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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
(Mark One)
[X] Annual report pursuant to Section 13 or 15(d) of the Securities and
Exchange Act of 1934 for the fiscal year ended March 31, 1999
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities and
Exchange Act of 1934 for the transition period From ________ to ________
COMMISSION FILE NO. 0-16449
OMNIS TECHNOLOGY CORPORATION
(Exact name of registrant as specified in its charter)
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<S> <C> <C>
Delaware 981 Industrial Blvd Bldg. B 94-3046892
(STATE OF INCORPORATION) San Carlos, CA 94070-4117 (I.R.S.EMPLOYER
(ADDRESS OF PRINCIPAL EXECUTIVE IDENTIFICATION NO.)
OFFICES INCLUDING ZIP CODE)
(650) 632-7100
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE
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Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.10 par value
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Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act 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.
[X] Yes [ ] No
Check if disclosure of delinquent filers pursuant to Item 405 of Regulation S-B
is not contained in this form, and no disclosure will be contained, to the best
of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [ ]
Issuer's revenues for its most recent fiscal year: $ 5,858,624
The aggregate market value of the voting stock held by non-affiliates was
$4,383,034 as of July 1, 1999, based on the last sales price reported for such
date.
As of July 1, 1999, the registrant had 9,679,829 shares of its Common Stock
outstanding and 300,000 shares of its Series A Convertible Preferred Stock
outstanding.
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DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the Company's 1999 Proxy Statement to be filed not later than 120
days after the close of the fiscal year are incorporated in Part III of this
Form 10-KSB.
Transitional Small Business Disclosure Format (check one): [ ] Yes [X] No
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PART I
THIS ANNUAL REPORT ON FORM 10-KSB 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 FINANCIAL CONDITION AND RESULTS OF OPERATIONS,"
BELOW THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM HISTORICAL
RESULTS OR ANTICIPATED RESULTS.
ITEM 1. BUSINESS
THE COMPANY
"We shape our tools, and thereafter our tools shape us."
Marshall McLuhan, Understanding Media (1964)
OMNIS Technology Corporation, a Delaware corporation (the "Company" or
"OMNIS"), through its operating subsidiaries, OMNIS Software Inc., a California
corporation, OMNIS Holdings Limited and OMNIS Software Limited, limited
liability companies organized under the laws of England, and OMNIS Software
GmbH, a German corporation, develops and markets software application
development tools and related technical services. The main products developed
and marketed by the Company are the OMNIS 7(3) client/server application
development software group of products, and the more advanced OMNIS Studio rapid
application development (RAD) tool. OMNIS Studio enables the independent or
team-based developer to develop and deploy business applications for companies
that access all leading server databases and ODBC-compliant databases. These
products are used by independent developers, system integrators, value added
resellers (VARs) and enterprises to deliver custom information management
applications for a wide range of uses including financial management, decision
support, executive information, sales and marketing, and multi-media authoring
systems. In addition to these products, the Company provides technical support
and training to assist its users in planning, analyzing, implementing and
maintaining application software based on our proprietary technology. The
Company is in the process of reducing the professional and technical services
component of its business and is concentrating its efforts on the development
and marketing of software products.
The Company was incorporated under the laws of the State of Delaware on
August 5, 1987 pursuant to a reorganization of predecessor companies originally
incorporated under the laws of England in 1983. As used herein, the "Company"
refers to OMNIS Technology Corporation and its consolidated subsidiaries. In the
first quarter of fiscal year 1998, Blyth Software, Inc. changed its name to
OMNIS Software Inc., Blyth Holdings Limited changed its name to OMNIS Holdings
Limited, Blyth Software Limited changed its name to OMNIS Software Limited, and
Blyth Software GmbH changed its name to OMNIS Software GmbH. In September 1997,
the Company's stockholders approved a proposed change of the parent company's
name from Blyth Holdings, Inc. to OMNIS Technology Corporation.
In September 1997, the Company's stockholders approved a 1-for-10
reverse stock split of all the outstanding stock of the Company. All share and
per share amounts herein reflect that stock split. In September 1998 the
Company's stockholders approved an amendment to the Certificate of Incorporation
of
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the Company to increase the number of authorized shares of Common Stock of the
Company from 4,000,000 shares to 20,000,000 shares. In December 1998 all of the
then issued and outstanding shares of the Series A Preferred Stock of the
Company was repurchased by the Company from Astoria Capital Partners, L.P. The
Certificate of Amendment of the Certificate of Incorporation of the Company
effectuating the increase of the number of authorized shares of Common Stock to
20,000,000 shares was filed with the Delaware Secretary of State on February 9,
1999. The Certificate Regarding Series A Preferred Stock of the Omnis Technology
Corporation was filed with the Delaware Secretary of State on February 25, 1999,
eliminating the class of Series A Preferred Stock then in effect.
In March 1999 the Board of Directors of the Company authorized the
issuance of 300,000 shares of a new Series A Convertible Preferred Stock. On
March 31, 1999 the Company filed with the Secretary of State of Delaware a
Certificate of Designations setting forth the rights, preferences and privileges
of such stock.
STOCK PLANS
WARRANTS. Under the Company's 1993 Directors' Warrant Plan (the
"Directors Plan"), warrants to purchase shares of common stock have been granted
to outside directors. The Company originally reserved 40,000 shares of common
stock for issuance under the Directors Plan. In September, 1998, stockholders of
the Company amended the Directors Plan to increase the number of shares reserved
for issuance to 300,000 shares.
Under the Company's 1993 Advisors' Warrant Plan (the "Advisors Plan"),
warrants to purchase shares of common stock have been granted to advisors; under
the Advisors' Plan, such warrants terminated sixty (60) days after an advisor
ceased to be an Advisor to the Company. The Company originally reserved 12,000
shares of common stock for issuance under the Advisors Plan. In September, 1998,
stockholders of the Company amended the Advisors Plan to increase the number of
shares reserved for issuance to 100,000 shares.
In connection with the issuance of convertible debentures in 1995, 1996
and 1997, the Company granted certain additional warrants to purchase shares of
common stock. The warrants expire at various dates between 1999 and 2002.
STOCK PURCHASE PLAN. In 1994 the Company adopted its 1994 Employee Stock
Purchase Plan (the "Purchase Plan") to allow its employees to purchase shares of
the Company's common stock through payroll deductions under the Purchase Plan.
The Company originally reserved 22,500 shares of common stock for issuance under
the Purchase Plan. In September, 1997, stockholders of the Company amended the
Purchase Plan to increase the number of shares reserved for issuance to 40,000
shares. In September, 1998, stockholders of the Company amended the Purchase
Plan to increase the number of shares reserved for issuance to 250,000 shares.
STOCK OPTION PLANS. The Company has employee stock options outstanding
under three different stock option plans. Under the Company's Amended and
Restated 1987 Stock Option Plan (the "1987 Plan"), incentive stock options to
purchase shares of common stock were granted to directors, officers, key
employees and consultants. The 1987 Plan had a ten year term which expired in
1997. Options granted and outstanding under the 1987 Plan remain in force until
exercised by the holder, terminated as a result of the holder terminating
employment, or the term expires or otherwise terminates under the terms of the
1987 Plan.
In anticipation of the termination of the 1987 Plan, stockholders of the
Company approved the 1996 Stock Option Plan (the "1996 Plan") for either
non-qualified or incentive stock options. Generally options under the 1996 Plan
vest over a four year period. The Company originally reserved 45,000 shares of
common stock for issuance under the 1996 Plan. In September, 1997, stockholders
of the Company
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amended the Plan to increase the number of shares reserved for issuance to
130,000 shares. In September, 1998, stockholders of the Company amended the 1996
Plan to increase the number of shares reserved for issuance to 600,000 shares.
In April 1999, the Board of Directors determined that it was in the best
interests of the Company to adopt the Omnis Technology Corporation 1999 Stock
Option Plan (the "1999 Plan") to consolidate options to be issued to directors,
officers, key employees and consultants under a single option plan and to
terminate the Directors Plan, the Advisors Plan and the 1996 Plan, except as to
warrants and options then issued and outstanding under such plans. The 1999 Plan
was adopted by the Board of Directors and 1,500,000 shares of the common stock
of the Company were reserved for issuance under the 1999 Plan. The Board of
Directors plans to present the 1999 Plan for approval to the stockholders of the
Company at their 1999 annual meeting. Subject to the approval of the
stockholders, in April 1999 the Company granted incentive stock options to its
employees to acquire a total of 411,000 shares of the common stock of the
Company at an exercise price of $1.02 per share, with the right to exercise such
options vesting over a three-year period.
RECENT DEVELOPMENTS
Fiscal 1999 was a year of change and consolidation for OMNIS. At the
beginning of the year the financial difficulties resulting from the losses
incurred by the Company in fiscal year 1998 dictated a rigorous cost cutting
policy. The Company's new management team has taken steps to improve the
Company's cash flow through more aggressive marketing of its products; more
focused research and development expenditures on products that have a shorter
return or "payback" period; improvement of operational efficiencies; and a
significant reduction in operating expenses. With these improvements the Company
reduced cash used in operations from $6,180,000 in fiscal year 1998 to
$2,514,000 in fiscal year 1999.
At March 31, 1999, the Company had stockholders' equity of $1,262,000
and working capital of $390,000, both significant improvements over
stockholders' deficit and negative working capital of $1,255,000 and $3,016,000,
respectively, at March 31, 1998. In addition to the substantial reduction in
operating expenses and refocused development and marketing efforts, the improved
financial performance resulted principally from (1) substantial changes in the
ownership and management of the Company; (2) the raising of $1.2 million to
settle all past due claims of creditors and provide working capital; and (3)
issuance of common and preferred stock in exchange for debt and accrued interest
of $1.1 million. These changes, among others, resulted in the Company returning
to profitability in the third and fourth quarters of fiscal 1999.
The Company had formed a committee of its creditors (the "Creditor
Committee") in February 1998 to structure a workout agreement pursuant to which
the Company would repay its creditors over time, with the objective of avoiding
further litigation or formal bankruptcy proceedings; and a workout agreement was
entered into in June 1998. The Company began repayment to the creditors in the
quarter ending September 30, 1998 and fully repaid such creditors by March 31,
1999.
In October, 1997, the Company had raised $1 million in secured debt
financing from Astoria Capital Partners, L.P. ("Astoria"), a significant
stockholder of the Company, which was secured by substantially all of the assets
of the Company. In April 1998, the Company also agreed to sell up to 126,000
shares of Series A preferred stock of the Company to Astoria at a price of $8.00
per share. Under the share purchase agreement Astoria had the right to purchase
the shares at its option at any time prior to October 1, 1998. Under the
agreement each share of preferred stock was convertible into 10 shares of common
stock. Between April 1 and October 1, 1998, Astoria purchased a total of 124,564
shares of Series A Preferred Stock from the Company pursuant to the share
purchase agreement. The proceeds from these purchases were used by the Company
to fund its general operations. On December 31, 1998, the Company repurchased
the 124,564 shares of Series A Preferred Stock from Astoria for an aggregate
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purchase price of $100 (or $.0008 per share). The Certificate Regarding Series A
Preferred Stock of the Omnis Technology Corporation was filed with the Delaware
Secretary of State on February 25, 1999, eliminating the class of Series A
Preferred Stock then in effect.
In order to increase the capital of the Company to obtain additional
working capital and to eliminate its principal indebtedness, on March 19, 1999
the Board of Directors of the Company authorized the issuance of 300,000 shares
of a new Series A Convertible Preferred Stock (the "Preferred Shares") and
7,600,000 shares of common stock of the Company (the "Common Shares")
(collectively the Preferred Shares and the Common Shares shall be referred to as
the "Shares"). The Restated Articles of Incorporation of the Company vest in the
Board of Directors the authority to issue such Shares. On March 31, 1999 the
Company filed with the Secretary of State of Delaware a Certificate of
Designations setting forth the rights, preferences and privileges of the new
Preferred Stock. Pursuant to the terms of a Letter of Intent entered into by and
between the subject parties as of February 22, 1999, on March 31, 1999 the
Company entered into a series of stock purchase agreements with Astoria Capital
Partners, L.P., Gwyneth Gibbs, president of the Company, and certain members of
the Board of Directors or their affiliates.
Under the terms of a stock purchase agreement with Astoria, the Company
agreed to issue and Astoria agreed to purchase 300,000 Preferred Shares at a
purchase price of $1.6667 per share for an aggregate Preferred Share purchase
price of $500,000; and to purchase 2,543,344 Common Shares at a purchase price
of $0.25 per share for an aggregate Common Share purchase price of $635,836
(collectively the "Astoria Shares"). The consideration for the Astoria Shares
was the cancellation of the 1997 secured indebtedness of the Company to Astoria.
The stock purchase agreement grants certain registration rights and rights of
first refusal to Astoria. The Company also entered into a separate Common Stock
Purchase Agreement with Astoria pursuant to which Astoria purchased an
additional 1,000,000 Common Shares at a price of $0.25 per share for an
aggregate cash purchase price of $250,000. The Common Stock Purchase Agreement
also grants certain registration rights and rights of first refusal to Astoria.
Pursuant to the terms of stock purchase agreements entered into with
certain members of the Board of Directors, including Mrs. Gibbs (the "Board of
Directors Agreements"), the Company also agreed to issue an additional 4,000,000
Common Shares in the aggregate at a price of $0.25 per share, for aggregate
purchase price of $1,000,000. The Board of Directors Agreements do not grant any
registration rights or rights of first refusal to the parties. These
transactions were approved by the disinterested directors of the Company
pursuant to Delaware law.
The proceeds from the sale of the Common Shares to the Board of
Directors was primarily used to satisfy the entire indebtedness owed to the
Omnis Class 2 Creditors pursuant to the 1998 workout agreement previously
entered into between the Company and such creditors. The $250,000 in proceeds
from the sale of the 1,000,000 Common Shares to Astoria will be used for Company
working capital purposes, primarily to enhance and expand its sales and
marketing activities. The major sales and marketing event being currently
planned for the Company is a significant presence at the Linux World exhibition
in San Jose, California in August 1999.
In April 1999, the Board of Directors adopted the Omnis Technology
Corporation 1999 Stock Option Plan (the "1999 Plan") in order to consolidate
options to be issued to directors, officers, key employees and consultants under
a single option plan and to terminate prior stock plans. The 1999 Plan was
adopted by the Board of Directors and 1,500,000 shares of the common stock of
the Company were reserved for issuance under the Plan. The Board of Directors
will present the 1999 Plan for approval to the stockholders of the Company at
their annual meeting. Subject to stockholder approval, in April 1999 the Company
granted incentive stock options to its employees to acquire a total of 411,000
shares of the common stock of the Company at an exercise price of $1.02 per
share, with the right to exercise such options vesting over a three-year period.
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KEY MANAGEMENT CHANGES
During the first half of fiscal year 1998-1999, the Chief Financial
Officer of the Company, Mr. Kenneth Holmes, held the position of interim Chief
Executive Officer and Chairman of the Board. Mr. Holmes left the Company in
October 1998 citing time constraints and to pursue other interests, and the then
Vice President of Research and Development, Mrs. Gwyneth Gibbs, was appointed
President and interim Chief Executive Officer. In January 1999 Mr. Kevin Doyle,
the Vice President of Marketing, left the Company to pursue other interests.
In July 1998 Mr. David Colby and Mr. William Konrad resigned from the
Board of Directors stating time constraints with other business interests were
too demanding to permit them to serve as active directors of the Company. At
that time the Board of Directors appointed Mr. Philip Barrett, Mr. Gerald Chew,
Mr. Douglas Marshall and Mr. Geoffrey Wagner to serve on as directors of the
Company. Mr. Kenneth Holmes then resigned from the Board of Directors in October
1998 in connection with his departure from the Company. Mr. Richard Hanschen was
appointed Chairman of the Board at that time. Mr. Hanschen then resigned as the
Chairman of the Board and as a director of the Company in December 1998. At that
time Mr. Philip Barrett was appointed Chairman of the Board. Mrs. Gwyneth Gibbs,
the President and interim Chief Executive Officer of the Company, was appointed
as an additional director of the Company in February 1999.
The members of the Board of Directors of the Company as of March 31,
1999 and currently are Mr. Philip Barrett, Mr. Gerald Chew, Mrs. Gwyneth Gibbs,
Mr. Douglas Marshall and Mr. Geoffrey Wagner.
In February 1999 the Board of Directors appointed a Compensation
Committee and an Audit Committee of the Board. The Compensation Committee is
generally responsible for evaluating and recommending to the Board of Directors
of the Company the granting of stock options to employees, including officers,
and other eligible persons, and the setting of compensation for the executive
officers of the Company. The executive officers of the Company have been
delegated the responsibility of administering compensation programs (other than
stock based) for the other employees of the Company, subject to overall budget
review and approval by the Board of Directors. Messrs. Chew and Marshall are the
members of the Compensation Committee. The Audit Committee is generally
responsible for recommending engagement of the Company's independent public
accountants and is generally responsible for approving the services performed by
such independent public accountants and for reviewing and evaluating the
Company's accounting principles and its system of internal accounting controls.
Messrs. Barrett and Wagner are the members of the Audit Committee.
On November 10, 1998 the independent public accounting firm of Deloitte
& Touche LLP resigned as the independent public accountants of the Company. On
March 15, 1999 the independent public accounting firm of Grant Thornton LLP, the
United States member firm of Grant Thornton International, was engaged as the
independent public accountants of the Company. During the 1999 fiscal year the
law firm of Wilson, Sonsini, Goodrich & Rosati also withdrew as legal counsel
for the Company. The law firm of Landels Ripley & Diamond, LLP of San Francisco
has since been retained as general legal counsel for the Company; and the law
firm of Finnegan, Henderson, Farabow, Garret & Dunner, LLP of Washington, D.C.
and Palo Alto, California has been retained as patent counsel for the Company.
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INDUSTRY BACKGROUND
EVOLUTION OF CLIENT/SERVER COMPUTING
The evolution of computing has been characterized by several distinct
stages. In the 1970s, mainframe and minicomputer systems with character-oriented
user terminals emerged as the principal structure for enterprise computing. This
was followed in the 1980s by the introduction of personal computers and
workstations which primarily addressed personal productivity applications such
as word processing and spreadsheets. In the late 1980s local and enterprise-wide
networks connecting these desktop systems became increasingly prevalent,
initially for accessing file storage archives (file servers) and electronic mail
communications.
Building on this infrastructure, client/server computing emerged as an
important new architecture for corporate computing in the early 1990s. In the
client/server computing model, application software is divided into two
components: a "client" handling functions such as the user interface, local data
storage, manipulation and presentation, and a "server" handling tasks such as
data management and access, storage, and retrieval for multiple clients.
Generally the client software runs in a single-user desktop system, while the
server operates utilizing a shared mainframe, minicomputer or workstation, and
messages linking client and server are exchanged through connecting networks. In
the last several years the Internet has become a new alternative for the
dissemination and collection of information, with clients accessing data using
applications known as "browsers".
The adoption of the client/server model by large enterprises has created
a strong market for application development tools to develop custom computer
programs for use in internal client/server environments and across the Internet.
The demand is to maximize the function and scalability of developed applications
and their rapid deployment throughout the business, while at the same time
reducing application development times and using finite software development
resources.
Software development tools based on object-oriented programming models
are generally recognized as the most efficient solution to enterprise
application development. Object-oriented programming languages aggregate
functions and data into classes and objects. Object-based application
development tools then provide a set of software components and libraries for
the creation and storage and manipulation of objects in the relevant programming
language. This structure enables re-use of the software in the development of
other applications. By contrast traditional non-object or imperative mode
programming models require the developer to "start from scratch" with each new
application, which is extremely inefficient.
The demand is also strong for "crossware" applications, or software
applications that can operate across the Internet with a wide variety of systems
or platforms (such as Windows, Windows NT, Macintosh and Linux), databases (such
as Oracle, Informix and Sybase), object types built with standard and custom
object languages, and component formats (such as Java Beans from JavaSoft and
ActiveX from Microsoft Corporation).
OMNIS STRATEGY AND PRODUCTS
The Company's product strategy is to develop sophisticated crossware
object-based application development tools to enable independent software
developers and enterprises to build custom software applications that have the
following features:
- Integrate with existing systems and execute across a variety of
platforms, databases and components.
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- Extend the client/server model across the Internet.
- Deliver superior object-oriented functionality at a lower cost
than applications developed using other software development
tools.
- Develop reusable program components.
Our goal is to maintain a high level of technological innovation and, through
aggressive marketing and distribution, to significantly increase the number of
software developers and enterprises using OMNIS products.
The Company is a technology leader in the development and deployment of
component engineering software. Its OMNIS 7(3) and OMNIS Studio product lines
provide powerful tools for the prompt development and deployment of Internet and
client/server applications for such markets as health care and pharmaceuticals,
legal and administration, human resources and accounting, manufacturing,
education and government. These products provide the capability to reuse
software objects and to integrate objects from different programming languages.
OMNIS 7(3) . OMNIS 7(3)(TM) has been the Company's main product line
for a number of years and continues to be an important source of revenue. OMNIS
7(3) is a cross-platform application development tool for the development of
form-based client/server applications. The OMNIS 7(3) programming language
combines a 4GL (fourth generation object-oriented programming language) and its
own "dot notation", a hierarchical language that permits the user to manipulate
any object down to its individual attributes and events.(1)
OMNIS 7(3) contains a proprietary set of plug-ins or Data Access Modules
(DAMs) that provide access to all industry-leading databases, including
Oracle(R), Sybase(R), DB2(R), and Informix(R), as well as most ODBC-compliant
databases such as MS SQL Server(TM). From within one integrated design
environment, the OMNIS SQL Browser enables access to different types of server
database and moves objects and data from one database to another. In addition
OMNIS 7(3) includes its own relational database that provides a secure data
storage system for local database applications. The OMNIS Version Control System
(VCS) and OMNIS Change Management System (CMS) provide format and library
storage, version tracking, and application life-cycle support. OMNIS 7(3)
applications can be deployed under Windows 3.1, Windows 95/98, NT, Power
Macintosh and 68030 or 68040 Macs.
The OMNIS Web Enabler SDK permits the application to be adapted to
access information via the Internet using Internet Mail (SMTP/POP3) to send and
receive e-mail; File Transfer Protocol (FTP) to exchange files with the Internet
site and to integrate resources from several locations; HyperText Transfer
Protocol (HTTP) to retrieve Web pages, and to respond to requests for HTML from
browsers; Low-level Socket communications (TCP/IP) with other socket-based
programs on a local network, intranet or the Internet; as well as the use of GIF
and JPEG file formats.
