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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 March 31, 1999
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 March 31, 1999, there were 17,541,644 shares of Alydaar Software
Corporation common stock, $0.001 par value, outstanding.
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<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION Page
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<S> <C> <C>
ITEM 1: FINANCIAL STATEMENTS
Consolidated Balance Sheets
as of March 31, 1999 and December 31, 1998 3
Consolidated Statements of Operations (Unaudited)
for the Three Months ended March 31, 1999 and 1998 4
Consolidated Statements of Cash Flows (Unaudited)
for the Three Months ended March 31, 1999 and 1998 5
Notes to Unaudited Consolidated Financial Statements 6
Supplemental Schedule of Operating Segments (Unaudited) 7
ITEM 2: Management's Discussion and Analysis of Financial
Condition And Results of Operations
Overview 9
Results of Operations for the Three Months Ended
March 31, 1999, Compared with the
Three Months ended 1998 9
Financial Condition and Liquidity 10
Year 2000 Compliance 11
PART II. OTHER INFORMATION
ITEM 2: CHANGES IN SECURITIES AND USE OF PROCEEDS 12
ITEM 6: Exhibits and Reports on Form 8-K 12
Signatures 13
Computations of Earnings per Share 14
Financed Data Schedule 15
Amendment 16
</TABLE>
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Alydaar Software Corporation
Consolidated Balance Sheets
<TABLE>
<CAPTION>
March 31, 1999 December 31, 1998
(Unaudited) (Audited)
<S> <C> <C>
Assets
Current Assets
Cash $ 2,652,033 $ 2,962,570
Accounts Receivable, Net 3,748,237 5,231,116
Costs and Estimated Earnings
In Excess of Billings 4,290,323 2,213,036
Prepaid Expenses 202,115 304,621
Other Receivables 169,538 --
Deferred Tax Asset 1,800,000 1,800,000
------------ ------------
Total Current Assets 12,862,246 12,511,343
Property and Equipment, Net 2,661,207 2,561,253
Software Costs, Net 2,873,323 2,254,429
Goodwill, Net 5,935,283 6,047,183
Other Assets 549,944 97,186
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$ 24,882,003 $ 23,471,394
============ ============
Liabilities and Stockholders' Equity
Current Liabilities
Accounts Payable and Accrued Expenses $ 3,792,736 $ 2,168,152
Billings in Excess of Costs and Estimated
Earnings on Contracts in Progress 336,445 --
Current Portion of Capital Lease Obligation 47,213 51,063
Loans Payable, Stockholders 2,203,075 3,042,029
------------ ------------
Total Current Liabilities 6,379,469 5,261,244
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Convertible Debenture Payable 3,000,000 --
------------ ------------
Capital Lease Obligation 113,375 121,327
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Commitments and Contingencies
Stockholders' Equity
Common Stock, $.001 par value, 50,000,000
shares authorized, 17,541,644 and 17,505,686 17,541 17,506
Additional Paid-In Capital 31,189,517 31,111,734
Deficit (15,849,190) (12,696,567)
Foreign Currency Translation Adjustment 31,291 (23,100)
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15,389,159 18,409,573
Less Receivable from Warrant Exercise -- (320,750)
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Total Stockholders' Equity 15,389,159 18,088,823
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$ 24,882,003 $ 23,471,394
============ ============
</TABLE>
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Alydaar Software Corporation
Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Three Months Three Months
Ended Ended
3/31/99 3/31/98
<S> <C> <C>
Earned Revenues $ 5,709,715 $ 8,407,822
------------ ------------
Expenses
Payroll and Related Items 6,412,356 4,683,012
Depreciation and Amortization 597,024 323,645
Rent and Occupancy 330,888 329,674
Advertising 365,720 276,629
Other Operating Expenses 822,044 824,285
Bad Debt Expense -- 85,000
Litigation Cost 78,231 124,532
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8,606,263 6,646,777
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Operating (Loss) Income (2,896,548) 1,761,045
Other Income (Expense)
Acquisition Cost (165,883) --
Interest Expense (90,458) (32,565)
Interest Income 19,669 2,790
Other (19,402) (31,952)
------------ ------------
(256,074) (61,727)
------------ ------------
Net (Loss) Income ($ 3,152,622) $ 1,699,318
============ ============
Earnings Per Share:
Basic $ (0.18) $ 0.10
============ ============
Diluted $ (0.18) $ 0.10
============ ============
Average Shares
Outstanding:
Basic 17,449,668 17,398,349
============ ============
