UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended June 30, 1998
Commission File Number: 0-22325
ALYDAAR SOFTWARE CORPORATION
(Exact name of registrant as specified in its charter)
North Carolina 87-0399301
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2101 Rexford Road, Suite 250 West Charlotte, NC 28211
(Address of principal executive offices)(Zip Code)
704-365-2324
(Registrants telephone number, including are 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 and Exchange Act of 1934
during the proceeding 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. [X] Yes[ ] No
As of July 13, 1998, there were 17,454,686 shares of Alydaar Software
Corporation common stock, $0.001 par value, outstanding.
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
Page 3 Consolidated Balance Sheets
Page 4 Consolidated Statements of Operations (Unaudited)
Page 5 Consolidated Statements of Cash Flows (Unaudited)
Page 6 Notes to Unaudited Consolidated Financial Statements
<PAGE>
<TABLE>
Alydaar Software Corporation
Consolidated Balance Sheets
<CAPTION>
Assets June 30, 1998 December 31, 1997
Current Assets (Unaudited) (Audited)
<S> <C> <C>
Cash $ 773,433 $ 1,526,924
Accounts receivable, net 11,752,879 5,150,617
Costs and estimated earnings in excess
of billings 2,988,488 1,297,986
Prepaid expenses 276,217 249,801
Other receivables - 435,000
Deferred tax asset 600,000 600,000
Loan to shareholder - 51,256
16,391,017 9,311,584
Property and Equipment, net 3,741,860 2,919,077
Goodwill, net 6,270,983 6,494,783
Other Assets 148,006 141,030
$ 26,551,866 $ 18,866,474
====================== =======================
Liabilities and Stockholders' Equity
Current Liabilities
Accounts payable and accrued expenses $ 2,698,046 $ 1,807,561
Billings in excess of costs and estimated
earnings on contracts in progress 321,473 49,497
Current portion of capital lease obligation 40,060 21,869
Loans payable, stockholders 2,296,700 966,700
5,356,279 2,845,627
Capital Lease Obligation 129,514 101,230
Commitments and Contingencies
Stockholders' Equity
Common stock, $.001 par value, 50,000,000
shares authorized, 17,443,649 and
17,808,728 shares issued 17,444 17,809
Additional Paid - In Capital 30,656,363 30,113,284
Deficit (9,548,407) (14,094,107)
Foreign Currency Translation Adjustment (50,077) (26,924)
21,075,323 16,010,062
Less: Treasury Stock @ Cost - (445)
Receivable from Warrant Exercise (9,250) (90,000)
Total Stockholders' Equity 21,066,073 15,919,617
$ 26,551,866 $ 18,866,474
====================== =======================
</TABLE>
<PAGE>
<TABLE>
Alydaar Software Corporation
Consolidated Statements of Operations
Periods Ended June 30, 1998 and 1997
(Unaudited)
<CAPTION>
Three Months Three Months Six Months Six Months
Ended Ended Ended Ended
6/30/98 6/30/97 6/30/98 6/30/97
<S> <C> <C> <C> <C>
Earned Revenues $ 9,560,419 $ 2,120,769 $ 17,968,241 $ 2,308,269
Expenses
Payroll and Related Items 3,886,992 3,629,629 8,570,004 6,393,733
Litigation Costs 549,050 122,440 673,582 248,332
Depreciation and Amortization 368,809 125,669 692,454 260,106
Rent and Occupancy 356,345 135,708 686,019 291,678
Bad Debt Expense 163,750 - 248,750 -
Other Operating Expenses 1,333,769 463,642 2,434,683 590,386
6,658,715 4,477,088 13,305,492 7,784,235
----------------- ------------------ ----------------- ----------------
Operating Income (Loss) 2,901,704 (2,356,319) 4,662,749 (5,475,966)
Other Income (Expense) (55,322) 11,485 (117,049) 12,975
----------------- ------------------ ----------------- ----------------
Net Income (Loss) $ 2,846,382 $ (2,344,834) $ 4,545,700 $ (5,462,991)
================= ================== ================= ================
Earnings Per Share:
Basic $ 0.16 $ (0.16) $ 0.26 $ (0.39)
================= ================== ================= ================
Fully Diluted $ 0.16 $ (0.16) $ 0.26 $ (0.39)
================= ================== ================= ================
Average Shares
Outstanding:
Basic 17,420,150 14,558,032 17,406,082 14,051,709
================= ================== ================= ================
Diluted 17,682,441 14,558,032 17,668,374 14,051,709
================= ================== ================= ================
</TABLE>
<PAGE>
<TABLE>
Alydaar Software Corporation
Consolidated Statements of Cash Flows Six Months Ended June 30, 1998 and 1997
(Unaudited)
<CAPTION>
1998 1997
Cash Flow from Operating Activities:
<S> <C> <C>
Net Income (Loss) $ 4,545,700 $ (5,462,991)
Adjustments to Reconcile Net Income (Loss) used in operating activities:
Stock Based Compensation 76,500 222,500
Allowance for Doubtful Accounts 248,750 -
