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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 September 30, 1998
Commission File Number: 0-22325
ALYDAAR SOFTWARE CORPORATION
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(Exact name of registrant as specified in its charter)
North Carolina 87-0399301
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2101 Rexford Road, Suite 250 West Charlotte, NC 28211
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(Address of principal executive offices) (Zip Code)
704-365-2324
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(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 October 19, 1998, there were 17,460,986 shares of Alydaar Software
Corporation common stock, $0.001 par value, outstanding.
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PART I. FINANCIAL INFORMATION Page
----
ITEM 1: FINANCIAL STATEMENTS
Consolidated Balance Sheet
as of September 30, 1998 and December 31, 1997 3
Consolidated Statement of Operations (Unaudited)
for the Three and Nine Months ended September 30, 1998 and 1997 4
Consolidated Statement of Cash Flows (Unaudited)
for the Nine Months ended September 30, 1998 and 1997 5
Notes to Unaudited Consolidated Financial Statements 6
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Financial Condition and Liquidity 7
Results of Operations
For the Three and Nine Month Periods ended
September 30, 1998 and 1997 7 - 8
PART II. OTHER INFORMATION
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K 8
Signatures 9
2
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Alydaar Software Corporation
Consolidated Balance Sheet
<TABLE>
<CAPTION>
September 30, 1998 December 31, 1997
(Unaudited) (Audited)
<S> <C> <C>
Assets
Current Assets
Cash $ 2,534,367 $ 1,526,924
Accounts receivable, net 10,069,023 5,150,617
Costs and estimated earnings
in excess of billings 4,721,613 1,297,986
Prepaid expenses 447,475 249,801
Other receivables 25,000 435,000
Deferred tax asset 600,000 600,000
Loan to shareholder -- 51,256
------------ ------------
Total Current Assets 18,397,478 9,311,584
Property and Equipment, net 4,165,075 2,919,077
Goodwill, net 6,159,083 6,494,783
Other Assets 201,217 141,030
------------ ------------
$ 28,922,853 $ 18,866,474
============ ============
Liabilities and Stockholders' Equity
Current Liabilities
Accounts payable and accrued expenses $ 2,850,636 $ 1,807,561
Billings in excess of costs and estimated
earnings on contracts in progress 27,558 49,497
Current portion of capital lease obligation 41,982 21,869
Loans payable, stockholders 2,969,700 966,700
------------ ------------
Total Current Liabilities 5,889,876 2,845,627
------------ ------------
Capital Lease Obligation 104,053 101,230
------------ ------------
Commitments and Contingencies
Stockholders' Equity
Common stock, $.001 par value, 50,000,000
shares authorized, 17,445,686 and 17,808,728 17,446 17,809
Additional paid-in capital 30,779,794 30,113,284
Deficit (7,816,792) (14,094,107)
Foreign currency translation adjustment (51,524) (26,924)
------------ ------------
22,928,924 16,010,062
Less: treasury stock @ cost -- (445)
receivable from warrant exercise -- (90,000)
------------ ------------
Total stockholders' equity 22,928,924 15,919,617
------------ ------------
$ 28,922,853 $ 18,866,474
============ ============
</TABLE>
3
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Alydaar Software Corporation
Consolidated Statement of Operations
Periods Ended September 30, 1998 and 1997
(Unaudited)
<TABLE>
<CAPTION>
Three Months Three Months Nine Months Nine Months
Ended Ended Ended Ended
9/30/98 9/30/97 9/30/98 9/30/97
<S> <C> <C> <C> <C>
Earned Revenues $ 8,760,716 $ 2,258,570 $ 26,728,957 $ 4,566,839
------------ ------------ ------------ ------------
Expenses
Payroll and related items 4,978,726 2,878,555 13,548,730 9,343,544
Depreciation and amortization 393,363 195,223 1,085,817 455,329
Rent and occupancy 362,292 496,102 1,048,311 787,780
Bad debt expense 200,000 -- 448,750 --
Litigation costs 24,051 20,430 697,633 268,762
Other operating expenses 1,011,966 853,714 3,446,649 1,372,844
------------ ------------ ------------ ------------
6,970,398 4,444,024 20,275,890 12,228,259
------------ ------------ ------------ ------------
Operating Income (Loss) 1,790,318 (2,185,454) 6,453,067 (7,661,420)
Other Income (Expense) (58,703) 14,411 (175,752) 27,386
------------ ------------ ------------ ------------
Net Income (Loss) $ 1,731,615 $ (2,171,043) $ 6,277,315 $ (7,634,034)
============ ============ ============ ============
Earnings Per Share:
Basic $ 0.10 $ (0.13) $ 0.36 $ (0.51)
============ ============ ============ ============
Fully Diluted $ 0.10 $ (0.13) $ 0.36 $ (0.51)
============ ============ ============ ============
Average Shares
Outstanding:
Basic 17,449,668 16,756,291 17,409,707 15,056,501
============ ============ ============ ============
Diluted 17,647,256 16,756,291 17,607,295 15,056,501
============ ============ ============ ============
</TABLE>
4
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Alydaar Software Corporation
Consolidated Statement of Cash Flows
Nine-Month Periods Ended September 30, 1998 and 1997
(Unaudited)
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Cash Flow from Operating Activities:
Net income (loss) $ 6,277,315 $ (7,634,034)
Adjustments to reconcile net income (loss)
used in operating activities:
Stock based compensation 169,051 222,500
Allowance for doubtful accounts 448,750 --
Depreciation and amortization 1,085,817 455,329
(Increase) Decrease in:
Accounts receivable (5,391,756) (2,382,791)
