<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, 1997
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.)
851 Traeger Avenue
San Bruno, California 94066
(Address of principal executive offices)
(415) 829-6000
(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 6, 1997 there were 21,096,358 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, 1997 and March 31, 1997 3
Condensed Consolidated Statements of Operations -
Three months ended June 30, 1997 and 1996 4
Condensed Consolidated Statements of Cash Flows -
Three months ended June 30, 1997 and 1996 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 1. Legal Proceedings 11
Item 2. Changes in Securities 11
Item 3. Defaults upon Senior Securities 11
Item 4. Submission of Matters to a Vote of Security Holders 11
Item 5. Other Information 11
Item 6. Exhibits and Reports on Form 8-K 12
Signatures 13
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, 1997 March 31, 1997
------------- --------------
<S> <C> <C>
Current Assets:
Cash and equivalents $2,883,000 $6,150,000
Trade accounts receivable, less allowance for
doubtful accounts and returns of $681,000 and
$676,000, respectively 2,665,000 1,743,000
Inventory 102,000 18,000
Other current assets 995,000 686,000
------------ ------------
Total current assets 6,645,000 8,597,000
------------ ------------
Property, furniture and equipment, net 1,572,000 1,450,000
------------ ------------
Total Assets $8,217,000 $10,047,000
------------ ------------
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilites:
Accounts payable and accrued liabilities $2,831,000 $2,051,000
Deferred revenue 1,184,000 927,000
Current portion of long term debt 8,000 91,000
------------ ------------
Total current liabilites 4,023,000 3,069,000
------------ ------------
Long term debt, net of unamortized issuance costs of
$0 and $128,000, respectively - 1,646,000
------------ ------------
Total liabilites 4,023,000 4,715,000
------------ ------------
Stockholders' Equity:
Common stock 211,000 174,000
Paid in capital 42,811,000 41,038,000
Accumulated deficit (38,995,000) (36,147,000)
Foreign currency translation adjustment 167,000 267,000
------------ ------------
Total stockholders' equity 4,194,000 5,332,000
------------ ------------
Total Liabilities and Stockholders' Equity $ 8,217,000 $ 10,047,000
------------ ------------
------------ ------------
</TABLE>
3
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BLYTH HOLDINGS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
June 30
1997 1996
------------ -----------
<S> <C> <C>
Net revenues:
Products $ 1,270,000 $ 1,073,000
Services 1,139,000 1,928,000
------------ -----------
Total net revenues 2,409,000 3,001,000
Costs and expenses:
Cost of product revenues 144,000 382,000
Cost of service revenues 1,046,000 1,441,000
Selling 921,000 968,000
Marketing 1,500,000 353,000
Research & development 899,000 591,000
General and administrative 760,000 653,000
------------ -----------
Total costs and expenses 5,270,000 4,388,000
------------ -----------
Operating loss (2,861,000) (1,387,000)
------------ -----------
Other income (expense):
Interest income 60,000 75,000
Interest expense (49,000) (593,000)
Loss on foreign exchange transactions 7,000 -
------------ -----------
18,000 (518,000)
------------ -----------
Loss before income taxes (2,843,000) (1,905,000)
Income tax expense 5,000 20,000
------------ -----------
Net loss $ (2,848,000) $(1,925,000)
------------ -----------
------------ -----------
Net loss per common share: $ (0.14) $ (0.20)
Weighted average number of common
shares outstanding 20,160,375 9,770,898
</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
1997 1996
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (2,848,000) $ (1,382,000)
Adjustments to reconcile net loss to net cash
used for operating activities:
Depreciation and amortization expense 199,000 248,000
Capitalized software development cost
amortization expense - 261,000
Change in assets and liabilities:
Net (increases) decreases in assets:
Trade accounts receivable (924,000) (346,000)
Inventory (84,000) 9,000
Other current assets (310,000) 64,000
Net increases (decreases) in liabilities:
Accounts payable and accrued liabilities 780,000 (253,000)
Deferred revenue 257,000 43,000
------------ ------------
Net cash used for operating activities (2,930,000) (1,356,000)
------------ ------------
Cash flows from investing activities:
Purchases of property, furniture and equipment (342,000) (49,000)
Proceeds from sale of fixed assets 30,000 -
------------ ------------
Net cash used for investing activities (312,000) (49,000)
------------ ------------
Cash flows from financing activities:
Exercise of stock options - 121,000
Net proceeds from issuance of long-term debt - 6,835,000
Repayments of debt (83,000) (54,000)
------------ ------------
Net cash (used for) provided by financing
activities (83,000) 6,902,000
------------ ------------
Effect of exchange rate changes on cash 58,000 4,000
Net increase (decrease) in cash and equivalents (3,267,000) 5,501,000
Cash and equivalents at beginning of period 6,150,000 5,129,000
------------ ------------
Cash and equivalents at end of period $ 2,883,000 $ 10,630,000
------------ ------------
------------ ------------
NON CASH INVESTING AND FINANCING ACTIVITIES
Conversion of convertible subordinated debentures
into common stock $ 1,810,000 $ -
------------ ------------
------------ ------------
</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, 1997. The results of operations for the period ended June
30, 1997 are not necessarily indicative of results to be expected for any
other interim period or the fiscal year ending March 31, 1998.