Diluted 17,449,668 17,490,642
============ ============
</TABLE>
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Alydaar Software Corporation
Consolidated Statements of Cash Flows
Three-Month Periods Ended March 31, 1999 and 1998
(Unaudited)
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Cash Flow from Operating Activities:
Net (Loss) Income $(3,152,622) $ 1,699,318
Adjustments to Reconcile Net (Loss) Income
used in Operating Activities:
Stock based Compensation -- 76,500
Allowance for Doubtful Accounts -- 85,000
Depreciation and Amortization 597,024 323,645
Other -- (6,762)
(Increase) Decrease in:
Accounts Receivable 1,537,270 (3,211,343)
Costs and Estimated Earnings in Excess of
Billings (2,077,287) (1,456,939)
Other Current Assets 102,506 86,207
Increase (Decrease) in:
Accounts Payable and Accrued Expenses 1,624,584 1,230,382
Billings in Excess of Costs and Estimated
Earnings 336,445 179,392
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Net Cash (used in) Operations (1,032,080) (994,600)
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Cash Flows From Investing Activities:
Acquisition of Property, Equipment & Software (879,648) (164,929)
(Increase) in Other Assets (62,759) (2,901)
(Increase) in Other Receivables (248,788) 435,000
----------- -----------
Net Cash (used in) Provided by Investing Activities (1,191,195) 267,170
----------- -----------
Cash Flows From Financing Activities:
Proceeds from Issuance of Stock 153,494 64,399
Loans from Shareholders, net (1,228,954) 673,049
Proceeds from Convertible Debentures 3,000,000 --
Repayment of Capital Lease Obligations (11,802) (6,104)
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Net Cash from Financing Activities 1,912,738 731,344
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Net (Decrease) Increase In Cash (310,537) 3,914
Cash at Beginning of Period 2,962,570 1,526,924
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Cash at End of Period $ 2,652,033 $ 1,530,838
=========== ===========
Supplemental Disclosures
Interest Paid $ 76,822 $ 5,347
=========== ===========
Acquisition of equipment under capital
lease obligations $ -- $ 55,786
=========== ===========
Unrealized Currency Gains $ 54,391 $ 3,824
=========== ===========
</TABLE>
During the first quarter of 1999, we acquired computer software for $324,000 of
our common stock and an accrued liability for $426,000.
During first quarter of 1999, a former officer paid an amount owed to us with
66,667 shares of common stock (valued at $400,000) and real estate, held for
sale (valued at $390,000).
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Alydaar Software Corporation and Subsidiary
Notes to Unaudited Consolidated Financial Statements
1 Except as set forth in Note 5 below, the interim unaudited financial
statements as of March 31, 1999 and 1998 and for the three month periods
then ended, reflect all adjustments that, 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 No tax benefit was recorded for the three-month period ended March 31,
1999, due to uncertainty of realization. The Federal and State tax
provision for the three-month period ended March 31, 1998 ($680,000) was
offset by an increase in the estimated deferred tax benefit for the same
amount.
3 We have 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.
4 We have adopted Financial Accounting Standards Board ("FASB") Statement No.
130, "Reporting Comprehensive Income". This statement requires reporting of
change in owners' equity that does not result directly from transactions
with owners. An analysis of these changes follows:
<TABLE>
<CAPTION>
Three Months Ended
3/31/99 3/31/98
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<S> <C> <C>
Net Income (Loss) $ (3,152,622) $ 1,699,318
Foreign Currency Translation Adjustments - Net 54,391 3,824
---------------------------------
Total $ (3,098,231) $ 1,703,142
=================================
</TABLE>
5 The 1998 revenue and income numbers set forth in the foregoing tables do
not reflect the adjustments set forth in Note 14 to our 1998 consolidated
financial statements attached to our 1998 Form 10-K. This note stated that
during the fourth quarter of 1998, the Company recorded certain
adjustments, related to revenue recognition and the classification of
demonstration expenses, which reduced overall revenues for fiscal 1998 by
$1,659,000. Of this amount, approximately $1,150,000, $228,000 and $281,000
are allocable to the first, second and third quarters, respectively. The
adjustments also reduced net earnings by $1,000,000, which is allocable to
the first quarter.
