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 September 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
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 November 7, 2000: Common Stock: 9,792,635.
<PAGE>
ALADDIN SYSTEMS HOLDINGS, INC.
AND SUBSIDIARIES
Table of Contents
Page
PART I
Item 1. Financial Statements
Condensed Consolidated Balance Sheet as of September 30, 2000 3
Condensed Consolidated Statements of Operations for the
Three Months and Nine Months Ended September 30, 2000 and 1999 4
Condensed Consolidated Statements of Cash Flows for the
Nine Months Ended September 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 7
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
September 30, 2000
(Unaudited)
ASSETS
Current Assets:
Cash and cash equivalents $ 349,482
Accounts receivable (net of allowance of $37,368) 699,011
Inventories 125,934
Prepaid expenses 101,509
Income taxes receivable 285,755
Deposits 148,279
-----------
Total current assets 1,709,970
Capitalized software, net 786,415
Property and equipment, net 429,961
Deferred income taxes 94,369
-----------
$ 3,020,715
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current maturities of long-term debt $ 214,198
Accounts payable 359,370
Accrued expenses and other liabilities 535,506
-----------
Total current liabilities 1,109,074
Long-term debt 78,879
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 (74,853)
Retained earnings 349,819
-----------
Total stockholders' equity 1,832,762
-----------
$ 3,020,715
===========
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 Sept 30, Nine months ended Sept 30,
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Sales $ 1,753,875 $ 2,098,501 $ 6,782,665 $ 6,781,150
Cost of sales 262,105 340,205 936,249 1,152,573
--------------------------------------------------------
Gross profit 1,491,770 1,758,296 5,846,416 5,628,577
Operating Expenses:
Marketing, sales and support 1,156,669 827,637 3,671,125 2,522,175
Research and development 686,701 544,772 1,895,588 1,219,533
General and administrative 300,071 251,780 1,149,546 727,698
--------------------------------------------------------
Total operating expenses 2,143,441 1,624,189 6,716,259 4,469,406
Income (loss) from operations (651,671) 134,107 (869,843) 1,159,171
Other Income (expense):
Interest expense (7,415) (10,521) (32,017) (48,249)
Other 7,196 10,471 35,936 22,612
--------------------------------------------------------
Net income (loss) before income taxes (651,890) 134,057 (865,924) 1,133,534
Income tax expense (benefit) (212,984) 44,330 (285,755) 348,279
--------------------------------------------------------
Net income (loss) $ (438,906) $ 89,727 $ (580,169) $ 785,255
========================================================
Earnings (loss) per share - basic (0.05) 0.01 (0.06) 0.09
========================================================
Earnings (loss) per share - diluted (0.05) 0.01 (0.06) 0.09
========================================================
Shares used in computing basic earnings per share 9,792,635 8,728,117 9,785,501 8,728,117
========================================================
Shares used in computing diluted earnings per share 9,792,635 9,061,837 9,785,501 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>
Nine months ended September 30,
2000 1999
-------------------------------
<S> <C> <C>
Net cash provided by (used in) operating activities $ (53,505) $ 647,123
Cash flows from investing activities:
Acquisition of property and equipment (126,174) (80,433)
Acquisition of software rights (513,517) (49,261)
-------- -------
Net cash used in investing activities (639,691) (129,694)
Cash flows from financing activities:
Issuance of stock 7,294 234,500
Payment on capital leases (72,962) (214,766)
Repayment of borrowings -- (170,888)
-------
-------------------------------
Net cash used in financing activities (65,668) (151,154)
-------------------------------
Net increase (decrease) in cash and cash equivalents (758,864) 366,275
Cash and cash equivalents at beginning of period 1,108,346 63,609
-------------------------------
Cash and cash equivalents at end of period $ 349,482 $ 429,884
===============================
Cash paid during the period for:
Interest $ 32,356 $ 51,316
===============================
Income taxes $ 69,276 $ 189,100
===============================
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
<PAGE>
ALADDIN SYSTEMS HOLDINGS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
September 30, 2000
(Unaudited)
Basis of Presentation
The accompanying condensed consolidated financial statements of Aladdin Systems
Holdings, Inc. and Subsidiaries ("Aladdin") as of September 30, 2000, and for
