UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
|X| Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934. For the quarterly period ended June 30, 2000
|_| Transition report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934 For the transition period from ____ to ____ .
ALADDIN SYSTEMS HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
NEVADA 86-0866757
(State or Other Jurisdiction of (Employer Identification
Incorporation or Organization) Number)
165 WESTRIDGE DRIVE
WATSONVILLE, CALIFORNIA 95076
(Address of Principal Executive Offices and Zip Code)
(831) 761-6200
(Registrants telephone number)
Former name, former address and former fiscal year, if changed since last
report: No changes.
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock, par
value $.001 per share
<PAGE>
Indicate by mark (X) whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days YES |X| NO |_|
(cover page continued)
Number of shares outstanding of each of the registrant's classes of common stock
as of June 30 , 2000: Common Stock: 9,792,635.
1
<PAGE>
ALADDIN SYSTEMS HOLDINGS, INC.
AND SUBSIDIARIES
Table of Contents
Page
PART I
Item 1. Financial Statements
Condensed Consolidated Balance Sheet as of June 30, 2000 3
Condensed Consolidated Statements of Operations for the
Three Months and Six Months Ended June 30, 2000 and 1999 4
Consolidated Statements of Cash Flows for the
Six Months Ended June 30, 2000 and 1999 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations 8
PART II
Item 6. Exhibits and Reports on Form 8-K 16
Signatures 16
2
<PAGE>
Part 1
Item 1: Financial Statements
Aladdin Systems Holdings, Inc. and Subsidiaries
Condensed Consolidated Balance Sheet
June 30, 2000
(Unaudited)
ASSETS
Current Assets:
Cash and cash equivalents $ 849,693
Accounts receivable (net of allowance of $37,368) 897,304
Inventories 141,499
Prepaid expenses 155,190
Income taxes receivable 70,000
Deposits 187,300
-----------
Total current assets 2,300,986
Capitalized software, net 759,685
Property and equipment, net 469,311
Deferred income tax benefits 97,140
-----------
$ 3,627,122
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current maturities of long-term debt $ 201,164
Accounts payable 540,933
Accrued expenses and other liabilities 532,828
-----------
Total current liabilities 1,274,925
Long-term debt 86,439
Commitments and contingencies --
Stockholders' equity
Preferred stock, $.001 par value: 1,000,000 shares authorized;
none issued and outstanding --
Common stock, $.001 par value; 50,000,000 shares authorized;
9,792,635 issued and outstanding 9,793
Paid-in capital 1,548,003
Deferred compensation (80,762)
Retained earnings 788,724
-----------
Total stockholders' equity 2,265,758
-----------
$ 3,627,122
===========
See accompanying notes to condensed consolidated financial statements.
3
<PAGE>
Aladdin Systems Holdings, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Three months ended June 30, Six months ended June 30,
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Sales $ 2,633,530 $ 2,111,695 $ 5,028,790 $ 4,682,650
Cost of sales 341,427 434,770 674,144 812,368
--------------------------------------------------------
Gross profit 2,292,103 1,676,925 4,354,646 3,870,282
Operating Expenses:
Marketing, sales and support 1,285,404 757,906 2,514,456 1,669,212
Research and development 599,213 369,984 1,208,887 692,429
General and administrative 418,241 226,972 849,474 483,576
--------------------------------------------------------
Total operating expenses 2,302,858 1,354,862 4,572,817 2,845,217
Income (loss) from operations (10,755) 322,063 (218,171) 1,025,065
Other income (expense):
Interest expense (11,220) (10,943) (24,602) (37,728)
Other 11,982 6,690 28,740 12,141
--------------------------------------------------------
Net income (loss) before income taxes (9,993) 317,810 (214,033) 999,478
Income tax expense (benefit) (2,771) 79,000 (72,771) 303,950
--------------------------------------------------------
Net income (loss) $ (7,222) $ 238,810 $ (141,262) $ 695,528
========================================================
Earnings (loss) per share - basic $ 0.00 $ 0.03 $ (0.01) $ 0.08
========================================================