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Alydaar Software Corporation
Supplemental Schedule of Operating Segments
Three Months Ended March 31, 1999
(Unaudited)
We currently have two reportable business segments: software reengineering
services and internet services. The software reengineering segment has
concentrated on correction and validation of existing mainframe computer
software systems' ability to manage the Year 2000 problem (Y2K). These services
also include software conversion services. The second reportable business
segment, internet services (E-commerce) which was established in 1999 to assist
customers in transforming their existing information systems' architecture to
support scalable and flexible architecture for Internet, Intranet and Extranet
applications.
<TABLE>
<CAPTION>
Segmented
Y2K E - Commerce Totals
-------------- ------------------- ---------------------
<S> <C> <C> <C>
Revenues from external
customers $ 5,709,715 $ - $ 5,709,715
Interest income 19,669 19,669
Interest expense 90,458 90,458
Depreciation & amortization 564,624 32,400 597,024
Segment (loss) (2,028,745) (1,123,877) (3,152,622)
Segment assets 26,005,880 963,390 26,969,270
Expenditures for segment -
assets $ 335,640 $ 904,802 $ 1,240,442
Reconciliation of Segment
Information to Consolidated
Amounts
Revenues:
Total Earned Revenues $ 5,709,715
Intersegment Revenues -
---------------------
Total Consolidated Revenues $ 5,709,715
=====================
Profit or Loss:
Total Loss for Reportable Segments $ (3,152,622)
Intersegment Profits -
---------------------
Income Before Income Taxes $ (3,152,622)
=====================
Assets:
Total Assets for Reportable Segments $ 26,969,270
Elimination of Intercompany Receivables (2,087,267)
---------------------
$ 24,882,003
=====================
</TABLE>
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Alydaar Software Corporation
Supplemental Schedule of Operating Segments
Three Months Ended March 31, 1999
(Unaudited)
(Continued)
Geographic Information:
Revenues Long - Lived
Assets
------------------- -------------------
United States $ 3,914,711 $ 11,530,978
Canada 568,071 -
Europe 1,226,933 488,779
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Total $ 5,709,715 $ 12,019,757
=================== ===================
Major Customer:
We have earned revenues from the following Amount % of Total
significant customers:
State Governmental Unit $1,767,474 31.0%
Insurance Company $1,268,391 22.2%
Banking Institution $ 575,661 10.1%
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ITEM 2: MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The statements made in this Form 10-Q that are not historical facts contain
"forward-looking information" within the meaning of the Private Securities
Litigation Reform Act of 1995, and Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934, both as amended, 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, our ability to manage growth and acquisitions
of technology or people, diversification of our 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 our SEC reports. We assume no obligation to update the
information in this release.
OVERVIEW
We provide Web based solutions that enable our customers to make timely
decisions, transact business, disseminate information and collaborate among
co-workers, customers, suppliers and partners by transforming any type of
computer information, regardless of platform or application, into a real-time,
internet web page.
Our flagship offering, the Metaphoria Virtual Web Server is a patent pending,
JAVA based, open internet technology that addresses the market need for the
convergence of multiple data management strategies including: content
management, knowledge management, document management, data management and data
warehousing. Without moving the original data, the Metaphoria Virtual Web Server
provides a personalized view of the information that is independent from the
software application. The "digital content" from multiple sources can be
delivered to the end user in a real-time Web page providing interaction and
update capability, as well.
Combining Metaphoria with the desktop and networking services of our recently
announced merger with Data Systems Network Corporation and the creative Web page
design and development of Tumble Interactive, Inc. will give us a
beginning-to-end offering of internet business solutions for our customers. In
addition, we continue to offer Y2K validation and remediation services for
legacy systems. These offerings enable our customers to reduce costs for
information management as well as solve internal information handling needs.
They also allow our customers to benefit from the unique marketing and business
opportunities afforded by the move to internet commerce.
