<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 SEPTEMBER 30, 1996
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 November 1, 1996 there were 10,962,190 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 -
September 30, 1996 and March 31, 1996 3
Condensed Consolidated Statements of Operations -
Three and six months ended September 30, 1996
and 1995 4
Condensed Consolidated Statements of Cash Flows -
Six months ended September 30, 1996 and 1995 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 4. Matters Submitted to a Vote of Security Holders 12
Item 6. Exhibits and Reports on Form 8-K 13
Signatures 14
2
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PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
BLYTH HOLDINGS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
September 30, 1996 March 31, 1996
------------------ ---------------------
<S> <C> <C>
(Unaudited) (Derived from audited
financial statements)
Current Assets:
Cash and equivalents $9,772,000 $5,129,000
Trade accounts receivable, less allowance for
doubtful accounts of $396,000 and
$400,000, respectively 2,365,000 2,303,000
Inventory 47,000 71,000
Other current assets 1,284,000 1,155,000
------------------ -------------------
Total current assets 13,468,000 8,658,000
------------------ -------------------
Property, furniture and equipment, net 1,562,000 1,831,000
Capitalized software development costs, net - 300,000
Other assets 52,000 52,000
------------------ -------------------
Total Assets $15,082,000 $10,841,000
------------------ -------------------
------------------ -------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilites:
Accounts payable and accrued liabilities $1,684,000 $1,822,000
Deferred revenue 1,047,000 1,093,000
Current portion of long term debt 213,000 108,000
------------------ -------------------
Total current liabilites 2,944,000 3,023,000
------------------ -------------------
Long term debt, net of unamortized issuance costs of
$403,000 and $0, respectively 5,354,000 26,000
------------------ -------------------
Total liabilites 8,298,000 3,049,000
------------------ -------------------
Stockholders' Equity:
Common stock 110,000 98,000
Paid in capital 37,058,000 35,722,000
Accumulated deficit (30,533,000) (28,152,000)
Foreign currency translation adjustment 149,000 124,000
------------------ -------------------
Total stockholders' equity 6,784,000 7,792,000
------------------ -------------------
Total Liabilities and Stockholders' Equity $ 15,082,000 $ 10,841,000
------------------ -------------------
------------------ -------------------
</TABLE>
3
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BLYTH HOLDINGS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
September 30 September 30
1996 1995 1996 1995
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net revenues:
Products $ 1,377,000 $ 1,183,000 $ 2,450,000 $ 2,742,000
Services 1,454,000 1,928,000 3,382,000 3,804,000
------------ ------------ ------------ ------------
Total net revenues 2,831,000 3,111,000 5,832,000 6,546,000
Costs and expenses:
Cost of sales 1,118,000 1,739,000 2,941,000 3,718,000
Research & development 671,000 616,000 1,262,000 1,707,000
Sales, general and administrative 1,886,000 2,082,000 3,860,000 5,181,000
------------ ------------ ------------ ------------
Total costs and expenses 3,675,000 4,437,000 8,063,000 10,606,000
------------ ------------ ------------ ------------
Operating loss (844,000) (1,326,000) (2,231,000) (4,060,000)
------------ ------------ ------------ ------------
Other income (expense):
Interest income 92,000 63,000 167,000 114,000
Interest expense (238,000) (35,000) (288,000) (105,000)
Loss on foreign exchange transactions (1,000) (4,000) (1,000) (2,000)
------------ ------------ ------------ ------------
(147,000) 24,000 (122,000) 7,000
------------ ------------ ------------ ------------
Loss before income taxes (991,000) (1,302,000) (2,353,000) (4,053,000)
Income tax expense 8,000 4,000 28,000 28,000
------------ ------------ ------------ ------------
Net loss $ (999,000) $ (1,306,000) $ (2,381,000) $ (4,081,000)
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Net loss per common share: $ (0.10) $ (0.15) $ (0.24) $ (0.52)
Weighted average number of common
shares outstanding 10,261,989 8,457,882 10,017,785 7,913,085
</TABLE>
4
<PAGE>
BLYTH HOLDINGS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
September 30
1996 1995
------------- ------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (2,381,000) $ (4,081,000)
Adjustments to reconcile net loss to net cash
used for operating activities:
Depreciation and amortization expense 467,000 638,000
Capitalized software development cost