Earnings (loss) per share - diluted $ 0.00 $ 0.03 $ (0.01) $ 0.08
========================================================
Shares used in computing basic earnings per share 9,785,672 8,728,117 9,781,894 8,728,117
=========================================
Shares used in computing diluted earnings per share 9,785,672 9,061,837 9,781,894 9,061,837
=========================================
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
<PAGE>
Aladdin Systems Holdings, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Six months ended June 30,
2000 1999
--------------------------
<S> <C> <C>
Net cash provided by operating activities $ 320,412 $ 538,093
Cash flows from investing activities:
Acquisition of property and equipment (105,524) (34,141)
Acquisition of software rights (426,750) (34,402)
----------- -----------
Net cash used in investing activities (532,274) (68,543)
Cash flows from financing activities:
Issuance of stock 7,294 234,500
Repayment of borrowings (54,086) (330,019)
--------------------------
Net cash used in financing activities (46,792) (95,519)
--------------------------
Net increase (decrease) in cash and cash equivalents (258,653) 374,031
Cash and cash equivalents at beginning of period 1,108,346 63,609
--------------------------
Cash and cash equivalents at end of period $ 849,693 $ 437,640
==========================
Cash paid during the period for:
Interest $ 24,641 $ 36,596
==========================
Income taxes $ 69,276 $ 79,000
==========================
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
<PAGE>
ALADDIN SYSTEMS HOLDINGS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
June 30, 2000
(Unaudited)
Basis of Presentation
The accompanying condensed consolidated financial statements of Aladdin Systems
Holdings, Inc. and Subsidiaries ("Aladdin") as of June 30, 2000, and for the
three months and six months ended June 30, 2000, and 1999, have been prepared on
the same basis as the annual audited financial statements. In the opinion of
management, such unaudited information includes all necessary information for a
fair presentation of this interim information. Operating results and cash flows
for interim periods are not necessarily indicative of results for the entire
year. The information included in this report should be read in conjunction with
our audited financial statements and notes thereto included in our Annual Report
on Form 10-KSB for the year ended December 31, 1999.
Acquisition of Trexar Technologies, Inc.
On March 21, 2000, the Company completed a merger with Trexar Technologies, Inc.
("Trexar"), a leading Windows and Macintosh software developer of Internet
information utilities. The merger was accounted for as a pooling of interests.
The Company acquired 100% of the shares of Trexar in exchange for 449,539 shares
of common stock of the Company. Results of operations of the previously separate
companies for the period before the combination is as follows:
Six months ended June 30,
-------------------------
2000 1999
----------- -----------
Revenues:
Aladdin $ 5,028,790 $ 4,658,326
Trexar -- 24,324
----------- -----------
$ 5,028,790 $ 4,682,650
=========== ===========
Net income (loss)
Aladdin $ (141,262) $ 717,319
Trexar -- (21,791)
----------- -----------
$ (141,262) $ 695,528
=========== ===========
Net Income (Loss) Per Share
6
<PAGE>
Basic earnings per share is computed using the weighted average number of common
shares outstanding during the period. Diluted earnings per share is computed
using the weighted average number of common shares and potentially dilutive
securities outstanding during the period. Potentially dilutive securities
consist of the incremental common shares issuable upon conversion of convertible
debt (using the if-converted method) and shares issuable upon the exercise of
stock options and warrants (using the treasury stock method). A total of
approximately 2,084,000 shares issuable upon the exercise of outstanding stock
options as of June 30, 2000 and 1,682,000 shares issuable upon the exercise of
outstanding stock options as of June 30, 1999 have been excluded from the
diluted earnings per share calculation, as the inclusion would be anti-dilutive.