Depreciation and Amortization 692,454 260,106
(Increase) Decrease in:
Accounts Receivable (6,874,165) (1,873,676)
Costs and Estimated Earnings in Excess of Billings (1,690,502) -
Prepaid Expenses (26,416) (77,753)
Increase (Decrease) in:
Accounts Payable and Accrued Expenses 946,271 (592,336)
Billings in Excess of Costs and Estimated Earnings 271,976 (150,000)
Net Cash Used in Operations (1,809,432) (7,674,150)
------------------ ---------------------
Cash Flows From Investing Activities:
Purchase of Property and Equipment (1,233,858) (501,639)
Increase in Other Assets (6,976) (66,752)
Decrease in Other Receivables 435,000 -
Loans Receivable Increase - (300,000)
Net Cash Used in Investing Activities (805,834) (868,391)
Cash Flows From Financing Activities:
Proceeds from Issuance of Stock 491,623 13,061,534
Loans from Shareholders 1,381,256 (203,550)
Repayment of Capital Lease Obligations (11,104) -
Net Cash from Financing Activities 1,861,775 12,857,984
Net Increase (Decrease) In Cash (753,491) 4,315,443
Cash @ Beginning of Period 1,526,924 379,382
Cash @ End of Period $ 773,433 $ 4,694,825
================== =====================
Supplemental Disclosures
Interest Paid $ 15,261 $ 9,084
================== =====================
Acquisition of equipment under capital
lease obligations $ 55,786 $ -
Unrealized loss on currency translations $ 23,153 $ -
================== =====================
</TABLE>
<PAGE>
Alydaar Software Corporation and Subsidiary
Notes to Unaudited Consolidated Financial Statements
1. The interim unaudited financial statements as of June 30, 1998 and 1997 and
for the three- and six-month periods then ended, reflect all adjustments
which, in the opinion of management, are necessary to a fair statement of
the results for the interim periods presented. All adjustments were of a
normal recurring nature.
2. The Company acquired a 100% interest in Alydaar International, PLC during
the third quarter of 1997. Accordingly, the Company's financial statements
include the accounts of Alydaar International, PLC from the date of
acquisition of that subsidiary (July 1, 1997). All significant intercompany
transactions and accounts have been eliminated as part of the consolidation
of the financial information. This combination was accounted for as a
purchase as required under APB 16.
3. Federal and state income tax provisions for the three-month period ended
June 30, 1998 ($1,135,000), and for the six-month period then ended
($1,815,000) were offset by an increase in the estimated deferred tax
benefit for the same amount. No tax benefit had been recorded at June 30,
1997, due to uncertainty of realization.
4. The Company has adopted Financial Accounting Standards Board ("FASB")
Statement No. 128, "Earnings per Share". Basic earnings per common share is
computed by dividing the net earnings (loss) by the weighted average number
of shares of common stock outstanding during the period. Diluted earnings
per share gives effect to stock options and warrants which are considered
to be dilutive common stock equivalents. Treasury shares have been excluded
from the weighted average number of shares. Earnings (loss) per share were
retroactively restated to reflect FASB No. 128 for the three- and six-month
period ended June 30, 1997.
<PAGE>
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
FINANCIAL CONDITION AND LIQUIDITY:
Alydaar Software Corporation's principal liquid resources, comprising
cash, trade receivables and costs and estimated earnings in excess of billings
increased $7.1 million from December 31, 1997 to June 30, 1998. This increase
was the result of increased receivables generated through a $3.4 million
increase in revenues in the second quarter, 1998, compared with the fourth
quarter of 1997, and an increase in work-in-progress as of June 30, 1998
compared with December 31, 1997. Working capital totaled $11.0 million at June
30, 1998, as compared with working capital of $6.5 million at December 31, 1997.
The improvement was also primarily due to increased revenues. During the second
quarter of 1998, two officers loaned the Company a total of $681,000. The
Company believes that cash generated from operations will be sufficient to meet
its future working capital requirements.
RESULTS OF OPERATIONS - THREE- AND SIX-MONTH PERIODS ENDED JUNE30, 1998 AND 1997
The Company is not providing percentages of operating results to reflect
percentages of changes between periods because the Company did not reflect any
significant revenues until the second quarter of fiscal year 1997. Any
comparisons between the periods would not be meaningful.
