<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, 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
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As of August 9, 1996 there were 10,280,944 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, 1996 and March 31, 1996 3
Condensed Consolidated Statements of Operations -
Three months ended June 30, 1996 and 1995 4
Condensed Consolidated Statements of Cash Flows -
Three months ended June 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 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
ASSETS
<TABLE>
<CAPTION>
June 30, 1996 March 31, 1996
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(Unaudited) (Derived from audited
financial statements)
<S> <C> <C>
Current Assets:
Cash and equivalents $10,630,000 $5,129,000
Trade accounts receivable, less allowance for
doubtful accounts and returns of $410,000 and
$400,000, respectively 2,649,000 2,303,000
Inventory 63,000 71,000
Other current assets 1,091,000 1,155,000
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Total current assets 14,433,000 8,658,000
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Property, furniture and equipment, net 1,646,000 1,831,000
Capitalized software development costs, net 31,000 300,000
Other assets 52,000 52,000
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Total Assets $16,162,000 $10,841,000
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--------------- ---------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilites:
Accounts payable and accrued liabilities $1,569,000 $1,822,000
Deferred revenue 1,136,000 1,093,000
Current portion of long term debt 66,000 108,000
--------------- ---------------
Total current liabilites 2,771,000 3,023,000
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Long term debt, net of unamortized issuance
costs of $514,000 and $0, respectively 6,850,000 26,000
--------------- ---------------
Total liabilites 9,621,000 3,049,000
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Stockholders' Equity:
Common stock 98,000 98,000
Paid in capital 35,833,000 35,722,000
Accumulated deficit (29,534,000) (28,152,000)
Foreign currency translation adjustment 144,000 124,000
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Total stockholders' equity 6,541,000 7,792,000
--------------- ---------------
Total Liabilities and Stockholders' Equity $16,162,000 $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
June 30
1996 1995
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<S> <C> <C>
Net revenues:
Products $1,073,000 $1,559,000
Services 1,928,000 1,876,000
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Total net revenues 3,001,000 3,435,000
Costs and expenses:
Cost of sales 1,823,000 1,979,000
Research & development 591,000 1,091,000
Sales, general and administrative 1,974,000 3,099,00
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Total costs and expenses 4,388,000 6,169,000
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Operating loss (1,387,000) (2,734,000)
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Other income (expense):
Interest income 75,000 51,000
Interest expense (50,000) (68,000)
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25,000 (17,000)
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Loss before income taxes (1,362,000) (2,751,000)
Income tax expense 20,000 24,000
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Net loss $(1,382,000) $(2,775,000)
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Net loss per common share: $(0.14) $(0.36)
Weighted average number of common
shares outstanding 9,770,898 7,714,012
</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
1996 1995
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<S> <C> <C>
Cash flows from operating activities:
Net loss $(1,382,000) $(2,775,000)
Adjustments to reconcile net loss to net cash
used for operating activities:
Depreciation and amortization expense 248,000 328,000
Capitalized software development cost
amortization expense 261,000 290,000
Accrued interest converted into stock - 48,000
Change in assets and liabilities:
Net (increases) decreases in assets:
Trade accounts receivable (346,000) 513,000
Inventory 9,000 10,000
Other current assets 64,000 148,000
Net increases (decreases) in liabilities:
Accounts payable and accrued liabilities (253,000) (120,000)
Deferred revenue 43,000 343,000
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Net cash used for operating activities (1,356,000) (1,215,000)
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Cash flows from investing activities:
Purchases of property, furniture and equipment (49,000) (119,000)
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Net cash used for investing activities (49,000) (119,000)
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Cash flows from financing activities:
Exercise of stock options 121,000 33,000
Net proceeds from issuance of long-term debt 6,835,000 -
Repayments of debt (54,000) -
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Net cash provided by financing activities 6,902,000 33,000
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Effect of exchange rate changes on cash 4,000 (48,000)
Net increase (decrease) in cash and equivalents 5,501,000 (1,349,000)
Cash and equivalents at beginning of period 5,129,000 4,594,000
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Cash and equivalents at end of period $10,630,000 $3,245,000
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</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
June 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 months ended June 30, 1996 is based
on the weighted average number of common shares outstanding during the
period.
3. In June 1996 the Company issued $7,350,000 of 8% Convertible
Debentures due June 3, 1999 which after issuance costs of $514,000
resulted in net proceeds of $6,835,000. The issuance costs are
capitalized and amortized to interest expense using the effective
interest method over the expected life of the debt. 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 of the long-term portion of
capital 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, 1996 AND JUNE 30, 1995
REVENUES. Total net revenues declined 13% to $3,001,000 for the three
months ended June 30, 1996 as compared to $3,435,000 for the three months ended
June 30, 1995. The decline in total net revenues in the three months ended June
30, 1996 as compared to the three months ended June 30, 1995 was due to a
decline in product revenues during this period offset in part by increases in
service revenues during this same period.
Product revenues declined 31% to $1,073,000 for the three months ended June
30, 1996 as compared to $1,559,000 in the corresponding period of the prior
year. The decrease in product revenues in the three months ended June 30, 1996
as compared to the three months ended June 30, 1995 was primarily due to the
lower list prices of the Company's new products which were introduced in
September 1995 as part of the Company's new product strategy.