We have seen an excellent response to our Metaphoria offering since its release
this quarter. However, the launching of our Internet and E-commerce offering is
still in its early stages. We anticipate a favorable launch but the potential
must be evaluated from the perspective of a start-up Internet opportunity in its
early stages of development. Some of these risks include the impact of start-up
and acquisition costs, the volatility of the emerging internet marketplace, the
ability to gain an edge on our competition, proper visibility and the risk of
government regulation in the internet sector. Other risks that we face include,
but are not limited to, the ability to restructure our people and strategies to
effectively penetrate the E-commerce marketplace, successfully implement our
marketing strategies, gain synergies from our recent mergers and acquisitions,
and develop ongoing technologies ahead of our competitors. There are no
assurances that we will succeed in addressing any or all of these risks.
RESULTS OF OPERATIONS -THREE MONTHS ENDED MARCH 31, 1999 COMPARED WITH THREE
MONTHS ENDED MARCH 31, 1998
As noted in the 1998 audited consolidated financial statements in our annual
report on Form 10-K, the first quarter 1998 revenue and income numbers do not
reflect adjustments taken during the fourth quarter of 1998, relating to a
reduction of approximately $1,150,000 in revenue and $1,000,000 in net earnings,
both of which were allocated to the first quarter 1998.
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Revenues are currently derived from Y2K remediation and validation services.
Remediation service is the process of using our software programs to make the
customer's application code Y2K compliant. Validation services verifies whether
a customer's code is Y2K compliant. Revenues decreased $2,698,000 from
$8,408,000 in first quarter 1998 to $5,710,000 in first quarter 1999 (or 32%).
This decrease was the result of a change in service demand from mostly
remediation services during 1998 to mostly validation services in 1999. The
validation services are priced significantly lower than remediation services. We
expect this trend to continue for the remainder of 1999 so that we will derive
substantially all of our revenues from validation services in our Y2K
operations.
Total operating expenses increased by $1,959,000 (or 29%) from $6,647,000 in
first quarter 1998 to $8,606,000 in first quarter 1999. Year 2000 operating
expenses increased $1,001,000 while start-up expense related to the E-commerce
business accounted for the balance of $958,000. Payroll and related items
increased $1,729,000 (or 37%) to $6,412,000. Year 2000 payroll and related
expenses increased by $1,286,000 (or 27%). Most of this increase was due to the
use of outside contractors to perform specific software testing services
requested and paid for by our customers. Payroll and related expenses for our
E-commerce start-up accounted for $443,000. Depreciation and amortization
increased by $273,000 (or 84%). This was essentially caused by the impact of a
full year's depreciation of Y2K assets purchased in 1998. The E-commerce
start-up had first quarter 1999 equipment and software purchases of $905,000
which resulted in $32,000 of first quarter 1999 depreciation. Advertising
expenditures increased $89,000 (or 32%). As a result of shifting our emphasis
from Y2K services to our E-commerce offering, the Y2K advertising expense
decreased by $133,000 (or 48%). Total E-commerce advertising expense for the
quarter ended March 31, 1999 was $222,000. Bad debt expense dropped 100% from
$85,000 in first quarter 1998 to $0 in first quarter 1999. We believe that our
current reserve for doubtful accounts of $169,000 is adequate. Litigation costs
decreased by $47,000 as the legal costs for the litigation noted in the 1998 10K
decreased. Other Operating Expenses were flat from first quarter 1998 compared
to first quarter 1999, decreasing only $2,000. However, Y2K Other Operating
Expenses decreased by $248,000 as we shifted our resources into the E-commerce
start-up activities during the first quarter of 1999. E-commerce Other Operating
Expenses totaled $246,000. Most of this cost was for travel and related
marketing and general administrative support services related to start-up. Other
Income (Expense) increased to ($256,000) from ($62,000) or 313% mainly due to
acquisition costs incurred in 1999 related to the new E-commerce offerings.
FINANCIAL CONDITION AND LIQUIDITY
At March 31, 1999, we had working capital of $6,483,000, as compared to working
capital of $7,250,000 at December 31, 1998, a decrease of $767,000 (or 10.5%).
