<PAGE> 1
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[X] Quarterly Report under Section 13 or 15(d) of the Securities Exchange
Act of 1934
FOR THE QUARTER ENDED SEPTEMBER 30, 1998
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
OMNIS TECHNOLOGY CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 94-3046892
(State of incorporation) (IRS Employer Identification No.)
981 Industrial Road
Building B
San Carlos, CA 94070-4117
(Address of principal executive offices)
(650) 632-7100
(Registrant's telephone number)
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 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 October 1, 1998 there were 2,129,205 shares of registrant's Common Stock,
$.10 par value, outstanding.
Transitional Small Business Disclosure Format: Yes No X
----- -----
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OMNIS TECHNOLOGY CORPORATION AND SUBSIDIARIES
INDEX
PART I. FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Page No.
<S> <C> <C>
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets --
September 30, 1998 and March 31, 1998 3
Condensed Consolidated Statements of Operations --
Three and six months ended September 30, 1998 and 1997 4
Condensed Consolidated Statements of Cash Flows --
Three and six months ended September 30, 1998 and 1997 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 14
Item 2. Changes in Securities 14
Item 3. Defaults upon Senior Securities 14
Item 4. Submission of Matters to a Vote of Security Holders 14
Item 5. Other Information 14
Item 6. Exhibits and Reports on Form 8-K 15
Signatures 16
</TABLE>
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PART I.
FINANCIAL INFORMATION
ITEM 1. Financial Statements
OMNIS TECHNOLOGY CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
September 30, 1998 March 31, 1998
------------------ --------------
(Unaudited)
<S> <C> <C>
Current Assets:
Cash and equivalents $ 163,000 $ 242,000
Trade accounts receivable, less allowance for
doubtful accounts and returns of
$163,367 and $161,895, respectively 713,000 602,000
Inventory 20,000 74,000
Other current assets 480,000 625,000
------------ ------------
Total current assets 1,376,000 1,543,000
------------ ------------
Property, furniture and equipment, net 1,108,000 1,472,000
Other assets -- 400,000
------------ ------------
Total assets $ 2,484,000 $ 3,415,000
============ ============
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current Liabilities:
Accounts payable and accrued liabilities $ 1,289,000 $ 2,387,000
Current portion of long term debt 1,125,000 1,310,000
Deferred revenue 670,000 862,000
------------ ------------
Total current liabilities 3,084,000 4,559,000
------------ ------------
Long term debt 977,000 111,000
------------ ------------
Total liabilities 4,061,000 4,670,000
------------ ------------
Stockholders' Deficiency:
Preferred stock 124,000 --
Common stock 213,000 212,000
Paid-in capital 43,722,000 42,881,000
Accumulated deficit (45,855,000) (44,499,000)
Foreign currency translation adjustment 219,000 151,000
------------ ------------
Total stockholders' deficiency (1,577,000) (1,255,000)
------------ ------------
Total liabilities and stockholders' deficiency $ 2,484,000 $ 3,415,000
============ ============
</TABLE>
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OMNIS TECHNOLOGY CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
September 30, September 30,
1998 1997 1998 1997
-------------------------- --------------------------
<S> <C> <C> <C> <C>
Net revenues:
Products $ 869,000 $ 1,671,000 $ 1,779,000 $ 2,941,000
Services 405,000 1,131,000 869,000 2,270,000
----------- ----------- ----------- -----------
Total net revenues 1,274,000 2,802,000 2,648,000 5,211,000
Costs and expenses:
Cost of product revenues 74,000 128,000 195,000 272,000
Cost of service revenues 102,000 1,096,000 203,000 2,142,000
Selling and marketing 495,000 2,561,000 1,074,000 4,982,000
Research & development 361,000 928,000 697,000 1,827,000
General and administrative 426,000 809,000 1,628,000 1,569,000
----------- ----------- ----------- -----------
Total costs and expenses 1,458,000 5,522,000 3,797,000 10,792,000
----------- ----------- ----------- -----------
Operating loss (184,000) (2,720,000) (1,149,000) (5,581,000)