OMNIS 7(3) is currently available in two editions, the Workgroup and
Enterprise editions. OMNIS 7(3) Workgroup includes the OMNIS relational database
and the OMNIS Web Enabler SDK. OMNIS 7(3) Enterprise includes all of the
components of the Workgroup plus the DAMs (to access any server database using
the SQL Browser) and the OMNIS VCS.
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(1) OMNIS is a registered trademark of OMNIS Software Limited. OMNIS Studio and
OMNIS 7 are trademarks of OMNIS Technology Corporation. All other products or
service names mentioned herein are trademarks of their respective owners.
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The license fees for OMNIS 7(3) vary with the configuration of the
product and have United States developer list prices ranging from $500 to
$2,700, which are subject to change. OMNIS 7(3) applications can be deployed
with data access services via the OMNIS 7(3) database or configured with data
access services to leading databases (such as DB2, Oracle, Sybase and Informix).
When customers deploy an application, a deployment license is required for each
end-user. The global list prices for the database deployment licenses of OMNIS
7(3) generally range from $20 to $165 per user, subject to change, depending
upon quantities purchased and the distribution channel involved.
The Company intends to continue to maintain OMNIS 7(3) for the
foreseeable future, but does not anticipate adding significant enhancements to
the OMNIS 7(3) functions. In general the Company licenses OMNIS 7(3) only to
existing OMNIS users desiring to upgrade to the latest version of OMNIS 7(3).
OMNIS Studio is generally the appropriate application for new users.
OMNIS STUDIO. OMNIS Studio(R) is the Company's premium product line and
was the first commercially available application development tool that
integrated ActiveX and Java Beans components. OMNIS Studio is an object-oriented
rapid application development tool (RAD), offering efficient visual assembly of
components and objects. OMNIS Studio has most of the functions of the OMNIS 7(3)
product plus numerous new features and enhancements, including new classes and
window objects, a new and more integrated design environment, a new set of
design tools, and new object-oriented features and programming techniques. These
improvements in OMNIS Studio generally result in a shorter learning curve,
more-streamlined application development, and smoother deployment and
maintenance of the software than OMNIS 7(3). OMNIS Studio currently provides
cross-platform support for Windows95 and Windows98, Windows NT, Windows 3.1 and
MacOS; local and portable data caching; a powerful code inspector; a report
writer; a multiple-mode debugger; and support for localization and multi-lingual
implementation. OMNIS Studio includes conversion facilities to assist in
converting OMNIS 7(3) applications to OMNIS Studio; and the Company has recently
introduced an additional conversion tool to encourage existing OMNIS 7(3) to
change to OMNIS Studio.
A Linux version of OMNIS Studio is being developed, with a beta version
planned for July 1999 and a first release in September 1999. This will enable
OMNIS developers to create and deliver their application in Linux environments
in addition to existing platforms. No Linux version of OMNIS 7(3) will be
developed. In addition certain of the external components of OMNIS Studio are
presently available in open source format to provide working examples for
developers interested in programming their own components for use with OMNIS
Studio.
The OMNIS Studio Web Client was announced in late 1998 and released in
April 1999. The OMNIS Studio Web Client(TM) is designed to use object-oriented
programming for the development of Internet based forms, using drag and drop and
wizards, and can include controls like dropdown lists, tabs and sidebars to ease
navigation through the solution in a web browser. With this program OMNIS
applications can be viewed on the Internet using a standard web browser, such as
newer versions of Microsoft Internet Explorer or Netscape Navigator. The server
application is developed using standard OMNIS technology and runs a proprietary
OMNIS engine that is located between the web server and the database.
The license fees for OMNIS Studio depend on the level of technical
support chosen. The current United States developer list price is $1,499 and is
subject to change. When customers deploy an OMNIS application a deployment
license is required for each end-user. The global list prices for the deployment
licenses of OMNIS Studio generally range from $20 to $165 per user, subject to
change, depending upon quantities purchased and the distribution channel
involved. In the case of applications delivered for Internet or Intranet
deployment, using the OMNIS Web Client technologies, the license is on a per
concurrent end-user basis.
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YEAR 2000 COMPLIANCE
Many existing computer programs use only two digits to define the
applicable year in a date field. These programs were designed without
considering the impact of the upcoming change in the century. If not corrected,
many computer applications could fail or create erroneous results by or at the
year 2000.
Year 2000 compliance means that neither performance nor functionality of
a computer system is affected by dates prior to, during or after the Year 2000.
In particular (i) no value for current date will cause any interruption in
operation; (ii) date based functionality must operate consistently for dates
prior to, during and after Year 2000; (iii) in all interfaces and data storage,
the century in any date must be specified explicitly or by unambiguous algorithm
or inferencing rules wherever possible; and (iv) Year 2000 must be recognized as
a leap year.
The Company only certifies the latest versions of the OMNIS 7 and OMNIS
Studio product lines, which are OMNIS 7(3) version 7.0 and above and OMNIS
Studio 2.0 and above, as Year 2000 compliant as herein defined. All new versions
of OMNIS products will be tested to ensure continued compliance. Earlier
versions of OMNIS 7(3) and OMNIS Studio will store date data correctly, but may
fail on some date calculations under certain circumstances, some of which
involve the year 2000. OMNIS users have been advised of this issue and the
Company provides for the downloading of the latest version of the date functions
applicable to the particular platform.
Provided that developers use the current version of OMNIS 7(3) or OMNIS
Studio in the manner designed they will generate Year 2000 compliant OMNIS
applications. It must be noted that both OMNIS Studio and OMNIS 7(3) provide a
programming interface to other programs and external functions written by
external developers and can access data stored in a remote databases. In all
cases the date data passed to the remote database from the OMNIS storage
contains the full 4 character year representation. However the Company cannot be
responsible for compliance within individual applications written by external
applications developers. The Company also does not accept any responsibility for
Year 2000 compliance with respect to any hardware on which its products are used
or any other software, including but not limited to operating system software,
server databases, data file systems and other software utilities. The Company
believes it has designed its current products to effectively handle the Year
2000 issue.
The majority of the Company's internal applications were built using
OMNIS products which the Company believes are Year 2000 compliant. Therefore,
the Company believes that it has substantially mitigated its risks on the Year
2000 issue with its internal applications. The Company is in the process of
completing the testing and assessment of Year 2000 compliance for all third
party hardware and software and non-information technology (IT) systems used by
the Company. The Company expects to have such testing and assessment completed
no later than October 31, 1999. The Company will upgrade or replace all third
party hardware or software and non IT systems in use that are not compliant. The
Company intends to establish, but has not yet established, a contingency plan
detailing actions that will be taken in the event that any such upgrade or
replacement is not compliant or that the assessment of the Year 2000 issue is
not successfully completed on a timely basis. The internal costs of such Year
2000 compliance is not known at this time. There can be no assurance that the
Company is or will be fully Year 2000 compliant or that Year 2000 compliance
issues will not arise with respect to products furnished by third party
manufacturers, the Company's own products, or suppliers that may result in
unforeseen costs or delays to the Company and therefore have a material adverse
effect on the Company.
SALES, MARKETING AND DISTRIBUTION
SALES
The Company licenses its products to independent developers, value added
resellers (VARs), system integrators, and the internal development staffs of
enterprises that develop and deploy custom computer applications for a wide
range of uses including financial management, decision support,
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<PAGE> 12
executive information, sales and marketing, and multi-media authoring systems.
The primary focus of the Company's sales and marketing efforts are independent
developers of commercial or custom computer programs for third parties. The
introduction of the OMNIS Studio Web Client technology in April 1999, and the
anticipated release later this year of a Linux version of OMNIS Studio are
expected to attract new customers.
The Company sells its products in North America primarily through
account representatives who pursue leads generated by the Company's marketing
department and respond to incoming calls from current and new customers. All
North American account representative personnel are located at the corporate
offices in San Carlos, California. The Company also sells its products in Europe
primarily through a direct sales force operating from sales offices in the
United Kingdom, Germany, Scandinavia, and Benelux.
The Company is plans to expand sales growth by making additional sales
to its current customer base and increasing the number of new customers. An
important part of the Company's growth strategy is to widen market penetration
and sales through VARs, service providers and other partnerships. Because
applications developed by these partners require users of the applications to
purchase deployment licenses from the Company, the Company intends to develop
additional revenue by encouraging these partners to expand their development
efforts using the Company's software development tools.
INTERNATIONAL DISTRIBUTION
The Company has non-exclusive distributor relationships in a number of
countries as well as an exclusive distribution relationship in France. All of
the Company's distributors provide primary customer service and support for
their markets. The Company increased its distributor network in 1998 with the
appointment of distributors in Greece and South Africa, and is in the process of
extending this distributor network to access additional international markets.
Distributors in Latin America and in the Pacific Rim are managed from the San
Carlos, California office, while distributors in Europe, Middle East and Africa
are managed from the United Kingdom office.
The Company has committed and continues to commit significant management
time and financial resources to developing direct and indirect international
sales and support channels. There can be no assurance however that the Company
will be able to maintain or increase international market demand for its
products. To the extent that the Company is unable to do so in a timely manner,
the Company's international sales will be limited, and the Company's business
operating results and financial condition could be materially and adversely
affected.
International operations are subject to inherent risks, including costs
and difficulties in staffing and managing foreign operations; difficulties in
obtaining and managing local distributors; the costs and difficulties in
localizing products into languages other than English for foreign markets;
political or economic instability, unexpected regulatory changes and
fluctuations in interest or exchange rates in the specific countries in which
the Company distributes its products or in international markets in general;
longer receivables collection periods and greater difficulty in accounts
receivable collection; import/export duties and quotas; reduced protection for
intellectual property rights in some countries; and potentially adverse tax
consequences. Also, as the Company continues to operate more internationally,
seasonality may become an increasing factor in its financial performance. There
can be no assurance that the Company or its distributors or resellers will be
able to sustain or increase international revenues from licenses or related
technical services, or that the foregoing factors will not have a material
adverse effect on the Company's future international revenues and consequently
on the Company's business, operating results and financial condition.
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<PAGE> 13
MARKETING
In support of its sales efforts, the Company conducts numerous marketing
programs including public relations efforts, trade conferences, seminars, direct
mail campaigns, and direct customer communications. The Company conducts user
conferences in the United States, the United Kingdom, and Germany and
periodically conducts meetings with customer groups to obtain direct feedback of
customers' needs. The Company also provides a variety of collateral marketing
materials and demonstration applications to stimulate customer interest.
TECHNICAL SUPPORT SERVICES
The Company also provides levels of technical support and product
training for its customers. Registered users of the Company's products can
purchase an annual comprehensive subscription service to obtain maintenance
releases and associated technical support and documentation. Other services
under this program include telephone technical support during regular business
hours, applications notes, and access to an electronic bulletin board where
users can exchange development ideas and commentary. The customer resource
library provides in-depth analyses of specific product features, example code,
programming short cuts, and optimization techniques.
The Company's technical support team, comprised of experienced OMNIS
developers, focuses on problem solving and resolution in networking,
connectivity, security and other technical issues. Technical support
representatives are regularly trained in basic and advanced uses of OMNIS
products. The Company operates the technical support function through a
consolidated database, combining customer information from the United States,
United Kingdom, and German support center databases into single database
structure. The global support strategy includes a worldwide support center in
the United Kingdom, which supports the Company's United States, Canadian and
United Kingdom customers and certain of the foreign distributors of the Company.
A support center in Germany provides support for the Company's direct customers
in Europe and the Company's European based distributors. The Company provides
technical information and support via its Website to better provide technical
support to its customers. The Company is in the process of reducing the
professional development and technical services component of its operations
relative to its efforts to develop and market software products.
CUSTOMERS
The Company has customers in a wide range of industries, including
financial services, pharmaceuticals, manufacturing, telecommunications,
aerospace, defense and education. In fiscal year 1999 no customer accounted for
more than 10% of total net revenues.
As is the case with many companies in the software industry, the Company
generally ships product as orders are received. As a result the Company has
historically operated with little backlog. Because of this short cycle between
receipt of an order and shipment, the Company does not believe that its backlog
as of any particular date is material.
The Company's products are designed to enable the development of
applications which operate in traditional client/server environments as well as
across the Internet. Some of the Company's customers purchase copies of the
Company's products for evaluation purposes. There can be no assurance that these
customers will broadly implement new projects or that they will purchase
additional products from the Company. The Company's future financial performance
will depend on the growth of the Company's sector of the computing market and on
its ability to compete effectively in this market. There can be no assurance
that this market will continue to grow or that the Company will be able to
respond effectively to customer requirements and competitive offerings in this
market.
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As these markets evolve, the Company anticipates that competition is
likely to increase from both existing and future market participants, most of
whom are larger companies and have greater financial, technical, marketing,
sales and distribution resources and a larger installed base of customers than
the Company. Moreover, if such competition were to enter the Company's market,
it might be required to increase defensive measures to maintain its position in
these target markets. This increased effort could adversely affect operating
results due to increased marketing programs, price declines, longer sales
cycles, and increased product development expenses, among other matters. There
can be no assurance that the Company could compete effectively with such new
products.
PRODUCT DEVELOPMENT
Since its inception in the United Kingdom, the Company has benefited
from having a global perspective in terms of customers, technological
perspective, and product development. Since 1985 the Company's corporate
research and development facilities have been based in England.
The Company believes that developing new products is best accomplished
with a cross-disciplinary approach, combining the talents and perspectives of a
multi-faceted virtual development team that includes developers, customers,
VARs, sales and marketing, quality assurance, and technical service
representation. In the course of planning products, the Company's product
development team filters industry trends, ideas from customers and potential
customers, partners and potential partners, feedback from the Company's own
sales, marketing, technical support staffs, and general business information and
then analyzes the potential risks and benefits of pursuing a given strategy.
The software industry is characterized by rapid technological advances,
frequent new product introductions, rapid enhancements of existing products
through new releases, and changing customer requirements. The future success of
the Company will largely depend on its ability to enhance its current products
and to successfully develop new products which keep pace with technology trends,
competitive offerings and evolving customer requirements. In particular the
Company believes it must continue to enhance the basic functionality of its
products and extend the product line to keep pace with the leading advances in
hardware, operating systems, programming languages, databases, and
Internet-related technologies. Any failure of the Company to anticipate new
technology developments and customer needs or any significant delays in product
development and introduction could result in a loss of competitiveness and
revenues. Because of the complexity of software products, new product
introductions may contain undetected software errors that, notwithstanding
quality assurance testing by the Company, are discovered only after a product
has been installed and used by customers. Although the Company has not
experienced any material adverse effects from such errors to date, there can be
no assurance that errors will not be discovered in the future which would cause
delays in shipments, loss of revenues or require significant design changes that
could adversely affect the Company's competitive position and operating results.
There can be no assurance that any of the Company's product development efforts
will lead to a commercially viable product, and the Company is unable to predict
whether or when proposed new products, product enhancements, or product
extensions might be released or whether, when released, such products will
achieve market acceptance.
The Company markets its products to customers for the development,
deployment, and management of client/server applications. The Company's license
agreements with its customers typically contain provisions designed to limit the
Company's exposure to potential product liability claims. It is possible however
that the limitation of liability provisions contained in the Company's license
agreements may not be enforceable as a result of existing or future laws or
ordinances or unfavorable judicial decisions in the applicable jurisdiction.
Although the Company has not experienced any product liability claims to date,
the sale and support of its products by the Company inherently includes the risk
of such claims, which if made are likely to be substantial in light of the use
of its products in business-critical applications. A successful product
liability claim brought against the Company could have a material adverse effect
upon the Company's business, operating results, and financial condition.
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<PAGE> 15
COMPETITION
The applications development tools software market is rapidly changing
and intensely competitive. The Company currently encounters competition from
several direct competitors, including Sybase Corporation, Forte Software Inc.,
Magic Software Enterprises and Centura Software Corporation (formerly Gupta
Corporation). In addition, the Company competes indirectly with several other
companies. These include (i) the relational database vendors, such as Oracle
Corporation and Informix Software, Inc., who provide application development
tools primarily for customers who use their database technology; (ii) 4GL
application tools vendors such as Progress Software Corporation and Cognoscente
Software International Incorporated; (iii) CASE tools vendors such as
Knowledgeware Inc. and Intersolv Inc.; (iv) shrink-wrap database software
suppliers such as Lotus, Delphi, and ACIUS; and (v) developers in Java as
competition for the OMNIS web client technology.
The Company believes that its ability to compete depends on factors both
within and outside its control, including the timing and success of new products
developed by the Company and its competitors, product performance and price,
distribution, and customer support. There can be no assurance that the Company
will be able to compete successfully with respect to these factors. In
particular, competitive pressures from existing and new competitors who offer
lower prices or introduce new products, including "native" products that fully
utilize the capabilities of a particular operating platform, could result in
delays in purchase decisions by or loss of sales to potential customers or cause
the Company to institute price reductions, any of which would adversely affect
the Company's results of operations. In particular, software licenses which
permit developers to develop configurable applications and deliver those
applications to end-users, have been and may continue to be subject to
significant pricing pressures which could have an adverse effect on the
Company's business and results of operations. There can be no assurance that the
Company will be able to maintain its price structure or that entry of future
competitors in the Company's current market will not result in pricing pressures
in the future.
Additional competitive factors influencing the market for the Company's
products include product functionality and features, platforms, performance,
vendor and product reputation, product and service quality. These items may also
result in market confusion, delays in purchases, intensified competition, price
restructuring, or price reductions. The Company believes that the broad
functionality of its products, including its cross platform capability and its
important features for group development, application deployment and maintenance
has enabled the Company to compete effectively to date, particularly for
professional development environments in major enterprises.
As the market evolves, the Company anticipates that competition is
likely to increase from both existing and future market participants, most of
whom are larger companies and have greater financial, technical, marketing,
sales and distribution resources and a larger installed base of customers than
the Company. Moreover, as competition continues to enter the crossware market
which is the principal market in which the Company participates, the Company
might be required to increase defensive measures to maintain its position in
these target markets. This increased effort could adversely affect operating
results due to increased marketing programs, price declines, longer sales
cycles, and increased product development expenses among other matters. There
can be no assurance that the Company could compete effectively with such new
products.
INTELLECTUAL PROPERTIES AND OTHER PROPRIETARY RIGHTS
The OMNIS products include technologies developed by the Company. The
Company relies primarily on a combination of trade secret, copyright and
trademark laws, and contractual provisions to protect its proprietary rights in
such technologies. Omnis(R) is a United States registered trademark of OMNIS
Software Limited (formerly Blythe Software Limited), a subsidiary of OMNIS
Technology Corporation. Omnis Studio and OMNIS 7 are trademarks of OMNIS
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<PAGE> 16
Technology Corporation. In addition to trademark and copyright protections, the
Company licenses its products to end users on a "right to use" basis pursuant to
a perpetual license agreement that restricts use of products to a specified
number of users. The Company generally relies on shrink-wrap licenses which
become effective when a customer opens the package. Because they are not
negotiated with or signed by the licensees, in order to retain exclusive
ownership rights to its software and technology, the Company generally provides
its software in object code only, with contractual restrictions on copying,
disclosure and transferability. There can be no assurance that these protections
will be adequate, or that the Company's competitors will not independently
develop technologies that are substantially equivalent or superior to the
Company's technologies.
Copyright and other protection for intellectual property may be
unavailable or restricted in certain foreign countries. In addition, shrink-wrap
licenses may be unenforceable under the laws of certain jurisdictions.
Nevertheless, the Company believes that its copyright and license protections
are important. However, because of the rapid pace of technological change in the
computer software industry, factors such as the product knowledge, ability, and
experience of the Company's personnel, brand name recognition, customer support,
and ongoing product maintenance and enhancement may be more significant in
maintaining the Company's competitive advantage.
The Company is in the process of preparing appropriate patent
applications for certain of its Studio Web Client and other technologies. At
this time the Company has not filed any final patent applications and has not
been granted any patents on any of its proprietary technologies and there is no
assurance that any such patents will be granted. Patent protection may become
important in the protection of the commercial viability of the Company's
innovative products and the failure to obtain such patent protection could have
an adverse effect on the commercial viability of such products. The Company's
success therefore may in part depend on its ability to obtain strong patent
protection or licenses to strong patents in the future. It is not possible to
anticipate the breadth or degree of protection that patents would afford any
product of the Company or the underlying technologies. There can be no assurance
that any patents issued or licensed to the Company will not be successfully
challenged in the future or that any OMNIS product will not infringe the patents
of third parties.
The level of research and development efforts in areas related to the
OMNIS products makes it possible that third parties will obtain patents or other
proprietary rights that may be necessary or useful to its products. In recent
years the practice of applying for and issuing software patents in the United
States and other jurisdictions has accelerated and the scope and validity of
such patents are frequently in dispute. In cases where third parties are the
first to invent a particular product or technology, it is possible that such
parties would obtain patents that would be sufficiently broad to prevent the
Company from marketing the same or similar products. Although the Company is not
presently aware that any patents necessary to its products have been issued for
which licenses are not available to the Company, it is possible that
applications for such patents have been made or that such patents have been
issued. The scope and validity of such patents, if issued, the extent to which
the Company may desire or need to obtain licenses under such patents, and the
cost and availability of such licenses are currently unknown. There can be no
assurance others may not independently develop or obtain technology similar to
that of the Company.
As the number of software products available in the market increases and
the functions and features of these products further overlap, the Company
anticipates that software products may become increasingly subject to
infringement claims. There can be no assurance that third parties will not
assert infringement claims against the Company in the future with respect to any
current or future product. Any such assertion, whether with or without merit,
could require the Company to enter into expensive litigation or royalty
arrangements. If required, such royalty arrangements may not be available on
reasonable terms, or at all.
The Company is currently involved in litigation related to copyright
infringement. See Item 3, "Legal Proceedings".
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PRODUCTION
The Company uses subcontractors in the United Kingdom to perform its
manufacturing operations, which include duplication and preparation of software
media, documentation, and packaging. The principal materials used in the
manufacture of the Company's products are CD-ROMs, boxes, binders, and
multicolor printed materials which the Company obtains from its manufacturers.
The Company utilizes certain of its distributors in some international
markets to localize the products, including conversion of the product and
product documentation to native languages, where necessary. The production of
the resulting localized product is then handled by the distributor for that
market.
The Company requires that quality control tests be performed on all
duplicated disks and finished products. Quality control personnel work in the
United Kingdom operation to help ensure product quality. The Company produces
software and documentation based upon forecasts of monthly sales.
EMPLOYEES
At June 24, 1999, the Company had 37 employees, including 14 in product
development, 9 in sales and marketing, 7 in customer support and consulting, and
7 in finance and administration. Of these 37 employees, 31 employees are based
in Europe, and 6 are located in the United States. The Company's employees are
not represented by any collective bargaining organization, and the Company has
never experienced a work stoppage. Further, the Company believes its
relationships with its employees are good.