the three months and nine months ended September 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:
Nine months ended September 30,
-------------------------------
2000 1999
---- ----
Revenues
Aladdin $ 6,782,665 $ 6,719,461
Trexar -- 61,689
-------------------------------
$ 6,782,665 $ 6,781,150
===============================
Net income (loss)
Aladdin $ (580,169) $ 820,020
Trexar -- (34,765)
-------------------------------
$ (580,169) $ 785,255
===============================
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 2,061,378 shares issuable upon the exercise of outstanding stock
options as of September 30, 2000 and 1,714,241 shares issuable upon the exercise
of outstanding stock options as of September 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 September 30, Nine months ended September 30,
-------------------------------- -------------------------------
2000 1999 2000
---- ---- ----
<S> <C> <C> <C> <C>
1999
Numerator
Net income (loss) ($438,906) $ 89,727 ($580,169) $ 785,255
Interest expense on convertible debt -- 4,662 -- 13,251
--------------------------------------------------------------------
Net income(loss) used in computing
Diluted earnings (loss) per share ($438,906) 94,389 (580,169) 798,506
Denominator
Weighted average common shares 9,792,635 8,728,117 9,785,501 8,728,117
Outstanding during the period
Dilutive effect of convertible debt -- 333,720 -- 333,720
-------------------------------------------------------------------
Shares used in computing diluted
Earnings per share 9,792,635 9,061,837 9,785,501 9,061,837
</TABLE>
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.
7
<PAGE>
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)
StuffIt for Windows (Windows)
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)
IntelliNews (Macintosh)
Hottime (Palm OS)
GoBar (Palm OS)
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.
8
<PAGE>
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 nine-month periods ended September 30, 2000 and
September 30, 1999.
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------------------------------------------------------------------------------------------------------
2000 1999 2000 1999
<S> <C> <C> <C> <C>
Percentage of sales:
Sales 100% 100% 100% 100%
Cost of sales 15 16 14 17
-------------------------------------------------------------------
Gross profit 85 84 86 83
Marketing, sales and support 66 39 54 37
Research and development 39 26 28 18
General and administrative 17 13 17 11
-------------------------------------------------------------------
Total operating expenses 122 78 99 66
-------------------------------------------------------------------
Income (loss) from operations (37) 6 (13) 17
Other income (expense), net 0 0 0 0
-------------------------------------------------------------------
Net income (loss) before (37) 6 (13) 17
income tax
-------------------------------------------------------------------
Income tax expense (benefit) (12) 2 (4) 5
-------------------------------------------------------------------
Net income (loss) (25)% 4% (9)% 12%
-------------------------------------------------------------------------------------------------------------------
</TABLE>
================================================================================
Three Months Ended September 30, 2000 Compared with Three Months Ended September
30, 1999
Revenues
Overall Revenue
9
<PAGE>
Overall revenues decreased to $1,753,875 for the three months ended September
30, 2000 from $2,098,501 during the comparable period in 1999, a decrease of 16%
or $344,626. The decrease was a result of lower sales of our major products,
StuffIt Deluxe and Spring Cleaning. Overall the entire industry had a slower
selling season through the distribution channel.
Consumer Product Revenues
Approximately 79% of our revenues for the three-month period ended September 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 also indicative of the industry slowdown in sales
through the distribution channel.
Developer Product Revenues
Revenue from our developer products increased 2% during the three months ended
September 30, 2000, as compared with the same period in 1999 and accounted for
approximately 10% of our revenues for 2000 as compared to 8% of revenues in the
comparable period in 1999.
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 11% of our
revenues in the three-month period ended September 30, 2000 as compared with 7%
for the same period in 1999. The increase was primarily the result of an
increase in products we resold over our Website as compared with the comparable
period in 1999.
