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 March 31, 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 March 31, 2000: Common Stock: 9,778,117
<PAGE>
ALADDIN SYSTEMS HOLDINGS, INC.
AND SUBSIDIARIES
Table of Contents
Page
PART I
Item 1. Financial Statements 3
Condensed Consolidated Balance Sheet as of March 31, 2000 3
Condensed Consolidated Statements of Operations for the
Three Months Ended March 31, 2000 and 1999 4
Consolidated Statements of Cash Flows for the
Three Months Ended March 31, 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 14
Signatures
2
<PAGE>
Part 1
Item 1: Financial Statements
Aladdin Systems Holdings, Inc. and Subsidiaries
Condensed Consolidated Balance Sheet
March 31, 2000
(Unaudited)
ASSETS
Current Assets:
Cash and cash equivalents $ 1,076,781
Accounts receivable (net of allowance of $37,368) 1,208,597
Inventories 126,028
Prepaid expenses 115,444
Income taxes receivable 70,000
Deposits 133,484
-----------
Total current assets 2,730,334
Capitalized software, net 213,368
Property and equipment, net 474,698
Deferred income taxes 94,369
-----------
$ 3,512,769
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current maturies of long-term debt $ 290,584
Accounts payable 496,953
Accrued expenses and other liabilities 361,258
Income tax payable 69,276
-----------
Total current liabilities 1,218,071
Long-term debt 93,710
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;
9,778,117 issued and outstanding 9,779
Paid-in capital 1,481,934
Deferred compensation (86,671)
Retained earnings 795,946
-----------
Total stockholders' equity 2,200,988
-----------
$ 3,512,769
===========
See accompanying notes to condensed consolidated financial statements.
3
<PAGE>
Aladdin Systems Holdings, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
(Unaudited)
Three Months ended March 31,
2000 1999
---- ----
Sales $ 2,395,260 $ 2,570,954
Cost of sales 332,717 377,598
Gross profit 2,062,543 2,193,356
Operating expenses:
Marketing, sales and support 1,229,052 911,305
Research and development 609,674 322,446
General and administrative 431,233 256,604
---------------------------
Total operating expenses 2,269,959 1,490,355
Income (loss) from operations (207,416) 703,001
Other income (expense):
Interest expense (13,382) (26,785)
Other 16,758 5,451
---------------------------
Net income (loss) before income taxes (204,040) 681,667
Income tax expense (benefit) (70,000) 224,950
---------------------------
Net income (loss) $ (134,040) $ 456,717
==========================
Earnings per share - basic $ (0.01) $ 0.05
==========================
Earnings per share - diluted $ (0.01) $ 0.05
---------------------------
Shares used in computing basic earnings per share 9,778,117 8,728,117
==========================
Shares used in computing diluted earnings per share 9,778,117 9,047,833
==========================
See accompanying notes to condensed consolidated financial statements.
4
<PAGE>
Aladdin Systems Holdings, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Three Months ended March 31,
2000 1999
----------------------------
Net cash provided by operating activities $ 114,328 $ 182,804
Cash flows from investing activities:
Acquisition of property and equipment (50,911) (20,089)
Acquisition of software rights (68,310) (108)
---------------------------
Net cash used in investing (119,221) (20,198)
Cash flows from financing activities:
Capital contribution -- 14,000
Repayment of borrowings (26,672) (52,623)
---------------------------
Net cash used in financing (26,672) (38,623)
---------------------------
Net increase (decrease) in cash and
cash equivalents (31,565) 123,983
Cash and cash equivalents at beginning of period 1,108,346 63,609
---------------------------
Cash and cash equivalents at end of period $ 1,076,781 $ 187,592
===========================
Cash paid during the period for:
Interest $ 13,251 $ 11,201
===========================
Income taxes $ 4,470 $ --
===========================
Noncash transactions:
During the first quarter of 2000, the Company
granted stock options to consultants resulting
in an expense for the quarter of $90,942 and a
remaining balance to be amortized of $86,671.
See accompanying notes to condensed consolidated financial statements.
