<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[ X ] Quarterly Report under Section 13 or 15(d) of the Securities Exchange
Act of 1934
FOR THE QUARTER ENDED JUNE 30, 1995
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from _______________ to ________________
Commission File number 0-16449
BLYTH HOLDINGS INC.
(Exact name of registrant as specified in its charter)
Delaware 94-3046892
(State of incorporation) (IRS Employer Identification No.)
989 E. Hillsdale Boulevard #400
Foster City, California 94404
(Address of principal executive offices)
(415) 571-0222
(Registrant's telephone number)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities 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 ______
As of August 1, 1995 there were 7,990,070 shares of registrant's Common
Stock, $.01 par value, outstanding.
1
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BLYTH HOLDINGS INC.
INDEX
PART I. FINANCIAL INFORMATION
Page No.
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets -
June 30, 1995 and March 31, 1995 3
Condensed Consolidated Statements of Operations -
Three months ended June 30, 1995 and 1994 4
Condensed Consolidated Statements of Cash Flows -
Three months ended June 30, 1995 and 1994 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 11
Signatures 12
2
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PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
BLYTH HOLDINGS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
June 30, 1995 March 31, 1995
---------------- ----------------
<S> <C> <C>
Current Assets:
Cash and equivalents $3,244,765 $4,593,459
Trade accounts receivable, less allowance for
doubtful accounts and returns of $195,293 and
$242,899 at June 30 and March 31, respectively 3,453,423 3,966,551
Inventory 252,034 261,926
Other Current Assets 928,810 1,076,637
------------- -------------
Total current assets 7,879,032 9,898,573
------------- -------------
Property, furniture and equipment, net 2,770,507 2,979,029
Capitalized software development costs, net 1,149,572 1,439,925
Other assets 54,868 54,868
------------- -------------
Total Assets $11,853,979 $14,372,395
------------- -------------
------------- -------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilites:
Accounts payable and accrued liabilities $2,114,868 $2,234,641
Deferred Revenue 1,383,535 1,040,249
Current portion of long term debt 12,654 97,178
------------- -------------
Total current liabilites 3,511,057 3,372,068
Long term debt 806,737 2,758,883
Stockholders' Equity:
Common stock 80,009 70,802
Paid in Capital 32,849,289 30,740,878
Treasury stock (1,557,214) (1,557,214)
Accumulated deficit (24,070,682) (21,295,375)
Foreign currency translation adjustment 234,783 282,353
------------- -------------
Total stockholders' equity 7,536,185 8,241,444
------------- -------------
Total liabilities and stockholders' equity $ 11,853,979 $ 14,372,395
------------- -------------
------------- -------------
</TABLE>
3
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BLYTH HOLDINGS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
June 30
1995 1994
------------ -----------
<S> <C> <C>
Net revenues:
Products $ 1,558,789 $ 2,752,589
Services 1,875,982 1,327,086
----------- -----------
Total net revenues 3,434,771 4,079,675
Costs and expenses:
Cost of sales 1,978,520 1,273,926
Research & development 1,090,828 298,926
Sales, general and administrative 3,099,405 3,662,911
----------- -----------
Total costs and expenses 6,168,753 5,235,763
----------- -----------
Operating loss (2,733,982) (1,156,088)
----------- -----------
Other income (expense):
Interest income 50,943 86,820
Interest expense (68,384) (10,461)
Gain on foreign currency transactions (7,272)
----------- -----------
(17,441) 69,087
----------- -----------
Loss before income taxes (2,751,423) (1,087,001)
Income tax expense 23,883 1,748
----------- -----------
Net loss $(2,775,306) $(1,088,749)
----------- -----------
----------- -----------
Net loss per common share: $ (0.36) $ (0.16)
Weighted average number of common
shares outstanding 7,714,012 6,656,337
</TABLE>
4
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BLYTH HOLDINGS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
June 30
1995 1994
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(2,775,306) $(1,088,749)
Adjustments to reconcile net loss to net cash
used by operating activities:
Depreciation and amortization expense 327,392 232,660
Capitalized software development cost
amortization expense 290,352 100,554
Accrued interest converted into stock 47,995
Change in assets and liabilities:
Net (increases) decreases in assets:
Trade accounts receivable 513,128 (859,614)
Note receivable-related party (10,000)
Inventory 9,892 (146,468)
Other current assets 147,827 (283,775)
Other long-term assets 0 222,324
Net increases (decreases) in liabilities
Accounts payable and accrued liabilities (119,773) (823,252)
