-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, EW0KGUVBxlHxYz4nhuvDqM8XC/3FIloB3/5la++qnYR5NGP7ly9EFXdXTcWNn2Oe dWyi1yoLBiPv1O1eUS+jQQ== 0000912057-96-002362.txt : 19960216 0000912057-96-002362.hdr.sgml : 19960216 ACCESSION NUMBER: 0000912057-96-002362 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19960213 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: BLYTH HOLDINGS INC CENTRAL INDEX KEY: 0000820738 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-PREPACKAGED SOFTWARE [7372] IRS NUMBER: 943046892 STATE OF INCORPORATION: DE FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-16449 FILM NUMBER: 96517756 BUSINESS ADDRESS: STREET 1: 989 E HILLSDALE BLVD #400 CITY: FOSTER CITY STATE: CA ZIP: 94404 BUSINESS PHONE: 4152867174 MAIL ADDRESS: STREET 1: 989 E HILLSDALE BLVD. #400 CITY: FOSTER CITY STATE: CA ZIP: 94404 10-Q 1 FORM 10-Q 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 DECEMBER 31, 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 ----- ----- 1 As of February 1, 1996 there were 9,929,807 shares of registrant's Common Stock, $.01 par value, outstanding. BLYTH HOLDINGS INC. INDEX PART I. FINANCIAL INFORMATION Page No . Item 1. Financial Statements: Condensed Consolidated Balance Sheets - December 31, 1995 and March 31, 1995 3 Condensed Consolidated Statements of Operations - Three and nine months ended December 31, 1995 and 1994 4 Condensed Consolidated Statements of Cash Flows - Nine months ended December 31, 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 12 Signatures 13 2 PART I. FINANCIAL INFORMATION ITEM 1. Financial Statements BLYTH HOLDINGS INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) ASSETS
December 31, 1995 March 31, 1995 ----------------- -------------- Current Assets: Cash and equivalents $5,112,000 $4,593,000 Trade accounts receivable, less allowance for doubtful accounts and returns of $174,748 and $458,710 at December 31 and March 31, respectively 2,662,000 3,966,000 Inventory 211,000 262,000 Other Current Assets 1,353,000 1,077,000 ------------ ------------ Total current assets 9,338,000 9,898,000 ------------ ------------ Property, furniture and equipment, net 2,158,000 2,979,000 Capitalized software development costs, net 581,000 1,440,000 Other assets 52,000 55,000 ------------ ------------ Total Assets $ 12,129,000 $ 14,372,000 ------------ ------------ ------------ ------------ LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Accounts payable and accrued liabilities $ 1,900,000 $ 2,235,000 Deferred Revenue 1,193,000 1,040,000 Current portion of long term debt 102,000 97,000 ------------ ------------ Total current liabilities 3,195,000 3,372,000 Long term debt 303,000 2,759,000 Stockholders' Equity: Common stock 97,000 71,000 Paid in Capital 35,660,000 30,741,000 Treasury stock (507,000) (1,557,000) Accumulated deficit (26,783,000) (21,296,000) Foreign currency translation adjustment 164,000 282,000 ------------ ------------ Total stockholders' equity 8,631,000 8,241,000 ------------ ------------ Total liabilities and stockholders' equity $ 12,129,000 $ 14,372,000 ------------ ------------ ------------ ------------
3 BLYTH HOLDINGS INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
Three Months Ended Nine Months Ended December 31 December 31 1995 1994 1995 1994 ---------- ----------- ----------- ----------- Net revenues: Products $1,834,000 $ 3,486,000 $ 4,576,000 $ 7,971,000 Services 1,918,000 1,571,000 5,722,000 4,336,000 ---------- ----------- ----------- ----------- Total net revenues 3,752,000 5,057,000 10,298,000 12,307,000 Cost and expenses: Cost of sales 1,700,000 2,035,000 5,418,000 5,181,000 Research & development 580,000 973,000 2,287,000 1,791,000 Sales, general and administrative 2,164,000 4,125,000 7,345,000 13,255,000 ---------- ----------- ----------- ----------- Total costs and expenses 4,444,000 7,133,000 15,050,000 20,227,000 ---------- ----------- ----------- ----------- Operating loss (692,000) (2,076,000) (4,752,000) (7,920,000) ---------- ----------- ----------- ----------- Other income (expense): Interest income 87,000 65,000 201,000 235,000 Interest expense (11,000) (5,000) (116,000) (20,000) Gain on foreign currency transactions (1,000) (3,000) 3,000 ---------- ----------- ----------- ----------- 75,000 60,000 82,000 218,000 ---------- ----------- ----------- ----------- Loss before income taxes (617,000) (2,016,000) (4,670,000) (7,702,000) Income tax expense 3,000 80,000 31,000 82,000 ---------- ----------- ----------- ----------- Net loss $ (620,000) $(2,096,000) $(4,701,000) $(7,784,000) ---------- ----------- ----------- ----------- ---------- ----------- ----------- ----------- Net loss per common share: $ (0.06) $ (0.31) $ (0.55) $ (1.17) Weighted average number of common shares outstanding 9,652,858 6,693,728 8,490,893 6,658,122