Three Months Ended June 30, 1998 Compared With Three Months Ended June 30, 1997
Revenues increased from $2,121,000 (6/97) to $9,560,000 (6/98). The
quarter ended June 30, 1997 was the first quarter of significant Year 2000 (Y2K)
revenues recorded by the Company. The $7.4 million increase in revenues was the
result of increased volume and prices over the same quarter of the previous
year.
Total operating expenses increased $2,182,000 or 49%. Payroll and
Related Items decreased by $257,000 due primarily to the savings which resulted
from the transition of in excess of 100 people from contractor labor status to
employee status and capitalization of labor costs associated with software
developed for in-house usage, partially offset by the cost of 60 additional
people. Litigation costs increased $427,000 as defense costs related to a
lawsuit described in the Company's 1997 Form 10-K increased significantly when
the trial began in April, 1998. The trial only lasted for a 2-day period and was
adjourned to be continued at a subsequent date, presently expected to be
sometime in September. Depreciation expense increased $243,000 due to full
quarter of depreciation on 1997 acquisitions, partial-year deprecation on 1998
equipment additions and other fixed asset purchases, and $112,000 goodwill
amortization. Rent and occupancy costs increased by $220,000, caused primarily
by the Company's opening of 12 regional sales offices in the third quarter,
1997. Bad debt expense increased to $164,000 as a result of increased volume in
1998, as the Company continued to make provisions for possible write-offs. Other
Operating Expenses increased $870,000, with the following categories
experiencing significant increases: Advertising expenditures increased by
$352,000, as the Company increased its marketing efforts to increase market
share of Y2K business; travel and meals increased by $174,000 related to the
sales activities of the additional sales personnel in the US as well as cost
incurred by personnel in the U.K. subsidiary sales activities (the subsidiary
was acquired July 1, 1997); telephone costs increased $82,000 due to additional
sales and telemarketing activities; costs of operations of the 12 sales offices
were $63,000; and, computer maintenance increased by $60,000 as the Company
enhanced its system maintenance program. Additional categories of other
operating expenses increased $139,000 due primarily to the significant increase
in number of personnel and square footage of space occupied.
Other income (expense) reflected primarily approximately $11,000 interest income
from investments for 1997 and net other (expense) of $55,000, primarily due to
accrued interest on amounts due on officers' loans
Six Months Ended June 30, 1998 Compared With Six Months Ended June 30, 1997
Revenues increased by $15,660,000 for the six-month period ended June
30,1998 versus same period for 1997. This significant increase was due primarily
to increased volume and price increases in Y2K projects.
<PAGE>
Total operating expenses increased by $5,521,000 for the six-month
period ended June 30, 1997 versus the same period for 1997. Payroll and related
costs increased by $2,176,000, caused by an average increase in personnel
between the two periods of approximately 120 people. Litigation costs increased
by $426,000 during 1998 versus 1997, as the defense costs related to a lawsuit
described in the Company's 1997 Form 10K increased significantly for trial
preparations. Deprecation and amortization increased $432,000 due to a full
six-month depreciation on 1997 acquisitions of equipment (plus partial
depreciation on 1998 acquisitions) and $224,000 of goodwill amortization. Rent
and occupancy costs increased by $394,000 for the six-month period ended June
30, 1998 versus the same period for 1997, as the Company increased the number of
sales offices during 3rd quarter 1997 and increased its operating facilities to
accommodate its expanded workforce. Bad debt expense increased by $249,000 as
the Company made provisions for possible bad debts due to increased sales. Other
operating expenses increased by $1,844,000 for the six-moth period ended June
10, 1998, versus the same period for 1997, with the following categories
experiencing significant increases: advertising expenditures increased by
$470,000 as the Company expanded its marketing efforts to increase its Y2K
business; telephone expenses increased by $197,000 related to expanded sales and
marketing activities; travel and meals increased by $238,000 and sales offices
operating expenses increased $110,000 due to increased sales personnel, both in
the U.S. and the U.K.; and computer maintenance increased by $119,000, as the
Company enhanced its system maintenance program. Other operating expenses
increased $710,000, due primarily to the significant increase in number of
people and square footage occupied.
Other income (expense) reflected primarily interest income of $13,000
for the 1997 period and net other (expense) of $55,000 for the 1998 period,
comprised primarily of $63,000 interest accrued on loans due to officers.
The statements made in this report that are not historical facts
contain "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995, which can be identified by the use of
forward-looking terminology such as "may", "will", "anticipates", "expects",
"projects", "estimates" "believes" or "continue", the negative thereof, other
variations or comparable terminology. Important factors, including certain risks
and uncertainties, with respect to such forward looking statements that could
cause actual results to differ materially from those reflected in such forward
looking statements include, but are not limited to, the impact of competitive
products and services, the ability of customers to package code in a timely
manner, the Company's ability to manage growth and acquisitions of technology or
people, the effect of economic and business conditions, including risks inherent
in international operations and the ability to attract and retain technical
personnel.