Deferred revenues 343,286 568,397
------------ ------------
Net cash used for operating activities (1,215,207) (441,419)
------------ ------------
Cash flows from investing activities:
Capitalized software development costs 0 (1,019,293)
Purchases of property, furniture and equipment (118,870) (389,481)
------------ ------------
Net cash used for investing activities (118,870) (1,408,774)
------------ ------------
Cash flows from financing activities:
Repurchase of common stock (1,764,007)
Exercise of stock options 32,953 46,200
Repayments of debt (351,353)
------------ ------------
Net cash (used) for financing activities 32,953 (2,069,160)
------------ ------------
Effect of exchange rate changes on cash (47,570) 58,658
Net decrease in cash and cash equivalents (1,348,694) (3,860,695)
Cash and equivalents at beginning of period 4,593,459 14,405,520
------------ ------------
Cash and equivalents at end of period $ 3,244,765 $ 10,544,825
------------ ------------
------------ ------------
NON CASH INVESTING AND FINANCING ACTIVITIES
Conversion of convertible subordinated
debentures into common stock 2,200,000
------------
------------
</TABLE>
5
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BLYTH HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. The unaudited financial information furnished herein reflects
all adjustments, consisting only of normal recurring items, which
in the opinion of management are necessary to fairly state the
Company's financial position, the results of its operations and the
changes in its financial position for the periods presented. These
financial statements should be read in conjunction with the
Company's audited financial statements for the year ended March 31,
1995. The results of operations for the period ended June 30, 1995
are not necessarily indicative of results to be expected for any
other interim period or the year ending March 31, 1996.
2. Net loss per share for the three months ended June 30, 1995 is
based on the weighted average number of common shares outstanding
during the period including, where applicable, common stock
equivalent shares.
3. In a July 1995 offering of up to $5,850,000 of 5% Convertible
Debentures due June 30 1997, the Company closed the offering by
issuing $2,750,000 (net proceeds of $2,585,000) aggregate principal
value of the debentures. The principal and interest are
convertible into shares of the Company's common stock and the
Company may force conversion at its option after June 30, 1996. In
March of 1995 the Company received $2.7 million from a similar
offering of 8% Convertible Debentures due March 31, 1997. As of
June 30, 1995 all but $700,000 of the 8% Convertible Debentures due
March 31, 1997 had been converted to common stock. The Company's
other of long term debt consists primarily of long term leases.
6
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BLYTH HOLDINGS INC. AND SUBSIDIARIES
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1995 AND JUNE 30, 1994
Total net revenues declined 16% to $3,434,771 for the quarter ended June
30, 1995 from $4,079,675 for the quarter ended June 30, 1994. Product
revenues declined 43% to $1,558,789 from $2,752,589 in the corresponding
quarter of the prior year. The higher level of product revenues in the first
quarter of fiscal 1995 was in part attributable to the Company's introduction
of a significant upgrade to its core product during that quarter. In
addition the Company's North American direct sales were lower in the first
quarter of fiscal 1996 as compared to the same quarter of fiscal 1995. In
June 1995 the Company changed its sales strategy to put increased emphasis on
sales through resellers in addition to direct sales by the Company's sales
force. Partly as a result of the changed strategy and partly to reduce
expenses, in June 1995 the North American direct sales force was reduced by
approximately 50%. Service revenues for the quarter ended June 30, 1995
increased 41% to $1,875,982 from $1,327,086 for the corresponding quarter of
the prior year, primarily a result of an increase in consulting services
during this period.
Cost of products and services is comprised of the following: 1) product
cost which includes the cost of both internal and subcontracted production,
technical support and maintenance services during the warranty period
(primarily personnel related), and amortization of capitalized software
development costs, and 2) service cost, primarily personnel related, which
consists of consulting, technical support, maintenance services outside the
warranty period and training. Cost of products and services as a percentage
of total net revenues increased to 58% from 31% for the quarter ended June
30, 1995 compared to the quarter ended June 30, 1994. This increase was
largely attributable to an increase in the portion of total net revenues
derived from services which carry a lower gross margin than product revenues.