amortization expense 300,000 562,000
Accrued interest converted into stock 22,000 83,000
Change in assets and liabilities:
Net (increases) decreases in assets:
Trade accounts receivable (62,000) 1,001,000
Inventory 24,000 18,000
Other current assets (129,000) 649,000
Other assets - 3,000
Net increases (decreases) in liabilities:
Accounts payable and accrued liabilities (138,000) (413,000)
Deferred revenue (46,000) 353,000
------------- ------------
Net cash used for operating activities (1,943,000) (1,187,000)
------------- ------------
Cash flows from investing activities:
Purchases of property, furniture and equipment (181,000) (159,000)
------------- ------------
Net cash used for investing activities (181,000) (159,000)
------------- ------------
Cash flows from financing activities:
Exercise of stock options 122,000 114,000
Net proceeds from issuance of long-term debt 6,835,000 2,572,000
Repayments of debt (195,000) (51,000)
------------- ------------
Net cash provided by financing activities 6,762,000 2,635,000
------------- ------------
Effect of exchange rate changes on cash 5,000 (43,000)
------------ ------------
Net increase (decrease) in cash and equivalents 4,643,000 1,246,000
Cash and equivalents at beginning of period 5,129,000 4,593,000
------------- ------------
Cash and equivalents at end of period $9,772,000 $5,839,000
------------- ------------
------------- ------------
NON CASH INVESTING AND FINANCING ACTIVITIES
Conversion of convertible subordinated debentures
into common stock $1,226,000 $4,409,000
------------- ------------
------------- ------------
</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, 1996. The results of operations for the period ended
September 30, 1996 are not necessarily indicative of results to be expected
for any other interim period or the year ending March 31, 1997.
2. Net loss per share for the three and six months ended September 30, 1996
is based on the weighted average number of common shares outstanding during
the period including, where applicable, common stock equivalent shares.
3. In June 1996 the Company closed an offering of $7,350,000 aggregate
principal amount of 8% Convertible Debentures due June 3, 1999, (net proceeds
of $6,836,000). 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 3, 1999. The Company's other long term debt consists primarily of
long term leases. In September of 1996 the National Association of Security
Dealers (Nasdaq) notified the Company that under its rules the 8% Convertible
Debentures due June 3, 1999 must be ratified at a special meeting of its
shareholders that has been scheduled for November 18, 1996. If the
shareholders do not ratify the Debentures the Company will be forced to
repurchase the Debentures or have its Common Stock delisted from Nasdaq
National Market System. Repurchase of the Debentures would substantially
reduce the Company's cash and equivalents and adversely affect the Company's
ability to conduct its business.
6
<PAGE>
BLYTH HOLDINGS INC. AND SUBSIDIARIES
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
RESULTS OF OPERATIONS
THREE AND SIX MONTHS ENDED SEPTEMBER 30, 1996 AND SEPTEMBER 30, 1995
REVENUES. Total net revenues declined 9% to $2,831,000 for the three
months ended September 30, 1996 from $3,111,000 for the three months ended
September 30, 1995. The decline in total net revenues for the three months ended
September 30, 1996 as compared to the three months ended September 30, 1995 was
due to a decline in service revenues offset in part by an increase in product
revenues. In addition, total net revenues declined 11% to $5,832,000 for the
six months ended September 30, 1996 from $6,546,000 for the six months ended
September 30, 1995. The decline in total net revenues for the six months ended
September 30, 1996 as compared to the six months ended September 30, 1995 was
due to a decline of both service revenues and product revenues.
Product revenues increased 16% to $1,377,000 for the three months ended
September 30, 1996 from $1,183,000 for the three months ended September 30,
1995. The increase in product revenues for the three months ended September 30,
1996 as compared to the three months ended September 30, 1995 was primarily due
to the recognition of a large sale of $425,000 to Informix Corporation.
Product revenues decreased 11% to $2,450,000 for the six months ended
September 30, 1996 from $2,742,000 for the six months ended September 30,
1995. The decrease in product revenues for the six months ended September
30, 1996 as compared to the six months ended September 30, 1995 was primarily
due to decreased prices of the Company's software as a result of to
competitive pressures.