2. Net loss per share for the three months ended June 30, 1997 is based on
the weighted average number of common shares outstanding during the period.
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, EARNINGS PER SHARE (SFAS 128). The
Company is required to adopt SFAS 128 in the second quarter of fiscal 1998
and will restate at that time earnings per share (EPS) data for prior periods
to conform with SFAS 128. Earlier application is not permitted. The Company
has determined that adoption of SFAS 128 will not have a material affect on
losses per share which have been previously reported.
3. In June 1996 the Company closed an offering of $7,350,000 of 8%
Convertible Debentures due June 3, 1999, (net proceeds of $6,836,000). As of
June 2, 1997 all of the outstanding 8% Convertible Debentures due June 3,
1999 had been either converted or redeemed: of the $7,350,000 of 8%
Convertible Debentures due June 3, 1999, $6,352,667 was converted into
11,202,213 shares of common stock and $997,333 of the aggregate principal
amount of the 8% Convertible Debentures was redeemed for $1,430,499 of cash.
See "Management's Discussion and Analysis of Financial Condition and Results
of Operations--Other Income (Expense).
4. Now Accounting Pronouncements. In June 1997, the Financial Accounting
Standards Board adopted Statements of Financial Accounting Standards No. 130
(REPORTING COMPREHENSIVE INCOME), which requires that an enterprise report,
by major components and as a single total, the change in its net assets
during the period from nonowner sources; and No. 131 (DISCLOSURES ABOUT
SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION), which establishes annual
and interim reporting standards for an enterprise's business segments and
related disclosures about its products, services, geographic areas, and major
customers. Adoption of these statements will not impact the Company's
consolidated financial position, results of operations or cash flows. Both
statements are effective for fiscal years beginning after December 15, 1997,
with earlier application permitted.
6
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BLYTH HOLDINGS INC. AND SUBSIDIARIES
THIS REPORT ON FORM 10-Q INCLUDES A NUMBER OF FORWARD-LOOKING STATEMENTS THAT
REFLECT THE COMPANY'S CURRENT VIEWS WITH RESPECT TO FUTURE EVENTS AND
FINANCIAL PERFORMANCE. THESE FORWARD-LOOKING STATEMENTS ARE SUBJECT TO
CERTAIN RISKS AND UNCERTAINTIES, INCLUDING THOSE DISCUSSED IN "MANAGEMENT'S
DISCUSSIONS AND ANALYSIS OF FINANIAL PERFORMANCE AND RESULTS OF OPERATIONS,"
BELOW THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM HISTORICAL
RESULTS OR ANTICIPATED RESULTS.
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
OVERVIEW
The Company has operated at a loss for the last four years. In fiscal
year 1997, operations of the Company generated a negative cash flow.
Although the Company's new management team has taken steps to improve the
Company's cash flow through (i) more effective marketing of its products;
(ii) focusing research and development expenditures on products that have a
shorter payback period; (ii) improving operational efficiencies; and (iv)
converting the Convertible Debentures into common stock of the Company. With
these improvements, the Company continues to generate a negative cash flow
and does not expect to become profitable until late fiscal year 1998 or
later. There can be no assurance that the Company will be able to
significantly reduce its cash used by operations or achieve profitability in
the near future or at all. Accordingly, the Company may need to raise
significant additional funds to support operations.
The Company does not currently have an established line of credit with a
commercial bank. Such a credit facility may be difficult to obtain with the
Company's historical operating results. Accordingly, in order to obtain
additional funds in the future, the Company is exploring various options to
raise additional capital to support management's current efforts to improve
the Company's operating performance but has not finalized any plans. There
can be no assurance that the Company will be able to raise additional capital
on commercially reasonable terms, if at all.
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1997 AND JUNE 30, 1996
REVENUES Total net revenues declined 20% to $2,409,000 for the three months
ended June 30, 1997 from $3,001,000 for the three months ended June 30, 1996.
The decline in total net revenues for the three months ended June 30, 1997 as
compared to the three months ended June 30, 1996 was due to a decline in service
revenues during this period offset in part by increases in product revenues
during this same period.
Product revenues increased 18% to $1,270,000 for the three months ended
June 30, 1997 from $1,073,000 for the three months ended June 30, 1996. The
higher product revenues for the three months ended June 30, 1997 as compared
to the three months ended June 30, 1996 is attributable to the introduction
of the Company's new OMNIS studio product line products as well as a result
of increased marketing efforts by the Company.
Service revenues for the three months ended June 30, 1997 decreased 41% to
$1,139,000 from $1,928,000 from the three months ended June 30, 1996. The
decrease in service revenues for the three months ended June 30, 1997 as
compared to the three months ended June 30, 1996 was a result of the
completion of two large non-recuring consulting engagements that represented
approximately $700,000 of the Company's service revenues for the three
months ended June 30, 1996.
COST OF SALES Cost of product revenues is comprised of direct costs
associated with software product sales including software packaging,
documentation and physical media costs. Cost of service revenues is comprised
of customer support (maintenance), including technical support salaries and
related expenses, and consulting related costs including salaries and related
costs incurred in delivering the consulting and training services.