The table below sets forth gross research and development costs,
capitalized software development costs, and net research and development
expenses both in absolute dollars (in thousands) and as a percentage of total
net revenues for the periods indicated:
<TABLE>
<CAPTION>
Three months ended June 30,
---------------------------
1995 1994
---- ----
<S> <C> <C>
Dollar amounts:
Gross research and development costs......... $1,091 $1,318
Capitalized software development costs....... -- (1,019)
Research and development expenses............ 1,091 299
As a percentage of total net revenues:
Gross research and development costs......... 30% 32%
Research and development expenses............ 30% 7%
</TABLE>
7
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The decrease in gross research and development costs is primarily due to
decreased staffing and associated support costs. In connection with its
reduction in force in June of 1995 the company focused its research and
development staff only on those projects that it felt were the most
responsive to needs in the marketplace, and reduced its research and
development staff by 35%. The Company continues to invest in the development
of new products aimed at sales opportunities that the Company expects will
expand its markets. The "net realizability" (as defined in SOP 91) for most
of the Company's current development efforts cannot be currently determined,
accordingly, the Company has not capitalized any research and development
costs in the quarter ended June 30, 1995. The Company ended the quarter with
$1,150,000 of capitalized software development costs which the Company
expects to fully amortize during fiscal 1997.
Sales, general and administrative expenses decreased to $3,099,405 for
the quarter ended June 30, 1995 from $3,662,911 for the quarter ended June
30, 1994, representing 90% of total net revenues during both of these
periods. The decrease in absolute dollars primarily represents the effect of
the Company's June reduction in force and other expense control measures.
Other income (expense) is comprised primarily of interest income earned
on cash and equivalents, interest expense related to the Company's 8%
Convertible Debentures due March 31, 1997 (issued March 31, 1995 with net
proceeds to the Company of $2,647,337 ) and foreign currency transactions.
Other income (expense) decreased to an expense of $14,908 for the quarter
ended June 30, 1995 from income of $69,087 for the quarter ended June 30,
1994, primarily due to less interest income because of lower average balances
of cash and equivalents and more interest expense due to the accrual of
interest on the outstanding 8% Convertible Debentures due March 31, 1997
All of the outstanding aggregate principal amount of the debentures, except
for $700,000, were converted into 897,988 shares of common stock by the end
of the first quarter of fiscal 1996.
A net loss of $2,775,306 was recorded for the quarter ended June 30,
1995 versus a net loss of $1,088,749 for the quarter ended June 30, 1994.
The increased loss primarily resulted from a decrease of $644,904 in
revenues, an increase of $791,902 in research and development expense which
could not be capitalized (as discussed above), and the incurrence of
approximately of $125,000 severance and other one time costs due to the
reduction in force. The effect of the reduction in force on the net loss was
minimal this quarter since it occurred in mid-June. The Company believes
that its headcount reductions and other cost cutting measures has resulted in
it significantly reducing its expense structure. Although the Company does
not anticipate that it will incur similarly large expenses in fiscal 1996,
there can be no assurance that the Company will be profitable.
8
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VARIABILITY OF RESULTS
The Company has experienced significant quarterly fluctuations in
operating results and anticipates such fluctuations in the future. The
Company generally ships orders as received and, as a result, typically has
little or no backlog. Quarterly revenues and operating results, therefore,
depend on the volume and timing of orders received during the quarter, which
are difficult to forecast. Furthermore, the Company has typically sold to
large corporate enterprises which often purchase in significant quantities,
and therefore, the timing of the receipt of such orders could cause
significant fluctuations in the operating results. Historically, the Company
has often recognized a substantial portion of its license revenues in the
last month of the quarter. Service revenues tend to fluctuate as consulting
projects, which may continue over several quarters, are undertaken or
completed. Operating results may also fluctuate due to factors such as the
demand for the Company's products, the size and timing of customer orders,
the introduction of new products and product enhancements by the Company or
its competitors, changes in the proportion of revenues attributable to
licenses and service fees, commencement or conclusion of significant
consulting projects, changes in the level of operating expenses, and
competitive conditions in the industry.
The Company's staffing and other operating expenses are based on
anticipated revenue, a substantial portion of which is not typically
generated until the end of each quarter. As a result, despite careful
planning, delays in the receipt of orders can cause significant variations in
operating results from quarter to quarter. In addition, revenues in quarters
after a new product release may be significantly affected by the amount of
upgrade revenue, which tends to increase soon after the release of a new
product and then decline rapidly.
A number of additional factors have, from time to time, caused and may
in the future cause the Company's revenues and operating results to vary
substantially from period-to-period. These factors include: pricing
competition, delays in introduction of new products or product enhancements,
size and timing of demand for existing products and shortening of product
life cycle, inventory obsolescence and general economic conditions.
The Company's future operating results will depend, to a considerable
extent, on its ability to rapidly and continuously develop new products that
offer its customers enhanced performance at competitive prices. Inherent in
this process are a number of risks. The development of new, enhanced
software products is a complex and uncertain process requiring high levels of
innovation from the Company's designers as well as accurate anticipation of
customers and technical trends by the marketing staff. Once a product is
developed, the Company must rapidly bring it into production, a process that
requires long lead times on some product components and accurate forecasting
of production volumes, among other things, in order to achieve acceptable
product costs.