Service revenues for the three months ended September 30, 1996 decreased
25% to $1,454,000 from $1,928,000 from the three months ended September 30,
1995. Service revenues for the six months ended September 30, 1996 decreased
11% to $3,382,000 from $3,804,000 from the six months ended September 30,
1995. The decrease in service revenues for the three months and six months ended
September 30, 1996 as compared to the three months and six months ended
September 30, 1995, respectively, was a result of decreased consulting revenues
from services provided in connection with customer implementation of the
Company's products together with a decrease in maintenance and support revenues.
COST OF SALES Cost of sales 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 sales as a percentage of total net
revenues decreased to 39% for the three months ended September 30, 1996 from
56% for the three months ended September 30, 1995. This decrease was largely
attributable to lower amortization of capitalized software development costs,
the amortization of which was completed during the three months ended
September 30, 1996. The decrease in cost of sales as a percentage of total
net revenues in these periods was also due to a lower cost of product sales
and an increase in the portion of total net revenues derived from product
revenues which carry a significantly higher gross margin than services
revenues. Cost of products and services as a percentage of total net
revenues decreased to 50% for the six months ended September 30, 1996 from
57% for the six months ended September 30, 1995. This decrease was largely
attributable to lower amortization of capitalized software development costs
and lower cost of product sales.
7
<PAGE>
RESEARCH AND DEVELOPMENT EXPENSE Research and development costs
increased to $671,000 for the three months ended September 30, 1996 from
$616,000 for the three months ended September 30, 1995. The increase in
research and development costs for the three months ended September 30, 1996 as
compared to the three months ended September 30, 1995 is primarily due to
increased investment in the Company's new electonic commerce products. Research
and development costs decreased to $1,262,000 for the six months ended September
30, 1996 from $1,707,000 for the six months ended September 30, 1995. The
decrease in research and development costs for the six months ended September
30, 1996 as compared to the six months ended September 30, 1995 is primarily due
to decreased staffing and associated support costs offset in part by increased
investment in the Company's new electonic commerce products in the three months
ended September 30, 1996. The Company continues to invest in the development of
new products aimed at sales opportunities that the Company expects will expand
its markets.
SALES, GENERAL AND ADMINISTRATIVE EXPENSES Sales, general and
administrative expenses decreased to $1,886,000 for the three months ended
September 30, 1996 from $2,082,000 for the three months ended September 30,
1995, representing 67% of total net revenues during each of these periods,
respectively. Sales, general and administrative expenses decreased to
$3,860,000 for the six months ended September 30, 1996 from $5,181,000 for the
six months ended September 30, 1995, representing 66% and 79% of total net
revenues during these periods, respectively. The decrease in absolute dollars
primarily represents the effect of the Company's cost control measures
instituted during the fiscal year ended March 31, 1996.
OTHER INCOME (EXPENSE) 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 June 3, 1999 (issued June 4,
1996 with net proceeds to the Company of $6,836,000), and loss on foreign
currency transactions. Interest income increased to $92,000 for the three
months ended September 30, 1996 from $63,000 for the three months ended
September 30, 1995 and increased to $167,000 for the six months ended
September 30, 1996 from $114,000 for the three months ended September 30,
1995, primarily due to higher average balances of cash and equivalents.
Interest expense increased to $238,000 for the three months ended September 30,
1996 from $35,000 for the three months ended September 30, 1995 and increased to
$288,000 for the six months ended September 30, 1996 from $105,000 for the six
months ended September 30, 1995 due primarily to the accrual of interest on the
outstanding 8% Convertible Debentures due June 3, 1999 and premiums paid in
order to redeem certain of the 8% Convertible Debentures when they were
submitted for conversion. As of September 30,1996, of the $7,350,000 aggregate
principal amount of 8% Convertible Debentures due June 3, 1999, $1,291,663
aggregate principal amount has been converted into 1,125,809 shares of common
stock and $307,333 aggregate principal amount has been redeemed for $392,968
of cash.
The Company recognized a net loss of $999,000 for the three months ended
September 30, 1996 compared to a net loss of $1,306,000 for the three months
ended September 30, 1995. A net loss of $2,381,000 was recorded for the six
months ended September 30, 1996 compared to a net loss of $4,081,000 for the six
months ended September 30, 1995. These decreased losses primarily resulted
from decreases in costs and expenses.
