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Filed Pursuant to Rule 424(b)(3)
Registration Statement No. 333-75689
DATED MAY 28, 1999
200,000 Shares
Alydaar Software Corporation
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Common Stock
($0.001 par value)
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This prospectus relates to the public offering of 200,000 shares of our
common stock by the selling stockholder. We will not receive any of the proceeds
from the sale of the shares. We will pay all expenses of registration incurred
in connection with this offering, but the selling stockholder will pay all of
its selling commissions, brokerage fees and related expenses.
Our common stock is traded on the Nasdaq National Market (Nasdaq
Symbol: ALYD). On May 18, 1999, the closing price of the common stock was
$4.125 per share.
INVESTING IN THE COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. SEE "RISK
FACTORS" BEGINNING ON PAGE 3.
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NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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The date of this Prospectus is May 28, 1999.
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WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and current reports, proxy statements and
other information with the Securities and Exchange Commission. You may read and
copy any reports, statements or other information that we file at the Securities
and Exchange Commission's public reference room at 450 Fifth Street N.W.,
Washington, D.C. 20549 or at its regional public reference rooms in New York,
New York and Chicago, Illinois. Please call the Securities and Exchange
Commission at 1-800-SEC-0330 for further information on the operations and
locations of the public reference rooms. Our Securities and Exchange Commission
filings are also available to the public from commercial document retrieval
services and at the Internet World Wide Web site maintained by the Securities
and Exchange Commission at "http://www.sec.gov."
This prospectus is a part of a registration statement we filed with the
Securities and Exchange Commission. As allowed by the rules of the Securities
and Exchange Commission, this prospectus does not contain all of the information
that can be found in the registration statement or in the exhibits to the
registration statement. You should read the registration statement and its
exhibits for a complete understanding of all of the information included in the
registration statement.
The Securities and Exchange Commission allows us to "incorporate by
reference" information into this prospectus, which means that we can disclose
important information to you by referring you to another document filed
separately with the Securities and Exchange Commission. The information
incorporated by reference becomes part of this prospectus, and information that
we file later with the Securities and Exchange Commission will automatically
update and supercede this information. We incorporate by reference the documents
listed below that we have previously filed with the Securities and Exchange
Commission:
1. Annual Report on Form 10-K for the fiscal year ended
December 31, 1998;
2. Quarterly Report on Form 10-Q for the quarterly period ended
March 31, 1999;
3. Current Report on Form 8-K filed with the Securities and
Exchange Commission on April 8, 1999; and
4. The description of our capital stock set forth in our Form 10
filed with the Securities and Exchange Commission on March 31,
1997.
We also incorporate by reference in this prospectus additional
documents that we may file with the Securities and Exchange Commission under
Sections 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934 after
the date of this prospectus. These include periodic reports, such as annual
reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form
8-K.
You may obtain the documents incorporated by reference as described
above. You may also request a copy of these filings, at no cost, from us by
writing or telephoning us at:
Alydaar Software Corporation
2101 Rexford Road, Suite 250 W
Charlotte, North Carolina 28211
(704) 365-2324
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RISK FACTORS
In evaluating our business, prospective investors should carefully
consider the following risks in addition to the other information in this
prospectus or in the documents referred to in this prospectus. Any of the
following risks could materially adversely impact our business, operating
results and financial condition and result in a complete loss of your
investment.
The statements made in in this prospectus, including the information
incorporated by reference, 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 risk factors discussed below.