The Company's success depends to a significant extent upon a number of
key management and technical personnel, the loss of one or more of whom could
adversely affect its business. In addition the Company believes that its future
success will depend to a significant extent on its ability to recruit, hire and
retain highly skilled management and employees for product development, sales,
marketing, and customer service. Competition for such personnel in the software
industry is intense, and there can be no assurance that the Company will be
successful in attracting and retaining such personnel.
EXECUTIVE OFFICERS OF THE REGISTRANT
The following sets forth certain information regarding the executive
officers of the Company as of June 24, 1999:
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
Philip Barrett 43 Chairman of the Board
Gwyneth Gibbs 55 President and interim Chief Executive Officer
Geoffrey Wagner 42 Secretary
David R. Seaman 46 Chief Technical Officer
Larry A. Barcot 50 Vice President, North American Sales
Matthew R. Simmons 25 Vice President, North American Operations
</TABLE>
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Mr. Barrett was appointed Chairman of the Company in February 1999. He
is the former President and owner of Oregon Pro Sport, a company that manages
professional sports teams including the Cascade Surge. Oregon Pro Sport was
founded by Mr. Barrett in January 1995 and sold in November 1998. Prior to that
time Mr. Barrett was the President and a partial owner of Supra Products, Inc.
Mr. Barrett commenced his employment with Supra Products, Inc. in September 1984
and worked in the sales, finance and marketing divisions of that company until
he became its President and partial owner in 1992. Supra Products was sold in
September 1994 to Berwind Industries, Inc.
Ms. Gibbs was appointed President and interim Chief Executive Officer of
the Company in October 1998, and was elected to the Board of Directors in
February 1999. She joined the Company in October 1994, was initially responsible
for Research and Development in Europe and subsequently was assigned worldwide
responsibility for Research and Development in January 1998. Prior to joining
the Company, Mrs. Gibbs was Technical Director of an intelligent database
start-up for 6 years, and before that held a number of positions in UK
development organizations.
Mr. Wagner was appointed Secretary of the Company in February 1999. He
is currently the General Partner of Rockport Group L.P. In September 1990 Mr.
Wagner co-founded the Rockport Group L.P. and has been a General Partner since
its inception. Rockport Group, L.P. invests its capital in a variety of
industries, including technology, healthcare and apparel. Prior to 1990 Mr.
Wagner held sales executive positions at several leading Wall Street firms
including five years at Bear, Stearns & Co., Inc. and five years at Kidder,
Peabody & Co., Inc.
Mr. Seaman is the Chief Technical Officer of the Company. He has served
as a Vice President of the Company since June 1990 and has served as Research
and Development Director since June 1982. He served as Managing Director of
Blyth Software, Ltd. (now OMNIS Software Ltd.) from September of 1990 until June
of 1993.
Mr. Barcot is the Vice President of North American Sales and has served
in this position since April 1998. Mr. Barcot had been involved in the
technology industry since 1976. Since 1984, Mr. Barcot has provided consulting
and software development services for companies on an international basis with
the majority of software development projects completed using tools from OMNIS
Software.
Mr. Simmons is the Vice President of North American Operations and has
served in this position since January 1999. He joined the Company in August
1995, and has held a variety of positions within the UK Sales and Marketing
division. Prior to joining the Company, Mr Simmons worked for a Rapid
Application Development tool vendor for 18 months.
ITEM 2. PROPERTIES
During the initial part of fiscal year 1999 the Company had leased
approximately 22,178 square feet of office space in San Bruno, California under
a lease which expired in May 2002 and had base monthly rental payments of
$58,772 plus a percentage of operating costs and property taxes. The base
monthly rent increased to $60,990 per month during 1998. The Company negotiated
a termination of this lease in August 1998 and now occupies 3,800 square feet of
office space in San Carlos, California under a lease which expires on August 31,
2000 and has a base monthly rent of $7,440.
The Company owns property in the United Kingdom which it uses for its
research and development. The Company also leased 2,738 square feet of office
space for its European sales headquarters office in Bracknell, England. The
lease, which expired in February 2001, had monthly rental
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payments of $4,997 plus $2,096 for common area maintenance. The Company has
agreed an early termination of this lease with the landlord and moved on June
15, 1999 to new offices near Watford, England. This will result in substantial
savings on rent and service charges over a full year. The Company also leases
2,370 square feet of office space (formerly its London sales office) in London,
England. The lease, which expires on November 1, 2012, has monthly rental
payments of $3,820. During the year, the Company sublet all of the London office
space for which it has been receiving a rental of $2,216 per month plus 100%
reimbursement for common area maintenance. As a result of a rent review, this
has been increased to $3,820 per month, backdated to November 1997. The sublease
terminates on December 25, 1999.
The Company leases property in Germany which it uses as a sales office.
The space is 457 square meters and has monthly rental payments of $6,678. The
lease will expire May 14, 2007, with a Company option to terminate the lease in
May 2002.
The Company believes that these facilities are more than adequate to
meet its requirements for fiscal year 2000. All of the foregoing rental
obligations are in the local currency but for these purposes are stated in
United States Dollars as of March 31, 1999.
ITEM 3. LEGAL PROCEEDINGS
LITIGATION
COMPASS ACTIONS. In March 1998 the Company was sued by Compass Software
("Compass") in the Federal District Court for the Eastern District of Washington
claiming damages in the range of $2 Million for software copyright infringement
and related claims. The Company believes that the Compass' copyright
infringement suit has no merit and has vigorously defended against those claims.
In this connection the Company previously had sued Compass in 1994 for
illegally infringing and distributing the Company's software products. This
matter was settled with an agreement that Compass would pay certain amounts and
would not make illegal copies of the Company's software in the future. Compass
failed to pay the promised amounts when due. The Company then obtained a
judgment for breach of contract against Compass. As part of its efforts to
enforce its judgment against Compass, the Company purchased, at a judgment lien
sale, certain intangible property of Compass including the rights to the current
infringement suit brought by Compass ("Execution Sale"). Compass then requested
the applicable court to set aside the Execution Sale. The court granted the
request and the Company has appeal this judgment. The appeal has been briefed
and is awaiting a date for oral argument. The Company has also filed an separate
lawsuit against Compass alleging additional acts of infringement related to the
1994 case.
BTN - GERMANY. The Company entered into a professional development
services agreement with BTN Versandhandel GmbH of Leiferde, Germany for the
development of an OMNIS application. The Company developed and delivered a
version of the application to BTN. BTN failed to pay the Company as agreed,
claiming there were flaws in the application and the project was suspended by
the Company awaiting their payment. BTN commenced legal action against the
Company in Germany claiming damages of approximately DM250,000 for failure to
perform under the services agreement. The Company has countersued BTN claiming
the balance owed under the contract of approximately DM60,000. The Company
believes that the claim by BTN is meritless and intends to aggressively pursue
its counterclaim against BTN.
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CREDITORS
As a result of the losses and negative cash flows incurred by the
Company in fiscal year 1998, the Company was unable to meet its obligations. The
Company negotiated with a group of its creditors to structure a workout
agreement pursuant to which the Company would repay the creditors over time,
thereby possibly avoiding further litigation and collection activities or formal
bankruptcy proceedings. The workout plan was agreed to by this group of
creditors and was approved on June 19 1998. The Company began repayment to
customers in the quarter ending September 1998. All these creditors were paid
off in full at the end of March 1999.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters have been submitted during the fourth quarter of fiscal year
1999 covered by this report to the stockholders of the Company, through the
solicitation of proxies of otherwise.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
In February 1998, The Nasdaq Stock Exchange de-listed the Company from
the Nasdaq SmallCap Market. The Company's Common Stock is currently traded on
the Nasdaq Bulletin Board ("BB") under the symbol "OMNS". It is not known at
this time when or if the Company will be re-listed on the Nasdaq SmallCap
Market.
The following table sets forth the high and low closing prices for the
Company's Common Stock for fiscal years 1998 and 1999, as adjusted for the 1 for
10 reverse stock split of the Company's common stock in September 1997:
<TABLE>
<CAPTION>
HIGH LOW
FISCAL YEAR 1998 CLOSING CLOSING
- ---------------- ------- -------
<S> <C> <C>
April 1 to June 30, 1997 $11.880 $4.690
July 1 to September 30, 1997 $11.250 $6.250
October 1 to December 31, 1997 $ 6.500 $0.500
January 1 to March 31, 1998 $ 0.875 $0.313
HIGH LOW
FISCAL YEAR 1999 CLOSING CLOSING
- ---------------- ------- -------
April 1 to June 30, 1998 $ 0.906 $0.587
July 1 to September 30, 1998 $ 0.906 $0.375
October 1 to December 31, 1998 $ 0.562 $0.187
January 1 to March 31, 1999 $ 0.375 $0.100
</TABLE>
On July 1, 1999, the closing price for the Company's Common Stock on the
Nasdaq Bulletin Board was $2.25 and there were approximately 143 holders of
record of the Company's Common Stock. This does not include stockholders whose
Common Stock is held in street name.
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The Company has never declared or paid dividends on its Common Stock.
The Company intends to retain earnings, if any, for the operation and expansion
of the Company's business, and therefore does not anticipate paying any cash
dividends in the foreseeable future. See Item 6 - "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Liquidity and
Capital Resources."
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
The Company through its subsidiaries develops and markets software
application development tools and related technical services. The main products
developed and marketed by the Company are the OMNIS 7(3) client/server
application development software group of products, and the more advanced OMNIS
Studio rapid application development (RAD) tools. OMNIS Studio enables the
independent or team-based developer to develop and deploy business applications
for companies that access all leading server databases, including Oracle(R),
Sybase(R), DB2(R), and Informix(R), as well as all ODBC-compliant databases,
such as MS SQL Server(TM). These products are used by independent developers,
systems integrators, value-added resellers (VARs) and internal development
staffs of enterprises to deliver custom computer applications for a wide range
of uses including financial management, decision support, executive information,
sales and marketing, and multi-media authoring systems. In addition to these
products, the Company provides technical support and training to assist its
users in planning, analyzing, implementing and maintaining application software
based on the our proprietary technology. The Company is in the process of
reducing the technical services component of its business and is concentrating
its efforts on the development and marketing of software products.
Management's Discussion and Analysis of Financial Condition and Results
of Operations, as well as other portions of this document, include certain
forward-looking statements about the Company's business and new products,
revenues, expenditures and operating and capital requirements. In addition,
forward-looking statements may be included in various other Company documents to
be issued concurrently or in the future and in oral or other statements made by
representatives of the Company to investors and others from time to time.
Forward-looking statements are subject to risks and uncertainties that could
cause actual results to differ from predicted results. Such risks include, among
others, the Company's continuing liquidity problems, significant variability in
operating results, including variability in product revenues and gross margins,
fluctuating demand for new and established products, dependence on development
of new products, increasing expenses for marketing and development of new
products, historical lack of profitability, rapid technological change that
affects the ability of the Company to respond to customer or market demands,
risks associated with global operations, the continued and future acceptance of
the Company's products, the rate of growth in the industries of the Company's
products, the presence of competitors with greater technical, marketing and
financial resources, and the ability of the Company to successfully expand its
operations. Any of such statements and the following discussion should be read
in conjunction with the "RISK FACTORS" section below and the Company's audited
consolidated financial statements, including the notes thereto, included in this
annual report.
RESULTS OF OPERATIONS
The following table sets forth, as a percentage of revenues, certain
consolidated statement of operations data for the periods indicated (subtotals
not adjusted for rounding):
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<PAGE> 22
Percent Of Total Net Revenues:
<TABLE>
<CAPTION>
Fiscal Year Ended March 31
--------------------------
<S> <C> <C>
1999 1998
---- ----
Net revenues:
Product 73% 53%
Services 27 47
---- ----
Total net revenues 100 100
Operating expenses:
Cost of product 6 6
Cost of services 6 39
Selling and marketing 34 84
Research and development 24 36
General and administrative 39 38
---- ----
Total operating expenses 109 204
Operating loss (9) (104)
Other income (expense), net (6) (1)
---- ----
Net loss (15%) (105%)
---- ----
---- ----
Gross margins:
Gross margin on product revenues 67% 88%
Gross margin on service revenues 21% 18%
</TABLE>
TOTAL NET REVENUES. Total net revenues decreased 26% to $5.9 million in
fiscal year 1999 from $8 million in fiscal year 1998. International revenues,
accounted for 58% and 39% of total net revenues in fiscal years 1999 and 1998,
respectively. See Note 12 of the Notes to Consolidated Financial Statements.
This decrease in net revenues resulted from a planned reduction in professional
consulting and other technical services provided by the Company and were offset
to a limited degree by an increase in software product licensing revenues.
The Company's revenues are derived from two sources: fees from software
product licensing and fees for professional services, including consulting,
training, maintenance, and product support. Product revenues increased 1% to
$4.3 million in fiscal year 1999 from $4.2 million in fiscal year 1998.
Service revenues decreased 58% to $1.6 million in fiscal 1999 from $3.8
million in fiscal year 1998. The decrease in service revenues in fiscal year
1999 as compared to fiscal year 1998 was due to a planned reduction of the
provision of consulting services to third parties.
In fiscal years 1999 and 1998, no customer accounted for more than 10%
of total revenues.
The Company sells its products in United States Dollars in North
America, British Pounds Sterling in the United Kingdom and German Deutsche Marks
in Germany. Because the Company recognizes revenues and expenses in United
States Dollars, British Pounds Sterling, and German Deutsche Marks but reports
its financial results in United States Dollars, changes in exchange rates may
cause variances in the
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<PAGE> 23
Company's period-to-period revenues and results of operations in future periods.
Foreign exchange gains and losses have not been material to the Company's
performance to date.
COST OF PRODUCT REVENUES. Cost of product revenues is comprised of
direct costs associated with software product sales including software
packaging, documentation, and physical media costs. Cost of product revenues as
a percentage of product revenues was 8% in fiscal year 1999 as compared to 12%
in fiscal year 1998. The decrease in cost as a percentage of total net revenues
was mainly due to decrease in the number of employees in the production
department.
COST OF SERVICES REVENUES. Cost of services revenues includes
consulting, technical support, maintenance services, and training, which consist
primarily of personnel costs. Cost of services revenues as a percentage of net
service revenues decreased to 22% in fiscal year 1999 from 82% in fiscal year
1998. The decrease in cost of services revenues as a percentage of services
revenues in fiscal 1999 as compared to fiscal years 1998 was primarily due to
the planned reduction in consulting services in year 1999.
SELLING AND MARKETING EXPENSES. Selling and marketing expenses decreased
to $2.0 million in fiscal year 1999 from $6.7 million in fiscal year 1998,
representing 34% and 84% of total net revenues during such periods,
respectively. The decrease in selling and marketing was primarily due to
significant decreases in the number of Company employee and consultant costs in
the Company's marketing group at the end of 1998. The Company had refocused its
sales and marketing department in an attempt to generate revenues related to its
new OMNIS Studio product line, including an increased trade show presence,
additional advertising and marketing collateral generation, and an increased
market awareness campaign. The Company is no longer following this increased
marketing campaign and expects selling and marketing expenses to remain
significantly lower in future periods.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses
decreased to $1.4 million in fiscal year 1999 from $2.8 million in 1998, due to
the consolidation of the Company's world-wide research and development
activities into its development facility in England during 1998. Costs for the
development of new software products and substantial enhancements to existing
software products are expensed as incurred until technological feasibility has
been established, at which time any additional costs would be capitalized in
accordance with SFAS 86 then in force. The Company did not capitalize any
research and development costs in fiscal year 1999 or 1998 because the Company
believes its current process for developing software is essentially completed
concurrently with the establishment of technological feasibility (as defined by
SFAS 86). At the end of fiscal year 1997, the Company had fully amortized the
previously capitalized internal software development costs and no such costs
were recognized during fiscal years 1998 or 1999.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
decreased to $2.3 million in fiscal year 1999 from $3.1 million in fiscal year
1998. These decreases are related to stringent cost controls and other cost
conservation methods introduced during fiscal year 1998 and continued in fiscal
year 1999.
OTHER INCOME (EXPENSE), NET. Other income (expense) is primarily
comprised of interest income, interest expense, gains and losses on foreign
currency transactions, and other income. Interest income reflects earnings from
the Company's cash position. Interest expense primarily relates to the Company's
$1 million note payable and capital leases. Interest expense was $249,000 in
fiscal year 1999 and $146,000 in fiscal year 1998.
INCOME TAX EXPENSE. Income tax expense was $4,000 in fiscal year 1999,
compared to $17,000 in fiscal year 1998. At March 31, 1999, the Company had net
operating loss carry forwards of approximately $37.6 million for federal income
tax purposes, $8.6 million for state tax purposes and $5.9 million for foreign
taxes. The Tax Reform Act of 1986, as amended, and the California Conformity Act
of
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<PAGE> 24
1987 impose substantial restrictions on the utilization of net operating loss
and tax credit carry forwards in the event of an "ownership change," as defined
by the Internal Revenue Code. In fiscal year 1999 an "ownership change" of the
Company occurred for purposes of these rules; and the Company therefore is
limited to approximately $146,000 per year of federal and California net
operating loss carry forwards accrued through that date (a total of $2.9 million
federal and $0.7 million for California tax purposes).
INFLATION. The Company believes that inflation has not had a material
impact on the Company's operating results to date and does not expect inflation
to have a material impact on the Company's operating results in fiscal year
2000.
LITIGATION.
COMPASS ACTIONS. In March 1998 the Company was sued by Compass Software
("Compass") in the Federal District Court for the Eastern District of Washington
claiming damages in the range of $2 Million for software copyright infringement
and related claims. The Company believes that the Compass' copyright
infringement suit has no merit and has vigorously defended against those claims.
In this connection the Company previously had sued Compass in 1994 for
illegally infringing and distributing the Company's software products. This
matter was settled with an agreement that Compass would pay certain amounts and
would not make illegal copies of the Company's software in the future. Compass
failed to pay the promised amounts when due. The Company then obtained a
judgment for breach of contract against Compass. As part of its efforts to
enforce its judgment against Compass, the Company purchased, at a judgment lien
sale, certain intangible property of Compass including the rights to the current
infringement suit brought by Compass ("Execution Sale"). Compass then requested
the applicable court to set aside the Execution Sale. The court granted the
request and the Company has appeal this judgment. The appeal has been briefed
and is awaiting a date for oral argument. The Company has also filed an separate
lawsuit against Compass alleging additional acts of infringement related to the
1994 case.
BTN - GERMANY. The Company entered into a professional development
services agreement with BTN Versandhandel GmbH of Leiferde, Germany for the
development of an OMNIS application. The Company developed and delivered a
version of the application to BTN. BTN failed to pay the Company as agreed,
claiming there were flaws in the application and the project was suspended by
the Company awaiting their payment. BTN commenced legal action against the
Company in Germany claiming damages of approximately DM250,000 for failure to
perform under the services agreement. The Company has countersued BTN claiming
the balance owed under the contract of approximately DM60,000. The Company
believes that the claim by BTN is meritless and intends to aggressively pursue
its counterclaim against BTN. See Item 3 - "Legal Proceedings".
RISK FACTORS
QUARTERLY FLUCTUATIONS. 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, significant customers, and distributors
which often purchase in significant quantities, and therefore, the timing of the
receipt of such orders could cause significant fluctuations in 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 technical service 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, changes in the proportion of revenues attributable to licenses
and service fees, commencement or conclusion of significant technical service
projects, changes in
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<PAGE> 25
pricing policies by the Company or its competitors, the number, timing, and
significance of product enhancements and new product announcements by the
Company and its competitors, the ability of the Company to develop, introduce,
and market new and enhanced versions of the Company's products on a timely
basis, changes in the level of operating expenses, changes in the Company's
sales incentive plans, budgeting cycles of its customers, customer order
deferrals in anticipation of enhancements or new products offered by the Company
or its competitors, nonrenewal of maintenance agreements, product life cycles,
software bugs and other product quality problems, personnel changes, changes in
the Company's strategy, the level of international expansion, seasonal trends
and general domestic and international economic and political conditions, among
others.
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.
Accordingly, the Company believes that period-to-period comparisons of
its operating results are not necessarily meaningful and should not be relied
upon as indications of future performance. 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.
EXPENSE LEVELS. The Company's expense levels are based, in significant
part, 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 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.
FUTURE OPERATING RESULTS. The Company's future operating results will
depend, to a considerable extent, on its ability to rapidly and continuously
develop new products that offer its customers enhanced performance at
competitive prices. Inherent in this process are a number of risks. The
development of new, enhanced software products is a complex and uncertain
process requiring high levels of innovation from the Company's designers as well
as accurate anticipation of customer 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 matters, in order to
achieve acceptable product costs.
The Company participates in a dynamic high technology industry and
believes that changes in any of the following areas could have a material
adverse effect on the Company's future financial position or results of
operations: advances and trends in new technologies; competitive pressures in
the form of new products or price reductions on current products; the volume,
mix, and timing of orders; changes in product mix; changes in overall demand for
products and services offered by the Company; changes in certain strategic
partnerships or customer relationships; litigation or claims against the Company
based on intellectual property, regulatory or other factors; risks associated
with changes in domestic or international economic and/or political conditions
or regulations either in the industries the Company serves or generally;
availability of necessary components, and the Company's ability to attract and
retain employees necessary to support growth.
NEED FOR LIQUIDITY; PRIOR LOSSES. The Company expects to devote
substantially all of its revenues to finance continuing operations for the
foreseeable future. There can be no assurance that the
25
<PAGE> 26
Company will generate revenues in the future sufficient to sustain operations or
growth of the Company's business when and as required, or that other sources of
capital or revenues will be available to the Company for these purposes.
Although the Company was profitable in the third and fourth quarters of fiscal
year 1999, the Company has operated at a loss for the last several years. There
can be no assurance that the Company will achieve or sustain profitability in
future periods. See Item 6 - Management's Discussion And Analysis Of Financial
Condition And Results Of Operations - "Liquidity And Capital Resources".
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 may need to seek additional equity
capital which would be dilutive to current stockholders. The Company is not
currently attempting to raise additional capital, but such activity may be
required to continue operations. There can be no assurance that the Company will
be able to raise additional capital on commercially reasonable terms should the
Company need additional funds in the future. See Item 6 - Management's
Discussion And Analysis Of Financial Condition And Results Of Operations -
"Liquidity And Capital Resources".
KEY PERSONNEL AND MANAGEMENT. The success of the Company depends to a
significant extent upon a number of key management and technical personnel, the
loss of one or more of whom could adversely affect its business. In addition the
Company believes that its future success will depend to a significant extent on
its ability to recruit, hire and retain highly skilled management and employees
for product development, sales, marketing, and customer service. Competition for
such personnel in the software industry is intense, and there can be no
assurance that the Company will be successful in attracting and retaining such
personnel.