We had cash and cash equivalents of $2,652,000 at March 31, 1999, compared to
cash and cash equivalents of $2,963,000 at December 31, 1998, a decrease of
$311,000 (or 10.5%). As a result of the faster than expected decline in our year
2000 revenues, we have been, and expect to continue, operating at a loss for at
least the second and third quarters of 1999.
We expect to spend approximately $1.6 million for furniture, fixtures, and
equipment for the new headquarters, which we will begin to occupy in June 1999.
In addition, our monthly rental will increase as we move into our new
headquarters during the second quarter of 1999. We also expect to continue to
incur additional expenses related to the anticipated acquisitions of Tumble
Interactive, Inc. and, especially, Data Systems Network Corporation. Upon the
completion of the Data Systems acquisition, in addition to other expenses, the
combined companies will be liable for approximately $1,000,000 in acquisition
costs, including $750,000 in fees to investment bankers.
In order to fund our expected losses and expenditures as set forth above, we
will be required to reduce the existing levels of operating expenses as well as
to raise additional debt and equity financing. We are currently in discussions
with various potential investors and institutional lenders. However, there can
be no assurances that we will be successful in our efforts.
In addition to seeking alternative sources of funding, our management has
undertaken a number of initiatives aimed at restructuring and reengineering our
operations and processes. Our management believes that these changes will assist
us in reducing overhead as we make the transition from mainly being a provider
of Year 2000 services to mainly internet related products and services.
Management has instituted a number of controls aimed at reducing travel and
other discretionary expenses and is reviewing a number of similar cost control
measures. We also recently initiated several overhead-reducing measures,
including a substantial workforce reduction, since the end of the first quarter
1999, of approximately 25%. This reduction in workforce will save the Company
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approximately $4,200,000 on an annualized basis. The focus of these measures is
to help reduce related costs as Year 2000 revenues decline. We plan to continue
to closely monitor our expenses and overhead and to take additional actions as
are appropriate.
As a result of our previously announced adjustment to our financial statements
for the 1998 fiscal year, Marshall Capital Corporation ("Marshall"), which
purchased $3 million of our convertible debentures (the "Debentures") on March
5, 1999, has advised us that it believes that the representation contained in
the Debentures relating to our financial statements was incorrect. We have
negotiated a modification to the terms of the Debenture that will facilitate
Marshall's ability to convert the Debenture and reduce its exposure as set forth
in an Exhibit to this Form 10-Q. We do not believe that Marshall will assert a
default under the Debenture at this time, but no assurances can be given that it
will not declare a default at some point in the future.
YEAR 2000 COMPLIANCE
The Year 2000 issue is the result of computer programs that were written using
two digits rather than four to identify the applicable year. Any of our computer
equipment, software and devices with embedded technology that are time-sensitive
may mistakenly identify a date field using "00" as the year 1900, rather than
the year 2000.
State of Readiness. We provide Y2K remediation and validation services to
Fortune 500 companies and government agencies and intend to employ the same
methods and processes to complete our own internal Y2K project. We established a
Y2K task force, comprised of members representing our various areas of business
operation, to assess, remediate and test the impact of Y2K on our IT and non-IT
systems, material third party relationships, and services. As identified by the
task force, our Y2K issues that may have a material impact on our ability to
continue our normal business practices include: internal business systems;
internet and intranet service; telecommunications; power; and the compliance and
readiness of our third party suppliers, vendors, and customers. The task force
has divided our Y2K project into three major phases: (1) identification,
assessment and planning; (2) remediation; and (3) verification and contingency
planning. We have substantially completed the first phase and plan to begin the
remediation phase after the move to our new headquarters. To date, our progress
has not revealed any information which indicates that the magnitude of our Y2K
problem is material. During the remediation phase of the project, we will
replace obsolete systems and update (or repair) the hardware, embedded systems
or applications both internally developed and those purchased from third party
vendors so they are Y2K compliant. During the verification and contingency
planning phase of the project, we will perform acceptance testing and review the
results to determine that the updated applications or internally remediated
systems are ready to return to production as well as remove any unused and
outdated hardware and software, and migrate the various systems to production
status. Based on information compiled to date, we continue to expect to
substantially complete our compliance project, as outlined above, by the end of
the third quarter 1999. In addition to our own compliance efforts, we are
conducting an assessment of the third parties with which we have material
relationships to determine if they are Y2K compliant. We have contacted our key
vendors and suppliers and to date, we have not received sufficient responses to
make a definitive statement; however, the responses received indicate that these
key vendors and suppliers are addressing their Y2K issues. We have received
responses from most of the vendors and suppliers that are supplying either IT or
non-IT systems for the new headquarters and they have indicated that they have
or are addressing the Y2K issue. Finally, we have replaced our voice mail
systems with new, Y2K-compliant systems to better provide for the expanding
communication needs of the organization.