----------- ----------- ----------- -----------
Other income (expense):
Interest income 2,000 18,000 4,000 78,000
Interest expense (93,000) (19,000) (207,000) (61,000)
----------- ----------- ----------- -----------
(91,000) (1,000) (203,000) 17,000
----------- ----------- ----------- -----------
Loss before income taxes (275,000) (2,721,000) (1,352,000) (5,564,000)
Income tax expense 0 10,000 4,000 15,000
----------- ----------- ----------- -----------
Net loss $ (275,000) $(2,731,000) $(1,356,000) $(5,579,000)
=========== =========== =========== ===========
Net loss per common share $ (0.13) $ (1.29) $ (0.64) $ (2.94)
Weighted average number of
common shares outstanding 2,125,863 2,109,636 2,125,844 1,899,905
Net loss per share -- fully diluted $ (0.08) $ (1.29) $ (0.40) $ (2.63)
Number of fully diluted shares 3,389,205 2,121,677 3,389,205 2,121,677
</TABLE>
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OMNIS TECHNOLOGY CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
September 30,
1998 1997
----------- -----------
<S> <C> <C>
Cash Flows from Operating Activities:
Net loss $(1,356,000) $(5,579,000)
Adjustments to reconcile net loss to net cash
used for operating activities:
Depreciation and amortization expense 255,000 338,000
Legal fees capitalized to stock issuance cost (35,000) --
Convertible debenture interest capitalized -- 130,000
Change in assets and liabilities:
Trade accounts receivable (111,000) (610,000)
Inventory 54,000 (69,000)
Loss (gain) on disposal of property 94,000 (87,000)
Other current assets 546,000 (400,000)
Accounts payable and accrued liabilities (1,208,000) 523,000
Deferred revenues (192,000) 247,000
----------- -----------
Net cash used for operating activities (1,953,000) (5,507,000)
----------- -----------
Cash Flows from Investing Activities:
Purchases of property, furniture and equipment (17,000) (529,000)
Proceeds from sale of fixed assets 28,000 30,000
----------- -----------
Net cash provided by investing activities 11,000 (499,000)
----------- -----------
Cash Flows from Financing Activities:
Net proceeds from preferred stock issuance 1,000,000 --
Net proceeds from stock issuance 1,000 61,000
Addition (Repayments) of debt 791,000 172,000
----------- -----------
Net cash provided by financing activities 1,792,000 233,000
----------- -----------
Effect of Exchange Rate Changes on Cash 72,000 (140,000)
Net decreases in cash and equivalents (79,000) (5,913,000)
Cash and cash equivalents at beginning of period 242,000 6,150,000
----------- -----------
Cash and Equivalents at end of period $ 163,000 $ 237,000
=========== ===========
NON CASH INVESTING AND FINANCING ACTIVITIES
Conversion of convertible subordinated debentures into
common stock $ -- $ 1,870,000
=========== ===========
</TABLE>
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OMNIS TECHNOLOGY CORPORATION 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, 1998.
The results of operations for the period ended September 30, 1998 are not
necessarily indicative of results to be expected for any other interim period or
the fiscal year ending March 31, 1999.
2. The Company has adopted Statement of Financial Accounting Standards No.
128, "Earnings per Share" (SFAS 128). SFAS 128 requires a dual presentation of
basic and diluted EPS. Basic EPS excludes dilution and is computed by dividing
net income (loss) by the weighted average of common shares outstanding for the
period. Diluted EPS reflects the potential dilution that could occur if
securities and other contracts to issue stock were exercised or converted into
common stock. However, the Company's reported diluted net loss per share for all
periods presented is based on the weighted average number of common shares
outstanding during the period as the effect of such securities would be
anti-dilutive.
3. In October 1997, the Company closed an interim debt financing of $1,000,000
with a significant stockholder. This debt financing is secured by substantially
all the Company's assets and is scheduled to be repaid by December 31, 1998. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Overview."
4. In April 1998, the Company agreed to sell up to 126,000 shares of Series A
Preferred Stock, at a price of $8.00 per share, to a significant stockholder.
