<PAGE> 1
DRAFT
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[X ] Quarterly Report under Section 13 or 15(d) of the Securities Exchange
Act of 1934
FOR THE QUARTER ENDED DECEMBER 31, 1998
OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from _______________ to ________________
Commission File number 0-16449
OMNIS TECHNOLOGY CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 94-3046892
(State of incorporation) (IRS Employer Identification No.)
981 Industrial Road
Building B
San Carlos, CA 94070-4117
(Address of principal executive offices)
(650) 632-7100
(Registrant's telephone number)
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12
months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days: Yes [X] No [ ]
As of December 31, 1998 there were 2,129,205 shares of registrant's Common
Stock, $.10 par value, outstanding.
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Transitional Small Business Disclosure Format: Yes [ ] No [X]
OMNIS TECHNOLOGY CORPORATION AND SUBSIDIARIES
INDEX
PART I. FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Page No.
<S> <C>
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets -
December 31, 1998 and March 31, 1998 3
Condensed Consolidated Statements of Operations -
Three and nine months ended December 31, 1998 and 1997 4
Condensed Consolidated Statements of Cash Flows -
Three and nine months ended December 31, 1998 and 1997 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 7
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 14
Item 2. Changes in Securities 14
Item 3. Defaults upon Senior Securities 14
Item 4. Submission of Matters to a Vote of Security Holders 14
</TABLE>
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<TABLE>
<S> <C>
Item 5. Other Information 15
Item 6. Exhibits and Reports on Form 8-K 15
Signatures 16
</TABLE>
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
OMNIS TECHNOLOGY CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
December 31, 1998 March 31, 1998
------------------------- -----------------
(Unaudited)
<S> <C> <C>
Current Assets:
Cash and equivalents $ 127,000 $ 242,000
Trade accounts receivable, less allowance for
doubtful accounts and returns of $158,732 and
$161,895, respectively 859,000 602,000
Inventory 20,000 74,000
Other current assets 419,000 625,000
------------ ------------
Total current assets 1,425,000 1,543,000
------------ ------------
Property, furniture and equipment, net 1,000,000 1,472,000
Other assets 10,000 400,000
------------ ------------
Total assets $ 2,435,000 $ 3,415,000
============ ============
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current Liabilities:
Accounts payable and accrued liabilities $ 1,269,000 $ 2,387,000
Current portion of long term debt 1,118,000 1,310,000
Deferred revenue 531,000 862,000
------------ ------------
Total current liabilities 2,918,000 4,559,000
------------ ------------
Long term debt 957,000 111,000
------------ ------------
Total liabilities 3,875,000 4,670,000
------------ ------------
Stockholders' Deficiency:
Common stock 213,000 212,000
Paid-in capital 42,846,000 42,881,000
Accumulated deficit (44,722,000) (44,499,000)
Foreign currency translation adjustment 223,000 151,000
------------ ------------
Total stockholders' deficiency (1,440,000) (1,255,000)
------------ ------------
Total liabilities and stockholders' deficiency $ 2,435,000 $ 3,415,000
============ ============
</TABLE>
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OMNIS TECHNOLOGY CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
December 31 December 31
1998 1997 1998 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net revenues:
Products $ 1,175,000 $ 491,000 $ 2,954,000 $ 3,432,000
Services 434,000 909,000 1,304,000 3,179,000
------------ ------------ ------------ ------------
Total net revenues 1,609,000 1,400,000 4,258,000 6,611,000
Costs and expenses:
Cost of product revenues 67,000 104,000 262,000 376,000
Cost of service revenues 96,000 735,000 298,000 2,877,000
Selling and marketing 505,000 1,305,000 1,579,000 6,287,000
Research & development 360,000 718,000 1,057,000 2,545,000
General and administrative 399,000 810,000 2,027,000 2,379,000
------------ ------------ ------------ ------------
Total costs and expenses 1,427,000 3,672,000 5,223,000 14,464,000
------------ ------------ ------------ ------------
Operating income (loss) 182,000 (2,272,000) (965,000) (7,853,000)
------------ ------------ ------------ ------------
Other income (expense):
Interest income 2,000 3,000 5,000 80,000