Costs and estimated earnings in excess of
billings (3,423,627) --
Other current assets (197,674) (76,120)
Increase (Decrease) in:
Accounts payable and accrued expenses 1,099,112 (1,692,010)
Billings in excess of costs and estimated
earnings (21,939) (150,000)
------------ ------------
Net cash from (used in) operations 45,049 (11,257,126)
------------ ------------
Cash Flows From Investing Activities:
Acquisition of property and equipment (1,940,329) (1,389,953)
Increase in other assets (60,187) (66,752)
Decrease in other receivables 410,000 490,000
------------ ------------
Net cash used in investing activities (1,590,516) (966,705)
------------ ------------
Cash Flows From Financing Activities:
Proceeds from issuance of stock 531,504 14,664,614
Loans from shareholders 2,054,256 (507,530)
Repayment of capital lease obligations (32,850) (19,187)
------------ ------------
Net cash from financing activities 2,552,910 14,137,897
------------ ------------
Net Increase In Cash 1,007,443 1,914,066
Cash @ Beginning of Period 1,526,924 379,382
------------ ------------
Cash @ End of Period $ 2,534,367 $ 2,293,448
============ ============
Supplemental Disclosures
Interest Paid $ 18,730 $ 23,150
============ ============
Acquisition of equipment under capital
lease obligations $ 55,786 $ 89,938
============ ============
Unrealized loss on currency translations $ 24,600 $ 21,476
============ ============
</TABLE>
During 1998 and 1997, the Company issued stock and/or options to various parties
in consideration for services provided.
5
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Alydaar Software Corporation and Subsidiary
Notes to Unaudited Consolidated Financial Statements
1 The interim unaudited financial statements as of September 30, 1998 and
1997 and for the three and nine-month periods then ended, reflect all
adjustments, in the opinion of management, which are necessary for 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 provision for the three month period ended
September 30, 1998 ($690,000) and for the nine month period then ended
($2,503,000) were offset by an increase in the estimated deferred tax
benefit for the same amount. No tax benefit was recorded at September
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 nine months ended September 30, 1997.
5 The Company has adopted Financial Accounting Standards Board ("FASB")
Statement No.130, "Reporting Comprehensive Income". This statement
requires reporting of change in owners' equity that do not result
directly from transactions with owners. An analysis of these changes
follows:
<TABLE>
<CAPTION>
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Three Months Ended Nine Months Ended
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9/30/98 9/30/97 9/30/98 9/30/97
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<S> <C> <C> <C> <C>
Net Income (Loss) $ 1,731,615 $(2,171,493) $ 6,277,315 $(7,634,034)
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Foreign Currency Translation Adjustments - Net (1,447) 18,550 (24,600) 18,550
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Total $ 1,730,168 $(2,152,493) $ 6,252,715 $(7,615,484)
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</TABLE>
6
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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,
comprised of cash, trade receivables, and costs and estimated earnings in excess
of billings, increased $9.3 million from December 31, 1997 to September 30,
1998. This increase was primarily the result of an increase in trade accounts
receivable of $4.9 million and an increase in estimated earnings in excess of
billings of $3.4 million during the nine-month period, due to the significant
increase in revenues, which totaled $26.7 million for the nine-months ended
September 30, 1998, compared with $10.8 million for the year ended December 31,
1997. Working capital totaled $12.5 million at September 30, 1998, as compared
with working capital of $6.5 million at December 31, 1997. This improvement was
also primarily due to increased revenues. During 1998, two officers loaned the
Company a total of $2,054,000. The Company believes that cash generated from
operations will be sufficient to meet its future working capital requirements.
RESULTS OF OPERATIONS - THREE- AND NINE-MONTH PERIODS ENDED
SEPTEMBER 30, 1998 AND 1997.
Three Months Ended September 30, 1998 Compared With Three Months Ended
September 30, 1997
Revenues increased from $2,259,000 (9/97) to $8,761,000 (9/98).
The quarter ended September 30, 1997 was the second quarter of significant Year
2000 revenues recorded by the Company. The $6.5 million increase in revenues was
the result of increased volume and prices over the same quarter of the previous
year.
Total operating expenses increased $2,526,000 or 57%. Payroll and
related items increased by $2,099,000 due to an increase in personnel and
payments to outside contractors. Depreciation and amortization expense increased
$198,000 due to a full quarter of depreciation on 1997 acquisitions, partial
year depreciation on 1998 equipment additions and other fixed asset purchases,
and $112,000 goodwill amortization. Rent and occupancy costs decreased $134,000
due to relocation of production and research personnel to a new Charlotte
location. Bad debt expense increased $200,000 as a result of increased volume in
1998, as the Company continued to make provisions for possible write-offs. Other
operating expenses increased $162,000 due to an increase in computer maintenance
costs of $60,000 and $40,000 of Directors fees.