Management of the Company will also be required to manage any growth of
the Company in a manner that requires a significant amount of management time
and skill. There can be no assurance that the Company will be successful in
managing any future growth or that any failure to manage such growth will not
have a material adverse effect on the Company's business, operating results or
financial condition.
DEPENDENCE ON PRINCIPAL PRODUCTS. Any factor adversely affecting sales
of the Company's principal products, including but not limited to OMNIS Studio
and OMNIS Studio Web Client, would have a material adverse effect on the
Company. The future financial performance of the Company will depend in
significant part upon the successful development, introduction and customer
acceptance of new or enhanced versions of its principal products and other
products. There can be no assurance that the Company will be successful in
marketing its principal products or any new or enhanced products the Company may
develop in the future. In addition competitive pressures or other factors may
result in price erosion that could have a material adverse effect on the
Company's results of operation.
INTELLECTUAL PROPERTY PROTECTION. The OMNIS products include
technologies developed by the Company. The Company relies primarily on a
combination of trade secret, copyright and trademark laws and contractual
provisions to protect its proprietary rights in such technologies. There is no
assurance that such laws and contractual provisions will adequately protect the
intellectual properties and other proprietary rights of the Company. The Company
is in the process of preparing appropriate patent applications for certain of
its Studio Web Client and other technologies. At this time the Company has not
filed any final patent applications and has not been granted any patents on any
of its proprietary technologies and there is no assurance that any such patents
will be granted. Patent protection may become important in the protection of the
commercial viability of the Company's innovative products and the failure to
obtain such patent protection could have an adverse effect on the commercial
viability of such products. The Company's success therefore may in part depend
on its ability to obtain strong patent protection or licenses to strong patents
in the future. It is not possible to anticipate the breadth or degree of
protection that patents would afford any product of the Company or the
underlying technologies. There can be no assurance that any patents issued or
licensed to the Company will not be successfully challenged
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<PAGE> 27
in the future or that any OMNIS product will not infringe the patents of third
parties. See Part 1 - Business - "Intellectual Properties and Other Proprietary
Rights".
INTERNATIONAL OPERATIONS. Additionally, the Company operates on a global
basis with offices or distributors in Europe and Asia as well as in North
America. International operations are subject to inherent risks, including costs
and difficulties in staffing and managing foreign operations; difficulties in
obtaining and managing local distributors; the costs and difficulties in
localizing products into languages other than English for foreign markets;
political or economic instability, unexpected regulatory changes and
fluctuations in interest or exchange rates in the specific countries in which
the Company distributes its products or in international markets in general;
longer receivables collection periods and greater difficulty in accounts
receivable collection; import/export duties and quotas; reduced protection for
intellectual property rights in some countries; and potentially adverse tax
consequences. Also, as the Company continues to operate more internationally,
seasonality may become an increasing factor in its financial performance. There
can be no assurance that these factors or any combination of these factors will
not adversely affect the international revenues or overall financial performance
of the Company.
DELAYS IN SALES AND COMMITMENTS. The Company's products are typically
used to develop applications that are critical to a customer's business and the
purchase of the Company's products is often part of a customer's larger business
process, reengineering initiative, or implementation of client/server computing.
As a result, the license and implementation of the Company's software products
generally involves a significant commitment of management attention and
resources by prospective customers. Accordingly, the Company's sales process is
often subject to delays associated with a long approval process that typically
accompanies significant initiatives or capital expenditures. For these and other
reasons, the sales cycle associated with the license of the Company's products
is often lengthy and subject to a number of significant delays over which the
Company has little or no control. There can be no assurance that the Company
will not experience these and additional delays in the future. Therefore, the
Company believes that its quarterly operating results are likely to vary
significantly in the future.
CHANGES IN PRICING STRUCTURE. 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 OMNIS Studio 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 coming
quarters and beyond. 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 replace the decreasing
service revenues with new product revenues.
YEAR 2000 ISSUES. The Company recognizes that it must ensure that its
products and operations will not be adversely impacted by year 2000 software
failures which can arise in software applications which use a date field of only
two digits to define the applicable year ("Year 2000 issues"). These programs
were designed and developed without considering the impact of the upcoming
change in the century. If not corrected, many computer applications could fail
or create erroneous results by or at the year 2000. The Company believes it has
designed its products to effectively handle the Year 2000 issue. The majority of
the Company's internal applications were built using OMNIS products which the
Company believes are Year 2000 compliant. Therefore, the Company believes that
it has mitigated its risks on the Year 2000 issue with its internal
applications. There can be no assurance that the Company is fully Year 2000
compliant or that Year 2000 compliance issues will not arise with respect to
products furnished by third party manufacturers, the Company's own products, or
suppliers that may result in unforeseen costs or interruptions or delays to the
Company or its customers and therefore have a material adverse effect on the
Company. See Item 1 - Business - "Year 2000 Compliance".
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<PAGE> 28
FORWARD LOOKING STATEMENTS. The Private Securities Litigation Reform Act
of 1995 contains certain safe harbors regarding forward-looking statements. From
time to time information provided by the Company or statements made by its
directors, officers or employees may contain "forward-looking" information
subject to numerous risks and uncertainties. Any statements made herein that are
not statements of historical fact are forward-looking statements including, but
not limited to, statements concerning the characteristics and growth of the
Company's markets or customers, the Company's objectives or plans for future
operations and products and the Company's expected liquidity and capital
resources. Such forward-looking statements are based on a number of assumptions
and involve a number of risks and uncertainties, and therefore actual results
could materially differ. These risks and uncertainties include, among others,
the Company's continuing liquidity problems, significant variability in
operating results, including variability in product revenues and gross margins,
fluctuating demand for new and established products, dependence on development
of new products, increasing expenses for marketing and development of new
products, historical lack of profitability, rapid technological change that
affects the ability of the Company to respond to customer or market demands,
risks associated with global operations, the continued and future acceptance of
the Company's products, the rate of growth in the industries of the Company's
products, the presence of competitors with greater technical, marketing and
financial resources, and the ability of the Company to successfully expand its
operations.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1999, the Company's principal sources of liquidity
consisted of cash and cash equivalents of $271,000.
In October, 1997, the Company had raised $1 million in secured debt
financing from Astoria Capital Partners, L.P. ("Astoria"), a significant
stockholder of the Company, which was secured by substantially all of the assets
of the Company. In April 1998, the Company also agreed to sell up to 126,000
shares of Series A preferred stock of the Company to Astoria at a price of $8.00
per share. Under the share purchase agreement Astoria had the right to purchase
the shares at its option at any time prior to October 1, 1998. Under the
agreement each share of preferred stock was convertible into 10 shares of common
stock. Between April 1 and October 1, 1998, Astoria purchased a total of 124,564
shares of Series A Preferred Stock from the Company pursuant to the share
purchase agreement. The proceeds from these purchases were used by the Company
to fund its general operations. On December 31, 1998, the Company repurchased
the 124,564 shares of Series A Preferred Stock from Astoria for an aggregate
purchase price of $100 (or $.0008 per share). The Certificate Regarding Series A
Preferred Stock of the Omnis Technology Corporation was filed with the Delaware
Secretary of State on February 25, 1999, eliminating the class of Series A
Preferred Stock then in effect.
In order to increase the capital of the Company to obtain additional
working capital and to eliminate its principal indebtedness, on March 19, 1999
the Board of Directors of the Company authorized the issuance of 300,000 shares
of a new Series A Convertible Preferred Stock (the "Preferred Shares") and
7,600,000 shares of common stock of the Company (the "Common Shares")
(collectively the Preferred Shares and the Common Shares shall be referred to as
the "Shares"). The Restated Articles of Incorporation of the Company vest in the
Board of Directors the authority to issue such Shares. On March 31, 1999 the
Company filed with the Secretary of State of Delaware a Certificate of
Designations setting forth the rights, preferences and privileges of the new
Preferred Stock. Pursuant to the terms of a Letter of Intent entered into by and
between the subject parties as of February 22, 1999, on March 31, 1999 the
Company entered into a series of stock purchase agreements with Astoria Capital
Partners, L.P., Gwyneth Gibbs, president of the Company, and certain members of
the Board of Directors or their affiliates.
Under the terms of a stock purchase agreement with Astoria, the Company
agreed to issue and Astoria agreed to purchase 300,000 Preferred Shares at a
purchase price of $1.6667 per share for an aggregate Preferred Share purchase
price of $500,000; and to purchase 2,543,344 Common Shares at a
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<PAGE> 29
purchase price of $0.25 per share for an aggregate Common Share purchase price
of $635,836 (collectively the "Astoria Shares"). The consideration for the
Astoria Shares was the cancellation of the 1997 secured indebtedness of the
Company to Astoria. The stock purchase agreement grants certain registration
rights and rights of first refusal to Astoria. The Company also entered into a
separate Common Stock Purchase Agreement with Astoria pursuant to which Astoria
purchased an additional 1,000,000 Common Shares at a price of $0.25 per share
for an aggregate cash purchase price of $250,000. The Common Stock Purchase
Agreement also grants certain registration rights and rights of first refusal to
Astoria.
Pursuant to the terms of stock purchase agreements entered into with
certain members of the Board of Directors, including Mrs. Gibbs (the "Board of
Directors Agreements"), the Company also agreed to issue an additional 4,000,000
Common Shares in the aggregate at a price of $0.25 per share, for aggregate
purchase price of $1,000,000. The Board of Directors Agreements do not grant any
registration rights or rights of first refusal to the parties. These
transactions were approved by the disinterested directors of the Company
pursuant to Delaware law.
The proceeds from the sale of the Common Shares to the Board of
Directors primarily was used to satisfy the entire indebtedness owed to the
Omnis Class 2 Creditors pursuant to the 1998 workout agreement previously
entered into between the Company and such creditors. The $250,000 in proceeds
from the sale of the 1,000,000 Common Shares to Astoria will be used for Company
working capital purposes, primarily to enhance and expand its sales and
marketing activities. The major sales and marketing event being currently
planned for the Company is a significant presence at the Linux World exhibition
in San Jose, California in August 1999.
On June 2, 1996 the Company sold $7.35 million of 8% Convertible
Debentures (the "Notes") under Regulation S of the Securities Act of 1933, as
amended. As of June 2, 1997, all of the Notes had either been redeemed or
converted and an aggregate of 1,120,221 shares of Common Stock had been issued
upon conversion of Notes. See Note 6 of the Notes to the Consolidated Financial
Statements.
The Company's working capital position increased to $390,000 at March
31, 1999 from a deficit of $3 million at March 31, 1998.
The Company has operated at a loss for the last several years. The
Company's new management team has taken steps to improve the Company's cash flow
through (i) more aggressive marketing of its products; (ii) focusing research
and development expenditures on products that have a shorter return or "payback"
period; (iii) improving operational efficiencies and (iv) significantly reducing
operating expenses. With these improvements, the Company reduced cash used in
operations from $6,180,000 in fiscal year 1998 to $2,514,000 in fiscal year 1999
and the Company currently is generating positive cash flow. There can be no
assurance that the Company will be able to achieve profitability in the near
future or at all.
In February 1998, The Nasdaq Stock Exchange de-listed the Company from
the Nasdaq SmallCap Market. The Company is now traded on the Nasdaq Bulletin
Board (BB). This has had a negative impact on the liquidity of the Company's
outstanding common shares. It is not known at this time when or if the Company
will be re-listed on the Nasdaq SmallCap Market.
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 may need to seek additional equity
capital which would be dilutive to current stockholders. The Company is not
currently attempting to raise additional capital, but such activity may be
required to continue operations. There can be no assurance that the Company will
be able to raise additional capital on commercially reasonable terms should the
Company need additional funds in the future.
29
<PAGE> 30
ITEM 7. FINANCIAL STATEMENTS
The consolidated financial statements of the Company, including the
notes thereto, together with the independent auditors' reports thereon are
presented beginning on Page F-1.
30
<PAGE> 31
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
The information required by this Item 8 was reported by the Company in
the Forms 8-K dated November 12, 1998 and March 19, 1999 and which are herein
incorporated by reference pursuant to Section 304 of Regulation S-B.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS, AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Information regarding directors of the Company is incorporated by
reference from "Election of Directors" in the Company's 1999 Proxy Statement for
the Company's 1999 Annual Meeting of Stockholders. Current Executive Officers of
the Company found under the caption "Executive Officers of the Registrant" in
Part I hereof is also incorporated by reference into this Item 9.
ITEM 10. EXECUTIVE COMPENSATION
The information required in this item is incorporated by reference from
the sections entitled "Executive Compensation", "Election of Directors -
Director Compensation", and "Certain Transactions" in the Company's 1999 Proxy
Statement.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is incorporated by reference from
the section entitled "Security Ownership of Certain Beneficial Owners and
Management" in the Company's 1999 Proxy Statement.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is incorporated by reference from the
sections entitled "Executive Compensation" and "Certain Transactions" in the
Company's 1999 Proxy Statement.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following documents are filed as a part of this Annual Report on Form
10-KSB:
1. Consolidated Financial Statements required to be filed by Item 7 of
Form 10-KSB. See Consolidated Financial Statements of the Company at page F-1.
31
<PAGE> 32
2. Exhibits:
<TABLE>
<CAPTION>
Exhibit Number Description
- -------------- -----------
<S> <C>
3.1 Restated Certificate of Incorporation, as amended and corrected through February 9, 1999.(7)
3.2 Certificate of Amendment of Certificate of Incorporation dated February 9, 1999.
3.3 Certificate of Designations dated March 31, 1998, as corrected.(7)
3.4 Certificate Regarding Series A Preferred Stock of the Omnis Technology Corporation dated February 25, 1999.
3.5 Certificate of Designations dated March 31, 1999.(14)
3.6 Bylaws, as amended.(15)
10.1 Definitive Trust Deed dated October 26, 1983 among Blyth Holdings Limited, Blyth Software Limited and Geoffrey
Paul Smith, Paul Nelson Wright and Suntrust Limited (relating to pension scheme).(1)
10.2 Service Agreement dated July 30, 1990 between OMNIS Technology Corporation and David Seaman.(2)
10.3 Deed of Guarantee dated June 1, 1993 between OMNIS Technology Corporation and A. Levy & Son Limited.(3)
10.4 Form of Subscription Agreement for purchase of Units of the Company's securities.(3)
10.5 Form of Stock Purchase Warrant sold to purchaser of Units of the Company's securities.(3)
10.6 Common Stock Purchase Agreement dated March 31, 1993 between OMNIS Technology Corporation and General Reinsurance
Corp.(4)
10.7 Form of Indemnification Agreement entered into between the Company and all of its directors and certain of its
officers.(4)
10.8 OMNIS Technology Corporation Amended and Restated 1987 Stock Option Plan, as amended.(4)
10.9 OMNIS Technology Corporation 1993 Directors' Warrant Plan and form of Director's Warrant.(9)
10.10 OMNIS Technology Corporation 1994 Employee Stock Purchase Plan, as amended.(10)
10.11 Registration Rights Agreement effective as of January 3, 1994, between the Company and Migration Software Systems
Limited.(4)
</TABLE>
32
<PAGE> 33
<TABLE>
<S> <C>
10.12 Warrant to Purchase Shares of Common Stock dated January 3, 1994 granted to
Migration Software Systems Limited.(4)
10.13 Warrant to Purchase Common Stock issued to Swartz Investments, Inc.(5)
10.14 Form of Registration Rights Agreement among the Company,
Purchasers of 8% Convertible Debentures due March 31, 1997 and
Swartz Investments, Inc.(5)
10.15 Form of Warrant to Purchase Common Stock issued to certain
persons affiliated with Swartz Investments, LLC.(6)
10.16 Form of Registration Rights Agreement among the Company and Swartz Investments,
LLC and its designees.(6)
10.17 Note Purchase Agreement dated as of October 14, 1997.(7)
10.18 Note Purchase Agreement dated as of October 31, 1997.(7)
10.19 Series A Convertible Preferred Stock Purchase Agreement dated as of April 1, 1998.(7)
10.20 Employee Agreement between the Company and Kevin Doyle dated April 1, 1998.(7)
10.21 Employee Agreement between the Company and Larry Barcot dated April 1, 1998.(7)
10.22 Shareholder Rights Agreement dated April 1, 1998.(7)
10.23 The 1996 Stock Plan and form of Option Agreement.(8)
10.23 The 1993 Advisors' Warrant Plan and form of warrant.(9)
10.24 Omnis Technology Corporation 1999 Stock Option Plan and form of Stock Option
Agreement.
10.25 Series A Convertible Preferred Stock Purchase Agreement dated December 31, 1998.(13)
10.26 Stock Purchase Agreement with Astoria Capital Partners, L.P. ("Astoria") dated March
31, 1999.(14)
10.27 Common Stock Purchase Agreement with Astoria dated March 31, 1999.(14)
10.28 Common Stock Purchase Agreement with Gwyneth Gibbs dated March 31, 1999.(14)
10.29 Common Stock Purchase Agreement with Philip and Debra Barrett Charitable Remainder
Trust dated March 31, 1999.(14)
10.30 Common Stock Purchase Agreement with RCJ Capital Partners dated March 31, 1999.(14)
</TABLE>
33
<PAGE> 34
<TABLE>
<S> <C>
10.31 Common Stock Purchase Agreement with Rockport Group, L.P. dated March 31, 1999.(14)
16.1 Letter dated November 11, 1998 from Deloitte & Touche LLP to the Securities and Exchange
Commission.(12)
21.1 Subsidiaries of the Company.(2)
23.1 Independent Auditors' Consent.
23.2 Independent Auditors' Consent.
27.1 Financial data schedule.
</TABLE>
--------------
(1) Incorporated by reference to the Annual Report on Form 10-K filed by
the Company with the Commission on July 13, 1990.
(2) Incorporated by reference to the Annual Report on Form 10-K filed by
the Company with the Commission on June 28, 1991.
(3) Incorporated by reference to the Annual Report on Form 10-K filed by
the Company with the Commission on June 26, 1992.
(4) Incorporated by reference to the Annual Report filed by the Company
with the Commission on June 28, 1994.
(5) Incorporated by reference to the Current Report on Form 8-K filed by
the Company with the Commission on April 7, 1995.
(6) Incorporated by reference to the Company's Annual Report on Form 10-K
for the fiscal year ended March 31, 1996.
(7) Incorporated by reference to the Current Report on Form 8-K filed by
the Company with the Commission on June 16, 1998.
(8) Incorporated herein by reference to the Registrant's Annual Report on
Form 10-K, as amended, for the fiscal year ended March 31, 1997, filed
by the Registrant with the Commission on July 29, 1997.
(9) Incorporated herein by reference to the Registrant's Registration
Statement on Form S-8 (Registration Number 33-81008) filed June 30,
1994.
(10) Incorporated herein by reference to the Registrant's Registration
Statement on Form S-8 (Registration Number 333-38449) filed October 22,
1997.
(11) Incorporated by reference to the Current Report on Form 8-K filed by
the Company with the Commission on March 19, 1998.
(12) Incorporated by reference to the Current Report on Form 8-K filed by
the Company with the Commission on November 12, 1998.
34
<PAGE> 35
(13) Incorporated by reference to the Current Report on Form 8-K filed by
the Company with the Commission on January 15, 1999.
(14) Incorporated by reference to the Current Report on Form 8-K filed by
the Company with the Commission on April 5, 1999.
(15) Incorporated herein by reference to the Annual Report on Form 10-KSB,
as amended, for the fiscal year ended March 31, 1998, filed by the
Company with the Commission on June 29, 1998.
(b) Reports were filed by the Company on Form 8-K during the last
quarter of the period covered by this report as follows:
(1) FORM 8-K - JANUARY 15, 1999. This Form 8-K reported the
purchase by the Company from Astoria Capital Partners, L.P. of 124,564 shares of
Series A Preferred Stock for an aggregate purchase price of $100 on December 31,
1998.
(2) FORM 8-K - MARCH 19, 1999. This Form 8-K reported the
engagement of Grant Thornton LLP as the independent public accountants of the
Company.
35
<PAGE> 36
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Dated: July 6, 1999 OMNIS TECHNOLOGY CORPORATION
By: /s/ GWYNETH M. GIBBS
-------------------------------
Gwyneth M. Gibbs
President and Interim Chief
Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this report has been signed below by the following persons on behalf of
the Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signatures Title Date
- ---------- ------ ----
<S> <C> <C>
/s/GWYNETH M. GIBBS
- -------------------------------
Gwyneth M. Gibbs President and Interim Chief Executive Officer 7/6/99
/s/PHILIP D. BARRETT
- -------------------------------
Philip D. Barrett Chairman 7/6/99
/s/GEOFFREY P. WAGNER
- -------------------------------
Geoffrey P. Wagner Director 7/6/99
/s/GERALD F. CHEW
- ----------------------
Gerald F. Chew Director 7/6/99
/s/DOUGLAS MARSHALL
- ----------------------
Douglas Marshall Director 7/6/99
</TABLE>
36
<PAGE> 37
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Number Description
- -------------- -----------
<S> <C>
3.1 Restated Certificate of Incorporation, as of October 10, 1997. (7)
3.2 Certificate of Amendment of Certificate of Incorporation dated February 9, 1999.
3.3 Certificate of Designations dated March 31, 1998, as corrected.(7)
3.4 Certificate Regarding Series A Preferred Stock of the Omnis Technology Corporation dated February 25, 1999.
3.5 Certificate of Designations dated March 31, 1999.(14)
3.6 Bylaws, as amended.(15)
10.1 Definitive Trust Deed dated October 26, 1983 among Blyth Holdings Limited, Blyth Software Limited and Geoffrey
Paul Smith, Paul Nelson Wright and Suntrust Limited (relating to pension scheme).(1)
10.2 Service Agreement dated July 30, 1990 between OMNIS Technology Corporation and David Seaman.(2)
10.3 Deed of Guarantee dated June 1, 1993 between OMNIS Technology Corporation and A. Levy & Son Limited.(3)
10.4 Form of Subscription Agreement for purchase of Units of the Company's securities.(3)
10.5 Form of Stock Purchase Warrant sold to purchaser of Units of the Company's securities.(3)
10.6 Common Stock Purchase Agreement dated March 31, 1993 between OMNIS Technology Corporation and General Reinsurance
Corp.(4)
10.7 Form of Indemnification Agreement entered into between the Company and all of its directors and certain of its
officers.(4)
10.8 OMNIS Technology Corporation Amended and Restated 1987 Stock Option Plan, as amended.(4)
10.9 OMNIS Technology Corporation 1993 Directors' Warrant Plan and form of Director's Warrant.(9)
10.10 OMNIS Technology Corporation 1994 Employee Stock Purchase Plan, as amended.(10)
10.11 Registration Rights Agreement effective as of January 3, 1994, between the Company and Migration Software Systems
Limited.(4)
</TABLE>
<PAGE> 38
<TABLE>
<S> <C>
10.12 Warrant to Purchase Shares of Common Stock dated January 3, 1994 granted to
Migration Software Systems Limited.(4)
10.13 Warrant to Purchase Common Stock issued to Swartz Investments, Inc.(5)
10.14 Form of Registration Rights Agreement among the Company,
Purchasers of 8% Convertible Debentures due March 31, 1997 and
Swartz Investments, Inc.(5)
10.15 Form of Warrant to Purchase Common Stock issued to certain
persons affiliated with Swartz Investments, LLC.(6)
10.16 Form of Registration Rights Agreement among the Company and Swartz Investments,
LLC and its designees.(6)
10.17 Note Purchase Agreement dated as of October 14, 1997.(7)
10.18 Note Purchase Agreement dated as of October 31, 1997.(7)
10.19 Series A Convertible Preferred Stock Purchase Agreement dated as of April 1, 1998.(7)
10.20 Employee Agreement between the Company and Kevin Doyle dated April 1, 1998.(7)
10.21 Employee Agreement between the Company and Larry Barcot dated April 1, 1998.(7)
10.22 Shareholder Rights Agreement dated April 1, 1998.(7)
10.23 The 1996 Stock Plan and form of Option Agreement.(8)
10.23 The 1993 Advisors' Warrant Plan and form of warrant.(9)
10.24 Omnis Technology Corporation 1999 Stock Option Plan and form of Stock Option
Agreement.