Risk Factors - Generally Applicable to Our Business
We Are Dependent On Our New Strategic Direction To Replace Revenues From Our
Year 2000 Business. Until the completion of our announced acquisitions, we will
derive substantially all of our revenues from our Year 2000 business. We
anticipate that the Year 2000 business will begin to decline, perhaps
dramatically, after December 31, 1999. In order for us to sustain our growth and
viability after December 31, 1999, we entered into agreements to acquire Data
Systems, Tumble and the Metaphoria Business (see "Selling Stockholder"). The
successful implementation of the acquisitions of Data Systems, Tumble,
Metaphoria Business and other possible acquisitions are dependent on a number of
factors, including our ability to assimilate the operations, personnel, and
technology of the acquired companies and technologies, and our ability to
provide sufficient capital either from internally generated revenues or external
sources to properly fund the integration and future growth of the combined
entities. We may not be successful in the integration of these entities. Also,
if we do not complete any of these acquisitions, we will need to seek other
acquisitions or business combinations to replace the revenues generated by our
Year 2000 business. If we are unable to complete the announced acquisitions or
find other sources of revenues, it could have a materially adverse affect on our
stock trading price, prospects and financial condition.
Our Future Results Will Depend On Our Ability To Manage Change. We have
experienced substantial growth and expansion in our business and operations
since our inception. We expect to continue to experience periods of rapid change
as we implement our new strategic direction and integrate acquisitions.
Continued expansion places significant demands on our administrative,
operational, financial, and other resources. The failure of our management team
to successfully manage the changing business could have a material adverse
impact on our business, results of operations and financial condition.
Our Quarterly Results Are Subject To Significant Fluctuations. We have
experienced significant quarterly fluctuations in revenues and operating
results, including the fourth quarter of 1998, and expect these fluctuations to
continue in the future. These fluctuations may occur and have occurred due to a
number of factors including:
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- -- the length of customer's evaluation process for our services;
- -- sales pipeline disruption caused by a major restructuring of the sales
and marketing departments during the third and early fourth quarters of
1998;
- -- changes in the mix of Y2K services from higher price remediation
services to lower price validation services;
- -- the timing and cost of new product and service introductions;
- -- the timing of any acquisitions and associated costs; and
- -- general economic conditions.
Furthermore, these fluctuations could materially and adversely affect the price
of our Common Stock in future quarters if our revenues or operating results are
below expectations.
Our Recent And Planned Acquisitions And Financing Are Dilutive To Existing
Stockholders. We will issue common stock to complete each of our recent and
planned acquisitions and in connection with our debentures issued in March 1999.
These issuances of common stock could result in dilution of a stockholder's
percentage ownership interest in our company and could adversely affect the
market price of our common stock.
Our debentures are convertible into shares of our common stock based on the
trading prices of the common stock in the future. For example, the conversion
price of the debentures on May 10, 1999 would have been $3.875 and if the
debenture holder were to have converted all of its debentures on that date,
774,194 shares of our common stock would have been issued to the debenture
holder, which would represent 4.4% of our outstanding common stock. The
conversion price of the debentures is adjusted based on the trading price of our
common stock. If the trading price of the common stock is low when the
conversion price of the debentures is determined, we would be required to issue
a higher number of shares of common stock, which could cause substantial
dilution to our stockholders. In addition, if the debenture holders convert
their debentures and sell the common stock, this could result in an imbalance of
supply and demand for our common stock and reduce its price. The further our
stock price declines, the further the adjustment of the conversion price will
fall and the greater the number of shares we will have to issue upon conversion.
We could be required to issue up to 19.9% of our outstanding common stock on
March 5, 1999 (3,504,406 shares based on 17,610,085 shares outstanding) on
conversion of our outstanding debentures and exercise of the related warrants
without stockholder approval. We have agreed to seek stockholder approval to
issue more than 19.9% of our outstanding common stock, if requested by the
debenture holder.
The Data Systems acquisition is structured with a minimum price per share of
$6.00. If the average price per share for the ten trading days immediately prior
to closing of this acquisition is less than $6.00 per share, then we are
required to issue the number of shares equivalent to 9,666,282. These
transactions and any future acquisitions or financing requiring additional
issuances of our common stock could be dilutive.