4 BLYTH HOLDINGS INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW (UNAUDITED)
Nine Months Ended December 31 1995 1994 ------------ ------------ Cash flows from operating activities: Net loss $(4,701,000) $ (7,784,000) Adjustments to reconcile net loss to net cash used by operating activities: Depreciation and amortization expense 964,000 858,000 Capitalized software development cost amortization expense 842,000 808,000 Accrued interest converted into stock 47,000 Change in assets and liabilities: Net (increases) decreases in assets: Trade accounts receivable 1,304,000 (264,000) Note receivable-related party 507,000 Inventory 51,000 (176,000) Other current assets (276,000) (877,000) Other long-term assets 3,000 293,000 Net increases (decreases) in liabilities Accounts payable and accrued liablities (334,000) 733,000 Deferred revenues 153,000 734,000 ----------- ------------ Net cash used for operating activities (1,947,000) (5,168,000) ----------- ------------ Cash flows from investing activities: Capitalized software development costs 0 (2,108,000) Purchases of property, furniture and equipment (194,000) (1,502,000) ----------- ------------ Net cash used for investing activities (194,000) (3,610,000) ----------- ------------ Cash flows from financing activities: Repurchase of common stock (1,764,000) Proceeds from long-term debt 2,585,000 Exercise of stock options/ESPP 116,000 94,000 Exercise of warrants 100,000 Stock issuance costs (11,000) Repayments of debt 16,000 (236,000) ----------- ------------ Net cash used for financing activities 2,717,000 (1,817,000) ----------- ------------ Effect of exchange rate changes on cash (57,000) 78,000 Net decrease in cash and cash equivalents 519,000 (10,517,000) Cash and equivalents at beginning of period 4,593,000 14,406,000 ----------- ------------ Cash and equivalents at end of period $ 5,112,000 $ 3,889,000 ----------- ------------ ----------- ------------ NON CASH INVESTING AND FINANCING ACTIVITIES Conversion of convertible subordianted debentures into common stock $ 4,829,000 $ - ----------- ------------ ----------- ------------
5 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 December 31, 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 and nine months ended December 31, 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 $2,600,000) 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 $2,700,000 from a similar offering of 8% Convertible Debentures due March 31, 1997. As of December 31, 1995 all but $200,000 of the 5% Convertible Debentures due June 30 1997 had been converted to common stock and all of the 8% Convertible Debentures due March 31, 1997 had been converted to common stock. The Company's other long term debt consists primarily of long term leases. 6 7 BLYTH HOLDINGS INC. AND SUBSIDIARIES ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations RESULTS OF OPERATIONS THREE AND NINE MONTHS ENDED DECEMBER 31 1995 AND DECEMBER 31, 1994 REVENUES. Total net revenues declined 26% to $3,752,000 for the three months ended December 31, 1995 as compared to $5,057,000 for the three months ended December 31, 1994. In addition, total net revenues declined 16% to $10,298,000 for the nine months ended December 31, 1995 as compared to $12,307,000 for the nine months ended December 31, 1994. The decline in total net revenues in the three months and nine months ended December 31, 1995 as compared to the three and nine months ended December 31, 1994 was due to a decline in product revenues during these periods offset in part by increases in service revenues during these same periods. Product revenues declined 47% to $1,834,000 for the three months ended December 31, 1995 as compared to $3,486,000 in the corresponding period of the prior year.Product revenues for the three months ended December 31, 1995 included revenues of $750,000 from the license of the company's products to a large financial institution in Mexico. The decrease in product revenues in the three months ended December 31, 1995 as compared to the three months ended December 31, 1994 was primarily due to lower list price of the Company's new products which were introduced in September of 1995 as part of the Company's new product strategy. In