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 March 31, 2004 |
| ¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES ACT OF 1934 |
| For The Transition Period From To |
Commission File No. 000-28715
NEOFORMA, INC.
(Exact name of the Registrant as Specified in its Charter)
| Delaware | 77-0424252 | |
| (State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification Number) | |
| 3061 Zanker Rd., San Jose, CA | 95134 | |
| (Address of principal executive offices) | (Zip code) | |
(408) 468-4000
(The Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $0.001 Par Value Per Share
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 ¨
Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes x No ¨
The number of shares of the Registrant’s common stock outstanding on May 6, 2004 was 19,993,695.
| Page | ||||
| PART I. FINANCIAL INFORMATION |
3 | |||
| ITEM 1. | Unaudited Condensed Consolidated Financial Statements: |
|||
| Unaudited Condensed Consolidated Balance Sheets as of March 31, 2004 and December 31, 2003 | 3 | |||
| Unaudited Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2004 and 2003 | 4 | |||
| Unaudited Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2004 and 2003 | 5 | |||
| Notes to Unaudited Condensed Consolidated Financial Statements |
6 | |||
| ITEM 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 12 | ||
| ITEM 3. | 27 | |||
| ITEM 4. | Controls and Procedures | 28 | ||
| PART II. OTHER INFORMATION |
29 | |||
| ITEM 1. | 29 | |||
| ITEM 2. | Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities |
29 | ||
| ITEM 3. | 29 | |||
| ITEM 4. | 29 | |||
| ITEM 5. | 29 | |||
| ITEM 6. | 29 | |||
| 30 | ||||
| 30 | ||||
Item 1. Unaudited Condensed Consolidated Financial Statements
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except per share amounts)
(unaudited)
| December 31, 2003* |
March 31, 2004 |
|||||||
| Assets | ||||||||
| Current assets: |
||||||||
| Cash and cash equivalents |
$ | 13,481 | $ | 15,280 | ||||
| Short-term investments |
3,138 | 2,105 | ||||||
| Accounts receivable, net of reserves of $235 and $308 as of December 31, 2003 and March 31, 2004, respectively |
3,776 | 3,924 | ||||||
| Related party accounts receivable |
456 | — | ||||||
| Prepaid expenses and other current assets |
2,775 | 2,797 | ||||||
| Total current assets |
23,626 | 24,106 | ||||||
| Property and equipment, net |
7,432 | 9,268 | ||||||
| Intangibles, net |
2,022 | 1,875 | ||||||
| Goodwill |
1,652 | 1,652 | ||||||
| Capitalized partnership costs, net |
106,003 | 92,198 | ||||||
| Non-marketable investments |
83 | 83 | ||||||
| Restricted cash |
1,020 | 1,020 | ||||||
| Other assets |
1,376 | 1,309 | ||||||
| Total assets |
$ | 143,214 | $ | 131,511 | ||||
| Liabilities and Stockholders’ Equity | ||||||||
| Current liabilities: |
||||||||
| Accounts payable |
$ | 2,727 | $ | 2,146 | ||||
| Accrued payroll |
4,199 | 2,811 | ||||||
| Other accrued liabilities |
3,183 | 2,970 | ||||||
| Deferred revenue |
2,651 | 2,124 | ||||||
| Total current liabilities |
12,760 | 10,051 | ||||||
| Deferred rent |
657 | 643 | ||||||
| Deferred revenue, less current portion |
554 | 512 | ||||||
| Total liabilities |
13,971 | 11,206 | ||||||
| Stockholders’ equity: |
||||||||
| Preferred stock $0.001 par value: |
||||||||
| Authorized—5,000 shares, no shares issued and outstanding at December 31, 2003 and March 31, 2004, respectively |
— | — | ||||||
| Common stock $0.001 par value: |
||||||||
| Authorized—300,000 shares at December 31, 2003 and March 31, 2004, respectively Issued and outstanding: 18,943 and 19,945 shares at December 31, 2003 and March 31, 2004, respectively |
19 | 20 | ||||||
| Additional paid-in capital |
827,570 | 837,919 | ||||||
| Notes receivable from stockholders |
(5,422 | ) | (5,446 | ) | ||||
| Deferred compensation |
(218 | ) | (6,268 | ) | ||||
| Unrealized gain on available for sale securities |
1 | 1 | ||||||
| Accumulated deficit |
(692,707 | ) | (705,921 | ) | ||||
| Total stockholders’ equity |
129,243 | 120,305 | ||||||
| Total liabilities and stockholders’ equity |
$ | 143,214 | $ | 131,511 | ||||
| * | Derived from audited financial statements. |
The accompanying notes are an integral part of these condensed consolidated financial statements.