Our Debenture Financing Limits Our Ability To Enter Future Transactions And The
Debenture Holders Can Require Us To Redeem The Debentures At A Premium If
Certain Events Happen. In March 1999, we raised $3 million by issuing
debentures, which are convertible into shares of our common stock. The
debentures and related agreements contain significant covenants. These covenants
may limit our ability to enter into future transactions, including financing
transactions and transactions involving a change in control or acquisition of
us. The debenture holders can require us to redeem the debentures at a premium
if certain events happen, including:
- -- If we breach the representations, warranties and covenants contained in
the debentures and related agreements;
- -- If the Securities and Exchange Commission does not declare the
registration statement covering the common stock issuable upon
conversion of the debentures effective by the 120th day after the
registration statement is filed; or
- -- If we are acquired by a third party.
The redemption price will be 125% of the outstanding principal amount if certain
events within our control occur and also after certain change of control
transactions. The redemption price will be 110% if certain events not within our
control occur and following certain other change of control transactions. If the
debentures become redeemable, we may not be able to pay the redemption price.
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Even if we are able to redeem the Debentures, the redemption payments could be
substantial and this could have a material adverse effect on our business and
financial condition.
We May Need To Raise Additional Capital. If we decide to expand more rapidly
than currently anticipated or we do not materially meet our revenue projections,
we may need to raise additional capital. Any additional equity financing will be
dilutive to stockholders, and debt financing will involve restrictive covenants,
which may limit our operating flexibility. If financing is not available on
acceptable terms, we may be unable to develop or enhance our products, take
advantage of future opportunities, or respond to competitive pressures, or
unanticipated requirements. The occurrence of any of these factors could have a
material adverse effect on our business, financial condition, and operating
results.
If We Are Unable To Adequately Protect Our Intellectual Property Rights Or If
Our Intellectual Property Rights Are Challenged, Our Business Could Suffer. Our
success depends significantly upon our proprietary technology. We currently
protect our proprietary rights through a combination of patent, copyright,
trademark, trade secret law, confidentiality agreements and contractual
provisions. Certain provisions of our client agreements, including provisions
protecting against unauthorized use, copying, transfer and disclosure, may be
unenforceable under the laws of certain jurisdictions. We are also required to
negotiate limits on these provisions from time to time. We may not be able to
adequately deter misappropriation of proprietary information or to detect
unauthorized use and take appropriate steps to enforce our intellectual property
rights.
In recent years, litigation involving patents and other intellectual property
rights has increased. Certain patents may cover solutions to the Y2K Problem. We
believe that we are either not using these patented solutions or have utilized
such solutions prior to the patent filing date. Regardless, we may be a party to
litigation in the future to protect our intellectual property or for allegedly
infringing other intellectual property rights. Such litigation may force us to
do one or more of the following:
- -- Cease selling, incorporating or using products or services that
incorporate the challenged intellectual property;
- -- Obtain from the holder of the infringed intellectual property a license
to sell or use the relevant technology, which license may not be
available on reasonable terms; and
- -- Redesign our affected products or services.
The occurrence of any of these factors could materially and adversely impact our
operations and results.
We Face Potential Liability To Clients From Our Year 2000 Business. There is
increasing litigation arising out of failures or potential failures in computer
systems arising out of the Y2K Problem. To date, we are not a party to any
litigation arising out of a Y2K failure. We have attempted to limit our
liability for Y2K claims through provisions in our contracts with customers,
limiting our damages, generally providing no warranties on our services through
the Year 2000, and disclaiming all other warranties. These contractual
protections may not be enforceable in all instances, and may not otherwise
protect us from the substantial costs involved in defending a Y2K claim. We
currently self-insure against the possibility of these costs. In the event we
become a party to any
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such litigation, the cost of defending such litigation or adverse outcome could
materially adversely affect our business, results of operations and financial
condition.