The following table reconciles the amounts used in the per share computation:
<TABLE>
<CAPTION>
Three months ended June 30, Six month ended June 30,
--------------------------- ------------------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Numerator
Net income (loss) ($7,222) $ 238,810 ($141,262) $ 695,528
Interest expense on convertible debt -- 4,136 -- 8,968
-------------------------------------------------------
Net income (loss) used in computing diluted
Earnings (loss) per share ($7,222) $ 242,946 ($141,262) $ 704,496
Denominator
Weighted average common shares 9,785,672 8,728,117 9,781,894 8,728,117
outstanding during the period
Dilutive effect of convertible debt -- 333,720 -- 333,720
-------------------------------------------------------
Shares used in computing diluted
earnings per share 9,785,672 9,061,837 9,781,894 9,061,837
</TABLE>
7
<PAGE>
Item 2: Management's Discussion and Analysis of Financial Condition and Results
of Operations
Overview
Aladdin Systems Holdings, Inc. ("Aladdin"), was formed on March 26, 1997 as
Foreplay Golf & Travel Tours, Inc. ("Foreplay"). The Company changed its name to
Aladdin Systems Holdings, Inc. in October, 1999 after acquiring all the common
stock of Aladdin Systems, Inc., a Delaware corporation. The business combination
was accounted for as a reverse acquisition as Aladdin Systems, Inc. was deemed
to be the accounting acquirer as discussed in Staff Accounting Bulletin No. 97.
On March 21, 2000, we completed a merger with Trexar Technologies, Inc.
("Trexar"), a leading Windows and Macintosh software developer of Internet
information utilities. The merger was accounted for as a pooling of interests.
The Trexar merger added several new products to our product line.
Our software products are all branded under the "Aladdin Systems" name and are
either developed internally by our own staff of software developers or are
acquired from third party developers in exchange for royalty payments pursuant
to publishing agreements. The publishing agreements we enter into either assign
to us all rights in the software or give us a perpetual right to modify and
publish the software, in exchange for a royalty fee which has historically
ranged from 3% to 20% of our net revenue from the sales and licensing of such
software. We attempt to negotiate limits on the amount of royalties that are to
be paid to the developer of the product.
Our products are divided into two different product groups serving two different
markets: consumers and software developers. While many of our products are used
by both groups, most of our developer products are licensed directly rather than
sold through the retail software distribution channel. Our products are divided
between these two markets as follows:
Consumer Products:
StuffIt Deluxe (Macintosh)
DropStuff (Windows and Macintosh)
Expander (Windows, Macintosh and Linux)
StuffIt Lite (Macintosh)
DropZip (Windows and Macintosh)
Spring Cleaning (Macintosh)
Private File (Windows and Macintosh)
Aladdin FlashBack (Windows and Macintosh)
Shrinkwrap (Macintosh)
DragStrip (Windows and Macintosh)
MacTicker (Macintosh)
Aladdin Tuner (Macintosh)
MacHeadlines (Macintosh)
IntelliNews (Macintosh)
WeatherTracker (Windows and Macintosh)
HotTime (Palm OS)
GoBar (Palm OS)
8
<PAGE>
Developer Products
StuffIt Engine (Windows and Macintosh)
StuffIt InstallerMaker (Macintosh)
Third Party Products
In addition to the sale of our own products, from time to time, we resell the
products of other software publishers.
Results of Operations
The following discussion should be read in conjunction with the condensed
consolidated financial statements and related notes included elsewhere herein.
Historical results and percentage relationships are not necessarily indicative
of the operating results for any future period.
The following table sets forth certain data derived from the condensed
consolidated statements of operations, expressed as a percentage of net revenues
for each of the three month and six month periods ended June 30, 2000 and June
30, 1999.