10.25 Series A Convertible Preferred Stock Purchase Agreement dated December 31, 1998.(13)
10.26 Stock Purchase Agreement with Astoria Capital Partners, L.P. ("Astoria") dated March
31, 1999.(14)
10.27 Common Stock Purchase Agreement with Astoria dated March 31, 1999.(14)
10.28 Common Stock Purchase Agreement with Gwyneth Gibbs dated March 31, 1999.(14)
10.29 Common Stock Purchase Agreement with Philip and Debra Barrett Charitable Remainder
Trust dated March 31, 1999.(14)
10.30 Common Stock Purchase Agreement with RCJ Capital Partners dated March 31, 1999.(14)
</TABLE>
<PAGE> 39
<TABLE>
<S> <C>
10.31 Common Stock Purchase Agreement with Rockport Group, L.P. dated March 31, 1999.(14)
16.1 Letter dated November 11, 1998 from Deloitte & Touche LLP to the Securities and Exchange
Commission.(12)
21.1 Subsidiaries of the Company.(2)
23.1 Independent Auditors' Consent.
23.2 Independent Auditors' Consent.
27.1 Financial data schedule.
</TABLE>
--------------
(1) Incorporated by reference to the Annual Report on Form 10-K filed by
the Company with the Commission on July 13, 1990.
(2) Incorporated by reference to the Annual Report on Form 10-K filed by
the Company with the Commission on June 28, 1991.
(3) Incorporated by reference to the Annual Report on Form 10-K filed by
the Company with the Commission on June 26, 1992.
(4) Incorporated by reference to the Annual Report filed by the Company
with the Commission on June 28, 1994.
(5) Incorporated by reference to the Current Report on Form 8-K filed by
the Company with the Commission on April 7, 1995.
(6) Incorporated by reference to the Company's Annual Report on Form 10-K
for the fiscal year ended March 31, 1996.
(7) Incorporated by reference to the Current Report on Form 8-K filed by
the Company with the Commission on June 16, 1998.
(8) Incorporated herein by reference to the Registrant's Annual Report on
Form 10-K, as amended, for the fiscal year ended March 31, 1997, filed
by the Registrant with the Commission on July 29, 1997.
(9) Incorporated herein by reference to the Registrant's Registration
Statement on Form S-8 (Registration Number 33-81008) filed June 30,
1994.
(10) Incorporated herein by reference to the Registrant's Registration
Statement on Form S-8 (Registration Number 333-38449) filed October 22,
1997.
(11) Incorporated by reference to the Current Report on Form 8-K filed by
the Company with the Commission on March 19, 1998.
(12) Incorporated by reference to the Current Report on Form 8-K filed by
the Company with the Commission on November 12, 1998.
<PAGE> 40
(13) Incorporated by reference to the Current Report on Form 8-K filed by
the Company with the Commission on January 15, 1999.
(14) Incorporated by reference to the Current Report on Form 8-K filed by
the Company with the Commission on April 5, 1999.
(15) Incorporated herein by reference to the Annual Report on Form 10-KSB,
as amended, for the fiscal year ended March 31, 1998, filed by the
Company with the Commission on June 29, 1998.
(b) Reports were filed by the Company on Form 8-K during the last
quarter of the period covered by this report as follows:
(1) FORM 8-K - JANUARY 15, 1999. This Form 8-K reported the
purchase by the Company from Astoria Capital Partners, L.P. of 124,564 shares of
Series A Convertible Preferred Stock for an aggregate purchase price of $100 on
December 31, 1998.
(2) FORM 8-K - MARCH 19, 1999. This Form 8-K reported the
engagement of Grant Thornton LLP as the independent public accountants of the
Company.
<PAGE> 1
EXHIBIT 3.2
CERTIFICATE OF AMENDMENT OF
CERTIFICATE OF INCORPORATION OF
OMNIS TECHNOLOGY CORPORATION
Omnis Technology Corporation (f/k/a Blyth Holdings, Inc.), a corporation
organized and existing under the laws of Delaware ("Corporation"), does hereby
certify as follows:
FIRST: That the Board of Directors of the Corporation by
unanimous vote of its members, filed with the minutes of the Board, duly adopted
a resolution setting forth a proposed amendment to the Restated Certificate of
Incorporation of said Corporation, declaring said amendment to be advisable and
calling for the submission of the matter to the stockholders of the Corporation
for consideration and approval. The resolution setting forth the proposed
amendment is as follows:
"RESOLVED: That Paragraph 4.1 of Article Fourth of the Restated
Certificate of Incorporation of this Corporation be amended to
read as follows:
4.1 This corporation is authorized to issue two classes
of stock to be designated, respectively, "common" and
"preferred". The number of common shares authorized is Twenty
Million (20,000,000), each with a par value of $0.10. The number
of preferred shares authorized is Three Hundred Thousand
(300,000), each with a par value of $1.00."
SECOND: That thereafter, pursuant to the resolution of the Board of
Directors of the Corporation, this amendment of the Restated Certificate of
Incorporation of the Corporation was approved by a majority of the stockholders
of the Corporation at a special meeting of the stockholders on September 9, 1998
pursuant to notice duly made and given.
THIRD: That said amendment was duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware.
IN WITNESS WHEREOF, Omnis Technology Corporation has duly caused this
Certificate of Amendment to be signed and acknowledged by its duly authorized
officer this 9th day of February, 1999.
OMNIS TECHNOLOGY CORPORATION
By: /s/ GWYNETH GIBBS
--------------------------------
Gwyneth Gibbs, President and
Interim Chief Financial Officer
37
<PAGE> 1
EXHIBIT 3.4
CERTIFICATE REGARDING
SERIES A PREFERRED STOCK OF
OMNIS TECHNOLOGY CORPORATION
Omnis Technology Corporation, a corporation organized and existing under
the General Corporation Law of the State of Delaware ("Corporation"), in
accordance with Section 151(g) of said Law and Article Fifth of the Restated
Certificate of Incorporation of the Corporation, does hereby certify as follows:
1. No shares of Series A Preferred Stock of the Corporation remain
outstanding.
2. The Board of Directors of the Corporation by unanimous vote of its
members on February 8, 1999, filed with the minutes of the Board, duly adopted
the following resolution regarding the Series A Preferred Stock of the
Corporation:
"RESOLVED: That none of the authorized shares of Series A
Preferred Stock of the Corporation are outstanding, and none will be
issued subject to the Certificate of Designation previously filed with
respect to such series; and therefore said Series A Preferred Stock
shall be eliminated pursuant to Section 151(g) of the General
Corporation Law of the State of Delaware effective immediately."
IN WITNESS WHEREOF, Omnis Technology Corporation has duly caused this
Certificate to be signed and acknowledged by its duly authorized President and
Secretary this 24th day of February, 1999.
OMNIS TECHNOLOGY CORPORATION
By: /s/ GWYNETH GIBBS
-----------------------------
Gwyneth Gibbs, President
By: /s/ GEOFFREY P. WAGNER
-----------------------------
Geoffrey P. Wagner, Secretary
38
<PAGE> 1
EXHIBIT 10.26
OMNIS TECHNOLOGY CORPORATION
1999 STOCK OPTION PLAN
1. Purpose. This Omnis Technology Corporation 1999 Stock Option Plan
(the "Plan") is established to create additional incentives for certain valued
employees, directors, consultants and advisors of Omnis Technology Corporation,
a Delaware corporation (the "Company") or any parent or subsidiary thereof and
to promote the financial success and progress of the Company and the Corporate
Group. It is intended that (i) options which qualify as incentive stock options
("Incentive Options") under Section 422 of the Internal Revenue Code of 1986 as
amended or superseded, and (ii) options which are nonincentive stock options
("Nonincentive Options") may be granted under this Plan.
2. Effective Date and Term of the Plan.
a. This Plan shall become effective on the date of its adoption
by the Board of Directors of the Company (the "Board"), provided the Plan is
approved by the shareholders of the Company within twelve months before or after
that date. If the Plan is not so approved by the shareholders of the Company,
all options granted under this Plan shall be rescinded and shall be void.
b. This Plan shall terminate upon the earlier of (i) ten (10)
years from the date the Plan is adopted by the Board or approved by the
shareholders, whichever is earlier, or (ii) the date on which all shares
available for issuance under this Plan shall have been issued pursuant to the
exercise of options granted hereunder, or (iii) by action of the Board pursuant
to Section 14 hereof. All options outstanding on the date of termination of this
Plan shall continue in force and effect in accordance with the provisions of the
agreements evidencing such options, and shall continue to include by reference
all of the relevant provisions of this Plan notwithstanding such termination.
3. Certain Definitions. Unless the context otherwise requires, the
following defined terms (and all other capitalized terms defined in this Plan)
shall govern the construction of this Plan, and any stock option agreements
entered into pursuant to this Plan:
a. "Code" means the Internal Revenue Code of 1986 as amended or
superseded.
b. "Common stock" shall mean the Common Stock of the Company,
$0.10 par value.
c. "Corporate Group" means the Company and any successor thereof,
any and all parent corporations of the Company, and any and all subsidiary
corporations of the Company as of the relevant date of determination. For
purposes of this Plan, "parent" or "parent corporation" and "subsidiary" or
"subsidiary corporation" shall have the same meanings as defined in Sections
424(e) and 424(f) of the Code.
d. "Permanent and total disability" shall have the same meaning
as defined in Section 22(e)(3) of the Code.
e. "Exchange Act" means the Securities Exchange Act of 1934 as
amended or superseded.
39
<PAGE> 2
f. Except as otherwise expressly provided herein, "fair market
value" means:
(i) If the common stock of the Company is then listed on a
Public Market (as hereinafter defined), then the "fair market value"
of the shares of such common stock of the Company shall be the closing
price of such stock on the principal exchange or securities market on
which such stock is then listed or admitted to trading on the last
trading day immediately prior to the relevant date, as reported by the
Wall Street Journal or such other source as the Board deems reliable.
If there are no reported sales of such stock of the Company on such
principal exchange or securities market on said date, then the closing
price for such stock on such exchange or market on the next preceding
trading day for which quotations do exist shall be determinative of
fair market value, as reported by the Wall Street Journal or such
other source as the Board deems reliable.
(ii) If the common stock of the Company is quoted on the
NASDAQ System (but not on the National Market System or Small Cap
System thereof) or is regularly quoted by a recognized securities
dealer but selling prices are not reported, then the "fair market
value" of the shares of such common stock of the Company shall be the
mean of the closing bid and asked prices for such stock on the last
trading day immediately prior to the relevant date, as reported by the
Wall Street Journal or such other source as the Board deems reliable;
provided however that the Board may use other good faith methods to
determine "fair market value" of the common stock in the event that
the Board determines that such selling prices or bid and asked prices
are not a reliable indicator of fair market value due to low or
sporadic volume trading or comparable factors during the relevant
period.
(iii) In the absence of an established market for the
Common Stock of the Company, then the "fair market value" of the
shares of such common stock of the Company shall be as determined by
the Board in good faith as of the relevant date, or pursuant to such
other or additional standards as required by applicable law.
g. "For cause" means (i) conviction of a crime involving moral
turpitude or any felony; (ii) the repeated failure to perform or material
neglect or incompetence in the performance of the regular duties of the Optionee
as an employee of the Company or other member of the Corporate Group; (iii)
knowing participation in any fraud or other material act of malfeasance related
to the business of the Company or other member of the Corporate Group; or (iv)
the imparting, disclosure or use of any confidential information in material
violation of any then applicable employment agreement or nondisclosure agreement
to which the Company or other member of the Corporate Group is a party; except
as otherwise provided by the terms of the relevant Option Agreement. Nothing in
this Plan is intended to change the nature of the at-will employment of an
Optionee with the Company or other member of the Corporate Group.
h. "Option" collectively means an Incentive Option or a
Nonincentive Option granted to an Optionee hereunder pursuant to an Option
Agreement.
i. "Option Agreement" means the written agreement between the
Company and an Optionee granting an Option hereunder.
j. "Option Price" with respect to any particular Option means the
exercise price at which the Optionee may acquire each share of the Option Shares
under such Option.
k. "Option Shares" mean the shares of the common stock of the
Company issued or issuable by the Company pursuant to the exercise of an Option
granted hereunder; all stock or securities received in replacement of the Option
Shares in connection with a recapitalization, reorganization, merger or other
transaction subject to Section 5(b) hereof; all stock or other securities
received as stock dividends or as a result
40
<PAGE> 3
of any stock splits; and all new, substituted or additional stock or other
securities to which an Optionee may be entitled by reason of the exercise of an
Option or the ownership of the Option Shares.
l. "Optionee" means the eligible person to whom an Option is
granted hereunder, and any permissible transferee thereof pursuant to Section
6(e) of this Plan. Any permissible transferee shall be bound by all of the terms
and conditions and obligations of this Plan and the relevant Option Agreement.
m. "Public Market" means a market where the common stock of the
Company is listed on a national securities exchange (as that term is used in the
Exchange Act) or a national securities market, including without limitation the
National Market System of the National Association of Securities Dealers, Inc.
Automated Quotation System ("NASDAQ") or the NASDAQ Small Cap Market as then
constituted.
n. "Ten Percent Shareholder" means a person who owns, either
directly or indirectly by virtue of the ownership attribution provisions set
forth in Section 424(d) of the Code, at the time such person is granted an
Option, stock possessing more than ten percent (10%) of the total combined
voting power or value of all classes of stock of the Company or of its parent or
subsidiary corporation or corporations.
4. Eligibility. The persons who shall be eligible to be granted Options
pursuant to this Plan shall be the employees, officers, directors, consultants
and/or advisors of the Company or any parent or subsidiary thereof, as the Board
shall select from time to time in its sole discretion.
5. Shares Subject to Plan.
a. The stock issuable under this Plan shall be shares of the
authorized but unissued or reacquired common stock of the Company. The aggregate
number of shares of common stock which may be issued under this Plan shall be
One Million Five Hundred Thousand (1,500,000) shares, subject to adjustment as
provided in Section 5(b) hereof. In the event that any outstanding Option for
any reason expires or is terminated or cancelled in whole or in part, the Option
Shares allocable to any unexercised portion of such Option shall be available
for subsequent grants hereunder.
b. In the event the Company shall change the outstanding shares
of its common stock into a different number or class of shares by means of any
merger, consolidation, recapitalization, reorganization, reclassification, stock
split, reverse stock split, stock dividend, combination, exchange or other
comparable change in the corporate structure of the Company effected without
receipt of consideration, then the Board shall make appropriate adjustments to
the number and/or class of Option Shares and the Option Price per share of the
stock subject to each outstanding and unexercised Option and with regard to the
maximum number and/or class of shares of common stock of the Company issuable
under this Plan, in order to prevent the dilution of benefits provided under
such Options and this Plan. For these purposes (i) changes occurring on account
of the issuance of shares of stock by the Company at any time upon the exercise
of any stock options, rights or warrants or upon the conversion of any
convertible securities or debt or other issuance of stock by the Company in a
private or public offering for consideration shall not require any adjustment in
the number or class of shares or the Option Price, and (ii) in the case of
Incentive Options, any and all adjustments provided for hereunder shall fully
comply with Sections 422 and 424 of the Code.
c. Neither the grant of an Option nor any other provision hereof
shall in any way affect the right of the Company to adjust, reclassify,
restructure, reorganize or otherwise change its capital or business structure or
to merge, consolidate, dissolve, liquidate or sell or transfer or otherwise
dispose of all or any part of its stock, business or assets at any time.
6. Grant of Options; Option Agreements. Each Option granted pursuant to
this Plan shall be authorized by the action of the Board and shall be evidenced
by an Option Agreement between the Company and the person to whom such Option is
granted, in the form and substance satisfactory to the Board from time
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<PAGE> 4
to time and consistent with and pursuant to this Plan. Without limiting the
foregoing, each Option Agreement shall be deemed to include and incorporate by
reference each and all of the following terms and conditions:
a. Grant Date. The date stated in the Option Agreement as the
grant date of the Option shall be the "Grant Date" of the Option for all
purposes hereof. Notwithstanding the foregoing, an Option shall not be effective
and legally enforceable hereunder until the completed execution and delivery of
the written Option Agreement by the Optionee and a duly authorized officer of
the Company.
b. Term of Option. The Board shall have the power to set the time
or times within which each Option shall be exercisable or the event or events
upon the occurrence of which all or a portion of each Option shall be
exercisable and the term of each Option; provided however that no Option shall
be exercisable after the expiration of ten (10) years from the date such Option
is granted; or in the case of a Ten Percent Shareholder, after the expiration of
five (5) years from the date such Option is granted.
c. Right to Exercise; Vesting. The right to exercise an Option
shall vest at the rate of at least twenty percent (20%) per year over five (5)
years from the Grant Date of the Option in all events, subject to reasonable
conditions such as the continued employment of the Optionee and specifically
subject to Section 6(h) of this Plan. Except as otherwise expressly provided in
the relevant Option Agreement and subject to the expiration or earlier
termination of the Option, the vesting period of the Option shall be for a
period of four (4) years as follows:
(i) The Optionee shall have no right to exercise any part
of the Option at any time prior to the expiration of the one (1) year
from the Grant Date of the Option;
(ii) The Option shall become exercisable with respect to
Twenty-Five Percent (25%) of the Option Shares upon the expiration of
one (1) year from the Grant Date of the Option; and
(iii)The Option thereafter shall become exercisable with
respect to an additional Two and Eight Point Thirty Three Hundredths
Percent (2.0833%) of the Option Shares for each month following the
expiration of one (1) year from the Grant Date of the Option.
Exercisable installments may be exercised by the Optionee in whole or in part
and to the extent not exercised shall accumulate and be exercisable as provided.
The Company shall not be required to issue fractional shares at any time; and
any fractional shares remaining in an Option following any exercise thereof
shall be rounded down to the next nearest whole number of Shares.
d. Option Price. The Option Price for each Option shall be as
determined in the sole discretion of the Board from time to time; provided
however that:
(i) The Option Price for Incentive Options shall be not
less than 100 percent of the fair market value of the Option Shares on
the Grant Date of the Option; except that the Option Price for
Incentive Options of a Ten Percent Shareholder shall not be less than
110 percent of the fair market value of the Option Shares on the Grant
Date of the Option.
(ii) The Option Price for Nonincentive Options shall be
not less than 85 percent of the fair market value of the Option Shares
on the Grant Date of the Option; except that the Option Price for
Nonincentive Options of a Ten Percent Shareholder shall not be less
than 110 percent of the fair market value of the Option Shares on the
Grant Date of the Option.
e. Non-Transferability. No Option shall be transferable or
assignable by the Optionee other than by will or the laws of descent and
distribution, and an Option may be exercised during the lifetime of the Optionee
solely by the Optionee; provided however that in the case of Nonincentive
Options, the Optionee
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<PAGE> 5
may transfer all or part of a Nonincentive Option by instrument to an inter
vivos or testamentary trust in which such Option is to be passed to
beneficiaries upon the death of the Optionee, or by gift to "immediate family"
members as that term is defined in 17 C.F.R. Section 240.16a-1(e)(as amended or
superseded), provided further that such Option shall remain subject to all of
the terms and conditions of this Plan and the relevant Option Agreement,
including but not limited to the Option termination provisions hereof. Subject
to the foregoing, all transfers or assignments or attempted transfers or
assignments of any Option or Option Agreement shall be void ab initio.
f. Exercise of the Option. Except as otherwise provided in the
relevant Option Agreement, in order to exercise an Option with respect to all or
any part of the Option Shares for which an Option is then exercisable, Optionee
(or the executor, administrator, heir or devisee of Optionee after the death of
Optionee) must do the following:
(i) Provide the Secretary of the Company with written notice of
such exercise, specifying the number of Option Shares for which the
Option is being exercised;
(ii) Pay the Option Price for the Option Shares being purchased
in one or more of the following forms: (1) full payment in cash or check
of the Option Price in United States Dollars for the Option Shares being
purchased; (2) full payment in shares of common stock of the Company
having a fair market value on the Exercise Date equal to the Option
Price for the Option Shares being purchased, and held for such period
required for purposes of Section 16(b) of the Exchange Act to the extent
applicable; or (3) full payment by a combination of such shares of
common stock of the Company valued at fair market value on the Exercise
Date and cash or check payable to the order of the Company, equal in the
aggregate to the Option Price for the Option Shares being purchased; and
(iii) Furnish to the Company appropriate documentation that the
person or persons exercising the Option, if other than Optionee, have
the right to exercise such Option. For these purposes, the "Exercise
Date" of the Option shall be the date on which the Secretary of the
Company receives written notice of the exercise of such Option, together
with full payment of the Option Price for the Option Shares being
purchased. In the event the Board determines in its sole discretion that
the shares of common stock of the Company cannot be reasonably valued at
fair market value as of the Exercise Date, then full payment of the
Option Price for the Option Shares shall be made only in cash or check
payable to the order of the Company. The certificate or certificates for
the Option Shares shall be registered in the name of Optionee, or if
applicable, in the name of the estate, heirs or devisees of Optionee.
g. Rule 16b-3. Options granted to individuals subject to Section
16 of the Exchange Act must comply with the applicable provisions of SEC Rule
16b-3 (as amended or superseded) and shall contain such additional conditions or
restrictions as may be required thereunder to qualify for the maximum exemption
from Section 16 of the Exchange Act with respect to Plan transactions.
h. Tax Withholding. At the time an Option is exercised in whole
or in part, or at any time thereafter as requested by the Company, the Optionee
shall authorize payroll withholding and otherwise shall agree to make adequate
payments to the Company for all federal, state and other jurisdiction tax
withholding obligations of the Company or any parent or subsidiary thereof which
may arise in connection with the Option, if any, including without limitation
obligations arising upon (i) the grant of such Option, (ii) the exercise of such
Option in whole or in part, (iii) the transfer of any Option Shares or other
property or consideration of any kind in connection with the exercise of such
Option, (iv) the operation of any law or regulations providing for the
imputation of interest or any other income or payment, or (v) the lapsing of any
restriction with respect to any Option Shares.