Interest expense and other, net (51,000) (10,000) (259,000) (71,000)
------------ ------------ ------------ ------------
(49,000) (7,000) (254,000) 9,000
------------ ------------ ------------ ------------
Income (loss) before income taxes 133,000 (2,279,000) (1,219,000) (7,844,000)
Income tax expense 0 2,000 4,000 16,000
------------ ------------ ------------ ------------
Net income (loss) $ 133,000 $ (2,281,000) $ (1,223,000) $ (7,860,000)
============ ============ ============ ============
Net income (loss) per common share $ 0.06 $ (1.07) $ (0.58) $ (3.77)
Weighted average number of common
shares outstanding 2,125,863 2,123,224 2,125,852 2,082,195
Net income (loss) per share -- fully diluted $ 0.05 $ (0.76) $ (0.44) $ (2.60)
Number of fully diluted shares 2,798,366 3,019,765 2,798,366 3,019,765
</TABLE>
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OMNIS TECHNOLOGY CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
December 31
1998 1997
----------- -----------
<S> <C> <C>
Cash Flows from Operating Activities:
Net loss $(1,223,000) $(7,860,000)
Adjustments to reconcile net loss to net cash
used for operating activities:
Depreciation and amortization expense 341,000 543,000
Legal fees capitalized to stock issuance cost (35,000) --
Convertible debenture interest capitalized -- 131,000
Change in assets and liabilities:
Trade accounts receivable (257,000) 708,000
Inventory 54,000 (63,000)
Loss on disposal of property 95,000 (326,000)
Other assets 596,000 (400,000)
Accounts payable and accrued liabilities (1,111,000) 778,000
Deferred revenue (331,000) (42,000)
Bank overdraft (117,000) (7,000)
----------- -----------
Net cash used for operating activities (1,988,000) (6,538,000)
----------- -----------
Cash Flows from Investing Activities:
Purchases of property, furniture and equipment (24,000) (580,000)
Proceeds from sale of fixed assets 57,000 30,000
----------- -----------
Net cash provided by investing activities 33,000 (550,000)
----------- -----------
Cash Flows from Financing Activities:
Net repayments of line of credit -- --
Net proceeds from preferred stock issuance 1,000,000 --
Net proceeds from stock issuance 1,000 71,000
Net proceeds from issuance of debt 764,000 1,186,000
----------- -----------
Net cash provided by financing activities 1,765,000 1,257,000
----------- -----------
Effect of Exchange Rate Changes on Cash 75,000 (115,000)
Net decrease in cash and equivalents (115,000) (5,946,000)
Cash and equivalents at beginning of period 242,000 6,150,000
----------- -----------
Cash and Equivalents at end of period $ 127,000 $ 204,000
=========== ===========
NON CASH INVESTING AND FINANCING ACTIVITIES
Conversion of convertible subordinated debentures into common stock $ -- $ 1,880,000
=========== ===========
</TABLE>
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OMNIS TECHNOLOGY CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. The unaudited financial information furnished herein reflects all
adjustments, consisting only of normal recurring items, which in the
opinion of management are necessary to fairly state the Company's
financial position, the results of its operations and the changes in
its financial position for the periods presented. These financial
statements should be read in conjunction with the Company's audited
financial statements for the year ended March 31, 1998. The results of
operations for the period ended December 31, 1998 are not necessarily
indicative of results to be expected for any other interim period or
the fiscal year ending March 31, 1999.
2. The Company has adopted Statement of Financial Accounting Standards No.
128, "Earnings per Share" (SFAS 128). SFAS 128 requires a dual
presentation of basic and diluted EPS. Basic EPS excludes dilution and
is computed by dividing net income (loss) by the weighted average of
common shares outstanding for the period. Diluted EPS reflects the
potential dilution that could occur if securities and other contracts
to issue stock were exercised or converted into common stock. However,
the Company's reported diluted net loss per share for all periods
presented is based on the weighted average number of common shares
outstanding during the period as the effect of such securities would be
anti-dilutive.
3. In October 1997, the Company closed an interim debt financing of
$1,000,000 with a significant stockholder. This debt financing is
secured by substantially all the Company's assets and is scheduled to
be repaid by March 31, 1999. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations--Overview."