Service revenues for the three months ended June 30, 1996 increased 3% to
$1,928,000 from $1,876,000 for the corresponding period of the prior year. The
increase in service revenues in the three months ended June 30, 1996 as compared
to the three months ended June 30, 1995 was a result of increased revenues from
the Company's International User Conference that was held in June 1996 and from
revenues from IBM for the development of the OMNIS OS/2 platform.
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 increased to 61%
from 58% for the three months ended June 30, 1996 compared to the three months
ended June 30, 1995. This increase in cost of sales as a percentage of total
net revenues was primarily attributable to the higher proportion of service
revenue to product revenue. Service revenue has a significantly higher cost of
sales as compared to product sales. The decrease in cost of products and
services in absolute dollars for the three months ended June 30, 1996 compared
to the three months ended June 30, 1995 was due to the lower revenues in the
quarter ended June 30, 1996.
RESEARCH AND DEVELOPMENT EXPENSE Research and development expense
decreased to $591,000 for the three months ended June 30, 1996 from $1,091,000
for the three months ended June 30, 1995, representing 20% and 30% of total net
revenues during these periods, respectively. The decrease in research and
development costs is primarily due to decreased staffing and associated support
costs. In June of 1995 the Company refocused its product software development
strategy to focus its near term marketing and sales efforts on products
addressing the needs of its developed customer base, resulting in a reduction of
personnel. The Company continues to invest in the
7
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development of new products aimed at sales opportunities that the Company
expects will expand its markets. The Company expenses its research and
development costs as they are incurred. The Company ended the three months
ended June 30, 1996 with $31,000 of capitalized software development costs which
the company expects to fully amortize by the end of the second quarter of fiscal
1997.
SALES, GENERAL AND ADMINISTRATIVE EXPENSES Sales, general and
administrative expenses decreased to $1,974,000 for the three months ended June
30, 1996 from $3,099,000 for the three months ended June 30, 1995, representing
66% and 90% 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 June of 1995.
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 3, 1996 with
net proceeds to the Company of $6,835,000 ) and foreign currency transactions.
Total other income (expense) increased to income of $25,000 for the three months
ended June 30, 1996 from an expense of $17,000 for the three months ended June
30, 1995, primarily due to higher interest income because of higher average
balances of cash and equivalents.
NET LOSS. The Company recognized a net loss of $1,382,000 for the three
months ended June 30, 1996 versus a net loss of $2,775,000 for the three months
ended June 30, 1995. This decreased loss primarily resulted from a decrease of
$1,125,000 in sales, general and administrative costs in the three months ended
June 30, 1996 as compared to the three months ended June 30, 1995, a decrease in
cost of sales of $156,000 in the three months ended June 30, 1996 as compared to
the three months ended June 30, 1995 and a decrease in research and development
expense of $500,000 in the three months ended June 30, 1996 as compared to the
three months ended June 30, 1995, which was offset in part by a decline in total
net revenues of $434,000 in the three months ended June 30, 1996 as compared to
the three months ended June 30, 1995.
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
8
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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: changes in
operational strategies, 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. The Company's
products are sold in many countries 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 expects to continue making significant
investments in product development, marketing and expansion of its sales channel
in an effort to increase its 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, 1996, the Company's principal sources of liquidity consisted of
cash and equivalents of $10.6 million.
The Company's working capital position increased to $11.7 million at June
30, 1996 from $5.6 million at March 31, 1996. This increase in working capital
during the first quarter of fiscal 1997 was primarily due to the fact that on
June 3, 1996 the Company completed 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 $6,835,000. As of August
9, 1996 $519,998 of convertible debentures have been converted into 476,143
shares of the Company's common stock.
9
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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 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. 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 requires
additional capital and is unable to raise it 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. The Company has filed a current report on
form 8-K on June 4, 1996 with respect to its issuance of $7.35
million aggregate principal amount of 8% Convertible Debentures
due June 3, 1999.
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 12, 1996 BLYTH HOLDINGS INC.
(Registrant)
/s/ Michael Minor
-----------------
Michael Minor
Chairman and
Chief Executive Officer
/s/ Stephen Lorentzen
---------------------
Stephen Lorentzen
President and
Chief Operating Officer and
Chief Financial Officer
12
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> APR-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 33,000
<SECURITIES> 10,597,000
<RECEIVABLES> 3,059,000
<ALLOWANCES> 410,000
<INVENTORY> 63,000
<CURRENT-ASSETS> 14,433,000
<PP&E> 3,965,000<F1>
<DEPRECIATION> 2,319,000<F1>
<TOTAL-ASSETS> 16,162,000
<CURRENT-LIABILITIES> 2,771,000
<BONDS> 6,850,000
0
0
<COMMON> 98,000
<OTHER-SE> 6,443,000
<TOTAL-LIABILITY-AND-EQUITY> 16,162,000
<SALES> 1,073,000
<TOTAL-REVENUES> 3,001,000
<CGS> 1,823,000
<TOTAL-COSTS> 4,388,000
<OTHER-EXPENSES> (25,000)
<LOSS-PROVISION> 410,000
<INTEREST-EXPENSE> (25,000)
<INCOME-PRETAX> (1,362,000)
<INCOME-TAX> 20,000
<INCOME-CONTINUING> (1,382,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,382,000)
<EPS-PRIMARY> (0.14)
<EPS-DILUTED> (0.14)
<FN>
<F1> Details for U.S. only
</TABLE>