PART II. OTHER INFORMATION
ITEM 1: Legal Proceedings
On May 22, 1998, the Company filed a lawsuit against one of its former
customers seeking payment of $700,000 due to the company for services
provided plus punitive and compensatory damages and legal expenses. A
pre-trial hearing is expected to be scheduled for sometime in September or
October, 1998. The Company and its counsel believes that the defendant does
not have any meritorious defenses to this action.
ITEM 4: Submission of Matters to a Vote of Security Holders
On May 22, 1998, the Company's stockholders (at the annual meeting)
approved the following:
a.) Election of the following directors:
1.) Robert F. Gruder 4.) J. Alex McMillan
2.) V. Hollis Scott 5.) John McCarthy
3.) Thomas J. Dudchik
b.) Increase in the number of authorized shares of common stock from
20,000,000 to 50,000,000 shares;
c.) Approval of the 1997, Employee Stock Purchase Plan for eligible
employees of the Company;
<PAGE>
d.) Approval of an increase in the number of shares of common stock
available under the Company's Omnibus Stock Plan to 3,000,000 shares;
and
e.) Approval of an increase in the number of directors from five (5) to
nine (9).
The votes on each of the proposals were as follows:
FOR AGAINST ABSTAIN
a.)
1. 14,746,478 0 3,222
2. 14,746,890 0 2,810
3. 14,736,890 0 12,810
4. 14,746,838 0 2,863
5. 14,746,388 0 3,313
b.) 8,862,480 509,274 17,920
c.) 9,092,658 280,751 16,265
d.) 14,749,700 0 0
e.) 14,765,568 4,018 115
ITEM 6: Exhibits and Reports on Form 8-K
Exhibits:
11. Computation of Earnings Per Share...Unaudited
27. Financial Data Schedule - Unaudited
Reports on Form 8-K:
Report filed on May 28, 1998, to record results of voting at
annual Stockholders' meeting.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
ALYDAAR SOFTWARE CORPORATION
(Registrant)
Date: August 14, 1998 /s/Robert F. Gruder
---------------
Robert F. Gruder,
Chief Executive Officer
Date: August 14, 1998 /s/V. Hollis Scott
---------------
V. Hollis Scott,
Chief Financial Officer
EXHIBIT 6 a) 11.
<TABLE>
Alydaar Software Corporation
Computation of Earnings Per Share
(Unaudited)
<CAPTION>
Three Months Ended Six Months Ended
-------------------------------------------- -------------------------------------------------
6-30-98 6-30-97 6-30-98 06-30-97
<S> <C> <C> <C> <C>
Net Income (loss) $ 2,846,342 $ (2,344,834) $ 4,545,700 $ (5,462,991)
Average # shares
outstanding $ 17,420,150 $ 14,558,032 $ 17,406,082 $ 14,051,709
Diluted Average #
shares outstanding $ 17,682,441 $ 14,558,032 $ 17,668,374 $ 14,051,709
Basic Earnings
(loss) per share $ 0.16 $ (0.16) $ 0.26 $ (0.39)
Diluted Earnings
per share $ 0.16 $ (0.16) $ 0.26 $ (0.39)
- -------------------------- --------------------- ----------------------- ---------------------- ---------------------------
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
EXHIBIT 6 a) 27.
FINANCIAL DATA SCHEDULE
(UNAUDITED)
This schedule contains summary financial information extracted from the June 30,
1998 Unaudited Consolidated Financial Statements included in the Company's Form
10-Q and is qualified in its entirety by reference to such Form 10-Q.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 773
<SECURITIES> 0
<RECEIVABLES> 12,117
<ALLOWANCES> 364
<INVENTORY> 0
<CURRENT-ASSETS> 16,391
<PP&E> 5,144
<DEPRECIATION> 1,402
<TOTAL-ASSETS> 26,552
<CURRENT-LIABILITIES> 5,356
<BONDS> 130
0
0
<COMMON> 18
<OTHER-SE> 21,048
<TOTAL-LIABILITY-AND-EQUITY> 26,552
<SALES> 17,968
<TOTAL-REVENUES> 17,968
<CGS> 0
<TOTAL-COSTS> 13,305
<OTHER-EXPENSES> 20
<LOSS-PROVISION> 249
<INTEREST-EXPENSE> 97
<INCOME-PRETAX> 4,546
<INCOME-TAX> 0
<INCOME-CONTINUING> 4,846
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,546
<EPS-PRIMARY> 0.26
<EPS-DILUTED> 0.26
</TABLE>