Each share of Preferred Stock converts into 10 shares of common stock, has
voting and registration rights, is entitled to cumulative dividends of $0.10 per
share in preference to common stockholders, and has a preference in liquidation
over common stockholders in the amount of $8.00 per share, including all accrued
or declared but unpaid dividends, as defined. Concurrent with the execution of
that agreement, the Company sold the first 49,826 shares of Series A Preferred
Stock, with net proceeds of approximately $400,000. Additionally, the same
stockholder purchased 12,456 shares in May 1998 for net proceeds of
approximately $100,000. The remaining 62,282 shares were purchased by this
stockholder in July, 1998 for net proceeds of approximately $500,000. These
proceeds have been used to fund the Company's operations.
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OMNIS TECHNOLOGY CORPORATION AND SUBSIDIARIES
THIS REPORT ON FORM 10-QSB 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 DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" AND THE COMPANY'S
ACTUAL RESULTS MAY DIFFER MATERIALLY FROM HISTORICAL OR ANTICIPATED RESULTS.
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
OVERVIEW
OMNIS Technology Corporation develops and markets tools that enable
software application development. The Company markets its products primarily
through its indirect channel consisting of VAR's, Distributors, and OEM
relationships.
OMNIS Technology Corporation has experienced significant losses in each of
the past three years, including the quarter ended September 30, 1998. As a
result of this and other factors, the Company has expended a significant amount
of cash resources during that period and the three months ended September 30,
1998. The Company raised $1 million through a private debt financing in October
1997 and raised $1 million in Preferred Stock from a significant stockholder in
April 1998, all of which has been used to fund the Company's operations. The
Company currently relies upon collections from accounts receivable and has very
little available cash and has no reserves in the event operations do not produce
needed resources to fund operations and repay the debt. While the Company is not
currently seeking additional financing, there can be no assurance that the
Company will be able to raise additional cash at anytime in the future on
commercially reasonable terms, or at all. If the Company is unsuccessful in
raising such cash when needed, the Company may be required to cease operations
and its secured creditors would have a first claim on substantially all of the
Company's assets.
The Company's U.S. Subsidiary (the "U.S. Company") has negotiated a
repayment plan (the "Workout Plan") with a Creditors' Committee representing the
majority of its U.S.-based unsecured creditors to deal with past debts owed by
the U.S. Company. Legal action by creditors who have agreed to the Workout Plan
either has been or will be dismissed, or will at least be deferred pending
performance under the Workout Plan. Creditors who have not agreed to the Workout
Plan as proposed may continue to pursue their remedies independently, or may
join the Workout Plan at a later date. A significant number of these unsecured
creditors were paid off at the time the Workout Agreement was rendered
effective. The remaining balance of the participants in the Workout Plan were
paid an aggregate first installment of approximately $66,000 on their
approximately $1,030,442 in claims. The next scheduled payment under the Workout
Plan will be December 31, 1998, and quarterly thereafter. If the U.S. Company
should not be able to meet these repayments in future periods, the U.S. Company
will be in default under the Workout Plan and the Creditor Committee may
terminate the Workout Plan. Accordingly, in the event of such a breach, there is
a significant risk that the U.S. Company's creditors could force the U.S.
Company to file for bankruptcy protection.
The Company recently changed its top management team. Kenneth Holmes
resigned as Chairman of the Board, Interim Chief Executive Officer, and Chief
Financial Officer. Gwyneth Gibbs, formerly Vice President of Research and
Development, was named President, interim Chief Executive Officer, and interim
Chief Financial Officer and Phillip Barrett was named Chairman of the Board.
During the past year, the Company has significantly reduced its headcount
in attempts to reduce operating costs. During the quarter ending September 30,
1998, the Company's worldwide headcount remained relatively constant, and the
Company has no plans to increase headcount in the near term.
