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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, 1998
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
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
</TABLE>
ONE INTERNATIONAL BLVD, SUITE 200, MAHWAH, NJ 07495
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(201) 512-1000
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, 1998 there were 17,501,535 shares of the Registrant's Common
Stock outstanding.
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NOVADIGM, INC.
INDEX
<TABLE>
<CAPTION>
PAGE NO.
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<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements................. 2
Condensed Consolidated Balance Sheets as of June 30, 1998
and March 31, 1998.......................................... 2
Condensed Consolidated Statements of Operations for the
three month periods ended June 30, 1998 and June 30, 1997... 3
Condensed Consolidated Statements of Cash Flows for the
three month periods ended June 30, 1998 and June 30, 1997... 4
Notes to Condensed Consolidated Financial Statements........ 5
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of
Operations.................................................. 6
PART II. OTHER INFORMATION
Item 1. Legal Proceedings........................................... 9
Item 2. Changes in Securities....................................... 9
Item 3. Defaults upon Senior Securities............................. 9
Item 4. Submission of Matters to a Vote of Security Holders......... 9
Item 5. Other Information........................................... 9
Item 6. Exhibits and Reports on Form 8-K............................ 9
SIGNATURES............................................................ 10
</TABLE>
1
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PART I. FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOVADIGM, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 30, MARCH 31,
1998 1998
----------- ---------
(UNAUDITED)
<S> <C> <C>
ASSETS
Cash and cash equivalents................................... $ 4,579 $ 4,431
Short-term marketable securities............................ 12,437 14,534
Accounts receivable, net.................................... 5,711 6,352
Prepaid expenses and other current assets................... 801 841
------- -------
Total current assets.............................. 23,528 26,158
Property and equipment, net................................. 1,851 1,763
Other assets................................................ 957 955
------- -------
$26,336 $28,876
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and accrued liabilities.................... $ 5,258 $ 6,314
Deferred revenue............................................ 1,438 2,518
------- -------
Total current liabilities......................... 6,696 8,832
Stockholders' equity:
Common stock: 30,000 shares authorized; 17,502 and 17,471
outstanding as of June 30, 1998 and March 31, 1998,
respectively........................................... 11 11
Additional paid-in capital................................ 66,029 66,087
Accumulated deficit....................................... (44,067) (43,548)
Treasury Stock............................................ (2,338) (2,527)
Cumulative translation adjustment......................... 5 21
------- -------
Total stockholders' equity........................ 19,640 20,044
------- -------
$26,336 $28,876
======= =======
</TABLE>
See accompanying notes.
2
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NOVADIGM, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED JUNE 30,
---------------------
1998 1997
-------- ---------
<S> <C> <C>
REVENUES:
Licenses.................................................. $3,876 $ 2,608
Services.................................................. 2,682 1,883
------ -------
Total revenues.................................... 6,558 4,491
OPERATING EXPENSES:
Cost of services.......................................... 1,030 1,516
Sales and marketing....................................... 3,695 2,652
Research and development.................................. 1,223 1,656
General and administrative................................ 1,236 1,152
------ -------
Total operating expenses.......................... 7,184 6,976
------ -------
Operating loss.............................................. (626) (2,485)
Interest income, net........................................ 109 344
------ -------
Loss before provision for (benefit from) income taxes....... (517) (2,141)
Provision for (benefit from) income taxes................... 2 (90)
------ -------
Net loss.................................................... $ (519) $(2,051)
====== =======
Net loss per common share -- basic and diluted.............. $(0.03) $ (0.12)
====== =======
Weighted average common shares -- basic and diluted......... 17,471 17,276
------ -------
</TABLE>
See accompanying notes.
3
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NOVADIGM, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED JUNE 30,
--------------------
1998 1997
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................................... $ (519) $(2,051)
Adjustments to reconcile net loss to net cash used in
operating activities --
Depreciation and amortization............................. 67 289
Decrease in accounts receivable........................... 641 466
Decrease in prepaid expenses and other current assets..... 40 142
Increase in other assets.................................. (2) (8)
Decrease in accounts payable and accrued liabilities...... (1,056) (74)
Decrease in accrued restructuring costs................... -- (1,006)
Increase (decrease) in deferred revenue................... (1,080) 556
------- -------
Net cash used in operating activities............. (1,909) (1,686)
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment....................... (155) (160)
Purchases of held-to-maturity securities.................. (7,119) (5,037)
Proceeds from redemptions of held-to-maturity
securities............................................. 9,216 5,104
------- -------
Net cash used in investing activities............. 1,942 (93)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from the exercise of options................. (58) 113
Purchase of treasury stock................................ -- (570)
Issuance of treasury stock................................ 189 --
------- -------
Net cash provided by (used in) financing
activities....................................... 131 (457)
------- -------
Effect of exchange rate changes on cash..................... (16) (4)
------- -------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ 148 (2,240)
Cash and cash equivalents at the beginning of the period.... 4,431 7,984
------- -------
CASH AND CASH EQUIVALENTS AT THE END OF THE PERIOD.......... $ 4,579 $ 5,744
======= =======
</TABLE>
See accompanying notes.