Costs to Address Y2K Issues. At this stage of the project, we project the total
estimated cost to be no more than $200,000. These costs consist primarily of the
cost of labor needed to complete our compliance project. The approximate labor
cost during the first quarter 1999 was $70,000, with the remainder to be
incurred in 1999 as the more labor intensive portions of the project are
completed. The move to the new headquarters building, replacement of IT and
non-IT systems and the timing thereof, arose in the ordinary course of our
growth, and are not considered a cost associated with the Y2K issue. This
treatment reduced our overall estimated costs from those set forth before.
Risks of Year 2000 Issues. The failure to correct a material Y2K problem could
result in an interruption in, or a failure of, certain normal business
activities or operations. If such failures occur, our results of operations,
liquidity, and financial condition could be materially and adversely affected
and we may be required to incur unanticipated expenses to remedy any problems
not addressed by our compliance efforts. Additionally, if any of our
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material suppliers or vendors is not fully Y2K compliant, it is possible that a
system failure or miscalculations causing disruptions in our operations or
potential problems with our product and service offerings could result.
Contingency Plans. Part of our Y2K project includes the preparation of
contingency plans. We anticipate completion of our contingency plans by the end
of the third quarter of 1999.
PART II. OTHER INFORMATION
ITEM 2: CHANGES IN SECURITIES AND USE OF PROCEEDS
On February 16, 1999, we acquired a next generation web server technology,
called Metaphoria, from Pencom Systems Incorporated, a private company based in
New York, New York ("Pencom"). In exchange for $750,000 of our common stock and
the assumption of certain Pencom obligations, we acquired all of Pencom's right
to our Metaphoria software. Metaphoria can gather information from multiple data
sources simultaneously and present the information through a Web browser as a
single point of access. At the time of the transaction, we issued 81,081
restricted shares of our common stock to Pencom and agreed to register the
shares. At this time we have filed and received comments from the Securities and
Exchange Commission on the Form S-3 registering Pencom's shares. The final
number of shares to be issued to Pencom shall have an aggregate value of
$750,000 based on the "Market Price" of our shares. The "Market Price" means the
arithmetic average of the closing bid prices for our common stock on the NASDAQ
National Market for the five (5) consecutive trading days immediately preceding
the date of determination.
On March 5, 1999, we acquired the rights to the domain name "ia.com" from
Manuel D. Garcia, an individual. In exchange for 4,315 restricted shares of
common stock and additional compensation, Mr. Garcia assigned all rights in
"ia.com" to us. Based on certain representation made by Mr. Garcia and SEC
documents provided by us, the shares were provided to Mr. Garcia under exemption
from registration pursuant to Regulation D.
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
Exhibits:
4.3 Amendment
11. Computation of Earnings Per Share...Unaudited
27. Financial Data Schedule
Reports on Form 8-K:
Report filed on March 12, 1999 to announce an agreement with
Marshall Capital Management, Inc. an affiliate of Credit
Suisse First Boston, to sell $3 million of subordinated,
convertible Debentures.
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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 our behalf by
the undersigned thereunto duly authorized.
ALYDAAR SOFTWARE CORPORATION
(Registrant)
Date: May 17,1999 /s/Robert F. Gruder
----------- ---------------------------
Robert F. Gruder,
Chief Executive Officer
Date: May 17, 1999 /s/J. Wayne Thomas
------------ ---------------------------
J. Wayne Thomas,
Chief Financial Officer
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EXHIBIT 4.3
May 17, 1999
Marshall Capital Management, Inc.