4. In April 1998, the Company agreed to sell up to 126,000 shares of
Series A Preferred Stock, at a price of $8.00 per share, to a
significant stockholder. Each share of Preferred Stock converts into 10
shares of common stock, has voting and registration rights, is entitled
to cumulative dividends of $0.10 per share in preference to common
stockholders, and has a preference in liquidation over common
stockholders in the amount of $8.00 per share, including all accrued or
declared but unpaid dividends, as defined. Concurrent with the
execution of that agreement, the Company sold the first 49,826 shares
of Series A Preferred Stock, with net proceeds of approximately
$400,000. Additionally, the same stockholder purchased 12,456 shares in
May 1998 for net proceeds of approximately $100,000. The remaining
62,282 shares were purchased by this stockholder in July, 1998 for net
proceeds of approximately $500,000. These proceeds have been used to
fund the Company's operations. On December 31, 1998, 124,564 shares of
these Preferred Stock was redeemed by the Company for an aggregate
price of $100 (or $.0008 per share). Difference on the issue price and
reacquisition price remain in the equity section of the Company's
balance sheet as part of accumulated deficit.
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OMNIS TECHNOLOGY CORPORATION AND SUBSIDIARIES
THIS REPORT ON FORM 10-QSB INCLUDES A NUMBER OF FORWARD-LOOKING STATEMENTS THAT
REFLECT THE COMPANY'S CURRENT VIEWS WITH RESPECT TO FUTURE EVENTS AND FINANCIAL
PERFORMANCE. THESE FORWARD-LOOKING STATEMENTS ARE SUBJECT TO CERTAIN RISKS AND
UNCERTAINTIES, INCLUDING THOSE DISCUSSED IN "MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" AND THE COMPANY'S
ACTUAL RESULTS MAY DIFFER MATERIALLY FROM HISTORICAL OR ANTICIPATED RESULTS.
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
OVERVIEW
OMNIS Technology Corporation develops and markets tools that enable
software application development. The Company markets its products primarily
through its indirect channel consisting of VAR's, Distributors, and OEM
relationships.
OMNIS Technology Corporation has experienced significant losses in each
of the past three years, although the Company is showing a small profit in the
quarter ended December 31, 1998. As a result of this and other factors, the
Company has expended a significant amount of cash resources during the last
three years. The Company raised $1 million through a private debt financing in
October 1997 and raised $1 million in Preferred Stock from a significant
stockholder, all of which has been used to fund the Company's operations. The
Company currently relies upon collections from accounts receivable and has very
little available cash and has no reserves in the event operations do not produce
needed resources to fund operations and repay the debt.
As of February 22, 1999, the Company entered into a letter of intent
(the "Letter of Intent") with a significant shareholder and certain members of
the current Board of Directors (collectively, the "New Investors") to provide
additional capital for the Company and to restructure certain debt of the
Company. The Letter of Intent provides, among other things, that approximately
7,400,000 shares of common stock of the Company will be issued at a price
of $0.25 per share. The exact terms and conditions of the agreement are still
subject to negotiation between the parties but will include terms, conditions
and obligations which are typical and customary of such transactions.
There is no assurance that the contemplated financing will be
consummated or that in the event it is not, that another financing source could
be obtained on the same or similar terms. If the Company is unsuccessful in
raising additional capital when needed, the Company may be required to cease
operations and its secured creditors would have a first claim on substantially
all of the Company's assets.
The Company has negotiated a repayment plan with a creditor committee
(the "Creditor Committee") representing the majority of its U.S.-based unsecured
creditors relating to past debts owed by the Company ("Workout Plan"). Under the
terms of the Workout Plan, creditors which have agreed to the Workout Plan and
who have begun legal actions must dismiss their lawsuits. Creditors who have not
agreed to the Workout Plan as proposed may, at their option, continue to seek
payment from the Company individually, or may join the Workout Plan at a later
date. A significant percentage of the Company's creditors were paid off upon
finalization of the Workout Plan. The remaining balance of the participants in
the Workout Plan were paid an aggregate of approximately $70,000 on their
approximately $400,000 in claims. The Company's next scheduled payment was made
on December 31, 1998, and will be due quarterly thereafter. If the Company
should not be able to meet these repayments in future periods, the Company will
be in default under the Workout Plan and the Creditor Committee may terminate
the Workout Plan. Accordingly, in the event of such a breach, there is a
significant risk that the Company's creditors could force the Company to file
for bankruptcy protection.