4
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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 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 24, 1998. 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, 1999, or any other future period.
2. NET LOSS PER SHARE
The Company has implemented Statement of Financial Accounting Standards No.
128, "Earnings Per Share" ("SFAS 128") as of March 31, 1998 and, in accordance
with the pronouncement, has restated prior year amounts. SFAS 128 requires the
presentation of basic earnings per share ("Basic EPS") and diluted earnings per
share ("Diluted EPS"). Basic EPS is calculated by dividing income available to
common shareholders by the weighted average number of shares of common stock
outstanding during the period. Diluted EPS is calculated by dividing income
available to common shareholders by the weighted average number of common shares
outstanding for the period adjusted to reflect potentially dilutive securities.
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.
3. RECENT ACCOUNTING PRONOUNCEMENTS
During fiscal 1999, the Company will adopt Statement of Financial
Accounting Standards No. 130 "Reporting Comprehensive Income" ("SFAS 130") and
Statement of Financial Accounting Standards No. 131 "Disclosures about Segments
of an Enterprise and Related Information" ("SFAS 131"). The adoption of SFAS 130
is required on an interim basis, however, the impact of adoption was not
material. SFAS 131 is required on an interim basis, however, it is not required
in the year of initial application. The Company is currently assessing the
disclosure impact of SFAS 131 on its financial statements.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This report contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. These forward-looking statements are subject to certain
risks and uncertainties that could cause actual results to differ materially
from historical results or anticipated results. These risks include a history of
operating losses. 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. There can be no assurance that the Company will be able to
achieve profitability on a quarterly or annual basis in the future.
5
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Many currently installed computer systems and software products are unable
to distinguish 21st century dates from 20th century dates ("Year 200"). The
Company has on occasion warranted, and generally represents to its customers,
that the newer version of its products, EDM version 4.0 and RADIA, are free from
Year 2000 defects. There can be no assurance that the Company's products are
Year 2000 compliant, or that the Company's products will not be integrated with,
or otherwise interact with, non-compliant software.
This report should be read in conjunction with the Company's annual report
on Form 10-K as filed with the Securities and Exchange Commission, in particular
the section therein entitled "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Business Risks."
RESULTS OF OPERATIONS
The Company generates revenues principally from licensing the rights to use
its software products to end-users and from sublicense fees 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 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,
--------------------
1998 1997
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<S> <C> <C>
REVENUES:
Licenses.................................................. 59.1% 58.1%
Services.................................................. 40.9 41.9
------ ------
Total revenues.................................... 100.00 100.00
------ ------
OPERATING EXPENSES:
Cost of services.......................................... 15.7 33.8
Sales and marketing....................................... 56.3 59.0
Research and development.................................. 18.7 36.9
General and administrative................................ 18.9 25.6
------ ------
Total operating expenses.......................... 109.6 155.3
------ ------
Operating loss.............................................. (9.6) (55.3)
Interest income, net........................................ 1.7 7.6
------ ------
Loss before provision for (benefit from) income taxes....... (7.9) (47.7)
Provision for (benefit from) income taxes................... -- (2.0)
------ ------
Net loss.................................................... (7.9)% (45.7)%
====== ======
</TABLE>
Total revenues for the Company's first fiscal quarter ended June 30, 1998
were $6.6 million compared to $4.5 million for the same quarter of the previous
year, an increase of $2.1 million or 46%. Revenues from direct and
partner-assisted sales channels were approximately $4.5 million or 69% of total
revenues for the quarter ended June 30, 1998 and $3.0 million or 67% for the
comparable period of the prior year. The higher revenues from direct and
partner-assisted sales channels are due primarily to higher license revenue.
International revenues were approximately $3.0 million or 45% of total revenues
in the quarter ended June 30, 1998 compared to approximately $2.3 million or 52%
in the comparable quarter of last year. The higher international revenues in
absolute dollars in the current year quarter were primarily due to higher
license revenues in the United Kingdom ("UK") and South Africa.