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------
Three Months Ended June 30 Six Months Ended June 30
------------------------------------------------------------------------------------------------------
2000 1999 2000 1999
<S> <C> <C> <C> <C>
Percentage of sales:
Sales 100% 100% 100% 100%
Cost of sales 13 21 13 17
--------------------------------------------------------
Gross profit 87 79 87 83
Marketing, sales and support 49 36 50 36
Research and development 23 18 24 15
General and administrative 16 11 17 10
--------------------------------------------------------
Total operating expenses 88 65 91 61
--------------------------------------------------------
Income (loss) from operations 0 15 (4) 22
Other income (expense), net 0 1 1 0
--------------------------------------------------------
Net income (loss) before income tax (1) 15 (3) 22
--------------------------------------------------------
Income tax expense (benefit) (1) 4 (1) 2
--------------------------------------------------------
Net income (loss) (1)% 11% (2)% 20%
--------------------------------------------------------
======================================================================================================
</TABLE>
9
<PAGE>
Three Months Ended June 30, 2000 Compared to Three Months Ended June 30, 1999
Revenues
Overall Revenue
Overall revenues increased to $2,633,530 for the three months ended June 30,
2000 from $2,111,695 during the comparable period in 1999, an increase of 25% or
$521,835. The increase was a result of increased sales of an upgrade version of
Spring Cleaning released in the quarter, the introduction of the GoBar product
and Aladdin Tuner, and increases in StuffIt Deluxe and third party products
sales.
Consumer Product Revenues
Approximately 75% of our revenues for the three month period ended June 30, 2000
were from consumer products. Revenues from sales of our consumer products in the
comparable period in 1999 represented 82% of our overall sales. This percentage
decrease, despite an actual increase in the dollar volume of sales of consumer
products, was a result of a large increase in sales of third party products.
Developer Product Revenues
Revenue from the our developer products decreased 2% during the three months
ended June 30, 2000, as compared to the same period in 1999 and accounted for
approximately 8% of the our revenues for 2000 as compared to 9% of revenues in
the comparable period in 1999. The slight decrease in sales reflects a small
decrease in demand for developer products in the entire Macintosh market.
Historically, revenues from our developer products have represented decreasing
percentages of our overall sales as our consumer products have grown, and we
expect that trend to continue.
Revenues from Sales Of Third Party Products
In addition to publishing our own products, we utilize our resources, Websites
and customer list to act as a reseller of software products published by other
software companies. Sales of third party products accounted for 17% of our
revenues in the three month period ended June 30, 2000 as compared to 9% for the
same period in 1999. The increase was primarily the result of an increase in
products we resold over our Website as compared to the comparable period in
1999.
Revenues from Sales Over Our Website
10
<PAGE>
Revenues from sales over our Website, www.aladdinsys.com, accounted for 37% of
revenue in the three month period ended June 30, 2000 as compared to 36% of
revenues in the comparable period in 1999. We believe that sales over our
Website will represent an increasingly important component of our sales strategy
and will allow us to reach a large number of potential consumers at lower costs
than sales through the distribution channel we have traditionally used.
Cost of Revenues and Gross Margin
Aladdin's cost of revenues is composed primarily of: (1) the costs of product
materials and packaging; (2) amortization of capitalized purchased software; and
(3) royalties paid to outside developers on certain software products.
Cost of revenues, as a percentage of net revenues decreased to 13% in the three
month period ended June 30, 2000 from 21% in the comparable period in 1999. The
decrease in cost of revenues is related to the increase in sales directly to
consumers via our Web site since software sold in this fashion has a lower cost
of sales due to the absence of physical media and printed material.
Operating Expenses
Marketing, Sales & Support
Marketing, sales and support expenses were $1,285,404 in the three month period
ended June 30, 2000 as compared to $757,906 in the comparable quarter in 1999,
an increase of 70%. This increase was a result of increased spending during the
period for advertising, promotions, market research and consultants.
Research and Development
Research and development expenses were $599,213 or 23% of net revenue in the
three month period ended June 30, 2000 as compared to $369,984 or 18% of net
revenue in the comparable period in 1999. This increase was mostly due to
increased personnel and increased salaries of existing personnel.