11 Madison Avenue
New York, New York 10010
Attn: Allan D. Weine
Dear Sirs:
This letter confirms the understanding between Alydaar Software Corporation
("Alydaar") and Marshall Capital Management, Inc. ("Marshall") relating to the
amendment of (i) the Securities Purchase Agreement, dated March 5, 1999, between
Alydaar and Marshall (the "Securities Purchase Agreement"), (ii) the Debenture
issued pursuant to the Securities Purchase Agreement and currently held by
Marshall (the "Debenture"), (iii) the Warrant issued pursuant to the Securities
Purchase Agreement and currently held by Marshall (the "Warrant"), and (iv) the
Registration Rights Agreement, dated March 5, 1999, between Alydaar and Marshall
(the "Registration Rights Agreement"). Capitalized terms used herein and not
otherwise defined shall have the respective meanings specified in the Securities
Purchase Agreement.
1. Deletion of Tranche B and Tranche C. The Securities Purchase Agreement is
hereby amended so that (i) the obligations of the parties thereunder to purchase
and sell Securities shall apply only to the purchase of the Debenture pursuant
to Tranche A and (ii) Alydaar shall not have the right to exchange the Debenture
and the Warrant for Preferred Shares. Accordingly, all references in the
Securities Purchase Agreement and in the Debenture to "Tranche B", "Tranche C",
"Tranche B Closing", "Tranche C Closing ", "Tranche B Closing Date", "Tranche C
Closing Date ", "Preferred Stock", "Preferred Shares", "Articles of Amendment",
"Exchange" and "Exchange Date" shall be deleted.
2. Amendment to Shareholder Approval Provision. Paragraph 4.12 of the Securities
Purchase Agreement is hereby amended so that (i) the words "no later than April
30, 1999" shall be deleted and replaced with "within thirty (30) days of receipt
of a written notice from the Purchaser (a "Shareholder Meeting Notice")
requesting that the Company hold a meeting of its shareholders" and (ii) the
words "June 30, 1999" shall be deleted and replaced with "the sixtieth (60th)
day following the delivery by the Purchaser of a Shareholder Meeting Notice".
3. Amendment to Conversion Provisions. The Debenture is hereby amended so that
(i) the words "the date that is ninety (90) days following the Tranche A Closing
Date (as defined below)" in paragraph 2(a) shall be deleted and replaced with
"May 10, 1999", (ii) clause (i) of paragraph 2(d) following the words "Fixed
Conversion Price" shall be deleted and replaced with "(i) initially, the Fixed
Conversion Price as calculated in accordance with the immediately succeeding
sentence and" and (iii) the sentence beginning with "Notwithstanding the
foregoing, if during the ninety-day period" in paragraph 2(d) shall be deleted
in its entirety and replaced with "The Fixed Conversion Price shall initially be
equal to the average of the five (5) lowest consecutive Closing Trade Prices for
the Common Stock occurring during the period between the Issue Date and the
ninetieth (90th) day following the Issue Date (or , for any conversion occurring
on a date that is prior to such 90th day, during the period between the Issue
Date and such date) times one hundred and four percent (104%)(subject to
adjustment for the events specified in Section 3 below)" and (iii) the last
sentence of paragraph 2(d) shall be deleted and replaced with the following:
"'Market Conversion Price' shall mean the lower of (i) $3.875 (as adjusted from
time to time for the events specified in Section 3 below) and (ii) the low
Closing Bid Price for the Common Stock during the period of three (3) Trading
Days occurring immediately prior to the Conversion Date (as adjusted from time
to time for the events specified in Section 3 below); it being understood that
in no event shall the Holder (or any person acting at the direction of the
Holder) submit a bid for the Common Stock on any such Trading Day that would
constitute the low Closing Bid Price for the Common Stock on such Trading Day ".