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During the past year, the Company has significantly reduced its
headcount in attempts to reduce operating costs. During the quarter ending
December 31, 1998, the Company's worldwide headcount remained relatively
constant, and the Company has no plans significantly to increase headcount in
the near term.
RESULTS OF OPERATIONS
THREE AND NINE MONTHS ENDED DECEMBER 31, 1998, AND DECEMBER 31, 1997
REVENUES
Total net revenues for the three months ended December 31, 1998 were
$1,609,000, representing an increase of 15% as compared to total net revenues of
$1,400,000 for the three months ended December 31, 1997. Total net revenues for
the nine months ended December 31, 1998 were $4,258,000, representing a decrease
of 36% as compared to total net revenues of $6,611,000 for the nine months ended
December 31, 1997. This decrease is due primarily to the reduction in service
revenues, particularly as a result of the Company's decision made in 1997 to
reduce its emphasis on consulting service in order to reduce conflicts with
certain of its channel partners.
Product revenues increased during the three months ended December 31,
1998 to $1,175,000 from $491,000 in the three months ended December 31, 1997.
Product revenues decreased during the nine months ended December 31, 1998 to
$2,954,000 from $3,432,000 in the nine months ended December 31, 1997. This
decrease is mainly due to the Company's reduction in sales workforce in the past
year. During the three and nine months ending December 31, 1998, product
revenues represented 73% and 69% of total net revenues as compared to 35% and
52% of total net revenues during the same three and nine month periods in the
prior year.
Service revenues for the three months ended December 31, 1998 decreased
52% to $434,000 from $909,000 for the three months ended December 31, 1997.
Service revenues for the nine months ended December 31, 1998, decreased 59% to
$1,304,000 from $3,179,000 for the nine months ended December 31, 1997. The
majority of this decrease is due to the Company's decision to de-emphasize its
consulting offerings. The Company expects service revenues related to consulting
projects to continue to decrease in future periods as it focuses on higher
margin product related revenue and shifts consulting opportunities to its
external partners.
COST OF SALES
Cost of product revenues is comprised of direct costs associated with
software product sales including software packaging, documentation, and physical
media costs. Cost of service revenues is comprised of customer support
(maintenance) expenses, including technical support salaries and related
expenses, and consulting related costs, including consultant salaries and
related costs incurred in delivering customer consulting and training services.
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Cost of product revenues as a percentage of product revenues decreased
to 6% in the three months ended December 31, 1998 compared to a percentage of
21% for the three months ended December 31, 1997. Cost of product revenues as a
percentage of product revenues decreased slightly from 11% in the nine months
ended December 31, 1997 to 9% in the nine months ended December 31, 1998.
Cost of service revenues decreased as a percentage of service revenues
from 81% in the three months ended December 31, 1997 to 22% in the three months
ended December 31, 1998. Cost of service revenues decreased as a percentage of
service revenues from 91% in the nine months ended December 31, 1997 to 23% in
the nine months ended December 31, 1998. This decrease was primarily due to a
significant reduction in headcount in the consulting division, resulting in
significantly better utilization of the Company's consulting resources.
Currently the Company retains very few consultants and the Company's remaining
consultants are typically fully utilized. In addition, the Company has very
little, if any, management specific to the consulting division, thereby reducing
overhead costs. Additionally, the Company's technical support group continues to
generate favorable gross margins, and represents the majority of the related
revenues and costs within service revenues.
SALES AND MARKETING EXPENSE
Sales expenses decreased to $421,000 for the three months ended
December 31, 1998 as compared to $898,000 for the three months ended December
31, 1997. Sales expenses decreased to $1,253,000 for the nine months ended
December 31, 1998, as compared to $2,968,000 for the nine months ended December
31, 1997. The decrease in sales expenses was primarily due to decreases in
headcount. In the third quarter of fiscal 1998, the Company had a
reduction-in-force which included a significant number of sales related
employees. The Company has no plans to significantly replace this headcount in
the near term.