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 but are not
limited to: 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
customer needs 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. The Company sells
its products in the worldwide market, and 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 1997, 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 September 30, 1996, the Company's principal sources of liquidity
consisted of cash and equivalents of $9.8 million.
The Company's working capital position increased to $10.5 million at
September 30, 1996 from $5.6 million at March 31, 1995. This increase in
working capital occurred in the first quarter of fiscal 1997 primarily as a
result of the completion by the Company of a private offering under
Regulation S of the Securities Act of 1933, as amended, of 8% Convertible
Debentures due June 3, 1999 which resulted in net proceeds to the Company of
$6,836,000.
In September of 1996 the National Association of Security Dealers
(Nasdaq) notified the Company that under its rules the 8% Convertible
Debentures due June 3, 1999 must be ratified at a special meeting of its
shareholders that has been scheduled for November 18, 1996. If the
shareholders do not ratify the Debentures the Company will be forced to
repurchase the Debentures or have its Common Stock delisted from Nasdaq
National Market System. Repurchase of the Debentures would substantially
reduce the Company's cash and equivalents and adversely affect the Company's
ability to conduct its business.
Since September 30, 1995 the Company has curtailed spending, has
implemented other actions to conserve cash and has increased cash balances
through its financing activities. The Company believes that if the Company's
shareholders ratify its 8% Convertible Debentures due June 3, 1999 at the
special meeting scheduled for November 18, 1996, its cash and equivalents,
together with expected net revenues, will be adequate to meet the Company's
anticipated cash needs through fiscal 1997. However, the Company believes
the level of financial resources is a significant competitive factor in its
industry and may choose, prior to the end of fiscal 1997, 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. If
the Company is required to repurchase its 8% Convertible Debentures due June 3,
1999, the Company will likely be required to seek additional capital.
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 operating results may be materially and adversely
impacted as management may be required to significantly curtail operations,
which could have a significant adverse effect on the Company's business.
10
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At Blyth Holdings' Annual Meeting of Stockholders held August 20, 1996,
the following matters were voted upon by stockholders pursuant to proxies
solicited pursuant to Regulation 14A:
The following individuals were elected to the Board of Directors:
VOTES VOTE
FOR WITHHELD
----- --------
Michael J. Minor 7,136,610 110,177
The following proposals were approved at Blyth Holdings's Annual Meeting
of Stockholders:
VOTES VOTES
FOR AGAINST ABSTAINED
----- ------- ---------
1. Amendment of the Company's Certificate 7,011,434 2,222,205 13,148
of Incorporation to increase the number
of authorized shares from 20 million to
40 million
2. Amendment of the Company's 6,254,492 967,967 24,328
1996 Stock Plan and the reservation
of 450,000 shares of Common Stock
for issuance thereunder
3. Ratification of appointment of 7,200,339 35,950 10,498
Deloitte & Touche as
independent auditors
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
11.1 Calculations of Earnings per Share
27.1 Financial Date Schedule
(b) Reports on Form 8-K -- None
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: November 14, 1996 BLYTH HOLDINGS INC.
(Registrant)
/s/ Michael J. Minor
---------------------
Michael J. Minor
Chairman and Chief
Executive Officer
12
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> APR-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 360,000
<SECURITIES> 9,412,000
<RECEIVABLES> 2,761,000
<ALLOWANCES> 396,000
<INVENTORY> 47,000
<CURRENT-ASSETS> 13,468,000
<PP&E> 3,929,000
<DEPRECIATION> 2,367,000
<TOTAL-ASSETS> 15,082,000
<CURRENT-LIABILITIES> 2,944,000
<BONDS> 5,354,000
0
0
<COMMON> 110,000
<OTHER-SE> 6,674,000
<TOTAL-LIABILITY-AND-EQUITY> 15,082,000
<SALES> 1,377,000
<TOTAL-REVENUES> 2,831,000
<CGS> 1,118,000
<TOTAL-COSTS> 3,675,000
<OTHER-EXPENSES> 147,000
<LOSS-PROVISION> 396,000
<INTEREST-EXPENSE> 238,000
<INCOME-PRETAX> (991,000)
<INCOME-TAX> 8,000
<INCOME-CONTINUING> (999,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (999,000)
<EPS-PRIMARY> (0.10)
<EPS-DILUTED> (0.10)
</TABLE>