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<PAGE> 6
i. Earlier Termination of Option Term. An Option shall terminate
prior to the expiration date of the Option as follows:
(i) Termination For Cause. If the Company terminates the
employment of an Optionee for cause, then the Option shall terminate
and cease to be exercisable upon the earlier of (1) the termination of
the employment of the Optionee or (2) the expiration date of the
Option. No additional right to exercise the Option with respect to any
Option Shares shall vest from and after the date the employment of the
Optionee is terminated.
(ii) Voluntary Termination. If the Optionee voluntarily
terminates his or her employment with the Company, then the Option
shall terminate and cease to be exercisable upon the earlier of (1)
the expiration of thirty (30) days from the date the employment of the
Optionee is terminated or (2) the expiration date of the Option. No
additional right to exercise the Option with respect to any Option
Shares shall vest from and after the date the employment of the
Optionee is terminated.
(iii) Termination Without Cause. If the Company terminates
the employment of the Optionee without cause (other than in the case
of death or permanent and total disability), then the Option shall
terminate and cease to be exercisable upon the earlier of (1) the
expiration of sixty (60) days from the date the employment of the
Optionee is terminated or (2) the expiration date of the Option. No
additional right to exercise the Option with respect to any Option
Shares shall vest from and after the date the employment of the
Optionee is terminated.
(iv) Removal of Director For Cause. If an Optionee is
removed as a director for cause as defined by applicable law, then any
Option granted to the Optionee in his or her capacity as a director
shall terminate and cease to be exercisable upon the earlier of (1)
the termination of the directorship of the Optionee or (2) the
expiration date of such Option. No additional right to exercise such
Option with respect to any Option Shares shall vest from and after the
date the directorship of the Optionee is terminated.
(v) Death of Optionee. In the event of the death of
Optionee during the term of the Option, then the executors or
administrators of the estate of the Optionee or the heirs or devisees
of the Optionee (as the case may be) shall have the right to exercise
the Option to the extent the Optionee was entitled to do so at the
time of his or her death; provided however that the Option shall
terminate and cease to be exercisable upon the earlier of (1) the
expiration of one (1) year from the date of the death of the Optionee
or (2) the expiration date of the Option. No additional right to
exercise the Option with respect to any Option Shares shall vest from
and after the date of the death of the Optionee.
(vi) Disability of Optionee. In the event of the permanent
and total disability of Optionee during the term of the Option, then
Optionee shall have the right to exercise the Option to the extent
Optionee was entitled to do so at the time of the termination of his
or her employment or directorship or engagement with the Company by
reason of such disability; provided however that the Option shall
terminate and cease to be exercisable upon the earlier of (1) the
expiration of one (1) year from the date of such termination of
employment or directorship or engagement or (2) the expiration date of
the Option. No additional right to exercise the Option with respect to
any Option Shares shall vest from and after the date of the
termination of the employment or directorship or engagement of the
Optionee.
(vii) Employment by Corporate Group. For purposes of this
Section, if during the term of the Option the Optionee transfers as an
employee from the Company to another member of the Corporate Group,
the employment of the Optionee shall not be deemed to have terminated
or ceased
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<PAGE> 7
hereunder and all references to the Company herein shall be deemed to
include such member of the Corporate Group. For purposes hereof the
employment of the Optionee shall be deemed to have terminated either
upon actual termination of employment or upon the employer of Optionee
ceasing to be a member of the Corporate Group, unless said employer or
its successor assumes the Option pursuant to the terms hereof.
j. Common Stock Voting Rights. This Plan and any Option Agreement
hereunder shall be in full compliance with Section 260.140.1 of the Rules of the
California Commissioner of Corporations (as amended or superseded) regarding the
voting rights of common stock.
k. Other Provisions. An Option Agreement may contain such other
terms, provisions and conditions, including but not limited to provisions
accelerating the right to exercise an Option, special forfeiture conditions,
rights of repurchase, rights of first refusal and restrictions on transfer of
Option Shares issued hereunder, not inconsistent with the provisions of this
Plan or applicable law, as may be determined by the Board in its sole
discretion.
7. Restrictions on Grant or Stock Issuance.
a. The grant of Options and the issuance of Option Shares shall
be conditioned upon and subject to compliance with all of the applicable
requirements of federal and state laws with respect to such securities on the
relevant dates of determination; and to the entering into of such covenants,
representations and warranties by the Optionee as required under applicable laws
in the judgment of the Company or its counsel in its sole discretion with
respect to the grant of the Option and the issuance of the Option Shares
thereunder. Without limiting the foregoing, the Company has no obligation to
file a registration statement under the Securities Act of 1933 or under any
similar act or law for the registration or qualification of any Option or any of
the Option Shares or to otherwise assist any Optionee in complying with any
exemption from registration.
b. The certificate or certificates representing the Option Shares
acquired by exercise of the Option shall bear such legends as determined by the
Company in its sole and absolute discretion, including without limitation any
applicable federal or state securities law or corporate law restrictions and
legends. In order to ensure compliance with the restrictions set forth in this
Plan and the Option Agreement, the Company also may issue appropriate
stop-transfer instructions to its transfer agent, if any, and if the Company
transfers its own securities, the Company may make appropriate notations to the
same effect in its own records.
8. No Rights as a Shareholder. No person shall have any rights as a
shareholder with respect to any of the Option Shares subject to an Option until
the date of the issuance of a stock certificate(s) for the Option Shares for
which the Option has been exercised. No adjustments shall be made for dividends
or distributions or other rights for which the record date is prior to the date
such stock certificate(s) are issued, except as provided in Section 5(b) of this
Plan.
9. No Rights in Other Capacities. Nothing in this Plan or in any Option
Agreement shall confer upon any Optionee any right to continue as an employee or
director or consultant or advisor of the Company (or any other member of the
Corporate Group) or interfere in any manner with any right of the Company (or
any other member of the Corporate Group or other relevant entity) to terminate
the employment or directorship or engagement of an Optionee at any time. No
Optionee shall have any authority to act on behalf of the Company in any
capacity with respect to his or her own participation in this Plan or with
respect to his or her own Option Agreement or Option granted hereunder.
10. Use of Proceeds. The proceeds received by the Company from the
payment of the Option Price pursuant to exercise of an Option shall be used for
such corporate purposes as determined by the Board in its discretion.
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<PAGE> 8
11. Lock-Up Restrictions. In connection with any underwritten public
offering of stock or other securities made by the Company pursuant to an
effective registration statement filed under applicable federal securities acts,
the Optionee shall fully comply with and cooperate with the Company and any
managing underwriter in connection with any stock "lock-up" or "standstill"
agreements or similar restrictions on the offer or sale or contract to sell or
other transfer or assignment or pledge or loan or other encumbrance of the
shares of the common stock of the Company (including without limitation any of
the Option Shares) generally applicable to similarly situated shareholders or
optionholders of the Company.
12. Mandatory Notice of Disposition. The Optionee shall transfer or
dispose of any of the Option Shares only in compliance with the provisions of
this Plan and the Option Agreement. Without limiting the other provisions of
this Plan or the Option Agreement, in the event the Optionee disposes of any of
the Option Shares within two (2) years of the Grant Date of the Option or within
one (1) year after the transfer of the Option Shares to the Optionee in
connection with an exercise of the Option, whether such disposition is made by
sale, exchange, gift or otherwise, then the Optionee shall notify the Chief
Financial Officer of the Company of such disposition in writing within thirty
(30) days from the date of such disposition. Said written notice shall state the
date of such disposition, and the type and amount of the consideration received
for such Option Share or Option Shares by the Optionee in connection therewith.
In the event of any such disposition, the Company shall have the right to
withhold from the Optionee or to require the Optionee to immediately pay to the
Company the aggregate amount of taxes, if any, which the Company is required to
withhold under federal or state or other applicable law as a result of the
granting or exercise of the subject Option or the disposition of the subject
Option Shares.
13. Modification, Extension and Renewal of Options. Subject to the terms
and conditions and within the limitations of this Plan, the Board may modify,
extend or renew outstanding Options granted under this Plan, or accept the
surrender of outstanding Options (to the extent not theretofore exercised) and
authorize the granting of new Options in substitution therefor (to the extent
not theretofore exercised). Notwithstanding the foregoing, no modification of
any Option shall, without the consent of the Optionee, alter or impair any
rights or obligations under any Option theretofore granted under this Plan.
14. Termination or Amendment of Plan.
a. The Board may at any time terminate or amend this Plan prior
to the expiration of this Plan, provided however that without the approval of
the shareholders of the Company there shall be: (i) no increase in the total
number of shares of stock which may be issued under this Plan (except by
operation of the provisions of Section 5(b) hereof), and (ii) no change in the
classes of persons eligible to be granted Options.
b. No amendment of this Plan may adversely affect any then
outstanding Option or any unexercised portion thereof without the consent of the
Optionee; provided however that subject to Section 14(a) hereof the Board
expressly reserves the right to amend the terms and provisions of this Plan and
of any outstanding Options under this Plan to the extent necessary to qualify
such Options for such favorable federal income tax treatment (including deferral
of taxation upon exercise) as may be afforded employee stock options under
amendments to the Code or other statutes or regulations which become effective
after the effective date of this Plan.
15. Financial Statements. Subsequent to the Effective Date of the Plan,
the Optionees shall receive financial statements from the Company on at least an
annual basis to the extent required by the then applicable Rules of the
Commissioner of Corporations for the State of California or as otherwise
required by law.
16. Notices. All notices, requests, demands and other communications
required or permitted to be given pursuant to this Plan or any Option Agreement
(collectively "notices") shall be in writing and shall be delivered (i) by
personal delivery, (ii) by nationally recognized overnight air courier service
or (iii)
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<PAGE> 9
by deposit in the United States Mail, postage prepaid, registered or certified
mail, return receipt requested. A notice shall be deemed to have been given on
the date delivered, if delivered personally or by overnight air courier service;
or five (5) days after mailing if mailed. All notices shall be addressed if to
the Company at its principal place of business in the State of California,
United States of America, to the attention of the Secretary or Chief Financial
Officer of the Company; and if to the Optionee or his or her representative at
the last address of Optionee shown on the records of the Company. Either party
may by written notice to the other party specify a different address to which
notices shall be given, by sending notice thereof to the other party in the
foregoing manner.
17. Administration. This Plan shall be administered by the Board or by a
duly appointed committee of the Board having such powers as shall be specified
by the Board; and further subject to Section 16(b) of the Exchange Act and SEC
Rule 16b-3 (as amended or superseded) with respect to any Option granted to an
individual subject to such rules. Any references in this Plan to the Board shall
also be deemed to refer to such committee of the Board if appointed for such
purposes with the relevant powers. The Board may also at any time terminate the
functions of such committee and reassume all powers and authority previously
delegated to the committee. The Board is authorized to establish such rules and
regulations as it may deem appropriate for the proper administration of this
Plan and to make such determinations under, and issue such interpretations of,
this Plan and any Option Agreement or Option granted hereunder as it may deem
necessary or advisable. All questions of interpretation of this Plan or any
Option Agreement or Option granted hereunder shall be determined by the Board
and shall be final and binding upon all persons having an interest in this Plan
or any Option Agreement or Option granted hereunder. No member of the Board
shall vote on any matter concerning his or her own participation in this Plan.
No member of the Board shall be liable for any action or interpretation made in
good faith hereunder.
18. General Provisions.
a. This Plan constitutes the entire Omnis Technology Corporation
1999 Stock Option Plan, subject to termination or amendment as herein provided.
In the event of any conflict between the terms or provisions of this Plan and
any Option Agreement for any Option granted hereunder, the terms and provisions
of this Plan shall control.
b. This Plan shall be construed in accordance with and governed
by the laws of the State of California without reference to the principles of
conflicts of law.
c. Whenever possible, each provision of this Plan shall be
interpreted in such manner as to be effective and valid under applicable law. In
the event that any provision of this Plan shall be held by the final judgment of
a court of competent jurisdiction to be invalid or unlawful or unenforceable,
then the remaining provisions of this Plan shall remain in full force and effect
and shall be construed to give the fullest effect to the purpose of this Plan
and the intended qualification of this Plan pursuant to Section 422 of the Code
and pursuant to Section 25102(o) of the California Corporations Code and the
respective regulations and rules thereunder (as amended or superseded).
d. When the context requires, the plural shall include the
singular and the singular the plural and any gender shall include any other
gender. Section headings are for convenience only and are not part of this Plan.
19. Copies of Plan. A complete copy of this Plan as then in effect shall
be delivered to each Optionee at or before the time such person executes and
delivers the relevant Option Agreement.
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<PAGE> 10
Dated: April 13, 1999
DATE OF ADOPTION OF THIS PLAN BY THE BOARD OF DIRECTORS OF THE COMPANY:
APRIL 13, 1999
48
<PAGE> 11
OMNIS TECHNOLOGY CORPORATION
INCENTIVE STOCK OPTION AGREEMENT [FORM]
This Incentive Stock Option Agreement ("Agreement") is made and entered
into on _____________________ ("Grant Date") by and between Omnis Technology
Corporation, a Delaware corporation (the "Company"), and _____________________
("Optionee").
W I T N E S S E T H:
A. The Board of Directors of the Company ("Board") has adopted the Omnis
Technology Corporation 1999 Stock Option Plan to create additional incentives
for certain valued employees, directors, consultants and advisors of the Company
or its parent or subsidiary and to promote the financial success and progress of
the Company and such parents and subsidiaries. For purposes hereof the "Plan"
and all section references therein shall be defined as said 1999 Stock Option
Plan as amended or superseded during the term of this Agreement.
B. Optionee is a valued employee of the Company or a parent or
subsidiary thereof, and this Incentive Stock Option Agreement is executed
pursuant to, and is intended to carry out the purposes of, the Plan in
connection with the grant by the Company to Optionee of an incentive stock
option as defined by Section 422 of the Internal Revenue Code of 1986, as
amended or superseded (the "Code").
C. This Agreement and its terms are confidential and shall not be
disclosed at any time by Optionee except as otherwise herein provided.
NOW, THEREFORE, it is agreed as follows:
1. Grant of Option. Subject to and upon the terms, conditions and
restrictions set forth in this Agreement and the Plan, the Company hereby grants
to Optionee as of the Grant Date an incentive stock option ("Option") to
purchase up to ___________________ (______) shares ("Option Shares") of the
common stock of the Company during the Term hereof (as defined in Section 3
hereof) at an Option Price of ___________________ ($___) per share. For these
purposes "Option Shares" also shall include such stock or other securities as
defined by the Plan.
2. Right to Exercise; Vesting. Subject to the expiration or earlier
termination of the Term of the Option, Optionee shall have the right to exercise
the Option in accordance with the following ____________ (__) year vesting
schedule:
(i) Optionee shall have no right to exercise any part of
the Option at any time prior to the expiration of the one (1) year
from the Grant Date of the Option;
(ii) The Option shall become exercisable with respect to
_______________ Percent (__%) of the Option Shares upon the expiration
of one (1) year from the Grant Date of the Option; and
(iii) The Option thereafter shall become exercisable with
respect to an additional ___________________________________________
Percent (______%) of the Option Shares for each month following the
expiration of one (1) year from the Grant Date of the Option.
Exercisable installments may be exercised by Optionee in whole or in part and to
the extent not exercised shall accumulate and be exercisable as provided. The
Company shall not be required to issue fractional shares at
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<PAGE> 12
any time; and any fractional shares remaining in the Option following any
exercise thereof shall be rounded down to the next nearest whole number of
Shares.
3. Option Term. Subject to earlier termination as provided for in the
Plan, the specified term of the Option ("Term") shall be the period commencing
as of the Grant Date and ending on the expiration of ________ (___) years from
the Grant Date. Upon the expiration of the Term or earlier termination of the
Option as provided for in the Plan, the Option shall cease to be exercisable and
shall be of no further force or effect. Such events of earlier termination
include but are not limited to termination of the employment of Optionee.
4. Non-Transferable. The Option shall not be transferable or assignable
by Optionee other than by will or the laws of descent and distribution, and the
Option may be exercised during the lifetime of Optionee solely by Optionee.
Subject to the foregoing, all transfers or assignments or attempted transfers or
assignments of the Option or this Agreement shall be void ab initio.
5. Plan; Controlling Terms.
a. The Option granted hereunder and this Agreement shall be
governed by and subject to each and all of the terms and provisions of the Plan,
which is hereby incorporated by reference in its entirety. All capitalized or
other terms not defined herein shall have the same meaning as in the Plan. In
the event of any conflict between the Plan and this Agreement, the Plan shall
control. Optionee acknowledges receipt of a copy of the Plan and the opportunity
to review the Plan and to consult with his or her legal advisors concerning the
Plan and this Agreement.
b. OPTIONEE ACKNOWLEDGES AND AGREES THAT THE PLAN CONTAINS
IMPORTANT TERMS AND PROVISIONS THAT WILL APPLY TO AND CONTROL THE OPTION AND
THIS AGREEMENT. THOSE TERMS INCLUDE WITHOUT LIMITATION IMPORTANT CONDITIONS AND
LIMITATIONS ON THE RIGHT OF OPTIONEE TO EXERCISE THE OPTION; IMPORTANT
RESTRICTIONS ON THE RIGHT OF OPTIONEE TO TRANSFER THE OPTION OR THE OPTION
SHARES RECEIVED UPON EXERCISE OF THE OPTION; EARLY TERMINATION OF THE OPTION
FOLLOWING THE OCCURRENCE OF CERTAIN EVENTS, INCLUDING TERMINATION OF THE
EMPLOYMENT OF OPTIONEE FOR ANY REASON; PROCEDURES FOR EXERCISING THE OPTION; TAX
WITHHOLDING AND NOTICE OBLIGATIONS; AND OTHER SUBSTANTIAL RESTRICTIONS AND
OBLIGATIONS IN ADDITION TO THOSE IN THIS AGREEMENT.
6. Tax Status of Option.
a. The Option is intended to be an incentive stock option as
defined by Section 422 of the Code for United States tax purposes, but the
Company does not represent or warrant that the Option so qualifies. Optionee
should consult with his or her own tax advisors regarding the tax effects of the
Option and the requirements for favorable tax treatment under Section 422 and
other provisions of the Code and other tax consequences of the Option under
applicable law, including but not limited to holding period requirements. In the
event that the aggregate exercise price of the Option Shares under the Option
and all other incentive stock options held by Optionee (whether granted by the
Company or any parent or subsidiary corporation thereof) exceeds the dollar
amount or other limitation then applicable under the Code when such options are
first exercisable, all or part of the Option may not qualify as an incentive
stock option under the Code.
b. Optionee hereby acknowledges that the rules and requirements
of Section 83 of the Code, including without limitation the election available
under Section 83(b) thereof, may be applicable to the receipt of Option Shares
by Optionee pursuant to this Agreement and the Plan. In the event that the
Option or any part thereof is not classified as an incentive stock option under
Section 422 of the Code, Optionee
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<PAGE> 13
acknowledges that the exercise of the Option and the filing or failure to file
an election under Code Section 83(b) in timely manner may result in adverse tax
consequences to Optionee.
7. Limitations on Share Transfer; Mandatory Notice of Disposition.
Optionee shall transfer or dispose of the Option Shares only in accordance with
the provisions of this Agreement and the Plan. Without limiting the foregoing,
mandatory notice of disposition of any Option Shares must be made to the Company
as provided in the Plan and such disposition may be subject to tax withholding
or payments by Optionee.
8. Securities Laws; Restrictions on Grant or Issuance. THE RESTRICTIONS
ON THE TRANSFER OF THE OPTION OR THE OPTION SHARES SHALL BE IN ADDITION TO ANY
OTHER LIMITATIONS ON TRANSFER OR EXERCISE OF THE OPTION OR ISSUANCE OR TRANSFER
OF THE OPTION SHARES IMPOSED BY APPLICABLE FEDERAL AND STATE SECURITIES LAWS.
THE GRANT OF THE OPTION AND THE EXERCISE OF THE OPTION AND THE ISSUANCE OF THE
OPTION SHARES UPON EXERCISE OF THE OPTION AND ANY RESALE OR OTHER TRANSFER OF
SUCH OPTION SHARES BY OPTIONEE SHALL BE SUBJECT TO COMPLIANCE WITH ALL
APPLICABLE REQUIREMENTS OF FEDERAL OR STATE LAW WITH RESPECT TO SUCH SECURITIES.
Notwithstanding any contrary provision of this Agreement:
a. Optionee understands that since the Option is not
transferable, and since the Option Shares have not been and may not be
registered or exempt under applicable statutes, Optionee may bear the economic
risk of the investment for an indefinite period of time. The Option Shares may
not be sold or otherwise disposed of until such time as the Option Shares are
registered under the Securities Act of 1933 ("Securities Act") or the Option
Shares may be sold pursuant to an applicable exemption from the registration
requirements of the Securities Act. Optionee understands that the Company has no
obligation to file a registration statement under the Securities Act for the
Option or the Option Shares or to otherwise assist Optionee in complying with
any exemption from registration.
b. Optionee represents and warrants that the Option is being
acquired and the Option Shares will be acquired upon exercise for his or her own
account and not with a view to or for sale in connection with any distribution
of such securities. Optionee further acknowledges that any investment in the
Common Stock of the Company is inherently speculative and illiquid and subject
to material risks.
c. As a condition to the exercise of the Option, the Company may
require Optionee to satisfy any qualifications that may be necessary or
appropriate in the sole judgment of the Company or its counsel to evidence
compliance with any applicable law or regulation and to make any written
representation or warranty with respect thereto as may be requested by the
Company.
d. Notwithstanding any contrary provision hereof, the inability
of the Company with reasonable efforts to obtain approval from any regulatory
body having authority deemed by the Company to be necessary for the lawful
issuance and sale of any Option Shares pursuant to the Option shall relieve the
Company of any liability in respect of the non-issuance or sale of the Option
Shares as to which such approval shall not have been obtained.