Other income (expense) reflected primarily approximately $11,000 interest income
from investments for 1997 and net other (expense) of $73,000 for 1998, primarily
due to accrued interest on amounts due on the officers' loans.
Nine Months Ended September 30, 1998 Compared With Nine Months Ended
September 30, 1997.
Revenues increased by $22,162,000 for the nine-month period ended
September 30, 1998 versus the same period for 1997. This significant increase
was due primarily to increased volume and price increases in Y2K projects.
Total operating expenses increased by $8,047,000 for the
nine-month period ended September 30, 1998 versus the same period for 1997.
Payroll and related costs increased by $4,205,000 caused by an increase in
personnel and contract labor costs between the two periods. Litigation costs
increased by $430,000 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. Depreciation and amortization increased $631,000 due to a
full nine-month depreciation on 1997 acquisitions of equipment (plus partial
depreciation on 1998 acquisitions) and $336,000 of goodwill amortization. Rent
and occupancy costs increased by $260,000 for the nine-month period ended
September 30, 1998, versus the same period for 1997, as the Company increased
the number of sales offices during the third and fourth quarters of 1997 and
increased its operating facilities to accommodate its expanded workforce. Bad
debt expense increased by $449,000 as the Company made provisions for possible
bad debts due to increased sales. Other operating expenses increased by
$2,074,000 for the nine-month period ended September 30, 1998, versus the same
period for 1997, with the following categories experiencing significant
increases: advertising expenditures increased by $527,000 as the
7
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Company expanded its marketing efforts to increase its Y2K business; telephone
expenses increased by $265,000 related to expanded sales and marketing
activities; travel and meals increased by $205,000 and sales offices' operating
expenses increased $168,000 due to increased sales personnel, both in the US and
the UK; and computer maintenance increased by $179,000 as the Company enhanced
its system maintenance program. Other operating expenses increased $730,000 due
primarily to the significant increase in the number of personnel and square
footage occupied.
Other income (expense) reflected primarily interest expense
(1998) on loans from stockholders ($176,000) versus interest and other income
(1997) of $27,000.
The foregoing discussion and analysis may 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, diversification of the Company's business, the effect of economic and
business conditions, including risks inherent in international operations, the
ability to attract and retain technical personnel and other risks detailed from
time to time in the Company's SEC reports.
PART II. OTHER INFORMATION
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
11. Computation of Earnings Per Share...Unaudited
27. Financial Data Schedule
(b) Reports on Form 8-K: Not applicable
8
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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: November 14, 1998 /s/Robert F. Gruder
Robert F. Gruder,
Chief Executive Officer
Date: November 14, 1998 /s/V. Hollis Scott
V. Hollis Scott,
Chief Financial Officer
9
<PAGE> 1
EXHIBIT 11
Alydaar Software Corporation
Computation of Earnings Per Share
(Unaudited)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
Three Months Ended Nine Months Ended
- ------------------------------------------------------------------------------------------------------------------------
9-30-98 9-30-97 9-30-98 9-30-97
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Income (loss) $ 1,731,615 $ (2,171,043) $ 6,277,315 $ (7,639,034)
- ------------------------------------------------------------------------------------------------------------------------
Average # shares outstanding 17,449,668 16,756,291 17,409,707 15,056,501
- ------------------------------------------------------------------------------------------------------------------------
Diluted Average # shares outstanding 17,647,756 16,756,291 17,607,295 15,056,501
- ------------------------------------------------------------------------------------------------------------------------
Basic Earnings
(loss) per share $ 0.10 $ (0.13) $ 0.36 $ (0.51)
- ------------------------------------------------------------------------------------------------------------------------
Diluted Earnings
per share $ 0.10 $ (0.13) $ 0.36 $ (0.51)
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
10
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
SEPTEMBER 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> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 2,534
<SECURITIES> 0
<RECEIVABLES> 10,615
<ALLOWANCES> 546
<INVENTORY> 0
<CURRENT-ASSETS> 18,397
<PP&E> 5,894
<DEPRECIATION> 1,729
<TOTAL-ASSETS> 28,923
<CURRENT-LIABILITIES> 5,890
<BONDS> 104
0
0
<COMMON> 18
<OTHER-SE> 22,911
<TOTAL-LIABILITY-AND-EQUITY> 28,923
<SALES> 26,729
<TOTAL-REVENUES> 26,729
<CGS> 0
<TOTAL-COSTS> 20,276
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 449
<INTEREST-EXPENSE> 176
<INCOME-PRETAX> 6,277
<INCOME-TAX> 0
<INCOME-CONTINUING> 6,277
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,277
<EPS-PRIMARY> 0.36
<EPS-DILUTED> 0.36
</TABLE>