Marketing expenses for the three months ended December 31, 1998 were
$84,000 as compared to $407,000 for the three months ended December 31, 1997.
Marketing expenses for the nine months ended December 31, 1998, were $327,000,
as compared to $3,319,000 for the nine months ended December 31, 1997. This
decrease in marketing expense was primarily due to a reduction of costs
associated with the reduction in Company's lead generation effort, including
trade shows and advertising, in the three and nine months ended December 31,
1998 as compared to the three and nine months ended December 31, 1997 as well as
the absence of start-up costs associated with the introduction of new products
and public relations costs which the Company incurred during the three and nine
months ended December 31, 1997. In the third quarter of fiscal 1998, the Company
had a reduction-in-force which included a significant number of marketing
related employees. The Company expects modest increases in marketing expenses
during future periods as it rebuilds its marketing efforts towards its past and
present customer base with partner focused programs designed to acquire new
customers.
RESEARCH AND DEVELOPMENT EXPENSE
Research and development costs decreased to $360,000 for the three
months ended December 31, 1998 as compared to $718,000 for the three months
ended December 31, 1997, primarily due to
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decreased headcount in its U.S. based operations. Research and development costs
decreased to $1,057,000 for the nine months ended December 31, 1998, as compared
to $2,545,000 for the nine months ended December 31, 1997, also primarily due to
decreased headcount in its U.S. based operations. The Company has streamlined
its development resources, eliminating projects that do not relate to its core
technologies and projects for which the Company can not forecast revenues in the
near future or at all. Additionally the Company consolidated its development
team in its development facility in the U.K. The Company continues to invest in
the development of its newer product line, OMNIS Studio, aimed at sales
opportunities that the Company believes will expand its installed base of
customers.
GENERAL AND ADMINISTRATIVE EXPENSE
General and administrative expenses decreased to $399,000 for the three
months ended December 31, 1998 as compared to $810,000 for the three months
ended December 31, 1997. General and administrative expenses decreased to
$2,027,000 for the nine months ended December 31, 1998 as compared to 2,379,000
for the nine months ended December 31, 1997. The Company has relocated its
headquarters to San Carlos, California, which has reduced lease-associated
expense and expenditure of cash by $150,000 per quarter. Additionally the
Company recognized a write-off related to the disposal of lease-hold
improvements of the San Bruno office and other office equipment, resulting in a
non-recurring charge of $78,000 during the quarter ended September 30, 1998. The
Company is continuing its efforts to reduce its operating expenses where
possible, including general and administrative expenses.
OTHER INCOME (EXPENSE)
Other income (expense) is comprised primarily of interest income earned
on cash and cash equivalents, interest expense, and any gain or loss on foreign
currency transactions. Interest income decreased to $2,000 and $5,000 for the
three and nine months ended December 31, 1998, respectively, from $3,000 and
$80,000 for the three and nine months ended December 31, 1997 respectively,
primarily due to lower average balances of cash and cash equivalents. Interest
and other net expense increased to $55,000 for the three months ended December
31, 1998, from $26,000 for the three months ended December 31, 1997, and
$169,000 for the nine months ended December 31, 1998 compared to $90,000 for the
nine months ended December 31, 1997.
YEAR 2000
The Company is in the process of addressing the broad range of issues
associated with the programming code in existing computer systems as the year
2000 approaches. The "Year 2000" issue is pervasive and complex, as many
computer systems were not designed to handle any dates beyond the year 1999, and
therefore computer hardware and software will need to be modified prior to the
Year 2000 in order to remain functional. Systems that do not properly recognize
such information could generate erroneous data or cause a system to fail. The
Year 2000 issue creates potential risk for the Company from unforeseen problems
in its own computer systems, and from third parties with whom the Company deals
on financial and other transactions worldwide and in its own software products
licensed
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to customers. Failures of the Company and/or third parties' computer systems
could have a material impact on the Company's business, operating results and
financial condition.
The Year 2000 issue could affect the Company's products. The Company is
continuously reviewing its current product offerings and based upon its review
to date, believes that its current products are Year 2000 compliant. However,
the Company's current products are subject to ongoing analysis and review.