51
<PAGE> 14
9. Assignment; Binding Effect.
a. The Company may transfer or assign any of its rights or
obligations under this Agreement or the Plan. Optionee shall have no right to
transfer or assign any of the rights and obligations of Optionee under the
Option or this Agreement, subject to Section 4 hereof in the case of a will or
the laws of descent and distribution.
b. Subject to the foregoing, this Agreement shall inure to the
benefit of and be binding upon each of the parties hereto and the officers,
directors, employees, shareholders, owners, agents, representatives, parents,
subsidiaries, affiliates, successors and assigns of the Company, and the
spouses, representatives, executors, administrators, heirs, devisees, agents,
successors and assigns of Optionee.
10. Representations and Warranties.
a. Optionee represents and warrants that he or she has read the
Plan and this Agreement and has had the opportunity to consult with his or her
legal advisors concerning the legal and tax effects of the Plan and this
Agreement and the Option.
b. Each party represents and warrants that such party has the
full right, power, legal capacity and authority to enter into and execute this
Agreement and to discharge all of its obligations under the terms hereof, and
that such party does not have any outstanding obligation and is not a party to
any outstanding agreement which obligation or agreement is inconsistent with
this Agreement. This Agreement has been duly executed and delivered by said
party, and constitutes its valid and legally binding agreement and obligation
and is enforceable in accordance with its terms.
11. Miscellaneous.
a. This Agreement together with the Plan sets forth the entire
agreement of the parties relating to the subject matter hereof, subject to the
provisions of the Plan; and the Plan and this Agreement shall supersede any
prior discussions, understandings and agreements concerning the grant of stock
options or the issuance of option stock between the parties, provided however
that this Agreement shall not supersede and shall be in addition to any separate
fully executed written stock option agreement between the parties pursuant to
any separate stock option grant by the Company. This Agreement may be amended by
further written agreement signed by each of the parties.
b. This Agreement shall be construed in accordance with and
governed by the laws of the State of California without reference to the
principles of conflicts of law.
c. Whenever possible, each provision of this Agreement shall be
interpreted in such manner as to be effective and valid under applicable law. In
the event that any provision of this Agreement shall be held by the final
judgment of a court of competent jurisdiction to be invalid or unlawful or
unenforceable, then the remaining provisions of this Agreement shall remain in
full force and effect and shall be construed to give the fullest effect to the
purpose of the Plan and this Agreement and the intended qualification of the
Plan and this Agreement pursuant to Section 422 of the Code and pursuant to
Section 25102(o) of the California Corporations Code and the respective
regulations and rules thereunder (as amended or superseded).
d. No remedy conferred by this Agreement or the Plan shall be
exclusive of any other remedy, and each and all such remedies shall be
cumulative. The waiver of any breach or violation of this Agreement in whole or
in part shall not operate as a waiver of any subsequent breaches or violations
of the same or a different kind. Any exercise or failure to exercise by a party
of any rights or remedies under this
52
<PAGE> 15
Agreement shall not operate as a waiver of the right of such party to exercise
the same or different rights or remedies in a subsequent event.
e. Both parties agree to execute any additional documents or
instruments necessary or appropriate to fully effectuate out the purposes of
this Agreement and which are consistent with the Plan.
f. Section headings in this Agreement are for the convenience of
the parties and are not part of the agreement of the parties and shall not be
used in the construction hereof. Whenever in this Agreement the context
requires, references to the plural shall include the singular and the singular
the plural, and each gender shall include all other genders. No provision in
this Agreement shall be interpreted or construed against any party because such
party or its counsel was the drafter thereof.
g. THIS AGREEMENT AND THE TERMS AND CONDITIONS HEREOF ARE
CONFIDENTIAL AND OPTIONEE SHALL NOT DISCLOSE ANY OF THE TERMS OR CONDITIONS
HEREOF TO ANY OTHER EMPLOYEE OF THE COMPANY OR TO ANY OTHER PERSON FOR ANY
PURPOSE, OTHER THAN TO THE SPOUSE, LEGAL COUNSEL OR ACCOUNTING AND FINANCIAL
ADVISORS OF OPTIONEE, OR TO THE APPROPRIATE EMPLOYEES OR REPRESENTATIVES OF THE
COMPANY AS NECESSARY IN CONNECTION WITH THE ENFORCEMENT, MODIFICATION OR
EXERCISE OF THIS AGREEMENT, OR AS REQUIRED IN CONNECTION WITH LEGAL PROCEEDINGS
IN WHICH OPTIONEE IS A PARTY OR WITNESS.
IN WITNESS WHEREOF, the Company has caused this Agreement to be executed
and delivered in duplicate on its behalf by its duly authorized officer, and
Optionee has also executed and delivered this Agreement in duplicate, all on the
date first above written.
OMNIS TECHNOLOGY CORPORATION
By: ____________________________
Name: ______________________
Title: _____________________
OPTIONEE
__________________________________
Name: ____________________________
53
<PAGE> 16
CONSENT OF SPOUSE
I, ______________________________, the spouse of
__________________________________("Optionee"), have read and approved the
foregoing Incentive Stock Option Agreement between Omnis Technology Corporation
("Company") and my spouse and the Omnis Technology Corporation 1999 Stock Option
Plan. In consideration of granting of the Option to my spouse to purchase shares
of the common stock of the Company under the terms and conditions in the
Agreement and the Plan, I hereby appoint my spouse as my attorney-in-fact in
respect to the exercise of any rights under the Agreement and the Plan and any
stock issued thereunder, and agree to be fully bound by the provisions of the
Agreement and the Plan insofar as I may have any rights under such Agreement and
the Plan or in any stock issued thereunder under any community property laws or
similar laws relating to marital property then in effect. I further acknowledge
that in the event of the exercise of such Option, such shares of the common
stock of said Company shall be issued in the name of my spouse and that the
Company shall have no other obligations with respect thereto.
Dated: ___________________________
__________________________________
Name: ____________________________
54
<PAGE> 17
OMNIS TECHNOLOGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS FOR
THE YEARS ENDED MARCH 31, 1999 AND 1998
AND INDEPENDENT AUDITORS' REPORTS
55
<PAGE> 18
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
of OMNIS Technology Corporation:
We have audited the accompanying consolidated balance sheet of OMNIS
Technology Corporation and subsidiaries as of March 31, 1999, and the related
consolidated statements of operations, stockholders' equity (deficiency), and
cash flows for the year then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of OMNIS
Technology Corporation and subsidiaries at March 31, 1999, and the consolidated
results of their operations and their cash flows for the year then ended in
conformity with generally accepted accounting principles.
GRANT THORNTON LLP
San Francisco, California
June 1, 1999
56
<PAGE> 19
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
of OMNIS Technology Corporation:
We have audited the accompanying consolidated balance sheet of OMNIS
Technology Corporation and subsidiaries as of March 31, 1998 and the related
consolidated statements of operations, stockholders' equity (deficiency), and
cash flows for the year then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly,
in all material respects, the financial position of OMNIS Technology Corporation
and subsidiaries at March 31, 1998, and the results of their operations and
their cash flows for the year then ended in conformity with generally accepted
accounting principles.
The accompanying 1998 financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 1 to
the financial statements included in the Company's Form 10-KSB for the year
ended March 31, 1998, the Company has incurred losses and negative cash flows
from operations, has a working capital and stockholders' deficiency at March
31, 1998, limited cash resources, and significant past due amounts due to
creditors. These matters, among others, raise substantial doubt about its
ability to continue as a going concern. Management's plans in regard to these
matters are also described in Note 1 to such financial statements. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
DELOITTE & TOUCHE LLP
San Jose, California
May 22, 1998
57
<PAGE> 20
OMNIS TECHNOLOGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MARCH 31, (in thousands, except share amounts)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ASSETS 1999 1998
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 271 $ 242
Accounts receivable (less allowances for doubtful
accounts of $150 in 1999 and $162 in 1998) 764 602
Inventories 13 74
Other current assets 609 625
-------- --------
Total current assets 1,657 1,543
Property, furniture and equipment, net 890 1,472
Other assets 10 400
-------- --------
Total assets $ 2,557 $ 3,415
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
CURRENT LIABILITIES:
Obligations under line of credit $ -- $ 145
Current portion of long-term debt 82 1,165
Accounts payable 240 1,735
Accrued liabilities 533 652
Deferred revenue 412 862
-------- --------
Total current liabilities 1,267 4,559
Long-term debt 28 111
-------- --------
Total liabilities 1,295 4,670
======== ========
Commitments and contingencies (Note 10)
Stockholders' equity (deficiency):
Preferred stock - $1.00 par value; 300,000 shares authorized;
issued and outstanding: 300,000 shares 300 --
Common stock - $.10 par value; 20,000,000 shares authorized; issued
and outstanding: 1999, 9,679,829 shares; 1998, 2,125,827 shares 967 212
Paid-in capital 45,180 42,881
Accumulated deficit (45,386) (44,499)
Accumulated other comprehensive income 201 151
-------- --------
Total stockholders' equity (deficiency) 1,262 (1,255)
-------- --------
Total liabilities and stockholders' equity (deficiency) $ 2,557 $ 3,415
======== ========
</TABLE>
See notes to consolidated financial statements.
58
<PAGE> 21
OMNIS TECHNOLOGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED MARCH 31,
(in thousands, except share and per share amounts)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Net revenues:
Product $ 4,277 $ 4,198
Services 1,582 3,785
----------- -----------
Total net revenues 5,859 7,983
----------- -----------
Operating expenses:
Cost of product revenues 333 505
Cost of service revenues 347 3,104
Selling and marketing 2,002 6,714
Research and development 1,418 2,875
General and administrative 2,297 3,066
----------- -----------
Total operating expenses 6,397 16,264
----------- -----------
Operating loss (538) (8,281)
Other income (expense):
Interest income 7 83
Interest expense and other, net (352) (137)
----------- -----------
Total other income (expense) (345) (54)
----------- -----------
Loss before income taxes (883) (8,335)
Income tax expense (4) (17)
----------- -----------
Net loss $ (887) $ (8,352)
=========== ===========
Net loss per share - basic and diluted $ (0.41) $ (4.07)
=========== ===========
Weighted average common shares
outstanding 2,148,499 2,052,285
=========== ===========
</TABLE>
See notes to consolidated financial statements
59
<PAGE> 22
OMNIS TECHNOLOGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
YEARS ENDED MARCH 31, 1999 and 1998
(in thousands, except share amounts)
<TABLE>
<CAPTION>
Series A
Preferred Stock Common Stock
------------------------ --------------------- Paid-in
Shares Amount Shares Amount Capital
<S> <C> <C> <C> <C> <C>
Balances, April 1, 1997 -- $ -- 1,737,353 $ 174 $ 41,038
Common stock options and warrants
exercised -- -- 2,500 -- 10
Common stock issued upon conversion
of debt (net of issuance costs of $148) -- -- 372,283 37 1,773
Common stock issued -- -- 13,691 1 60
Net loss -- -- -- -- --
Foreign currency translation adjustment -- -- -- -- --
Comprehensive loss -- -- -- -- --
-------- --------- --------- ---------- ---------
Balances, March 31, 1998 2,125,827 212 42,881
Preferred stock issued 124,564 125 -- -- 875
Redemption of preferred stock (124,564) (125) -- -- 125
Common and preferred stock issued upon
conversion of debt 300,000 300 2,543,344 254 582
Stock issued in conjunction with private
placement (net of issuance costs of $35) 5,000,000 500 715
Common stock issued 10,658 1 2
Net loss -- -- -- -- --
Foreign currency translation adjustment -- -- -- -- --
Comprehensive loss -- -- -- -- --
-------- ---------- --------- ---------- ---------
Balances, March 31, 1999 300,000 $ 300 9,679,829 $ 967 $ 45,180
======== ========== ========= ========== =========
</TABLE>
<TABLE>
<CAPTION>
Total
Accumulated Stock
Other Holders'
Accumulated Comprehensive Comprehensive Equity
Deficit Income Loss (Deficiency)
<S> <C> <C> <C> <C>
Balances, April 1, 1997 $ (36,147) $ 267 $ 5,332
Common stock options and warrants
exercised -- -- 10
Common stock issued upon conversion
of debt (net of issuance costs of $148) -- -- 1,810
Common stock issued -- -- 61
Net loss (8,352) -- $ (8,352) (8,352)
Foreign currency translation adjustment -- (116) (116) (116)
----------
Comprehensive loss -- -- $ (8,468)
---------- ---------- =========== ----------
Balances, March 31, 1998 (44,499) 151 (1,255)
Preferred stock issued -- -- 1,000
Redemption of preferred stock -- -- --
Common and preferred stock issued upon
conversion of debt -- -- 1,136
Stock issued in conjunction with private
placement (net of issuance costs of $35) -- -- 1,215
Common stock issued -- -- 3
Net loss (887) -- $ (887) (887)
Foreign currency translation adjustment -- 50 50 50
-----------
Comprehensive loss -- -- $ (837)
---------- ---------- =========== ----------
Balances, March 31, 1999 $ (45,386) 201 $ 1,262
========== ========== ==========
</TABLE>
See notes to consolidated financial statements.
60
<PAGE> 23
OMNIS TECHNOLOGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED MARCH 31 (in thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (887) $(8,352)
Adjustments to reconcile net loss to net cash used for
operating activities:
Depreciation and amortization expense 423 653
Noncash convertible debenture interest -- 131
Loss on disposal of property 100 --
Changes in assets and liabilities:
Trade accounts receivable (163) 1,102
Inventories 61 (55)
Other current assets 16 44
Accounts payable and accrued liabilities (1,614) 363
Deferred revenue (450) (66)
------- -------
Net cash used for operating activities (2,514) (6,180)
------- -------
Cash flows from investing activities:
Purchases of property, furniture and equipment (17) (423)
Proceeds from sale of fixed assets 77 81
Other assets 390 (400)
------- -------
Net cash provided by (used for) investing activities 450 (742)
------- -------
Cash flows from financing activities:
Net borrowings (repayments) on line of credit (145) 100
Repayments of debt (30) (246)
Proceeds from issuance long-term debt -- 1,098
Proceeds from preferred stock issuance 1,000 --
Net proceeds from common stock issuance 1,218 61
Exercise of stock options and warrants -- 10
------- -------
Net cash provided by financing activities 2,043 1,023
------- -------
Effect of exchange rate changes on cash 50 (9)
------- -------
Increase (decrease) in cash and equivalents 29 (5,908)
Cash and equivalents - beginning of year 242 6,150
------- -------
Cash and equivalents - end of year $ 271 $ 242
======= =======
Cash paid for:
Interest $ 141 $ 34
Income taxes $ 3 $ 13
</TABLE>
61
<PAGE> 24
OMNIS TECHNOLOGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED MARCH 31 (CONCLUDED)
- --------------------------------------------------------------------------------
NONCASH TRANSACTIONS:
During fiscal 1999, a note payable for $1,000,000 plus accrued interest
of $135,836 were converted into 300,000 shares of preferred stock and 2,543,344
shares of common stock. See Note 6.
During fiscal 1998, convertible debenture noteholders converted
$1,828,000 of 8% debentures, plus accrued interest of $130,000, into 372,283
shares of common stock. Such amount has been recorded net of issuance costs of
$148,000 in the consolidated statements of stockholders' equity (deficiency).
See Note 6.
Also, during fiscal 1998 the Company acquired assets under capital lease
in the amount of $333,000.
62
<PAGE> 25
OMNIS TECHNOLOGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999 AND 1998
- --------------------------------------------------------------------------------
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION - OMNIS Technology Corporation and its subsidiaries (the
"Company" or "OMNIS"), develops, markets, and supports software products for the
development and deployment of applications for accessing multi-user databases in
workgroup and enterprise-wide client/server computing environments. The
Company's family of products is used by enterprises, system integrators, value
added resellers (VARs) and independent developers to deliver custom information
management applications for a wide range of users including financial
management, decision support, executive information, sales and marketing, and
multi-media authoring systems. In addition to these products, OMNIS provides
technical support and training to help customers plan, analyze, implement, and
maintain application software based on the Company's technology.
The consolidated financial statements include OMNIS Technology
Corporation and its wholly-owned subsidiaries, OMNIS Holdings Limited, OMNIS
Software Limited, OMNIS Software Inc., and OMNIS Software GmbH.
Significant accounting policies applied in the preparation of the
accompanying consolidated financial statements of the Company follow:
PRINCIPLES OF CONSOLIDATION - The accompanying consolidated financial
statements include the accounts of the Company and its wholly-owned
subsidiaries. All significant intercompany balances and transactions are
eliminated in consolidation.
REVENUE RECOGNITION - In October 1997, the American Institute of
Certified Public Accountants issued Statement of Position 97-2 ("SOP 97-2"),
"Software Revenue Recognition" which provides guidance on generally accepted
accounting principles for recognizing revenue on software transactions. SOP 97-2
requires that revenue from software arrangements be allocated to each element of
the arrangement based on the relative fair values of the elements, such as
software products, upgrades, enhancements, post contract customer support,
installation, or training. Under SOP 97-2, the determination of fair value is
based on the objective evidence which is specific to the vendor. If such
evidence of fair value for each element of the arrangement does not exist, all
revenue from the arrangement is deferred until such time that evidence of fair
value does exist or until all elements of the arrangement are delivered.
PRODUCT REVENUE - The Company recognizes revenue for product sales upon
persuasive evidence of an arrangement, delivery of the software and
determination that collection of a fixed or determinable fee is considered
probable.
SERVICE REVENUE - Service revenue is generated from consulting,
technical support, and training. Each element is value based on the relative
fair value specific to the vendor. Product support revenue is recognized ratably
over the related contractual term, generally one year. Revenue from consulting
and training is recognized when the services are provided.
COST OF PRODUCT AND SERVICE REVENUES - Cost of product revenues includes
cost of production materials and related documentation and amortization of
capitalized software development costs. Cost of service revenues principally
includes payroll and other costs associated with the customer support function.
Other costs specifically identifiable with the revenue source have been
classified accordingly.
CASH EQUIVALENTS - The Company considers all highly liquid investments
purchased with a maturity of three months or less to be cash equivalents.
INVENTORIES - Inventories, principally finished goods, are stated at the
lower of cost on a first-in, first-out (FIFO) basis, or market value.
PROPERTY, FURNITURE AND EQUIPMENT - Property, furniture, and equipment
are stated at cost. Capital leases are recorded at the present value of the
minimum lease payments at the date of
63
<PAGE> 26
acquisition. Depreciation and amortization is computed on a straight-line basis
over the estimated useful lives of the assets or lease term, whichever is
shorter, which range from 3 to 25 years. Leasehold improvements are amortized on
a straight-line basis over the shorter of the lease term or the estimated useful
lives of the assets.
LONG-LIVED ASSETS - The Company has adopted Statement of Financial
Accounting Standards No. 121, Accounting For The Impairment Of Long-Lived Assets
And For Long-Lived Assets To Be Disposed Of (SFAS 121), which requires that
long-lived assets, certain identifiable intangibles, and goodwill related to
those assets used by an entity be reviewed for impairment whenever events or
changes indicate that the carrying amount of an asset may not be recoverable.
The Company's policy is to review the recoverability of all intangible assets at
a minimum on an annual basis, and in addition whenever events or changes
indicate that the carrying amount of an asset may not be recoverable.
CAPITALIZED SOFTWARE DEVELOPMENT COSTS - Software development costs are
capitalized when technological feasibility has been established. The Company did
not capitalize any software development costs in fiscal 1999 or 1998 since the
net realizability for most of the Company's current development efforts could
not be determined. Amortization of capitalized software development costs
charged to cost of product revenues was none for both years ended March 31, 1999
and 1998.
INCOME TAXES - Income taxes are accounted for using the asset and
liability approach for financial reporting which requires recognition of
deferred tax liabilities and assets for the expected future tax consequences of
temporary differences between the financial statement carrying amounts and the
tax bases of assets and liabilities and net operating loss and tax credit carry
forwards. Valuation allowances are established when necessary to reduce deferred
tax assets to the amounts expected to be realized.
STOCK-BASED COMPENSATION - The Company accounts for stock-based awards
to employees using the intrinsic value method in accordance with APB No. 25,
Accounting For Stock-Based Compensation.
NET LOSS PER SHARE - Net loss per share is computed based on the
weighted average number of common shares outstanding during the period. Net loss
per share excludes dilution and is computed by dividing net loss by the weighted
average of common stock outstanding for the period. Diluted EPS reflects the
potential dilution that could occur if securities or other contracts to issue
common stock were exercised or converted into common stock. However, due to the
Company's net loss position for all periods presented, diluted EPS excludes
common equivalent shares, as their effect is anti-dilutive.
CONCENTRATION OF CREDIT RISK AND SIGNIFICANT RISKS AND UNCERTAINTIES -
Financial instruments which potentially subject the Company to a concentration
of credit risk principally consist of cash, cash equivalents and accounts
receivable. The Company places its cash and cash equivalents with what it
believes are high quality financial institutions. The Company sells its products
primarily to companies in North America and Europe. To reduce credit risk,
management performs ongoing credit evaluations of its customers' financial
condition. The Company maintains reserves for potential credit losses.
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 may need to seek additional equity
capital which would be dilutive to current stockholders. The Company is not
currently attempting to raise additional capital, but such activity may be
required to continue operations. There can be no assurance that the Company will
be able to raise additional capital on commercially reasonable terms should the
Company need additional funds in the future.
64
<PAGE> 27
The Company's future operating results will depend, to a considerable
extent, on its ability to rapidly and continuously develop new products that
offer its customers enhanced performance at competitive prices. Inherent in this
process are a number of risks. The development of new, enhanced software
products is a complex and uncertain process requiring high levels of innovation
from the Company's designers as well as accurate anticipation of customer and
technical trends by the marketing staff. Once a product is developed, the
Company must rapidly bring it into production and distribution in order to
achieve acceptable product revenues.
The Company participates in a dynamic high technology industry and
believes that changes in any of the following areas could have a material
adverse effect on the Company's future financial position or results of
operations: advances and trends in new technologies; competitive pressures in
the form of new products or price reductions on current products; the volume,
mix, and timing of orders; changes in product mix; changes in overall demand for
products and services offered by the Company; changes in certain strategic
partnerships or customer relationships; litigation or claims against the Company
based on intellectual property, regulatory or other factors; risks associated
with changes in domestic or international economic and/or political conditions
or regulations either in the industries the Company serves or generally;
availability of necessary components, and the Company's ability to attract and
retain employees necessary to support growth.
ESTIMATES - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
FOREIGN CURRENCY TRANSLATION - All assets and liabilities of operations
outside the United States are translated into U.S. dollars from their functional
currency, which is the local currency, at year-end exchange rates. Income and
expense items are translated at the average exchange rate for the year. Gains
and losses resulting from translation are included in stockholders' equity.
Gains and losses on foreign currency transactions have been included in the
statements of operations. Such gains and losses have not been significant for
the years ended March 31, 1999 and 1998.