3
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
(unaudited)
| Three Months Ended March 31, |
||||||||
| 2003 |
2004 |
|||||||
| Revenue: |
||||||||
| Related party revenue, net (see Note 3) |
$ | 539 | $ | — | ||||
| Non-related party revenue |
2,063 | 2,928 | ||||||
| Total revenue |
2,602 | 2,928 | ||||||
| Operating expenses: |
||||||||
| Cost of services |
1,378 | 2,061 | ||||||
| Operations |
5,142 | 2,998 | ||||||
| Product development |
4,743 | 3,638 | ||||||
| Selling and marketing |
4,977 | 3,656 | ||||||
| General and administrative |
2,967 | 2,238 | ||||||
| Amortization of intangibles |
147 | 147 | ||||||
| Amortization of partnership costs (see Note 3) |
— | 1,472 | ||||||
| Total operating expenses |
19,354 | 16,210 | ||||||
| Loss from operations |
(16,752 | ) | (13,282 | ) | ||||
| Other income/(expense): |
||||||||
| Interest income |
51 | 69 | ||||||
| Interest expense |
(274 | ) | (1 | ) | ||||
| Other income/(expense) |
(76 | ) | — | |||||
| Net loss |
$ | (17,051 | ) | $ | (13,214 | ) | ||
| Net loss per share: |
||||||||
| Basic and diluted |
$ | (0.97 | ) | $ | (0.69 | ) | ||
| Weighted average shares—basic and diluted |
17,540 | 19,069 | ||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
4
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
| Three Months Ended March 31, |
||||||||
| 2003 |
2004 |
|||||||
| Cash flows from operating activities: |
||||||||
| Net loss |
$ | (17,051 | ) | $ | (13,214 | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: |
||||||||
| Restricted common stock issued to employees |
10 | — | ||||||
| Provision for doubtful accounts |
54 | 96 | ||||||
| Accrued interest receivable on notes receivable from stockholders |
(17 | ) | (6 | ) | ||||
| Depreciation and amortization of property and equipment |
3,733 | 1,191 | ||||||
| Amortization of intangibles |
147 | 147 | ||||||
| Amortization of partnership costs classified as an operating expense (see Note 3) |
— | 1,472 | ||||||
| Amortization of deferred compensation |
714 | 490 | ||||||
| Change in assets and liabilities: |
||||||||
| Accounts receivable |
303 | 212 | ||||||
| Prepaid expenses and other current assets |
488 | (22 | ) | |||||
| Other assets |
110 | 67 | ||||||
| Accounts payable |
(1,747 | ) | (581 | ) | ||||
| Other accrued liabilities and accrued payroll |
(5,649 | ) | (1,598 | ) | ||||
| Deferred revenue |
(290 | ) | (569 | ) | ||||
| Deferred rent |
14 | (14 | ) | |||||
| Accrued interest on related party notes payable |
245 | — | ||||||
| Net cash used in operating activities |
(18,936 | ) | (12,239 | ) | ||||
| Cash flows from investing activities: |
||||||||
| Purchases of marketable investments |
(770 | ) | (1,347 | ) | ||||
| Proceeds from the sale or maturity of marketable investments |
1,053 | 2,381 | ||||||
| Capitalization of software development costs |
— | (1,791 | ) | |||||
| Purchases of property and equipment |
(538 | ) | (1,236 | ) | ||||
| Net cash used in investing activities |
(185 | ) | (1,993 | ) | ||||
| Cash flows from financing activities: |
||||||||
| Amortization of partnership costs offset against related party revenue (see Note 3) |
17,003 | 15,478 | ||||||
| Repayments of notes payable |
(447 | ) | — | |||||
| Cash received related to options exercised |
149 | 250 | ||||||
| Proceeds from the issuance of common stock under the employee stock purchase plan |
506 | 526 | ||||||
| Common stock repurchased, net of notes receivable issued to common stockholders |
(2 | ) | (177 | ) | ||||
| Collections of notes receivable from stockholders |
1,051 | 44 | ||||||
| Net cash provided by financing activities |
18,260 | 16,121 | ||||||
| Net increase (decrease) in cash and cash equivalents |
(861 | ) | 1,799 | |||||
| Cash and cash equivalents, beginning of period |
23,277 | 13,481 | ||||||
| Cash and cash equivalents, end of period |
$ | 22,416 | $ | 15,280 | ||||
| Supplemental schedule of noncash investing and financing activities: |
||||||||
| Issuance of restricted stock to related parties |
$ | 156 | $ | 3,145 | ||||
| Reduction of deferred compensation resulting from employee terminations |
$ | 223 | $ | 48 | ||||
| Issuance of restricted stock to employees and officers |
$ | 320 | $ | 6,588 | ||||
| Issuance of common stock in connection with the acquisition of Revelocity Corporation |
$ | 539 | $ | — | ||||
The accompanying notes are an integral part of these consolidated financial statements.
5
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS:
Neoforma, Inc. (the Company) provides supply chain management solutions for the healthcare industry. The Company utilizes a combination of technology, information and services to help the participants in the healthcare supply chain, principally hospitals, suppliers and group purchasing organizations (GPOs), to reduce operational inefficiencies and lower costs.
Since inception, the Company has incurred significant losses and, as of March 31, 2004, had an accumulated deficit of $705.9 million. The Company’s future long-term capital needs will depend significantly on the rate of growth of its business, the timing of its expanded service offerings, the success of these service offerings once they are launched and the Company’s ability to adjust its operating expenses to an appropriate level if the growth rate of its business is slower than it expects. Any projections of future long-term cash needs and cash flows are subject to substantial uncertainty. If available funds and cash generated from operations are insufficient to satisfy its long-term liquidity requirements, the Company may seek to sell additional equity or debt securities, obtain additional lines of credit, curtail expansion of its services, including reductions in its staffing levels and related expenses, or potentially liquidate selected assets. The Company cannot be certain that additional financing will be available on favorable terms if and when required, or at all.
The condensed consolidated financial statements included herein have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such rules and regulations. These unaudited condensed consolidated financial statements and notes should be read in conjunction with the audited financial statements and notes thereto included in the Company’s Annual Report for the year ended December 31, 2003 filed on Form 10-K with the SEC. In the opinion of management, the unaudited condensed consolidated financial statements reflect all adjustments, consisting only of recurring adjustments, necessary for a fair presentation of the Company’s financial position, results of operations and cash flows for the periods indicated. The results of operations for interim periods are not