Despite such analysis and review the Company's products may contain undetected
errors or defects associated with Year 2000 date functions, which could result
in delay or loss of revenue, diversion of development resources, damage to the
Company's reputation, or increased service or warranty costs, any of which could
materially adversely affect the business, operating results and financial
condition. To the extent the Company's products prove to be non-compliant, or in
the event of any dispute with any customer regarding whether the Company's
products are compliant, the Company's business, results of operations and
financial condition could be materially adversely affected.
The existence of Year 2000 issues may give rise to legal claims against
the Company, notwithstanding standard provisions in the Company's license
agreements with its customers disclaiming all express and implied warranties
against such defects. Such legal claims could have a materially adverse impact
on the Company's business and results of operations.
The Company is currently reviewing its internal systems, as
appropriate, to determine what, if anything, is required to resolve the Year
2000 issue. Although the Company is not aware of any material operational issues
of costs associated with its internal systems for the Year 2000, the Company may
experience material unanticipated problems and costs caused by undetected errors
or defects in the technology used in its internal systems, which include both
the Company's software products and third-party software and hardware
technology. The Company plans to initiate formal communications with all of its
significant suppliers to determine their compliance status.
Many companies are currently expending significant resources in order
to address the Year 2000 issue. Expenditures to address the Year 2000 issue
often involve the modification of legacy and other existing software systems
rather than the development of new systems. Because of the size of such
expenditures, companies may defer or cancel other new software development
projects for which such companies might otherwise have purchased products from
the Company. Any reductions in the Company's revenues resulting from such the
Year 2000 issue could have a material adverse effect on the Company's business,
results of operations and financial condition.
In addition, the Company could be materially adversely affected by
costs or complications relating to code changes, testing and implementation for
its own systems or similar issues faced by its distributors, suppliers,
customers, vendors and the financial service organizations with which the
Company interacts. At this time, the Company has not yet determined the cost
related to achieving Year 2000 compliance. There can be no assurance that the
Company will have the resources to complete a satisfactory review, or to
successfully achieve Year 2000 compliance in the near future, or at all, in
light of the Company's financial condition and level of staffing.
RISK FACTORS
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The Company has experienced significant losses over the past three
fiscal years. As a result, the report of the Company's independent auditors on
the Company's financial statements for the fiscal year ended March 31, 1998,
contains a paragraph stating that there is a substantial doubt as to the ability
of the Company to continue as a going concern. In November 1997, the Company
took several actions expected to reduce future operating costs and cash flows,
including a 15% reduction in headcount, a significant cut in marketing expenses,
and the implementation of stringent expense monitoring controls. In October,
1997, the Company raised $1 million in secured debt financing (the "secured
debt") from a significant stockholder, which is secured by substantially all of
the Company's assets. In April, May, and July 1998, the Company sold convertible
Preferred Stock resulting in net proceeds of approximately $1,000,000. All these
126,000 shares of Series A Preferred Stock were purchased by the Company in
December 1998 at a purchase price of $100. In fiscal year 1997 and 1998, and
continuing through the first six months of fiscal 1999, operations of the
Company have generated negative cash flows. The Company's management team has
taken steps to improve the Company's cash flow and the Company is showing a
small profit in the third quarter of fiscal 1999. While the Company hopes to
continue to be profitable in the next and later quarters, there can be no
assurance that this will be the case. The Company is operating with minimal cash
resources and, should the Company continue to experience losses from operations,
it will need to seek additional financing. There can be no assurance that the
Company will be able to raise additional financing in this time frame on
commercially reasonable terms, or at all. If the Company is unsuccessful in
raising this capital, the Company may be required to cease operations and
declare bankruptcy. Under such circumstances, the Company's secured creditors
would have a first claim on all, or substantially all, of the Company's assets.
See "Liquidity And Capital Resources" below.
The Company has experienced significant quarterly fluctuations in
operating results during this and previous quarters and expects that these
fluctuations will continue in future periods. These fluctuations have been a
result of several factors including pricing strategies employed by the Company
and its competitors, the timing of new product releases or enhancements to
existing products, and seasonality. A number of additional factors have, from
time to time, caused and may in the future cause the Company's revenues and
operating results to vary substantially from period-to-period. These factors
include: pricing competition, delays in introduction of new products or product
enhancements, size and timing of demand for existing products and shortening of
product life cycle, inventory obsolescence, changes in the Company's management
and sales and marketing organizations, and general economic conditions.