4. Amendment to Cap Amount. In subparagraph 2(h)(A) of the Debenture,
the words "and all prior exercises of the Warrant" shall be added immediately
after the words "all prior conversions of this Debenture" in the first sentence
thereof. In the Warrant, the paragraph under Section 4 thereof shall be numbered
as "(a)" and a
<PAGE> 2
new paragraph shall be inserted immediately thereafter as follows: "In no event
shall the Holder be permitted to exercise this Warrant in excess of that amount
upon the exercise of which the number of Warrant Shares to be issued pursuant to
such exercise, when added to the number of shares of Common Stock issued
pursuant to all prior Conversions of the Debenture (as defined in the Securities
Purchase Agreement) and all prior exercises of this Warrant, would exceed 19.99%
of the number of outstanding shares of Common Stock on the Tranche A Closing
Date (subject to equitable adjustment from time to time for the events described
in Section 6 below) (the "Cap Amount"), except that such limitation shall not
apply in the event that (i) the Company obtains the approval of its stockholders
as required by NASD Rule 4460 (or any successor rule or regulation) for
issuances of Common Stock in excess of the Cap Amount or (ii) the Holder obtains
an opinion of counsel reasonably satisfactory to the Company that such approval
is not required. In the event that the Holder shall sell or otherwise transfer
all or any portion of this Warrant, the transferee shall be allocated a pro rata
portion of the Cap Amount. In the event that following a sale or transfer of a
portion of this Warrant, the Holder converts all of the remaining amount of this
Warrant into a number of Warrant Shares which, in the aggregate, is less than
the remaining portion of the Cap Amount, then the difference between such
remaining portion of the Holder's Cap Amount and the number of Warrant Shares
actually issued to the Holder shall be allocated to the respective Cap Amounts
of the remaining transferee or transferees."
5. Registration Rights Agreement. The Registration Rights Agreement is
hereby amended so that all references therein to "Tranche B", "Tranche B
Closing", "Tranche B Closing Date", "Preferred Stock", "Preferred Shares" and
"Articles of Amendment" shall be deleted
6. Remaining Terms Unaffected. Except as specifically amended hereby,
the respective terms of the Securities Purchase Agreement, the Debenture, the
Warrant and the Registration Rights Agreement shall remain in full force and
effect.
7. Further Assurances. The parties agree that they will execute such
documents and do such other things as may be required in order to effectuate the
intent of this letter.
8. Governing Law. This letter shall be governed by and construed in
accordance with the laws of the State of New York (other than the conflict of
laws provisions thereof.
If the foregoing correctly sets forth the understanding between Alydaar
and Marshall with respect to the matters described herein, please sign below in
the space indicated, whereupon this letter shall constitute a binding letter
between the parties.
Alydaar Software Corporation
By: /s/Robert F. Gruder Chief Executive Officer,
---------------------- and Chairman
(Robert F. Gruder) (Principal Executive Officer)
Accepted and Agreed:
Marshall Capital Management, Inc.
By: /s/Allan D. Weine President
----------------------
(Allan D. Weine)
<PAGE> 1
EXHIBIT 11
Alydaar Software Corporation
Computation of Earnings Per Share
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended:
------------------------------------------------
3/31/99 3/31/98
- ------------------------------------------------------------------------------------------
<S> <C> <C>
Net Income (loss) $ (3,152,622) $ 1,699,318
- ------------------------------------------------------------------------------------------
Average # shares outstanding 17,449,668 17,398,349
- ------------------------------------------------------------------------------------------
Diluted Average # shares outstanding 17,449,668 17,490,642
- ------------------------------------------------------------------------------------------
Basic Earnings (loss) per share $ (0.18) $ 0.10
- ------------------------------------------------------------------------------------------
Diluted Earnings per share $ (0.18) $ 0.10
- ------------------------------------------------------------------------------------------
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE MARCH
31, 1999 UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS INCLUDED IN OUR FORM 10-Q
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM 10-Q.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 2,652
<SECURITIES> 0
<RECEIVABLES> 3,917
<ALLOWANCES> 169
<INVENTORY> 0
<CURRENT-ASSETS> 12,862
<PP&E> 4,616
<DEPRECIATION> 1,955
<TOTAL-ASSETS> 24,882
<CURRENT-LIABILITIES> 6,379
<BONDS> 3,113
0
0
<COMMON> 18
<OTHER-SE> 15,371
<TOTAL-LIABILITY-AND-EQUITY> 24,882
<SALES> 5,710
<TOTAL-REVENUES> 5,710
<CGS> 0
<TOTAL-COSTS> 6,412
<OTHER-EXPENSES> 928
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 90
<INCOME-PRETAX> (3,153)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,153)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,153)
<EPS-PRIMARY> (0.18)
<EPS-DILUTED> (0.18)
</TABLE>