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RESULTS OF OPERATIONS
THREE AND SIX MONTHS ENDED SEPTEMBER 30, 1998, AND SEPTEMBER 30, 1997
REVENUES
Total net revenues for the three months ended September 30, 1998 were
$1,274,000, representing a decrease of 55% as compared to total net revenues of
$2,802,000 for the three months ended September 30, 1997. Total net revenues for
the six months ended September 30, 1998 were $2,648,000, representing a decrease
of 49% as compared to total net revenues of $5,211,000 for the six months ended
September 30, 1997. This decrease is due primarily to the reduction in service
revenues, particularly as a result of the Company's decision to reduce its
emphasis on consulting service in order to reduce conflicts with certain of its
channel partners.
Product revenues decreased during the three months ended September 30, 1998
to $869,000 from $1,671,000 in the three months ended September 30, 1997.
Product revenues decreased during the six months ended September 30, 1998 to
$1,779,000 from $2,941,000 in the six months ended September 30, 1997. This
decrease is mainly due to the Company's reduction in sales workforce in the past
year. During the three and six months ending September 30, 1998, product
revenues represented 68% and 67% of total net revenues as compared to 60% and
56% of total net revenues during the same three and six month periods in the
prior year.
Service revenues for the three months ended September 30, 1998 decreased
64% to $405,000 from $1,131,000 for the three months ended September 30, 1997.
Service revenues for the six months ended September 30, 1998, decreased 62% to
$869,000 from $2,270,000 for the six months ended September 30, 1997. The
majority of this decrease is due to the Company's decision to de-emphasize its
consulting offerings. Maintenance revenue, which primarily consists of telephone
support to the Company's customers, decreased during the period ending September
30, 1998 due to the decrease in product revenue. The Company expects service
revenues related to consulting projects to continue to decrease in future
periods as it focuses on higher margin product related revenue and shifts
consulting opportunities to its external partners.
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) expenses, including technical support salaries and related
expenses, and consulting related costs, including consultant salaries and
related costs incurred in delivering customer consulting and training services.
Cost of product revenues as a percentage of product revenues remained
constant at 8% in the three months ended September 30, 1997 and the three months
ended September 30, 1998. Cost of product revenues as a percentage of product
revenues increased slightly from 9% in the six months ended September 30, 1997
to 11% in the six months ended September 30, 1998.
Cost of service revenues decreased as a percentage of service revenues from
97% in the three months ended September 30, 1997 to 25% in the three months
ended September 30, 1998. Cost of service revenues decreased as a percentage of
service revenues from 94% in the six months ended September 30, 1997 to 23% in
the six months ended September 30, 1998. This decrease was primarily due to a
significant reduction in headcount in the consulting division, resulting in
significantly better utilization of the Company's consulting resources.
Currently the Company retains very few consultants and the Company's remaining
consultants are typically fully utilized. In addition, the Company has very
little, if any, management specific to the consulting division, thereby reducing
overhead costs. Additionally, the
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Company's technical support group continues to generate favorable gross margins,
and represents the majority of the related revenues and costs within service
revenues.
SALES AND MARKETING EXPENSE
Sales expenses decreased to $397,000 for the three months ended September
30, 1998 as compared to $1,149,000 for the three months ended September 30,
1997. Sales expenses decreased to $832,000 for the six months ended September
30, 1998, as compared to $2,070,000 for the six months ended September 30, 1997.
The decrease in sales expenses was primarily due to decreases in headcount. In
the third quarter of fiscal 1998, the Company had a reduction-in-force which
included a significant number of sales related employees. The Company has no
plans to replace this headcount in the near term.
Marketing expenses for the three months ended September 30, 1998 were
$98,000 as compared to $1,412,000 for the three months ended September 30, 1997.
Marketing expenses for the six months ended September 30, 1998, were $242,000,
as compared to $2,912,000 for the six months ended September 30, 1997. This
decrease in marketing expense was primarily due to a reduction of costs
associated with the reduction in Company's lead generation effort, including
trade shows and advertising, in the three and six months ended September 30,
1998 as compared to the three and six months ended September 30, 1997 as well as
the absence of start-up costs associated with the introduction of new products
and public relations costs which the Company incurred during the three and six
months ended September 30, 1997. In the third quarter of fiscal 1998, the
Company had a reduction-in-force which included a significant number of
marketing related employees. The Company expects modest increases in marketing
expenses during future periods as it rebuilds its marketing efforts towards its
past and present customer base with partner focused programs designed to acquire
new customers.