In 1998, the Company announced a reduction in certain portions of its
pricing structure for fiscal year 1999 and beyond. There is no guarantee that
this reduction in price will lead to increased unit volume or other additional
revenue streams to replace this lost revenue, which could lead to a significant
cash flow strain on the core operations of the Company. Additionally, the
Company is relying on increased revenues related to its new product line, which
have not generated revenues as originally projected by the Company. There is no
assurance that this product line will generate the revenues needed to sustain
the Company in future periods. The Company has committed to decreasing sales
conflicts with its partners particularly in the service revenue area and has
already taken a number of steps in this regard. This has had and will continue
to have a negative effect on service revenues as compared to previous quarters
and years. There can be no guarantee that the Company will be able to replace
the decreasing service revenues with new product revenues.
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The Company's expense levels are based on the Company's expectations as
to future revenues and are therefore relatively fixed in the short term. If
revenue levels fall below expectations, net income is likely to be
disproportionately adversely affected because a proportionately smaller amount
of the Company's expenses vary with its revenues. There can be no assurance that
the Company will be able to achieve profitability on a quarterly or annual basis
in the future. Due to all the foregoing factors, it is likely that in some
future quarter the Company's operating results will be below the expectations of
public market analysts and investors. In such event, the price of the Company's
Common Stock would likely be materially adversely affected.
The Company's operating results will also be affected by the volume,
mix, and timing of orders received during a period and by conditions in the
industries that it serves as well as the general economy. Additionally, the
Company operates on a global basis with offices or distributors in Europe, Asia,
and Australia as well as North America. Changes in the economies, trade
policies, and fluctuations in interest or exchange rates may have an impact on
its future financial results. Also, as the Company continues to operate more
globally, seasonality may become an increasing factor in its financial
performance.
The Company's future operating results will depend, to a considerable
extent, on its ability to rapidly and continuously develop new products that
offer its customers enhanced performance at competitive prices. Inherent in this
process are a number of risks. The development of new, enhanced software
products is a complex and uncertain process requiring high levels of innovation
from the Company's management as well as accurate anticipation of customer and
technical trends. Once a product is developed, the Company must rapidly bring it
into production. In addition, there can be no assurance that any new products
will achieve market acceptance at the price the Company sets for the product, if
at all. If the Company is unable to develop and sell new products which are
widely accepted by customers, the Company's business, financial condition, and
results of operations would be unilaterally and adversely affected.
The Company has recently been sued for copyright infringement. While
the Company believes this suit has no merit, there can be no assurance that the
Company will be successful in resolving this or any future lawsuits favorably to
the Company. If the Company loses any of these judgments, it may be forced to
cease operations and declare bankruptcy. Additionally, the Company has recently
negotiated a Workout Plan with its US based unsecured creditors through the
Creditor Committee. Should the Company default under the terms of the Workout
Plan, it may be forced to cease operations and declare bankruptcy.
In February 1998, The Nasdaq Stock Exchange de-listed the Company from
the Nasdaq National Market. The Company is now traded on the Nasdaq bulletin
board. This has had a negative impact on the liquidity of the Company's
outstanding common shares. Additionally, due to the Company's poor financial
performance, among other factors, the per share price of the Company's stock has
been and is expected to continue to be negatively impacted in the near term and
beyond.
LIQUIDITY AND CAPITAL RESOURCES
13
<PAGE> 14
At December 31, 1998, the Company's principal sources of liquidity
consisted of cash and equivalents of $127,000, although the Company may, from
time to time, have significantly less cash.
The Company has taken several actions over the past four quarters that
it expects will reduce future operating costs. Management expects that there
will be expense and cash flow savings during the fourth quarter of fiscal 1999
as compared to the fourth quarter of fiscal 1998 as a result of these actions.
The Company does not currently have an established line of credit with
a commercial bank. Such a credit facility may be difficult to obtain with the
Company's historical operating results.