addition, the higher level of product revenues in the three months ended December 31, 1994 as compared to the three months ended December 31, 1995 was partially attributable to the Company's recognition of $750,000 upon granting of certain exclusive marketing and manufacturing for Japan in the third quarter of fiscal 1995. Product revenues declined 43% to $4,576,000 for the nine months ended December 31, 1995 from $7,971,000 in the corresponding nine months of the prior year. The decrease in product revenues in the nine months ended December 31, 1995 as compared to the corresponding period in fiscal 1995 was also partially attributable to the Company changing its sales strategy to put increased emphasis on leveraged 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 Company reduced its North American direct sales force by approximately 50% . In addition the higher level of product revenues in the nine months ended December 31, 1994 as compared to the nine months ended December 31, 1995 also was attributable to the Company's introduction of a significant upgrade to its core product in May and June 1994 which resulted in a significant amount in product revenues in that quarter. Service revenues for the three months ended December 31, 1995 increased 22% to $1,918,000 from $1,571,000 for the corresponding period of the prior year. Service revenues for the nine months ended December 31, 1995 increased 32% to $5,722,000 8 from $4,336,000 for the corresponding period of the prior year. The increase in service revenues in the three months and nine months ended December 31, 1995 as compared to the three and nine months ended December 31, 1994 was a result of increased consulting revenues from services provided in connection with customers' enterprise-wide implementations using the Company's products, together with an increase in maintenance and support revenues. COST OF SALES. 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 45% from 40% for the three months ended December 31, 1995 compared to the three months ended December 31, 1994. Cost of sales as a percentage of total net revenues increased to 52% from 42% for the nine months ended December 31, 1995 as compared to the nine months ended December 31, 1994. This increase in cost of sales 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 RESEARCH AND DEVELOPMENT EXPENSE. 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:
Three months Nine months ended December 31, ended December 31, ------------------ ------------------ 1995 1994 1995 1994 ------- ------ ------ ------ Dollar amounts: Gross research and development costs......... $ 580 $1,282 2,287 3,899 Capitalized software development costs....... (309) (2,108) Research and development expenses............ 580 973 2,287 1,791 As a percentage of total net revenues: Gross research and development costs......... 16% 25% 22% 32% Research and development expenses............ 16% 19% 22% 15%
The decrease in gross research and development costs is primarily due to decreased staffing and associated support costs. 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 Statement of Financial Accounting Standards 86) 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 nine months ended December 31, 1995. The Company ended the three months ended December 31, 1995 with $580,000 of capitalized software development costs which the Company expects to fully amortize by the end of the first quarter of fiscal 1997. 9 SALES, GENERAL AND ADMINISTRATIVE EXPENSES. Sales, general and administrative expenses decreased to $2,164,000 for the three months ended December 31, 1995 from $4,125,000 for the three months ended December 31, 1994, representing 58% and 82% of total net revenues during these periods, respectively. Sales, general and administrative expenses decreased to $7,345,000 for the nine months ended December 31, 1995 from $13,255,000 for the nine months ended December 31, 1994, representing 71% and 108% 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 calendar 1995, and the fact that the sales, general and administrative expenses for the nine months ended December 31, 1994 included a $950,000 expense related to a strategic investment in an early development stage company. 