RESEARCH AND DEVELOPMENT EXPENSE
Research and development costs decreased to $361,000 for the three months
ended September 30, 1998 as compared to $928,000 for the three months ended
September 30, 1997, primarily due to decreased headcount in its U.S. based
operations. Research and development costs decreased to $697,000 for the six
months ended September 30, 1998, as compared to $1,827,000 for the six months
ended September 30, 1997, also primarily due to decreased headcount in its U.S.
based operations. The Company has streamlined its development resources,
eliminating projects that do not relate to its core technologies and projects
for which the Company can not forecast revenues in the near future or at all.
Additionally the Company consolidated its development team in its development
facility in the U.K. The Company continues to invest in the development of its
newer product line, OMNIS Studio, aimed at sales opportunities that the Company
believes will expand its installed base of customers.
GENERAL AND ADMINISTRATIVE EXPENSE
General and administrative expenses decreased to $426,000 for the three
months ended September 30, 1998 as compared to $809,000 for the three months
ended September 30, 1997. General and administrative expenses increased to
$1,628,000 for the six months ended September 30, 1998 as compared to $1,569,000
for the six month ended September 30, 1997. The Company has relocated its
headquarters to San Carlos, California, which has reduced lease-associated
expense and expenditure of cash by $150,000 per quarter. Additionally the
Company recognized a write-off related to the disposal of lease-hold
improvements of the San Bruno office and other office equipment, resulting in a
non-recurring charge of $78,000 during the quarter ended September 30, 1998. The
Company is continuing its efforts to reduce its operating expenses where
possible, including general and administrative expenses.
OTHER INCOME (EXPENSE)
Other income (expense) is comprised primarily of interest income earned on
cash and cash equivalents, interest expense, and any gain or loss on foreign
currency transactions. Interest income decreased to
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$2,000 and $4,000 for the three and six months ended September 30, 1998,
respectively, from $18,000 and $78,000 for the three and six months ended
September 30, 1997 respectively, primarily due to lower average balances of cash
and cash equivalents. Interest expense increased to $93,000 for the three months
ended September 30, 1998, from $19,000 for the three months ended September 30,
1997, and $207,000 for the six months ended September 30, 1998 compared to
$61,000 for the six months ended September 30, 1997.
YEAR 2000
The Company is in the process of addressing the broad range of issues
associated with the programming code in existing computer systems as the year
2000 approaches. The "Year 2000" issue is pervasive and complex, as many
computer systems were not designed to handle any dates beyond the year 1999, and
therefore computer hardware and software will need to be modified prior to the
Year 2000 in order to remain functional. Systems that do not properly recognize
such information could generate erroneous data or cause a system to fail. The
Year 2000 issue creates potential risk for the Company from unforeseen problems
in its own computer systems, and from third parties with whom the Company deals
on financial and other transactions worldwide and in its own software products
licensed to customers. Failures of the Company and/or third parties' computer
systems could have a material impact on the Company's business, operating
results and financial condition.
The Year 2000 issue could affect the Company's products. The Company is
continuously reviewing its current product offerings and based upon its review
to date, believes that its current products are Year 2000 compliant. However,
the Company's current products are subject to ongoing analysis and review.
Despite such analysis and review the Company's products may contain undetected
errors or defects associated with Year 2000 date functions, which could result
in delay or loss of revenue, diversion of development resources, damage to the
Company's reputation, or increased service or warranty costs, any of which could
materially adversely affect the business, operating results and financial
condition. To the extent the Company's products prove to be non-compliant, or in
the event of any dispute with any customer regarding whether the Company's
products are compliant, the Company's business, results of operations and
financial condition could be materially adversely affected.
The existence of Year 2000 issues may give rise to legal claims against the
Company, notwithstanding standard provisions in the Company's license agreements
with its customers disclaiming all express and implied warranties against such
defects. Such legal claims could have a materially adverse impact on the
Company's business and results of operations.