5
<PAGE>
ALADDIN SYSTEMS HOLDINGS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
March 31, 2000
(Unaudited)
Basis of Presentation
The accompanying condensed consolidated financial statements of Aladdin Systems
Holdings, Inc. and Subsidiaries (the "Company" or "Aladdin") as of March 31,
2000, and for the three months ended March 31, 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 adjustments
(consisting only of normal recurring accruals) necessary 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:
Three months ended March 31,
----------------------------
2000 1999
---------- ----------
Revenues:
Aladdin $2,359,199 $2,565,611
Trexar 36,061 5,343
---------- ----------
$2,395,260 $2,570,954
========== ==========
Net income (loss)
Aladdin $ (95,574) $ 470,656
Trexar (38,466) (13,939)
---------- ----------
$ (134,040) $ 456,717
========== ==========
6
<PAGE>
Net Income (Loss) Per Share
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 1,998,000 shares issuable upon the exercise of outstanding stock
options and shares issuable upon the conversion of convertible debt as of March
31, 2000 and 1,587,000 shares issuable upon the exercise of outstanding stock
options as of March 31, 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:
Three months ended March 31,
----------------------------
2000 1999
----------- -----------
Numerator
Net income (loss) $ (134,040) $ 456,717
Interest expense on convertible debt -- 4,838
----------- -----------
Net income (loss) used in computing diluted
Earnings (loss) per share $ (134,040) $ 461,555
=========== ===========
Denominator
Weighted average common shares
outstanding during the period 9,778,117 8,728,117
Dilutive effect of convertible debt -- 319,716
----------- -----------
Shares used in computing diluted
earnings per share 9,778,117 9,047,833
=========== ===========
7
<PAGE>
Item 2: Management's Discussion and Analysis of Financial Condition and Results
of Operations
Overview
Aladdin Systems Holdings, Inc., was formed on March 26, 1997 as Foreplay Golf &
Travel Tours, Inc. 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 merger 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, our Aladdin Systems, Inc. subsidiary 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 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 market segments 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)
MacTuner (Macintosh)
MacHeadlines (Macintosh)
IntelliNews (Macintosh)
WeatherTracker (Windows and Macintosh)
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, the Company
resells 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 periods, ended March 31, 2000 and March 31, 1999.
- --------------------------------------------------------------------------
Three months ending March 31,
- --------------------------------------------------------------------------
2000 1999
Percentage of sales:
Sales 100% 100%
Cost of sales 14 15
---------------------------------
Gross profit 86 85
Marketing, sales and support 51 35
Research and development 25 13
General and administrative 18 10
Total operating expenses 95 58
---------------------------------
Income (loss) from operations (9) 27
Other income (expense), net 0 (1)
==========================================================================
Net income (loss) before
income tax (9) 27
---------------------------------
Income tax expense (benefit) (3) 9
---------------------------------
Net income (loss) (6)% 18%
==========================================================================
Revenues
9
<PAGE>
Overall Revenue
Overall revenues decreased to $2,395,260 for the three months ended March 31,
2000 from $2,570,954 during the comparable period in 1999, a decrease of 7%. The
decrease was a result of a decrease in sales of our Spring Cleaning product as
compared to the same period in 1999, when we had released a new version of the
product.
Consumer Product Revenues
Approximately 69% of the Company's revenues for the three month period ended
March 31, 2000 were from Consumer products. Revenues from sales of our Consumer
products in the comparable period in 1999 represented 88% of our overall sales.
The decrease was a result of the decrease in sales of Spring Cleaning.
Developer Product Revenues
Revenue from the Company's Developer products increased 1% during the three
month period ended March 31, 2000, as compared to the same period in 1999 and
accounted for approximately 8% of the Company's total net revenues for 2000.
Despite the slight increase in the sales of our Developer products, which was a
result of the overall increase in third party software development for the
Macintosh computer, historically, revenues from our Developer products have
represented decreasing percentages of the Company's overall sales as our
Consumer products have grown.
Revenues from Sales Of Third Party Products
In addition to publishing our own products, we utilize our resources and
customer list to act as a reseller of software products published by other
software companies. Sales of third party products accounted for 23% of revenue
in the three month period ended March 31, 2000 as compared to 5% for the same
period in 1999. The increase was a result of an increase in the number of
products we resold over our Website.
Revenues from Sales Over Our Website
Revenues from sales over our www.aladdinsys.com Website accounted for 53% of
revenue in the three month period ended March 31, 2000 as compared to 28% of
revenue in the comparable period in 1999. The large increase in the amount of
revenues achieved from the sale of our products over our Website 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.
The Company believes that sales over its Website will represent an increasingly
important component of the Company's sales strategy and will allow the Company
to reach a large number of potential consumers at lower costs than sales through
distributors.
Cost of Revenues and Gross Margin
The Company's cost of revenues is composed primarily of: (1) the costs of
product materials such as manuals, diskettes, CD-ROMS, and packaging; (2)
amortization of
10
<PAGE>
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 14% in the three
month period ended March 31, 2000 from 15% 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
Sales and marketing expenses were $1,229,052 in the three month period ended
March 31, 2000 as compared to $911,305 in the comparable quarter in 1999, an
increase of 35% . This increase was as a result of increased spending during the
period for advertising, promotions, market research and consultants.