We May Not Be Able To Respond To Rapid Technological Change. Rapid technological
change characterizes the markets for Internet professional services and Y2K
services. Our future success will depend significantly on our ability to improve
our existing services and products, offer new services, enhance our recently
acquired products and develop, acquire and market new products and services. Our
failure to adequately and timely respond to changing technology could result in
material adverse effects to our business and operations.
Our Stock Price Has Been Volatile And We Have Not Paid, And Do Not Plan To Pay,
Cash Dividends. Since our inception we have not paid, and do not intend to pay,
any cash dividends on our common stock in the foreseeable future. Historically,
our common stock's price and trading volume has fluctuated widely. We expect
this fluctuation to continue in the future for a number of reasons, including
the following:
- -- Our success or failure in meeting market expectations of our quarterly
or annual revenues, net income or earnings per share;
- -- Our or competitor's announcements regarding new services and products
or technological innovations;
- -- Stock prices for many technology companies fluctuate widely for reasons
that may be unrelated to operating results;
- -- Changing market conditions in the industry; and
- -- Announcements of unusual events such as acquisitions.
Fluctuations in the market price of our stock may, in turn, adversely affect our
ability to complete any planned acquisitions, our access to capital and
financing and our ability to attract and retain qualified personnel, all of
which could have a material adverse effect on our business.
We May Be Adversely Affected If We Lose Key Personnel. Our success depends
largely on the skills, experience and performance of some key members of our
senior management and technical personnel. The loss of one or more of these key
personnel could have a materially adverse effect on the business.
Our Results May Be Adversely Affected By Our International Operations. Our
international sales, primarily in France, England and the rest of Europe
attributed approximately 18% of our total consolidated revenues for the year
ended December 31, 1998. We anticipate that international business will account
for a significant portion of our revenues in 1999. The risks inherent in
international markets, include:
- -- unexpected changes in regulatory requirements;
- -- difficulties in staffing and managing foreign operations;
- -- political instability;
- -- potentially adverse tax consequences;
- -- potentially adverse differences in business customs, practices and
norms;
- -- differences in accounting practices;
- -- longer payment cycles;
- -- problems in collecting accounts receivable;
- -- fluctuations in currency exchange rates; and
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- -- seasonal reductions in business activity during the summer months in
Europe.
Any of these could adversely impact the success of our international operations.
The factors described above may have an adverse effect on our future
international revenues and, consequently, on our business, results of operations
and financial condition.
Mr. Gruder Exercises Significant Control Over Us. Mr. Gruder, our Chief
Executive Officer and Chairman of the Board, is presently the beneficial owner
of approximately 40% of our outstanding common stock. Although Mr. Gruder's
ownership will be diluted as a result of planned acquisitions and financing,
Mr. Gruder will continue to be in a position to influence the election of
directors and generally to direct our affairs including certain significant
corporate actions such as acquisitions, the sale or purchase of assets and the
issuance and sale of our securities.
We Face Intense Competition For Year 2000 Services. Our Y2K services have
intense competition from two different sources: Remediation performed in-house
and Remediation and Validation software and services offered by direct
competitors. Many of our competitors are better established, have existing
relationships with customers and have far greater resources than us. As a result
of this competition, our revenues for Y2K services could decrease which would
have a materially adverse effect on our business, financial conditions, results
of operations and prospects.
Risk Factors - New Strategic Direction
We May Be Adversely Affected If We Are Not Able To Attract And Retain Qualified
Professionals. The future success of our new strategic direction will depend on
our ability to attract, train, motivate and retain personnel who provide the
Internet strategy, technology, marketing, and creative skills required by
clients. We believe that there is a shortage of, and significant competition
for, professionals with the advanced technological skills necessary to perform
the services offered by our new Internet services. We also intend to transfer
current employees from our Y2K business to our new Internet business. The
transition will require training in new technology and new skills sets
applicable to Internet technology. Once trained, such individuals will be in
higher demand because of their new skill set. Additionally, not all of our
current personnel will be able to acquire the skills necessary to transition to
our new business. We cannot be certain that we will be successful in attracting,
assimilating, transitioning or retaining qualified technological personnel in
the future. Our failure to do so could have a materially adverse affect on our
ability to deliver and enhance our services.