The Company is currently reviewing its internal systems, as appropriate, to
determine what, if anything, is required to resolve the Year 2000 issue.
Although the Company is not aware of any material operational issues of costs
associated with its internal systems for the Year 2000, the Company may
experience material unanticipated problems and costs caused by undetected errors
or defects in the technology used in its internal systems, which include both
the Company's software products and third-party software and hardware
technology. The Company plans to initiate formal communications with all of its
significant suppliers to determine their compliance status.
Many companies are currently expending significant resources in order to
address the Year 2000 issue. Expenditures to address the Year 2000 issue often
involve the modification of legacy and other existing software systems rather
than the development of new systems. Because of the size of such expenditures,
companies may defer or cancel other new software development projects for which
such companies might otherwise have purchased products from the Company. Any
reductions in the Company's revenues resulting from such the Year 2000 issue
could have a material adverse effect on the Company's business, results of
operations and financial condition.
In addition, the Company could be materially adversely affected by costs or
complications relating to code changes, testing and implementation for its own
systems or similar issues faced by its distributors,
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suppliers, customers, vendors and the financial service organizations with which
the Company interacts. At this time, the Company has not yet determined the cost
related to achieving Year 2000 compliance. There can be no assurance that the
Company will have the resources to complete a satisfactory review, or to
successfully achieve Year 2000 compliance in the near future, or at all, in
light of the Company's financial condition and level of staffing.
RISK FACTORS
The Company has experienced significant losses over the past three fiscal
years including the quarter ended September 30, 1998. As a result, the report of
the Company's independent auditors on the Company's financial statements for the
fiscal year ended March 31, 1998, contains a paragraph stating that there is a
substantial doubt as to the ability of the Company to continue as a going
concern. In November 1997, the Company took several actions expected to reduce
future operating costs and cash flows, including a 15% reduction in headcount, a
significant cut in marketing expenses, and the implementation of stringent
expense monitoring controls. In October, 1997, the Company raised $1 million in
secured debt financing (the "secured debt") from a significant stockholder,
which is secured by substantially all of the Company's assets. In April, May,
and July 1998, the Company sold convertible Preferred Stock resulting in net
proceeds of approximately $1,000,000. In fiscal year 1997 and 1998, and
continuing through the first six months of fiscal 1999, operations of the
Company have generated negative cash flows. While the Company's management team
has taken steps to improve the Company's cash flow and expects there will be
additional significant expense and cash flow savings during the second and third
quarter of fiscal year 1999, the Company continues to generate a negative cash
flow and does not expect to become profitable until the fourth quarter of fiscal
1999, or later. The Company is operating with minimal cash resources and, should
the Company continue to experience losses from operations, it will need to seek
additional financing. There can be no assurance that the Company will be able to
raise additional financing in this time frame on commercially reasonable terms,
or at all. If the Company is unsuccessful in raising this capital, the Company
may be required to cease operations and declare bankruptcy. Under such
circumstances, the Company's secured creditors would have a first claim on all,
or substantially all, of the Company's assets. See "Liquidity And Capital
Resources" below.
The Company has experienced significant quarterly fluctuations in operating
results during this and previous quarters and expects that these fluctuations
will continue in future periods. These fluctuations have been a result of
several factors including pricing strategies employed by the Company and its
competitors, the timing of new product releases or enhancements to existing
products, and seasonality. 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, changes in the Company's management
and sales and marketing organizations, and general economic conditions.
The Company has recently announced a reduction in certain portions of its
pricing structure for fiscal year 1999 and beyond. There is no guarantee that
this reduction in price will lead to increased unit volume or other additional
revenue streams to replace this lost revenue, which could lead to a significant
cash flow strain on the core operations of the Company. Additionally, the
Company is relying on increased revenues related to its new product line, which
have not generated revenues as originally projected by the Company. There is no
assurance that this product line will generate the revenues needed to sustain
the Company in future periods. The Company has committed to decreasing sales
conflicts with its partners particularly in the service revenue area and has
already taken a number of steps in this regard. This has had and will continue
to have a negative effect on service revenues as compared to previous quarters
and years. There can be no guarantee that the Company will be able to replace
the decreasing service revenues with new product revenues.