The Company currently has an outstanding promissory note of $1,000,000
and accrued interest with a significant stockholder. This debt financing is
secured by substantially all the Company's assets and is scheduled to be repaid
by March 31, 1999. While the Company expects it will be able to extend the due
date of the note, there can be no assurance that it will be able to do so. If
the Company is not able to extend the due date of the note it will not be able
to pay the amount owed under the note and may be forced to file for bankruptcy
protection.
14
<PAGE> 15
OMNIS TECHNOLOGY CORPORATION AND SUBSIDIARIES
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In March 1998, the Company was sued for copyright infringement. While
the Company believes that this suit has no merit, this suit remains
unresolved. See "Legal Proceedings" contained in the Company's annual
report, Form 10-KSB, for the fiscal year ended March 31, 1998, as filed
with the Securities Exchange Commission on June 29, 1998.
The Company has reached an agreement with a group of its creditors and
in an attempt to resolve its debts with unsecured creditors. Under the
terms of this agreement, the Company must make payments to the
creditors on quarterly intervals, and the next payment is due March.
31, 1999. Under the terms of this agreement, any creditors with pending
litigation must dismiss their lawsuits upon the agreement's effective
date, which was late August 1998. As of November 10, all of the
Company's creditors have dismissed their lawsuits.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
In April 1998, the Company agreed to sell up to 126,000 shares of
Series A Preferred Stock, at a price of $8.00 per share, to a
significant stockholder. Each share of Preferred Stock converts into 10
shares of common stock, has voting and registration rights, is entitled
to cumulative dividends of $0.10 per share in preference to common
stockholders, and has a preference in liquidation over common
stockholders in the amount of $8.00 per share, including all accrued or
declared but unpaid dividends, as defined. Concurrent with the
execution of that agreement, the Company sold the first 49,826 shares
of Series A Preferred Stock, with net proceeds of approximately
$400,000. Additionally, the same stockholder purchased 12,456 shares in
May 1998, for net proceeds of approximately $100,000. The remaining
62,282 shares were purchased by this stockholder in July, 1998 for net
proceeds of approximately $500,000. These proceeds were used to fund
the Company's operations. In connection with the sale of Series A
Preferred Stock, the Company filed a Form D pursuant to the rules
promulgated in the Securities Act of 1993, as amended. All 124,564
outstanding shares of Series A Preferred Stock were purchased by the
Company in December 1998 at a purchase price of $100 (or $.0008 per
share). In connection with the purchase of the Series A Preferred
Stock, the Company filed a Form 8-K pursuant to the rules promulgated
in the Securities Act of 1993, as amended.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
15
<PAGE> 16
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
Kevin Doyle, who was appointed Vice President of Marketing in April
1998 left the Company in January 1999.
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27.1 Financial Data Schedule
(b) Reports on Form 8-K
The Company filed an 8-K report on November 12 1998, relating to Changes in the
Company's Certifying Accountant.
The Company filed a further 8-K report on January 15 1999, regarding the
purchase of the outstanding shares of Series A Preferred Stock.
16
<PAGE> 17
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date:March 9, 1999 OMNIS TECHNOLOGY CORPORATION
(Registrant)
/s/ Gwyneth Gibbs
--------------------------
Gwyneth Gibbs
President, interim Chief
Executive Officer, and interim
Chief Financial Officer
<PAGE> 18
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO.
-------
<S> <C>
27.1 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-START> APR-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 127,000
<SECURITIES> 0
<RECEIVABLES> 859,000
<ALLOWANCES> 0
<INVENTORY> 20,000
<CURRENT-ASSETS> 419,000
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 2,435,000
<CURRENT-LIABILITIES> 2,918,000
<BONDS> 0
0
0
<COMMON> 2,129,000
<OTHER-SE> (957,000)
<TOTAL-LIABILITY-AND-EQUITY> 2,435,000
<SALES> 0
<TOTAL-REVENUES> 4,258,000
<CGS> 560,000
<TOTAL-COSTS> 5,223,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (254,000)
<INCOME-PRETAX> (1,219,000)
<INCOME-TAX> 4,000
<INCOME-CONTINUING> (1,223,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,223,000)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