We May Not Be Able to Develop Successful Products. We recently acquired and plan
to develop new software products designed to facilitate communication and
commerce over the Internet. This software is in a development stage and will
require significant expenditures of resources to complete the development
effort. These products will involve a new approach to the conduct of online
business and as a result, intensive marketing and sales efforts may be necessary
to educate prospective customers regarding the uses and benefits of our
products. We cannot be certain that we will successfully develop and market new
products, new product enhancements or new products compliant with present or
emerging Internet technology standards. Any delays in developing and releasing
enhanced or new
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products could have a materially adverse effect on our business, operating
results and financial condition.
We Will Face Intense Competition In The Internet Market. The market for Internet
professional services and products is relatively new, intensely competitive and
subject to rapid technological change. There is competition on two distinct
levels: (i) from in-house development efforts by potential customers and (ii)
third party competitors. Our third party competitors include service vendors,
advertising and media agencies, large information technology consulting service
providers, telecommunications companies, Internet and online service providers
and software vendors. Many of our current and potential competitors have longer
operating histories, established name recognition, longer relationships with
clients and significantly greater financial, technical, marketing and public
relations resources. In addition, current and potential competitors have
established or may establish cooperative relationships among themselves or with
third parties to enhance their products or services. Also, businesses may not
elect to outsource the design, development and maintenance of their Websites or
utilize Internet professional services firms. All of these factors could have a
material adverse effect on our business, financial condition, results of
operations and prospects.
Future Regulations Could Be Enacted That Either Directly Restrict Our Business
Or Indirectly Impact Our Business By Limiting The Growth of Internet Commerce.
We are not aware of any legislation or regulatory requirements currently in
effect in the United States that regulate Internet commerce. Certain other
countries and political entities, however, such as the European Economic
Community, have adopted legislation and regulatory requirements that regulate
Internet commerce. As Internet commerce evolves, we expect that federal, state,
local or foreign agencies will adopt regulations covering issues such as user
privacy, pricing, content and quality of products and services, freedom of
expression, taxation, advertising, intellectual property rights, information
security or the convergence of traditional communications services with Internet
communications. If enacted, such laws, rules or regulations could restrict the
market or increase the costs for our products and services, which could
materially adversely affect our business, financial condition and operating
results.
THE COMPANY
We are presently engaged in the business of providing
software-reengineering services. These services include (i) the correction and
validation of existing mainframe computer software systems' ability to manage
the Year 2000 problem and (ii) software conversion services, such as language
translations and migrations. In October 1998, we also announced a new strategic
direction, establishing an Internet services business providing management
consulting, design, development and deployment for enterprise information
portals. Through this new strategic direction, we plan to assist organizations
in transforming their existing information systems architecture to support
scalable and flexible architecture for Internet, Intranet and Extranet
applications. Our executive offices are located at 2101 Rexford Road, Charlotte,
North Carolina 28211. Our telephone number at that address is (704) 365-2324.
USE OF PROCEEDS
We will not receive any proceeds from the sale of the shares offered by
the selling stockholder.
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SELLING STOCKHOLDER
The following table sets forth:
- -- the name of the selling stockholder;
- -- the number of shares of common stock beneficially owned by the selling
stockholder as of the date of this prospectus;
- -- the number of shares being offered by the selling stockholder under
this prospectus;
- -- the number of shares of common stock that will be beneficially owned by
the selling stockholder assuming all of the shares being offered under
this prospectus are sold; and
- -- the percentage of shares of common stock that will be beneficially
owned by the selling stockholder assuming all of the shares being
offered under this prospectus are sold.
The information included in the table below is based on information
provided by the selling stockholder.