Three months ended September 30
2000 1999
---- ----
Consumer products $1,377,918 $1,781,067
Developer 175,143 168,995
Third party 200,814 148,439
---------- ----------
$1,753,875 $2,098,501
Revenues from Sales Over Our Website
Revenues from sales over our Website, www.aladdinsys.com, accounted for 41% of
revenue in the three-month period ended September 30, 2000 as compared with 29%
of revenues in the comparable period in 1999. This increase in sales represents
the continuing trend of customers buying direct even while sales through the
distribution channel were affected by the industry slowdown.
10
<PAGE>
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 15% in the three-
month period ended September 30, 2000 from 16% in the comparable period in 1999.
This decrease is mostly 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. There was however, an
increase in payroll and amortization expenses that reduced the overall effect of
the decrease due to the Website sales.
Operating Expenses
Marketing, Sales & Support
Marketing, sales and support expenses were $1,156,669 in the three-month period
ended September 30, 2000 as compared with $827,637 in the comparable quarter in
1999, an increase of 40%. 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 $686,701 or 39% of net revenue in the
three-month period ended September 30, 2000 as compared with $544,772 or 26% 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.
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 $300,071 or 17% of net revenue in the quarter
ended September 30, 2000 compared with $251,780 or 13% in the comparable period
in 1999. This increase was primarily the result of fees for professional
services related to the cost of being a public company, including legal,
accounting, and investor relation fees.
11
<PAGE>
Provision for Income Taxes
For the three months ended September 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 33% for the three months ending September 30.
Nine Months Ended September 30, 2000 Compared with Nine Months Ended September
30, 1999
Revenues
Overall Revenue
Overall revenues increased slightly to $6,782,665 for the nine months ended
September 30, 2000 from $6,781,150 during the comparable period in 1999, an
increase of $1,515.
Consumer Product Revenues
Approximately 74% of our revenues for the nine-month period ended September 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 nine-month period ended
September 30, 2000, is comparable to the same period in 1999. Developer product
revenues 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 18% of revenue in the nine-month
period ended September 30, 2000 as compared with 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.
Nine months ended September 30
2000 1999
---- ----
Consumer products $5,025,524 $5,763,283
Developer 568,148 545,156
12
<PAGE>
Third party 1,188,993 472,711
---------- ----------
$6,782,665 $6,781,150
Revenues from Sales Over Our Website
Revenues from sales over our Website accounted for 44% of revenues in the
nine-month period ended September 30, 2000 as compared with 31% 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 14% in the
nine-month period ended September 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 $3,671,125 in the nine-month period
ended September 30, 2000 as compared with $2,522,175 in the comparable quarter
in 1999, an increase of 46%. 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 $1,895,588 or 28% of revenues in the
nine-month period ended September 30, 2000 as compared with $1,219,533 or 18% of
revenues in the 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 $1,149,546 or 17% of revenues in the quarter ended
September 30, 2000 compared with $727,698 or 11% in the comparable period in
1999. This increase was
13
<PAGE>
primarily the result of fees for professional services related to the cost of
being a public company, including legal, accounting, and investor relations
fees.
Provision for Income Taxes
For the nine months ended September 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 nine months ending September 30.
Liquidity and Capital Resources
During the nine-month period ended September 30, 2000, net cash used in
operating activities was $53,505 compared with net cash provided by operating
activities of $647,123 for the comparable period in 1999. The increase in cash
used by operations is due primarily to our reduced income.
Net cash used in investing activities in the nine months ended September 30,
2000 was $639,691, an increase of $509,997 compared with $129,694 in the
comparable period in 1999, reflecting an increase in cash used for software
product acquisitions.
Net cash used by financing activities in the nine months ended September 30,
2000, was $65,668 as compared with $151,154 during the comparable period in
1999. The reduced cash used in financing activities is primarily the result of
our discontinued reliance on a factoring line of credit that 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 September 30, 2000, the Company had cash and cash equivalents
totaling $349,482.
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
14
<PAGE>
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 nine 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 nine 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
None
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 11/14/00
--------------------------
(Jonathan Kahn,
Chief Executive Officer,
and Director)
/s/ Alexandra Gonzalez 11/14/00
--------------------------
(Chief Accounting Officer)
16