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 March 31, 1997 (issued March 31, 1995 with net proceeds to the Company of $2,647,000 ), the Company's 5% Convertible Debentures due June 30, 1997 (issued July 14, 1995 with net proceeds to the Company of $2,585,000 ) and foreign currency transactions. Other income increased to $75,000 for the three months ended December 31, 1995 from $60,000 for the three months ended December 31, 1994, primarily due to higher interest income because of higher average balances of cash and equivalents. In addition, other income decreased to $82,000 for the nine months ended December 31, 1995 from $218,000 for the nine months ended December 31, 1994. These decreases were primarily due to higher interest expense due to the accrual of interest on the outstanding 8% Convertible Debentures due March 31, 1997 and 5% Convertible Debentures due June 30, 1997 together with lower interest income during the nine months ended December 31, 1995 as a result of lower average balances of cash and equivalents in this period as compared the nine months ended December 31, 1994. All of the outstanding aggregate principal amount of the debentures, except for $200,000, were converted into 2,694,079 shares of common stock by the end of the third quarter of fiscal 1996. NET LOSS. The Company recognized a net loss of $620,000 for the three months ended December 31, 1995 versus a net loss of $2,096,000 for the three months ended December 31, 1994. The decreased loss primarily resulted from a decrease of $2,689,000 in total costs and expenses in the three ended December 31, 1995 as compared to the three months ended December 31,1995 which offset the decrease of $1,305,000 in total net revenues during these same periods. The Company recognized a net loss of $4,701,000 for the nine months ended December 31, 1995 as compared to a net loss of $7,784,000 for the nine months ended December 31, 1994. This decreased loss primarily resulted from a decrease of $5,910,000 in sales, general and administrative costs in the nine months ended December 31, 1995 as compared to the nine months ended December 31, 1995 which was offset in part a decline in total net revenues of $2,009,000, an increase in cost of sales of $237,000 and an increase in research and development expense of $496,000 in these same periods. VARIABILITY OF RESULTS 10 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: 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 11 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 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 December 31, 1995, the Company's principal sources of liquidity consisted of cash and equivalents of $5.1 million. The Company's working capital position decreased to $6.1 million at December 31, 1995 from $6.5 million at March 31, 1995. This decrease in working capital was due to a decrease of $2.2 million during the first quarter of fiscal 1996 primarily from the Company's operations during that quarter offset in part by an increase of $1.9 million during the second quarter of fiscal 1996. The increase in working capital during the second quarter of fiscal 1996 was primarily due to the fact that on July 11, 1995 the Company completed a private offering under Regulation S of the Securities Act of 1933, as amended, of 5% Convertible Debentures due June 30, 1997 which resulted in net proceeds to the Company of $2,600,000. 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 choose, prior to the end of fiscal 1996 or 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 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. 12 Item 6. Exhibits and Reports on Form 8-K (a) Exhibits - None (b) Reports on Form 8-K-None 13 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: February 12, 1996 BLYTH HOLDINGS INC. (Registrant) /s/ Michael Minor -------------------------- Michael Minor Chairmen and Chief Executive Officer /s/ Stephen Lorentzen -------------------------- Stephen Lorentzen President and Chief Operating Officer 14 BLYTH HOLDINGS INC. INDEX PART I. FINANCIAL INFORMATION
Page No. Item 1. Financial Statements: Condensed Consolidated Balance Sheets - December 31, 1995 and March 31, 1995 3 Condensed Consolidated Statements of Operations - Three and nine months ended December 31, 1995 and 1994 4 Condensed Consolidated Statements of Cash Flows - Nine months ended December 31, 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 12 Signatures 13
II-2 EX-27 2 EXHIBIT 27
5 9-MOS MAR-31-1996 APR-01-1995 DEC-31-1995 111,000 5,001,000 2,837,000 175,000 211,000 9,338,000 4,421,000 2,263,000 12,129,000 3,195,000 0 0 0 97,000 8,534,000 12,129,000 4,576,000 10,298,000 5,418,000 15,050,000 (82,000) 175,000 (82,000) (4,670,000) 31,000 (4,701,000) 0 0 0 (4,701,000) (0.06) (0.06)
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