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 $431,233 or 18% of net revenue in the quarter
ended March 31, 2000 compared to $256,604 or 10% in the comparable period in
1999. This increase was a result of increased spending on recruitment fees and
fees for professional services related to the cost of compliance as a public
company.
Research and Development
Research and development expenses were $609,674 or 25% of net revenue in the
three month period ended March 31, 2000 as compared to $322,446 or 13% of net
revenue in the comparable period in 1999. This increase was associated with
increased spending on payroll, product localization costs and other costs
associated with product development. Product localization costs represents costs
incurred to make our products available for use in other countries or in other
languages.
Due to the current high demand for software engineers and other technical
specialists, the Company anticipates having to both 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.
Provision for Income Taxes
For the three months ended March 31, 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 33%.
11
<PAGE>
Liquidity and Capital Resources
During the three month period ended March 31, 2000, net cash provided by
operating activities was $114,328 a decrease of $68,476 compared to the
comparable period of 1999. The decrease in cash is due primarily to our
increased operating expenses during the three month period ended March 31, 2000
and from the use of cash for paying down accounts payable.
Net cash used in investing activities in the three months ended March 31, 2000
was $119,221, an increase of $99,023 compared to the comparable period in 1999,
reflecting an increase in cash used for equipment and software product
acquisitions.
Net cash used in financing activities in the three months ended March 31, 2000,
for the repayment of borrowings, was $26,672 as compared to $38,623 used during
the comparable period 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 March 31, 2000, the Company had cash and cash equivalents totaling
$1,076,781, resulting principally from the sale of common stock in a private
placement during October, 1999.
Over the next 12 months, our fixed payment commitments include those for office
rent, capital leases, and 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 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 sale 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, in March 2000 the Company acquired
Trexar Technologies, Inc., and committed to increased expenditures to hire
additional technical personnel, develop and acquire new products and to increase
marketing expenses for our new and existing products. The Company anticipates
that these expenditures may continue to result in operating expenses in excess
of our revenues
12
<PAGE>
for the first six months of 2000. We believe that the merger with Trexar
Technologies, Inc., and our investments in additional personnel and marketing
expenses are important parts of our plan to create long term growth and
profitability of the Company and we expect that we will return to profitability
by the fourth quarter of 2000. If we are not successful in increasing long-term
growth through these actions, it could have a material adverse affect on the
Company.
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.
13
<PAGE>
PART II
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
(27) Financial Data Schedule.
(b) Reports on Form 8-K
There were no reports on Form 8-K filed during the quarter ended March 31,
2000.
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 5/22/00
---------------------------
(Jonathan Kahn,
Chief Executive Officer,
and Director)
/s/ Alexandra Gonzalez 5/22/00
---------------------------
(Chief Accounting Officer)
14
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-END> MAR-31-2000
<CASH> 1,076,781
<SECURITIES> 0
<RECEIVABLES> 1,245,965
<ALLOWANCES> 37,368
<INVENTORY> 126,028
<CURRENT-ASSETS> 2,730,334
<PP&E> 1,370,351
<DEPRECIATION> 895,653
<TOTAL-ASSETS> 3,512,769
<CURRENT-LIABILITIES> 1,218,071
<BONDS> 0
0
0
<COMMON> 9,779
<OTHER-SE> 1,395,263
<TOTAL-LIABILITY-AND-EQUITY> 3,512,769
<SALES> 2,395,260
<TOTAL-REVENUES> 2,395,260
<CGS> 332,717
<TOTAL-COSTS> 2,269,959
<OTHER-EXPENSES> 2,269,959
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 13,382
<INCOME-PRETAX> (204,040)
<INCOME-TAX> (70,000)
<INCOME-CONTINUING> (134,040)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (134,040)
<EPS-BASIC> (0.01)
<EPS-DILUTED> (0.01)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 187,592
<SECURITIES> 0
<RECEIVABLES> 1,289,766
<ALLOWANCES> 0
<INVENTORY> 69,497
<CURRENT-ASSETS> 2,044,762
<PP&E> 1,113,673
<DEPRECIATION> 688,850
<TOTAL-ASSETS> 2,674,833
<CURRENT-LIABILITIES> 1,550,134
<BONDS> 0
0
0
<COMMON> 47,092
<OTHER-SE> 902,623
<TOTAL-LIABILITY-AND-EQUITY> 2,674,833
<SALES> 2,570,954
<TOTAL-REVENUES> 2,570,954
<CGS> 377,598
<TOTAL-COSTS> 1,490,355
<OTHER-EXPENSES> 1,490,355
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 26,785
<INCOME-PRETAX> 681,667
<INCOME-TAX> 224,950
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 456,717
<EPS-BASIC> 0.05
<EPS-DILUTED> 0.05
</TABLE>
