1997, partially offset the loss of the
service revenues from the agreement with IBM. The Company expects service
revenues to increase on a quarterly basis throughout the remainder of the
current fiscal year, but to continue to be lower than the comparable quarter
last year.
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, related benefits, and travel for
field engineers and support personnel, other related overhead and third-party
consulting fees. Cost of services were $1,516,000 or 80.5% of service revenues
for the quarter ended June 30, 1997 compared to $1,504,000 or 61% of service
revenues for the quarter ended June 30, 1996. The higher cost of services in the
quarter ended June 30, 1997 compared to the same period for the prior year, was
primarily due to the increase in the professional services staff and the related
cost of training new personnel, and to the expiration of the Company's services
agreement with IBM which provided services revenue at a high margin. The Company
expects cost of services to increase throughout fiscal 1998.
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 for the quarter ended
June 30, 1997 were $2,652,000 or 59.0% of total revenues as compared to
$3,788,000 or 61.0% of total revenues for the same period last year. The Company
initiated a restructuring program in the fourth quarter of fiscal 1997 entailing
the termination of 21 sales and marketing personnel, the closure of five
regional sales offices and the Chicago-based marketing office, the restructuring
of the European operations and sales channel, and the integration of the North
American channels marketing into the existing North American sales and services
organization. This resulted in a decline in sales and marketing expenses in the
first quarter of fiscal 1998. The Company expects sales and marketing expenses
in dollar terms to increase for the remainder of the 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 $1,656,000 or
36.9% of total revenues for the quarter ended June 30, 1997 compared to
$1,339,000 or 21.5% of total revenues for the same period last year. The higher
expenses for first quarter of fiscal 1998 were primarily due to the hiring of
additional employees since June 1996 to support the continued enhancement,
design and development of the Company's software products, quality assurance and
documentation. The Company has invested resources into the development of the
next release of the Enterprise Desktop Manager(TM) ("EDM") and products for the
internet, which are expected to be commercially available
8
<PAGE> 9
in the second and third quarters of fiscal 1998, respectively. The Company
believes that a significant investment in research and development activities is
essential to provide for the Company's future growth, particularly research and
development relating to the Company's internet activities. Accordingly, the
Company anticipates further increases in research and development expenses in
subsequent quarters.
General and administrative expenses consist primarily of salaries, related
benefits, travel and fees for professional services such as legal, consulting
and accounting. General and administrative expenses were $1,152,000 or 25.6% of
total revenues for the quarter ended June 30, 1997 compared to $1,302,000 or
20.9% of total revenues for the same period of last year.
Net interest was $344,000 for the quarter ending June 30, 1997 compared to
$450,000 for the same period of last year. Interest income is comprised
primarily of interest earned on the Company's cash equivalents and
marketable securities. Interest income decreased for the quarter ended June 30,
1997 compared to the same period in the prior year due to lower average cash and
securities balances in the current year. Interest income is offset by interest
expense and bank fees.
LIQUIDITY AND CAPITAL RESOURCES
Cash used in operations for the quarter ended June 30, 1997 was $1,686,000
compared to cash used in operations of $164,000 for the same period last year.
This increase in cash used in operations of $1,522,000 was primarily due to a
smaller decrease in the accounts receivable balances this year compared to the
same period last year, a decrease of $1,006,000 in the current year period of
accrued restructuring costs for costs paid during the period, and a $766,000
greater reported net loss in the current year quarter compared to the same
quarter last year, partially offset by an increase in deferred revenues of
$556,000 in the current year period compared to a decrease in deferred revenues
of $1,096,000 in the same period last year.
As of June 30, 1997, the Company had working capital of $25,121,000,
including $26,411,000 of cash and short-term marketable securities. The Company
has a revolving line of credit which permits unsecured borrowings up to
$1,000,000 through August 1997. As of June 30, 1997, there were no outstanding
loans under the line of credit and the Company was in compliance with the terms
of the agreement. The Company expects to renew the line of credit.
Property and equipment expenditures for the quarter ended June 30, 1997 was
$160,000. 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 prior fiscal year.
In May 1996, the Board of Directors approved the repurchase of up to
500,000 shares of the Company's common stock. As of June 30, 1997 the Company
had repurchased 341,600 shares, including $570,000 of repurchases in the quarter
ended June 30, 1997. 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 the next twelve months.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
9
<PAGE> 10
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
27.1 Financial Data Schedule
(b) On July 25, 1997, the Company filed a Form 8-K under Item 6,
Resignations of Registrant's Directors.
10
<PAGE> 11
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 13, 1997 NOVADIGM, INC.
By: /s/ WALLACE D. RUIZ
------------------------------------
Wallace D. Ruiz
Vice President & Chief Financial
Officer
(principal financial and chief
accounting officer)
11
<PAGE> 12
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBITS
------ ------------------------------------------------------------------------------
<S> <C> <C>
27.1 Financial Data Schedule
</TABLE>
12
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-START> APR-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 5,744
<SECURITIES> 20,667
<RECEIVABLES> 5,768
<ALLOWANCES> 1,302
<INVENTORY> 0
<CURRENT-ASSETS> 31,139
<PP&E> 3,601
<DEPRECIATION> 2,144
<TOTAL-ASSETS> 33,306
<CURRENT-LIABILITIES> 6,018
<BONDS> 0
0
0
<COMMON> 11
<OTHER-SE> 27,277
<TOTAL-LIABILITY-AND-EQUITY> 33,306
<SALES> 0
<TOTAL-REVENUES> 4,491
<CGS> 0
<TOTAL-COSTS> 6,976
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (344)
<INCOME-PRETAX> 0
<INCOME-TAX> (90)
<INCOME-CONTINUING> (2,051)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,051)
<EPS-PRIMARY> (0.12)
<EPS-DILUTED> (0.12)
</TABLE>