Cost of product revenues as a percentage of product revenues decreased from
35.6% in the three months ended June 30, 1996 to 11.3% in the three months
ended June 30, 1997 due to the absence of amortization of software
development costs in the three months ended June 30, 1997 as compared to the
three months ended June 30, 1996. The Company no longer capitalizes research
and development costs.
Cost of service revenues increased from 74.7% in the three months ended
June 30, 1996 to 91.8% in the three months ended June 30, 1997, primarily due
to lower billing rates and lower utilization rates for the Company's consulting
staff as well as costs associated with the development of training tools for the
Company's new products.
SELLING EXPENSE Selling expense decreased from $968,000 for the three
months ended June 30, 1996 to $921,000 for the three months ended June 30,
1997 primarily due the Company having several unfilled sales positions during
the three months ended June 30, 1997.
MARKETING EXPENSE Marketing expense increased from $353,000 for the three
months ended June 30, 1996 to $1.5 million for the three months ended June
30, 1997 primarily due to costs associated with the Company's lead generation
effort, including trade shows and advertising, as well a as costs associated
with the introduction of new products and public relations costs.
RESEARCH AND DEVELOPMENT EXPENSE Research and development costs
increased to $899,000 for the three months ended June 30, 1997 from $591,000
for the three months ended June 30, 1996, representing 37% and 20% of total
net revenues during those periods, respectively. The increase in research
and development costs for the three months ended June 30, 1997 as compared to
the three months ended June 30, 1996 is primarily due to increased investment
in the Company's new products. The Company continues to invest in the
development of new products aimed at sales opportunities that the Company
believes will expand its markets.
GENERAL AND ADMINISTRATIVE EXPENSE General and administrative expenses
increased to $760,000 for the three months ended June 30, 1997 from $653,000
for the three months ended June 30, 1996, representing an increase of 16.4%.
The increase in general and administrative expense was primarily due to
expenses associated with the move of the Company's headquarters to new
facilities in San Bruno, California. The lease on the Company's previous
facilities, which was at a below-market rate, terminated on May 31, 1997. The
rent for the Company's new facilities is at a market rate and will result in
the Company recognizing slightly higher general and administrative expense in
the future.
OTHER INCOME (EXPENSE) Other income (expense) is comprised primarily of
interest income earned on cash and equivalents, interest expense, and any gain
or loss on foreign currency transactions. Interest income decreased to $60,000
for the three months ended June 30, 1997 from $75,000 for the
7
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three months ended June 30, 1996, primarily due to lower average balances of
cash and equivalents. Interest expense decreased to $49,000 for the three
months ended June 30, 1997 from $593,000 for the three months ended June 30,
1996 due primarily to the lower outstanding balance on the 8% Convertible
Debentures. As of June 2, 1997 all of the Company's 8% Convertible
Debentures due June 3, 1999 had been converted or redeemed: of the $7,350,000
of 8% Convertible Debentures due June 3, 1999, $6,352,667 were converted
into 11,202,213 shares of common stock and $997,333 of the aggregate
principal amount of the 8% Convertible Debentures were redeemed for
$1,430,499 in cash.
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
8
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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 1998, the Company plans to continue to make 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, 1997, the Company's principal sources of liquidity consisted of
cash and equivalents of $2.9 million.
The Company's working capital position decreased to $2.6 million at June
30, 1997 from $5.5 million at March 31, 1997. This decrease in working
capital during the first quarter of fiscal 1998 was primarily due to the
Company's net loss during the three months ended June 30, 1997.
9
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BLYTH HOLDINGS INC.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
10
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Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27.1 Financial Data 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: August 14, 1997 BLYTH HOLDINGS INC.
(Registrant)
/s/ Timothy P. Negris
--------------------------
Timothy P. Negris
President and Chief
Executive Officer
/s/ William M. Glynn
-------------------------
William M. Glynn
Vice President, Finance
12
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-START> APR-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 289,000
<SECURITIES> 2,594,000
<RECEIVABLES> 3,346,000
<ALLOWANCES> 681,000
<INVENTORY> 102,000
<CURRENT-ASSETS> 6,645,000
<PP&E> 4,149,000
<DEPRECIATION> 2,577,000
<TOTAL-ASSETS> 8,217,000
<CURRENT-LIABILITIES> 4,023,000
<BONDS> 0
0
0
<COMMON> 211,000
<OTHER-SE> 3,983,000
<TOTAL-LIABILITY-AND-EQUITY> 8,217,000
<SALES> 1,270,000
<TOTAL-REVENUES> 2,409,000
<CGS> 1,190,000
<TOTAL-COSTS> 5,270,000
<OTHER-EXPENSES> (18,000)
<LOSS-PROVISION> 681,000
<INTEREST-EXPENSE> 49,000
<INCOME-PRETAX> (2,843,000)
<INCOME-TAX> 5,000
<INCOME-CONTINUING> (2,848,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,848,000)
<EPS-PRIMARY> (0.14)
<EPS-DILUTED> (0.14)
</TABLE>