Due to the current high demand for software engineers and other technical
specialists, we anticipate having to increase wages of existing research and
development personnel as well as having to pay higher salaries to new employees.
Such additional expense for payroll and benefits may have the effect of
increasing our research and development expenses in upcoming fiscal quarters.
11
<PAGE>
General and Administrative
General and administrative expenses are composed principally of salaries of
administrative personnel, fees for professional services and facilities
expenses. These expenses were $418,241 or 16% of net revenue in the quarter
ended June 30, 2000 compared to $226,972 or 11% in the comparable period in
1999. This increase was primarily the result of fees for professional services
related to the cost of becoming a public company, including legal, accounting,
and investor relation fees.
Provision for Income Taxes
For the three months ended June 30, 2000, we recognized an income tax benefit
related to the expected recovery of taxes paid in 1999 through the utilization
of the current period loss. In 1999, the effective tax rate on income before
taxes was 25% for the three months ending June 30.
Six Months Ended June 30, 2000 Compared to Six Months Ended June 30, 1999
Revenues
Overall Revenue
Overall revenues increased to $5,028,790 for the six months ended June 30, 2000
from $4,682,650 during the comparable period in 1999, a increase of 7% or
$346,140. The increase was principally a result of sales of third party
products.
Consumer Product Revenues
Approximately 72% of our revenues for the six month period ended June 30, 2000
were from consumer products. Revenues from sales of our consumer products in the
comparable period in 1999 represented 85% of our overall sales. This percentage
decrease was a result of a large increase in sales of third party products.
Developer Product Revenues
Revenues from our developer products during the six month period ended June 30,
2000, is comparable to the same period in 1999. Developer product revenues
12
<PAGE>
accounted for approximately 8% of our revenues for 2000, the same percentage of
revenues in the comparable period in 1999.
Revenues from Sales Of Third Party Products
Sales of third party products accounted for 20% of revenue in the six month
period ended June 30, 2000 as compared to 7% for the same period in 1999. The
increase was a result of an increase in the number of products we resold over
our Website as compared to the comparable period in 1999.
Revenues from Sales Over Our Website
Revenues from sales over our Website accounted for 39% of revenues in the six
month period ended June 30, 2000 as compared to 32% of revenues in the
comparable period in 1999. The increase represents a shift towards direct
distribution of our products that are downloaded from the Website directly to
our customers and away from our traditional sales channels.
Cost of Revenues and Gross Margin
Cost of revenues, as a percentage of net revenues decreased to 13% in the six
month period ended June 30, 2000 from 17% in the comparable period in 1999. The
decrease in cost of revenues is related to the increase in sales directly to
consumers via our Website since software sold in this fashion has a lower cost
of sales due to the absence of physical media and printed material.
Operating Expenses
Marketing, Sales & Support
Marketing, sales and support expenses were $2,514,456 in the six month period
ended June 30, 2000 as compared to $1,669,212 in the comparable quarter in 1999,
an increase of 75%. This increase was as a result of increased spending during
the period for advertising, promotions, market research and consultants.
Research and Development
Research and development expenses were $1,208,887 or 24% of revenues in the six
month period ended June 30, 2000 as compared to $692,429 or 15% of revenues in
the
13
<PAGE>
comparable period in 1999. This increase was mostly due to increased personnel
and increased salaries of existing personnel.
General and Administrative
General and administrative expenses are composed principally of salaries of
administrative personnel, fees for professional services and facilities
expenses. These expenses were $849,474 or 17% of revenues in the quarter ended
June 30, 2000 compared to $483,576 or 10% in the comparable period in 1999. This
increase was primarily the result of fees for professional services related to
the cost of becoming as a public company, including legal, accounting, and
investor relation fees.
Provision for Income Taxes
For the six months ended June 30, 2000, the Company recognized an income tax
benefit related to the expected recovery of taxes paid in 1999 through the
utilization of the current period loss. In 1999, the effective tax rate on
income before taxes was 30% for the six months ending June 30.