FAIR VALUE OF FINANCIAL INSTRUMENTS - The fair value of cash and cash
equivalents, accounts receivable and accounts payable appropriate carrying
value due to the short-term nature of such instruments. The fair value of
long-term obligations approximates carrying value based on terms available for
similar instruments.
RECENT ACCOUNTING PRONOUNCEMENTS - In June 1997, the Financial
Accounting Standards Board issued 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 non-owner sources; and No. 131 Disclosures about Segments
of an Enterprise and Related Information, which establishes annual and interim
reporting standards for an enterprises business segment and related disclosures
about its products, services, geographic areas, and major customers. The Company
operates in one segment. Adoption of these statements did not impact the
Company's consolidated financial position, results of operations or cash flows.
Both statements are effective for the Company's fiscal year ended March 31,
1999.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which defines derivatives, requires that
all derivatives be carried at fair value, and provides for hedge accounting
when certain conditions are met. SFAS No. 133 is effective for the Company in
fiscal 2000. Although the Company has not fully assessed the implications of
SFAS No. 133, the Company does not believe that the adoption of this statement
will have a material impact on the Company's financial position or results of
operations.
2. OTHER CURRENT ASSETS
Other current assets at March 31 consist of:
(in thousands)
65
<PAGE> 28
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Receivable from trust $ 259 $ --
Other receivable 148 198
VAT receivable -- 155
Prepaid insurance 80 84
Prepaid rent 53 100
Other 69 88
------- -------
Total 609 625
------- -------
</TABLE>
3. PROPERTY, FURNITURE, AND EQUIPMENT
Property, furniture and equipment at March 31 consist of:
(in thousands)
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Land and building $ 691 $ 716
Leasehold improvements -- 53
Office equipment, furniture and fixtures 2,887 5,289
Automobiles 120 124
------- -------
Total 3,698 6,182
Accumulated depreciation and amortization (2,808) (4,710)
------- -------
Property, furniture and equipment - net $ 890 $ 1,472
======= =======
</TABLE>
4. ACCRUED LIABILITIES
Accrued liabilities at March 31 consist of:
(in thousands)
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Salaries and benefits $ 131 $ 164
Professional fees 76 87
Other 326 401
------- -------
Total $ 533 $ 652
======= =======
</TABLE>
5. LINE OF CREDIT
The Company's wholly-owned subsidiary in Germany, OMNIS Software GmbH,
has a bank line of credit that allows the subsidiary to borrow up to $35,000 at
March 31, 1999, automatically upon overdraft of the subsidiary's operating bank
account. Interest on the overdraft is at 10%. Borrowings under the line of
credit are secured by all assets of OMNIS Software GmbH and a money market
account. At March 31, 1999 and 1998, the borrowings under the lines of credit
were none and $145,000 respectively.
66
<PAGE> 29
6. LONG-TERM DEBT
Long-term debt at March 31 consists of:
(in thousands)
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Capital lease obligations $ 72 $ 263
Note payable to finance company 38 13
Note payable to stockholder, interest at 10%, due June 30, 1998,
secured by all of the company's assets -- 1,000
------ ------
110 1,276
Less current portion 82 1,165
------ ------
Total long-term debt $ 28 $ 111
------ ------
------ ------
</TABLE>
CONVERTIBLE DEBENTURE NOTES - On June 2, 1997, the Noteholders converted
the remaining $1,828,000 of Notes, plus accrued interest of $130,000 into
372,283 shares of the Company's common stock. Such amount was recorded net of
issuance costs of $148,000 in the first quarter of fiscal 1998.
CONVERSION OF NOTE - In October 1997, the Company closed an interim debt
financing of $1,000,000 with a significant stockholder of the Company. In March
1999, the promissory note plus accrued interest of $135,836 were converted into
300,000 shares of preferred stock and 2,543,344 shares of common stock for an
aggregate purchase price of $1,135,836.
7. STOCKHOLDERS' EQUITY (DEFICIENCY)
WARRANTS - In July 1998, the 1993 Director's Warrant Plan was amended to
increase the number of shares of common stock reserved for issuance by 260,000
shares (from 40,000 shares to an aggregate of 300,000 shares). The 1993
Advisors' Plan was also amended to increase the number of common shares reserved
for issuance by 82,500 shares (from 17,500 shares to an aggregate of 100,000
shares).
The following summarizes warrants outstanding:
<TABLE>
<CAPTION>
WARRANTS EXERCISE PRICE
<S> <C> <C>
Warrants outstanding at April 1, 1997 100,562 $10.90 - $160.00
Granted 4,500 $ 4.13 - $ 6.88
Exercised (2,500) $ 4.13
Canceled (27,000) $33.75 - $ 85.00
-----------
Warrants outstanding at March 31, 1998 75,562 $ 4.13 - $160.00
Granted 125,000 $ 0.44
Exercised --
Canceled (16,833) $65.00 - $160.00
----------
Warrants outstanding at March 31, 1999 183,729 $ 0.44 - $ 58.50
----------
----------
</TABLE>
67
<PAGE> 30
The warrants expire at various dates between 1999 and 2002. At March 31,
1999, there were 78,896 warrants exercisable.
EMPLOYEE STOCK PURCHASE PLAN - The Company offers a benefit to its
employees to purchase shares of the Company's common stock through its 1994
Employee Stock Purchase Plan (the "Plan"). The Company originally reserved
22,500 shares of common stock for issuance under the Plan. In September, 1998,
stockholders of the Company amended the Plan to increase the number of shares
reserved for issuance to 250,000 shares. The Plan permits eligible employees to
purchase common stock through payroll deductions of up to a maximum of 10% of
their eligible compensation at 85% of the fair market value at the beginning or
end of each six-month purchase period. During fiscal years 1999 and 1998, 10,658
shares were issued at a weighted average price of $0.28 per share and 13,691
shares were issued at a weighted average price of $4.50 per share, respectively.
The weighted average fair value of the fiscal 1999 and 1998 awards was
considered insignificant. At March 31, 1999, 216,791 shares have been reserved
for future issuance.
CONVERTIBLE PREFERRED STOCK - The Company has outstanding 300,000 shares
of convertible Series A preferred stock. Dividends shall be paid at the option
of the Board of Directors at the rate of $0.125 per share per annum, in
preference to all other stockholders. Preferred stock ranks senior to the
company's common stock as to liquidation rights. Each share of preferred stock
may be converted, at the option of the holder, into 1.667 shares of common
stock. In effecting the conversion, any unpaid dividends on the preferred stock
shall be disregarded.
8. STOCK OPTIONS
The Company has employee stock options outstanding under three different
stock option plans. Under the Company's Amended and Restated 1987 Stock Option
Plan ("the 1987 Plan"), incentive stock options to purchase shares of common
stock have been granted to directors, officers, key employees, and consultants.
The 1987 Plan had a ten year term which expired in 1997. Options granted and
outstanding under the 1987 Plan remain in force until either exercised by the
holder, canceled when the holder terminates employment, or until the 10 year
term expires. In anticipation of the termination of the 1987 Plan, the
stockholders of the Company approved the 1996 Stock Plan ("the 1996 Plan"). The
1996 Plan has been administered by a committee of the Board which has been
empowered to grant options to purchase up to 600,000 shares of common stock, of
either non-qualified or incentive stock options. In April 1999, the Board of
Directors adopted the Omnis Technology Corporation 1999 Stock Option Plan (the
"1999 Plan") to consolidate options to be issued to directors, officers, key
employees and consultants under a single option plan and terminated the
Directors Plan, the Advisors Plan and the 1996 Plan, except as to warrants and
options then issued and outstanding under such plans. 1,500,000 shares of the
common stock of the Company were reserved for issuance under the 1999 Plan. The
Board of Directors plans to present the 1999 Plan for approval to the
stockholders of the Company at their 1999 annual meeting. Subject to the
approval of the stockholders, in April 1999 the Company granted incentive stock
options to its employees to acquire a total of 411,000 shares of the common
stock of the Company at an exercise price of $1.02 per share, with the right to
exercise such options vesting over a three-year period.
Under these Plans, the exercise price for the option is determined at
the time of the granting of the option, but in the case of incentive stock
options, the exercise price shall not be less than the fair market value on the
date of the grant. Generally, under these Plans, the right to exercise an option
vests ratably and becomes exercisable over a fixed period of up to four years as
designated in the relevant option agreement.
The following tables summarize the activity under the 1987 and 1996 Plans
through March 31, 1999:
68
<PAGE> 31
<TABLE>
<CAPTION>
Options Outstanding
-------------------
Weighted
Options Average
Available Exercise
For Grant Shares Price
<S> <C> <C> <C>
Balances, April 1, 1997 138,745 156,151 $ 17.20
Additional authorization 85,000 -- --
Granted (weighted average fair value: $1.14 per share) (126,075) 126,075 7.09
Canceled 245,577 (245,577) 9.71
-------- ---------
Balances, March 31, 1998 343,247 36,649 $ 24.96
Additional authorization 470,000 -- --
Granted (weighted average fair value: $0.76 per share) (731,500) 731,500 0.77
Canceled 132,550 (132,550) 1.08
-------- ---------
Balances, March 31, 1999 214,297 635,599 $ 2.11
-------- ---------
-------- ---------
</TABLE>
Additional information regarding options outstanding under both Plans as of
March 31, 1999 is as follows:
<TABLE>
<CAPTION>
Options Outstanding
------------------- Options Exercisable
Weighted -------------------
Average Weighted Weighted
Range Of Remaining Average Average
Exercise Number Contractual Exercise Number Exercise
Prices Outstanding Life (Years) Price Exercisable Price
<S> <C> <C> <C> <C> <C>
$0.75- 0.78 604,500 9.13 $ 0.78 -- $ --
5.13- 8.75 7,900 8.17 6.63 2,977 6.68
15.63-23.75 3,620 4.85 20.35 3,358 20.47
33.13-52.50 19,579 6.01 37.88 18,226 38.23
- --------------- ------- ---- ------ ------- ---------
$0.75-52.50 635,599 7.50 $ 2.11 24,561 $ 34.68
</TABLE>
ADDITIONAL STOCK PLAN INFORMATION
The Company accounts for its stock-based awards using the intrinsic
value method in accordance with Accounting Principles Board No. 25, Accounting
For Stock Issued To Employees, and its related interpretations. Accordingly, as
the Company awards stock options with exercise prices equal to fair market
value, no compensation expense has been recognized in the financial statements
for employee stock arrangements.
Statement of Financial Accounting Standards No. 123, Accounting For
Stock-Based Compensation, ("SFAS 123") requires the disclosure of pro forma net
loss and net loss per share had the Company adopted the fair value method as of
the beginning of fiscal 1996. Under SFAS 123, the fair
69
<PAGE> 32
value of stock-based awards to employees is calculated through the use of option
pricing models, even though such models were developed to estimate the fair
value of freely tradable, fully transferable options without vesting
restrictions, which significantly differ from the Company's stock option awards.
These models also require subjective assumptions, including future stock price
volatility and estimated term. These calculations were made using the
Black-Scholes option pricing model with the following weighted average
assumptions: expected life, 36 months following vesting; stock volatility, 140%
and 40% in 1999 and 1998 respectively; risk free interest rates, 5.7% and 5.9%
in 1999 and 1998 respectively; and no dividends during the expected term. The
Company's calculations are based on a multiple option valuation approach and
forfeitures are recognized as they occur. If the computed fair values of the
1999 and 1998 awards had been amortized to expense over the vesting period of
the awards, pro forma net loss would have been $1,168,000 ($0.54 per share) in
1999 and $8,396,000 ($4.09 per share) in 1998. However, the impact of
outstanding non-vested stock options granted prior to 1996 has been excluded
from the pro forma calculation; accordingly, the 1999 and 1998 pro forma
adjustments are not indicative of future period pro forma adjustments, when the
calculation will apply to all applicable stock options.
9. INCOME TAXES
Income tax expense consists of:
(in thousands)
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Current:
Federal $-- $--
State 3 13
Foreign 1 4
--- ---
Total $ 4 $17
--- ---
--- ---
</TABLE>
Pretax foreign income (loss) was $624,000 and ($1,059,000) in 1999 and
1998, respectively.
The effective tax rate differs from the federal statutory income tax
rate principally due to the unavailability of net operating loss carryforwards
or carrybacks and other permanent differences.
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amount of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes, as well as
operating loss carry forwards. Significant components of the Company's net
deferred tax assets are as follows (in thousands):
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Deferred tax assets
Net operating losses $ 15,883 $ 14,927
Depreciation 702 516
Accruals and reserves recognized in different periods 1,278 1,069
Tax credits 690 753
Capitalized software -- 348
-------- --------
Total 18,553 17,613
Valuation allowance (18,553) (17,613)
-------- --------
Net deferred tax assets $ -- $ --
-------- --------
-------- --------
</TABLE>
70
<PAGE> 33
The net operating losses included in deferred tax assets at March 31,
1998 includes $366,000 of tax benefits relating to the exercise and sale by
employees of certain stock options. If the Company becomes profitable, the
benefit associated with the stock compensation will be recorded as an adjustment
to stockholders' equity.
Due to uncertainties surrounding the timing of realizing the benefits of
its net favorable tax attributes in future tax returns, the Company has placed a
full valuation allowance against its net deferred tax assets at March 31, 1999
and 1998. The net change in the valuation allowance was an increase of $940,000
in 1999 and $3,785,000 in 1998.
At March 31, 1999, the Company had net operating loss carryforwards of
$37.6 million for federal income tax purposes, $8.7 million for state tax
purposes, and $5.9 million for foreign tax purposes which expire at various
dates through 2019.
The Tax Reform Act of 1986, as amended, and the California Conformity
Act of 1987 impose substantial restrictions on the utilization of net operating
loss and tax credit carry forwards in the event of an "ownership change," as
defined by the Internal Revenue Code. An "ownership change" took place in 1999,
and the Company is limited to using approximately $146,000 per year of federal
and California net operating loss carry forwards accrued through that date (a
total of $2.9 million federal and $0.7 million California).
10. RETIREMENT PLANS
The Company sponsors two defined contribution plans for its employees in
the United Kingdom ("the UK"). Both plans have been approved by the UK's
Department of Inland Revenue. The Company's subsidiary OMNIS Software Limited
sponsors the OMNIS Retirement Benefits Scheme ("the ORB Plan"). The only
participant in the ORB Plan is the Chief Technical Officer of OMNIS Software
Limited. The ORB Plan provides retirement benefits upon attaining normal
retirement age, and incidental benefits in the case of death or termination of
employment prior to retirement. OMNIS Software Limited makes annual
contributions based on the participant's salary to fund these retirement
benefits. The ORB Plan is partially insured through the Sun Life Assurance
Society. OMNIS Software Limited retains the right to terminate the ORB Plan at
any time upon 30 days' written notice.
OMNIS Software Limited sponsors the OMNIS Software Limited Retirement
Benefits Scheme ("the OSL Plan") for substantially all of its employees in the
United Kingdom. The OSL Plan provides retirement benefits upon attaining normal
retirement age, and incidental benefits in the case of death or termination of
employment prior to retirement. OMNIS Software Limited contributes an amount
ranging from 5% to 8% of each participant's compensation to fund such benefits.
In addition, participants are entitled to make voluntary contributions under the
OSL Plan.
The Company contributed a total of $85,000 and $153,000 to the ORB and
OSL plans for the years ended March 31, 1999 and 1998, respectively.
The Company sponsors the OMNIS Software Inc. 401(k) Savings and
Retirement Plan ("the Plan") for its employees based in the United States.
Employees meeting the eligibility requirements, as defined, may contribute
specified percentages of their salaries. Under the Plan, which is qualified
under Section 401(k) of the federal tax laws, the Company's Board of Directors,
at its sole discretion, may make a discretionary profit-sharing contribution to
the Plan. Moreover, the Company is not obligated, but may at
71
<PAGE> 34
its discretion, pay certain administrative costs on behalf of the Plan. For the
years ended March 31, 1999 and 1998, discretionary contributions of $3,000 and
$14,000, respectively, were made to the Plan.
11. COMMITMENTS AND CONTINGENCIES
LEASES
The Company leases its facilities under non-cancelable operating lease
agreements that expire or have an option to terminate in or before fiscal 2003.
Rent expense on these leases is recognized ratably over the entire lease term.
The Company is required to pay property taxes, insurance and normal maintenance
costs.
Future minimum rental commitments under equipment capital leases and
non-cancelable operating leases as of March 31, 1999 are as follows:
(in thousands)
<TABLE>
<CAPTION>
Year Ending Capital Operating
March 31, Leases Leases
<S> <C> <C>
2000 $ 63 $265
2001 17 127
2002 -- 88
2003 -- 15
---- ----
Total minimum lease payments 80 $495
Less: Amount representing interest (8) ----
---- ----
Lease obligations $ 72
----
----
</TABLE>
Equipment under capital leases had a net book value of $64,000 and
$263,000 at March 31, 1999 and 1998, respectively.
Rent expense of $921,000 and $876,000 was incurred in 1999 and 1998,
respectively.
LITIGATION
COMPASS ACTION. In March 1998 the Company was sued by Compass Software
("Compass") in the Federal District Court for the Eastern District of Washington
claiming damages in the range of $2 Million for software copyright infringement
and related claims. The Company believes that Compass' copyright infringement
suit has no merit and will vigorously defend against those claims.
In this connection the Company previously had sued Compass in 1994 for
illegally infringing and distributing the Company's software products. This
matter was settled with an agreement that Compass would pay certain amounts and
would not make illegal copies of the Company's software in the future. Compass
failed to pay the promised amounts when due. The Company then obtained a
judgment for breach of contract against Compass. As part of its efforts to
enforce its judgment against Compass, the Company purchased, at a judgment lien
sale, certain intangible property of Compass including the rights to the current
infringement suit brought by Compass ("Execution Sale"). Compass then requested
the applicable court to set aside the Execution Sale. The court granted the
request and the Company has
72
<PAGE> 35
appealed this judgment. The appeal has been briefed and is awaiting a date for
oral argument. The Company has also filed a separate lawsuit against Compass
alleging additional acts of infringement related to the 1994 case.
BTN - GERMANY. The Company entered into a professional development
services agreement with BTN Versandhandel GmbH of Leiferde, Germany for the
development of an OMNIS application. The Company developed and delivered a
version of the application to BTN. BTN failed to pay the Company as agreed,
claiming there were flaws in the application and the project was suspended by
the Company awaiting their payment. BTN commenced legal action against the
Company in Germany claiming damages of approximately DM250,000 for failure to
perform under the services agreement. The Company has countersued BTN claiming
the balance owed under the contract of approximately DM60,000. The Company
believes that the claim by BTN is meritless and intends to aggressively pursue
its counterclaim against BTN.
12. SEGMENT INFORMATION
For 1999, the Company adopted SFAS No. 131, "Disclosures about Segments
of an Enterprise and Related Information." The Company is engaged in one
industry segment, however it manages its businesses in two geographical
locations: North America and Europe. The Company operates in one reportable
segment, the development and sale of application and development software tool
products to businesses. The following table presents information concerning the
Company's North American and European operations.
Revenue by geographic region:
(In thousands)
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Revenue by geographic region(1):
United States of America $2,456 $4,905
United Kingdom 2,631 2,592
Germany 772 486
------ ------
Total $5,859 $7,983
------ ------
------ ------
</TABLE>
- ----------
(1) Revenues are broken out geographically by ship from location.
73
<PAGE> 36
Operating income (loss) by geographic region(1):
<TABLE>
<S> <C> <C>
United States of America $(1,169) $(7,218)
United Kingdom 651 (587)
Germany (20) (476)
------- -------
Total $ (538) $(8,281)
------- -------
------- -------
Total assets(1):
United States of America $ 991 $ 1,817
United Kingdom 1,365 1,219
Germany 201 379
------- -------
Total $ 2,557 $ 3,415
------- -------
------- -------
Export sales from North America(2):
(included in total North America sales above):
Mexico $ 141 $ 184
Others in Latin America 12 12
Asia 18 35
Australia 114 39
Canada 148 154
Europe 2 2
------- -------
Total $ 435 $ 426
------- -------
------- -------
</TABLE>
No customer accounted for revenues in excess of 10% in 1999 and 1998.
(1) Revenues are broken out by ship from location.
(2) Revenues broken out by ship to location of the customer.
74
<PAGE> 1
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We have issued our reports dated June 1, 1999, accompanying the consolidated
financial statements and schedules incorporated in the Annual Report of Omnis
Technology Corporation on Form 10-KSB for the year ended March 31, 1999. We
hereby consent to the incorporation by reference of said reports in Registration
Statements of Omnis Technology Corporation on Form S-8 (File No. 33-65538,
33-81008, 33-46166, and 33-32677).
/s/ GRANT THORNTON LLP
- -------------------------
GRANT THORNTON LLP
San Francisco, California
June 23, 1999
75
<PAGE> 1
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Registration Statement No.
33-65538, 33-81008, 33-46166, and 33-32677 of OMNIS Technology Corporation
(formerly Blyth Holdings, Inc.) on Form S-8 of our report dated May 22, 1998
(which expresses an unqualified opinion and includes an explanatory paragraph
concerning certain factors which raise substantial doubt about the Company's
ability to continue as a going concern) appearing in this Annual Report on Form
10-KSB of OMNIS Technology Corporation for the year ended March 31, 1999.
/s/ DELOITTE & TOUCHE LLP
- -------------------------
DELOITTE & TOUCHE LLP
San Jose, California
June 23, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM OMNIS
TECHNOLOGY CORPORATION AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS FOR
THE YEARS ENDED MARCH 31, 1999 AND 1998 SET FORTH AS EXHIBITS TO THE 10-KSB OF
THE COMPANY HEREIN AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-START> APR-01-1998
<PERIOD-END> MAR-31-1999
<CASH> 271,000
<SECURITIES> 0
<RECEIVABLES> 914,000
<ALLOWANCES> 150,000
<INVENTORY> 13,000
<CURRENT-ASSETS> 1,657,000
<PP&E> 3,698,000
<DEPRECIATION> 2,808,000
<TOTAL-ASSETS> 2,557,000
<CURRENT-LIABILITIES> 1,267,000
<BONDS> 0
0
300,000
<COMMON> 967,000
<OTHER-SE> (5,000)
<TOTAL-LIABILITY-AND-EQUITY> 2,557,000
<SALES> 4,277,000
<TOTAL-REVENUES> 5,859,000
<CGS> 680,000
<TOTAL-COSTS> 6,397,000
<OTHER-EXPENSES> 345,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 352,000
<INCOME-PRETAX> (887,000)
<INCOME-TAX> 4,000
<INCOME-CONTINUING> (887,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (887,000)
<EPS-BASIC> (0.41)
<EPS-DILUTED> (0.41)
</TABLE>