The Company's expense levels are based on the Company's expectations as to
future revenues and are therefore relatively fixed in the short term. If revenue
levels fall below expectations, net income is likely to
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be disproportionately adversely affected because a proportionately smaller
amount of the Company's expenses vary with its revenues. There can be no
assurance that the Company will be able to achieve profitability on a quarterly
or annual basis in the future. Due to all the foregoing factors, it is likely
that in some future quarter the Company's operating results will be below the
expectations of public market analysts and investors. In such event, the price
of the Company's Common Stock would likely be materially adversely affected.
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. Additionally, the
Company operates on a global basis with offices or distributors in Europe, Asia,
and Australia as well as North America. Changes in the economies, trade
policies, and fluctuations in interest or exchange rates may have an impact on
its future financial results. Also, as the Company continues to operate more
globally, seasonality may become an increasing factor in its financial
performance.
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 management as well as accurate anticipation of customer and
technical trends. Once a product is developed, the Company must rapidly bring it
into production. In addition, there can be no assurance that any new products
will achieve market acceptance at the price the Company sets for the product, if
at all. If the Company is unable to develop and sell new products which are
widely accepted by customers, the Company's business, financial condition, and
results of operations would be unilaterally and adversely affected.
The U.S. Company has recently been sued for copyright infringement. While
the Company believes this suit has no merit, there can be no assurance that the
Company will be successful in resolving this or any future lawsuits favorably to
the Company. If the Company loses any of these judgments, it may be forced to
cease operations and declare bankruptcy. Additionally, the U.S. Company has
recently negotiated a Workout Plan with its US based unsecured creditors through
the Creditors' Committee. Should the U.S. Company default under the terms of the
Workout Plan, it may be forced to cease operations and declare bankruptcy.
In February 1998, The Nasdaq Stock Exchange de-listed the Company from the
Nasdaq National Market. The Company is now traded on the Nasdaq bulletin board.
This has had a negative impact on the liquidity of the Company's outstanding
common shares. Additionally, due to the Company's poor financial performance,
among other factors, the per share price of the Company's stock has been and is
expected to continue to be negatively impacted in the near term and beyond.
LIQUIDITY AND CAPITAL RESOURCES
At October 30, 1998, the Company's principal sources of liquidity consisted
of cash and equivalents of $83,000, although the Company may, from time to time,
have significantly less cash.
The Company's working capital position improved during the quarter ended
September 30, 1998, with a working capital deficit of $1.6 million at September
30, 1998, as compared to $3.0 million at March 31, 1998. Although the Company
believes that this working capital deficit will continue to decrease in future
quarters as the Company continues to decrease its operating expenses, such as
its recent success in termination of its US-based office lease and negotiation
with its US-based creditors, there can be no assurance that the Company will be
able to significantly improve its working capital position.
The Company has taken several actions over the past four quarters that it
expects will reduce future operating costs. Management expects that there will
be significant expense and cash flow savings during the third quarter of fiscal
1999 as compared to the third quarter of fiscal 1998 as a result of these
actions.
12
<PAGE> 13
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.
The Company currently has an outstanding promissory note of $1,000,000 and
accrued interest with a significant stockholder. This debt financing is secured
by substantially all the Company's assets and is scheduled to be repaid by
December 31, 1998. While the Company expects it will be able to extend the due
date of the note, there can be no assurance that it will be able to do so. If
the Company is not able to extend the due date of the note it will not be able
to pay the amount owed under the note and may be forced to file for bankruptcy
protection.
13
<PAGE> 14
OMNIS TECHNOLOGY CORPORATION AND SUBSIDIARIES
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In March 1998, the Company was sued for copyright infringement. While
the Company believes that this suit has no merit, this suit remains
unresolved. See "Legal Proceedings" contained in the Company's annual
report, Form 10-KSB, for the fiscal year ended March 31, 1998, as filed
with the Securities Exchange Commission on June 29, 1998.