Liquidity and Capital Resources
During the six month period ended June 30, 2000, net cash provided by operating
activities was $320,412 a decrease of $217,681 compared to the comparable period
in 1999. The decrease in cash is due primarily to our reduced income.
Net cash used in investing activities in the six months ended June 30, 2000 was
$532,274, an increase of $463,731 compared to the comparable period in 1999,
reflecting an increase in cash used for software product acquisitions.
Net cash used in financing activities in the six months ended June 30, 2000, was
$46,792 as compared to $95,518 during the comparable period in 1999. The
increased cash flows is primarily the result of our discontinued reliance on a
factoring line of credit which was paid off in 1999.
Our capital requirements are dependent on several factors, including market
acceptance of our software and services, timely updating of the Company's
existing software products, developing new software products or acquiring the
rights to existing software products from third parties, the resources devoted
to marketing and selling the Company's services and brand promotions and other
factors. At June 30, 2000, the Company had cash and cash equivalents totaling
$849,693.
14
<PAGE>
Over the next 12 months, our fixed payment commitments include those for office
rent, capital leases, demand notes and term notes payable for software.
We believe that cash generated from operations along with our current cash and
cash equivalents will be sufficient to meet our anticipated cash needs for
working capital, fixed payment commitments and capital expenditures for the next
12 months. If cash generated from operations is insufficient to satisfy our
liquidity requirements, we may seek to sell additional equity or debt securities
or to obtain a credit facility. The issuance of additional equity or convertible
debt securities could result in additional dilution to our stockholders. The
incurrence of indebtedness would result in an increase in our fixed obligations
and could result in borrowing covenants that would restrict our operations.
There can be no assurance that financing will be available in sufficient amounts
or on terms acceptable to us, if at all. If financing is not available when
required or is not available on acceptable terms, we may be unable to develop or
enhance our products or services. In addition, we may be unable to take
advantage of business opportunities or respond to competitive pressures. Any of
these events could have a material and adverse effect on our business, results
of operations and financial condition.
Risks and Uncertainties
As part of our plan to expand our business, over the past six months, we
acquired Trexar Technologies, Inc. and the publishing rights to additional
software products. We also committed to increased expenditures to hire
additional technical personnel and to increase marketing expenses for our new
and existing products. Aladdin had expenditures in excess of our revenues for
the first six months of 2000. We believe that these investments are important
parts of our plan to create growth and profitability. If we are not successful
in increasing long-term growth through these actions, our operating results and
financial condition could be materially adversely affected.
Statements included in this "Management's Discussion and Analysis of Financial
Condition and Results of Operations" which are not historical facts are
forward-looking statements. These forward-looking statements involve risks and
uncertainties that could render them materially different, including, but not
limited to, the risk that new products and product upgrades may not be available
on a timely basis, the risk that such products and upgrades may not achieve
market acceptance, the risk that competitors will develop similar products and
reach the market first, and the risk that the Company would not be able to fund
its working capital needs from cash flow. For a discussion of other factors that
could cause actual results to differ materially from those described in the
forward-looking statements, please refer to the section entitled
"Forward-Looking Statements" in the Company's Annual Report on Form 10-KSB for
the year ended December 31, 1999.
15
<PAGE>
PART II
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
(27.1) Financial Data Schedule.
(27.2) Restated Financial Data Schedule
(b) Reports on Form 8-K
A report on Form 8-K dated May 31, 2000 was filed by the Registrant
pursuant to Item 5 thereof with respect to the Registrant's acquisition of
software rights.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
ALADDIN SYSTEMS HOLDINGS, INC.
(Registrant)
/s/ Jonathan Kahn 8/11/00
-------------------------------
(Jonathan Kahn,
Chief Executive
Officer, and Director)
/s/ Alexandra Gonzalez 8/11/00
-------------------------------
(Chief Accounting Officer)
16