The Company's operating results will also be affected by the volume, mix
and timing of orders received during a period and by conditions in the
industries that it serves as well as the general economy. With the addition
of the alternate channels and expanded geographical efforts which started in
fiscal 1995, the Company has entered the worldwide market. Accordingly,
changes in the economies, trade policies and fluctuations in interest or
exchange rates of other countries in which the Company sells its products may
have an impact on its future financial results.
The Company's operating expenses may increase as it expands its
operations. During fiscal 1996, the Company continues making significant
investments in product development, marketing and expansion of its sales
channel in an effort to increase its
9
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presence in the increasingly competitive client/server market place. Future
operating results will be adversely affected if net revenues do not increase
accordingly.
The development and introduction of new or enhanced products also
requires the Company to manage the transition from older, displaced products
in order to minimize disruptions in customer ordering patterns and excessive
levels of older product inventory and to ensure that adequate supplies of new
products can be delivered to meet customer demand. Because the Company is
continuously engaged in this product development and transition process, its
operating results may be subject to considerable fluctuations, particularly
when measured on a quarterly basis.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1995, the Company's principal sources of liquidity consisted
of cash and equivalents of $3.2 million.
The Company's working capital position declined to $4.4 million at June
30, 1995 from $6.5 million at March 31, 1995. The $2.1 decline in working
capital resulted primarily from increased expenses from the Company's
operations.
On July 11, 1995 the Company completed a private offering under
Regulation S of 5% Convertible Debentures due June 30, 1997. This resulted
in net proceeds to the Company of $2,585,000.
The Company has curtailed spending, reduced its workforce significantly
and has implemented other actions to conserve cash. The Company believes
that its cash and equivalents, together with expected net revenues, will be
adequate to meet the Company's anticipated cash needs through fiscal 1996.
However, the Company believes the level of financial resources is a
significant competitive factor in its industry and may chose, prior to the
end of fiscal 1996, to raise additional capital through debt or equity
financings to strengthen its financial position, to accelerate growth or to
provide the Company with additional flexibility to take advantage of business
opportunities that might arise. There can be no guarantee that additional
capital will be available to the Company or, if available, on terms favorable
to the Company. If the Company is unable to raise additional capital through
operations or financings, the Company's business and operation results may be
materially and adversely impacted as management would be required to
significantly curtail operations, which could have a significant adverse
effect on the Company's business.
10
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Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits - None
(b) Reports on Form 8-K
(i) The Company filed a current report on Form 8-K on April 7, 1995
with respect to its issuance of $2.9 million aggregate principal
amount of 8% Convertible Debentures due March 31, 1997.
(ii) The Company filed a current report on Form 8-K on July 14, 1995
with respect to its issuance of $2.8 million aggregate principal
amount of 5% Convertible Debentures due June 30, 1997.
11
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SIGNATURES
Pursuant to the requirements 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.
Date: August 8, 1995 BLYTH HOLDINGS INC.
(Registrant)
/s/ Michael Minor
-----------------------
Michael Minor
Chairmen and
Chief Executive Officer
/s/ Stephen Lorentzen
-------------------------
Stephen Lorentzen
President and
Chief Operating Officer
12
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-START> APR-01-1995
<PERIOD-END> JUN-30-1995
<CASH> 204,123
<SECURITIES> 3,040,642
<RECEIVABLES> 3,648,716
<ALLOWANCES> 195,293
<INVENTORY> 252,034
<CURRENT-ASSETS> 7,879,032
<PP&E> 4,814,845
<DEPRECIATION> 2,044,338
<TOTAL-ASSETS> 11,853,979
<CURRENT-LIABILITIES> 3,511,057
<BONDS> 0
<COMMON> 80,009
0
0
<OTHER-SE> 7,456,176
<TOTAL-LIABILITY-AND-EQUITY> 11,853,979
<SALES> 1,558,789
<TOTAL-REVENUES> 3,434,771
<CGS> 1,978,520
<TOTAL-COSTS> 6,168,753
<OTHER-EXPENSES> 17,441
<LOSS-PROVISION> 195,293
<INTEREST-EXPENSE> 17,441
<INCOME-PRETAX> (2,751,423)
<INCOME-TAX> 23,883
<INCOME-CONTINUING> (2,775,306)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,775,306)
<EPS-PRIMARY> (0.36)
<EPS-DILUTED> (0.36)
</TABLE>