The U.S. Company has reached an agreement with a majority of its
unsecured creditors under the Workout Plan to provide for payment of its
debts. Under the terms of the Workout Plan, the U.S. Company must make
payments to these unsecured creditors at quarterly intervals and the
next payment is due December 31, 1998. Legal action by creditors who
have agreed to the Workout Plan either has been or will be dismissed, or
will at least be put on hold pending performance under the Workout Plan.
Typically, these lawsuits have been resolved by way of dismissal or
entry of judgment by stipulation or default. As of November 13, the only
creditor actions pending against the U.S. Company, that the Company is
aware of, are, i) Complaint for Breach of Contract by the EMS Group, in
which the parties have requested that the Court take the matter off the
active calendar pending performance under the Workout Plan; and ii)
Complaint by Miller Freeman, Inc. in which this matter has been settled
pursuant to the terms of the Workout Plan and the U.S. Company expects
that a stipulation for entry of judgment will be obtained shortly. The
claims of all creditors participating in the Workout Plan have been
resolved as to amount with the exception of Colonial Pacific Leasing
whose first distribution under the Workout Plan is being held in reserve
because the claim amount is disputed. Upon resolution of the dispute,
the U.S. Company will remit to Colonial Pacific Leasing its pro rata
portion of any distribution to creditors under the Workout Plan.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
In April 1998, the Company agreed to sell up to 126,000 shares of Series
A Preferred Stock, at a price of $8.00 per share, to a significant
stockholder. Each share of Preferred Stock converts into 10 shares of
common stock, has voting and registration rights, is entitled to
cumulative dividends of $0.10 per share in preference to common
stockholders, and has a preference in liquidation over common
stockholders in the amount of $8.00 per share, including all accrued or
declared but unpaid dividends, as defined. Concurrent with the execution
of that agreement, the Company sold the first 49,826 shares of Series A
Preferred Stock, with net proceeds of approximately $400,000.
Additionally, the same stockholder purchased 12,456 shares in May 1998,
for net proceeds of approximately $100,000. The remaining 62,282 shares
were purchased by this stockholder in July, 1998 for net proceeds of
approximately $500,000. These proceeds were used to fund the Company's
operations. In connection with the sale of Series A Preferred Stock, the
Company filed a Form D pursuant to the rules promulgated in the
Securities Act of 1993, as amended.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
The Company recently changed its top management team. Kenneth Holmes
resigned as Chairman of the Board, Interim Chief Executive Officer, and
Chief Financial Officer. Gwyneth Gibbs, formerly Vice President of
Research and Development, was named President, interim Chief
14
<PAGE> 15
Executive Officer, and interim Chief Financial Officer and Phillip
Barrett was named Chairman of the Board.
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27.1 Financial Data Schedule
(b) No reports on Form 8-K were on filed during the quarter ended September
30, 1998.
15
<PAGE> 16
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 13, 1998 OMNIS TECHNOLOGY CORPORATION
(Registrant)
/s/ Gwyneth Gibbs
----------------------------------------
Gwyneth Gibbs
President, interim Chief
Executive Officer, and interim
Chief Financial Officer
16
<PAGE> 17
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description
- - ------- -----------
<S> <C>
27.1 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-START> APR-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 163,000
<SECURITIES> 0
<RECEIVABLES> 713,000
<ALLOWANCES> 163,000
<INVENTORY> 20,000
<CURRENT-ASSETS> 480,000
<PP&E> 1,325,000
<DEPRECIATION> 217,000
<TOTAL-ASSETS> 2,484,000
<CURRENT-LIABILITIES> 3,084,000
<BONDS> 0
0
125,000
<COMMON> 213,000
<OTHER-SE> (977,000)
<TOTAL-LIABILITY-AND-EQUITY> 2,484,000
<SALES> 0
<TOTAL-REVENUES> 2,648,000
<CGS> 398,000
<TOTAL-COSTS> 3,797,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 203,000
<INCOME-PRETAX> (1,352,000)
<INCOME-TAX> 4,000
<INCOME-CONTINUING> (1,356,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,356,000)
<EPS-PRIMARY> (0.64)
<EPS-DILUTED> (0.40)
</TABLE>