<TABLE>
<CAPTION>
Name Number of Shares Shares Beneficially Percentage of Shares
Beneficially Owned Owned After Owned After
as of May 28, 1999 Shares Offered(1) the Offering the Offering
------------------- ----------------- ------------------- --------------------
<S> <C> <C> <C> <C>
Pencom Systems
Incorporated 198,344 198,344 -0- 0%
</TABLE>
The selling stockholder acquired the shares of common stock which are
covered by this prospectus on February 16, 1999. We acquired all of the selling
stockholder's right to its Metaphoria software (the "Metaphoria Business") in
exchange for that number of shares of our common stock equal to $750,000 based
on the average closing price of our common stock for five consecutive trading
days prior the effective date of this registration statement.
PLAN OF DISTRIBUTION
The shares are being registered in order to facilitate their sale from
time to time by the selling stockholder, as market conditions permit in one or
more transactions. No underwriting arrangements have been entered into by the
selling stockholder.
The selling stockholder may sell the common stock by selling:
- -- directly to purchasers;
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- -- through broker-dealers acting as agents for them;
- -- to broker-dealers who may purchase common stock as principals and then
sell the common stock from time to time in transactions which may
include block transactions on the Nasdaq National Market;
- -- in negotiated transactions; or
- -- through a combination of the foregoing methods of sale, or otherwise.
Broker-dealers engaged by the selling stockholder may arrange for other
broker-dealers to participate in the sales. Broker-dealers may receive
compensation in the form of discounts, concessions or commissions from the
selling stockholder. The broker-dealers may act as agents for the selling
stockholder or they may sell as principals, or both. Particular broker-dealers
may receive, as compensation, commissions in excess of customary commissions.
We have agreed to pay all expenses incident to the offer and sale of
the common stock offered by the selling stockholder under this prospectus other
than selling commissions, brokerage fees and related expenses of the selling
stockholder.
To comply with the securities laws of some jurisdictions, if
applicable, the common stock offered under this prospectus will be offered or
sold in such jurisdictions only through registered or licensed brokers or
dealers.
Under applicable rules and regulations under the Securities Exchange
Act of 1934, any person engaged in a distribution of the common stock may be
limited in its ability to engage in market activities with respect to the common
stock. In addition, the selling stockholder will be subject to applicable
provisions of the Securities Exchange Act and the rules and regulations under
the Securities Exchange Act, which may limit the timing of purchases and sales
of any of the common stock by the selling stockholder.
LEGAL MATTERS
The validity of the common stock offered pursuant to this prospectus
and certain other legal matters will be passed upon for us by McGuire, Woods,
Battle & Boothe LLP, Charlotte, North Carolina.
EXPERTS
The financial statements appearing in our Annual Report (Form 10-K) for
the year ended December 31, 1998, have been audited by Holtz Rubenstein & Co.,
LLP, independent auditors, as set forth in their report thereon included therein
and incorporated herein by reference. Such financial statements are incorporated
herein by reference in reliance upon such report given upon the authority of
such firm as experts in accounting and auditing.
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We have authorized no one to give any information or to make any representations
that are not contained in this prospectus. You should rely only on the
information incorporated by reference or provided in this prospectus. You must
not rely on any unauthorized information.
This prospectus does not offer to sell or buy any shares in any jurisdiction
where it is unlawful. You should not assume that the information in this
prospectus is accurate as of any date other than the date on the front of this
document.
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TABLE OF CONTENTS
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Page
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Where You Can Find More Information....................................... 2
Risk Factors.............................................................. 3
The Company .............................................................. 8
Use of Proceeds........................................................... 8
Selling Stockholder....................................................... 9
Plan of Distribution...................................................... 9
Legal Matters............................................................. 10
Experts................................................................... 10
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200,000 SHARES
%
[ALYDAAR SOFTWARE
CORPORATION]
COMMON STOCK
--------------
PROSPECTUS
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MAY 28, 1999
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