License revenues were $3.9 million or 59.1% of total revenues for the
quarter ended June 30, 1998 compared to $2.6 million or 58.1% of total revenues
for the same period last year. The increase in license revenues between the two
periods was primarily attributable to closing more contracts and to a higher
average contract price in the current quarter compared to the same quarter last
year. Eighty-two percent (82%) of license revenues in the current quarter were
from direct and partner-assisted sales channels compared to 55% in the same
quarter last year. The Company expects license revenue from direct and
partner-assisted sales channels to continue to be a significant percentage of
total license revenues. License revenues from customers outside North America
("international license revenues") were $2.1 million or 55% of total license
revenue in
6
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the current quarter compared to $2.1 million or 79% in the same quarter last
year. The Company expects international license revenue to grow and be a
significant contributor to total license revenue, though as a percent of total
license revenues, international license revenues may fluctuate from quarter to
quarter. 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, 1998, 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 $2.7 million or 40.9% of total revenues for the
quarter ended June 30, 1998 compared to $1.9 million or 41.9% of total revenues
for the comparable quarter last year. The higher service revenues for the
quarter ended June 30, 1998 compared to the same period last year was due
primarily higher maintenance revenues associated with a growing installed base
and an adjustment of reseller maintenance. Although the Company expects
maintenance revenues to increase on a quarterly basis as compared to the prior
year, overall service revenues are not expected to grow due to the Company's
emphasis on licensing activities with service partners who require minimal
services from the Company.
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 $1.0 million or 38% of service revenues
for the quarter ended June 30, 1998 compared to $1.5 million or 81% of service
revenues for the quarter ended June 30, 1997. The lower cost of services in the
quarter ended June 30, 1998 compared to the same period for the prior year, was
primarily due to higher maintenance revenues as a percent of total service
revenues in the current fiscal year quarter over the same quarter last year, and
the reorganization of the technical services department after the close of
fiscal 1998, which reduced staff and redefined service packages. The Company
expects cost of services to increase throughout fiscal 1999.
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, 1998 were $3.7 million or 56.3% of total revenues as compared to $2.7
million or 59.0% of total revenues for the same period last year. The higher
sales and marketing expense in the current quarter over the same quarter last
year was primarily due to higher compensation as a result of having reported
higher revenues in the current quarter. The Company expects sales and marketing
expenses to increase for the remainder of the fiscal year to support the
Company's revenue plans.
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 $1.2 million or
18.7% of total revenues for the quarter ended June 30, 1998 compared to $1.7
million or 36.9% of total revenues for the same period last year. The lower
expenses for first quarter of fiscal 1998 were primarily due to lower staffing
levels. 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. Though the Company anticipates that it will continue to invest
resources to further enhance and develop its products, the Company does not
anticipate significant growth in research and development expense in the
remainder of the fiscal year.
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 $1.2 million or 18.9%
of total revenue for the quarter ended June 30, 1998 compared to $1.2 million or
25.6% of total revenues for the same period of last year. The Company expects
general and administrative expenses to increase moderately throughout the
remainder of the current fiscal year.
Net interest income was $109,000 for the quarter ending June 30, 1998
compared to $344,000 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,
1998
7
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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, 1998 was $1.9
million. The reduction in cash in the current quarter was due primarily to a
decrease in deferred revenue of $1.1 million associated primarily with
maintenance, and due to a decrease in accounts payable and accrued liabilities
of $1.0 million associated with the payment of accrued year-end; royalties
associated with the reacquisition of distribution rights in the UK market,
severances, salesman commissions, and bonuses. Cash used in operations for the
quarter ended June 30, 1997 was $1.7 million. The reduction in cash last year
was primarily due to the net loss of $2.1 million and the payment of $1.0
million of accrued restructuring costs during the period.
As of June 30, 1998, the Company had working capital of $16.8 million
including $17.0 million of cash, cash equivalents and short-term marketable
securities. The Company has a revolving line of credit that permits unsecured
borrowings up to $1.0 million through August 1998. As of June 30, 1998, there
were no outstanding loans under the line of credit and the Company was in
compliance with the terms of the agreement.
Property and equipment expenditures for the quarter ended June 30, 1998
were $155,000. 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.
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.
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
27.1 Financial Data Schedule
(b) Reports
None
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 14, 1998 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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INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION
-------------- ------------------------------------------------------------
<C> <S>
27.1 Financial Data Schedule
</TABLE>
11
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-START> APR-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 4,579
<SECURITIES> 12,437
<RECEIVABLES> 6,662
<ALLOWANCES> 951
<INVENTORY> 0
<CURRENT-ASSETS> 23,528
<PP&E> 4,839
<DEPRECIATION> 2,988
<TOTAL-ASSETS> 26,336
<CURRENT-LIABILITIES> 6,696
<BONDS> 0
0
0
<COMMON> 11
<OTHER-SE> 19,629
<TOTAL-LIABILITY-AND-EQUITY> 26,336
<SALES> 0
<TOTAL-REVENUES> 6,558
<CGS> 0
<TOTAL-COSTS> 7,184
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (109)
<INCOME-PRETAX> (517)
<INCOME-TAX> 2
<INCOME-CONTINUING> (519)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (519)
<EPS-PRIMARY> (.03)
<EPS-DILUTED> (.03)
</TABLE>
