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FORM 10-QSB FOR THE PERIOD ENDED SEPTEMBER 30, 1999
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[X] Quarterly Report under Section 13 or 15(d) of the Securities
Exchange Act of 1934
FOR THE QUARTER ENDED SEPTEMBER 30, 1999
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
(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 November 1, 1999 there were 9,830,728 shares of registrant's Common Stock,
$.10 par value, outstanding.
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ITEM 1. Financial Statements
OMNIS TECHNOLOGY CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
September 30, 1999 March 31, 1999
------------------ --------------
(Unaudited)
<S> <C> <C>
Current Assets:
Cash and equivalents $363,000 $271,000
Trade accounts receivable, less allowance for
doubtful accounts and returns of $195,712 and
$150,049, respectively 731,000 764,000
Inventory 23,000 13,000
Other current assets 351,000 609,000
------------ ------------
Total current assets 1,468,000 1,657,000
------------ ------------
Property, furniture and equipment, net 788,000 890,000
Other assets -- 10,000
------------ ------------
Total assets $2,256,000 $2,557,000
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $391,000 $240,000
Accrued liabilities 444,000 533,000
Current portion of long term debt 152,000 82,000
Deferred revenue 466,000 412,000
------------ ------------
Total current liabilities 1,453,000 1,267,000
------------ ------------
Long term debt 6,000 28,000
------------ ------------
Total liabilities 1,459,000 1,295,000
------------ ------------
Stockholders' Equity:
Preferred stock 300,000 300,000
Common stock 983,000 967,000
Paid-in capital 45,177,000 45,180,000
Accumulated deficit (45,807,000) (45,386,000)
Accumulated other comprehensive income 144,000 201,000
------------ ------------
Total stockholders' equity 797,000 1,262,000
------------ ------------
Total liabilities and stockholders' equity $2,256,000 $2,557,000
============ ============
</TABLE>
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OMNIS TECHNOLOGY CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
September 30 September 30
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net revenues:
Products $948,000 $869,000 $2,052,000 $1,779,000
Services 236,000 405,000 504,000 869,000
----------- ----------- ----------- -----------
Total net revenues 1,184,000 1,274,000 2,556,000 2,648,000
Costs and expenses:
Cost of product revenues 27,000 74,000 67,000 195,000
Cost of service revenues 44,000 102,000 98,000 203,000
Selling and marketing 569,000 495,000 1,099,000 1,074,000
Research & development 521,000 361,000 906,000 697,000
General and administrative 554,000 426,000 797,000 1,628,000
----------- ----------- ----------- -----------
Total costs and expenses 1,715,000 1,458,000 2,967,000 3,797,000
----------- ----------- ----------- -----------
Operating (loss) (531,000) (184,000) (411,000) (1,149,000)
----------- ----------- ----------- -----------
Other income (expense):
Interest income 2,000 2,000 4,000 4,000
Interest expense and other, net (3,000) (93,000) (10,000) (207,000)
----------- ----------- ----------- -----------
(1,000) (91,000) (6,000) (203,000)
----------- ----------- ----------- -----------
(loss) before income taxes (532,000) (275,000) (417,000) (1,352,000)
Income tax expense 0 0 4,000 4,000
----------- ----------- ----------- -----------
Net income (loss) $(532,000) $(275,000) $(421,000) $(1,356,000)
=========== =========== =========== ===========
Net (loss) per common share: $(0.05) $(0.13) $(0.04) $(0.64)
Weighted average number of common
shares outstanding 9,683,348 2,125,863 9,681,589 2,125,844
</TABLE>
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OMNIS TECHNOLOGY CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
September 30
1999 1998
----------- -----------
<S> <C> <C>
Cash Flows from Operating Activities:
Net (loss) $(421,000) $(1,356,000)
Adjustments to reconcile net (loss) to net cash
Provided by (used for) operating activities:
Depreciation and amortization expense 183,000 255,000
Change in assets and liabilities:
Trade accounts receivable 33,000 (111,000)
Inventory (10,000) 54,000
Loss (gain) on disposal of property 1,000 94,000
Other assets 268,000 546,000
Accounts payable and accrued liabilities 33,000 (1,243,000)
Deferred revenue 54,000 (192,000)
----------- -----------
Net cash provided by (used for) operating activities 141,000 (1,953,000)
----------- -----------
Cash Flows from Investing Activities:
Purchases of property, furniture and equipment (70,000) (17,000)
Proceeds from sale of fixed assets 1,000 28,000
----------- -----------
Net cash provided by (used for) investing activities (69,000) 11,000
----------- -----------
Cash Flows from Financing Activities:
Proceeds from preferred stock issuance -- 1,000,000
Proceeds from incentive stock option exercise 2,000 --
Proceeds from stock issuance 39,000 1,000
Additions of debt 121,000 864,000
Repayments of debt (72,000) (73,000)
----------- -----------
Net cash provided by financing activities 90,000 1,792,000
----------- -----------
Effect of Exchange Rate Changes on Cash (70,000) 72,000
Net increase (decrease) in cash and equivalents 92,000 (79,000)
Cash and equivalents at beginning of period 271,000 242,000
----------- -----------
Cash and Equivalents at end of period $363,000 $163,000
=========== ===========
</TABLE>
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OMNIS TECHNOLOGY CORPORATION AND SUBSIDIARIES
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets -
September 30, 1999 and March 31, 1999
Condensed Consolidated Statements of Operations - Three and six months
ended September 30, 1999 and 1998
Condensed Consolidated Statements of Cash Flows - Six months ended
September 30, 1999 and 1998
Notes to Condensed Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 3. Defaults upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
Signatures
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
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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, 1999.
The results of operations for the period ended September 30, 1999 are not
necessarily indicative of results to be expected for any other interim period or
the fiscal year ending March 31, 2000.
2. 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 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 our 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 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.
The Company entered into a professional development services agreement
with BTN Versandhandel GmbH ("BTN") 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. The Company suspended the project awaiting BTN's
payment. BTN commenced legal action against the Company in Germany claiming
damages of approximately $136,000 (DM250,000) for failure to perform under the
service agreement. The Company has countersued BTN claiming the balance owed
under the contract of approximately $33,000 (DM60,000) as of September 30, 1999.
The Company believes that the claim by BTN is meritless and intends to
aggressively pursue its counterclaim against BTN.
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
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Operations," and the Company's actual results may differ materially from
historical or anticipated results.
The Company operates in one segment, the developing, marketing and supporting of
software products; however the Company manages its businesses in two
geographical locations: North America and Europe.
The following table presents information concerning the Company's North
American and European operations.
<TABLE>
<CAPTION> Six Months
Ended September 30,
-----------------------
1999 1998
---- ----
<S> <C> <C>
Revenue by geographic region(1):
Revenue from North America $ 961,000 $1,153,000
Revenue from Europe 1,595,000 1,495,000
---------- ----------
Total 2,556,000 2,648,000
========== ==========
<CAPTION>
<S> <C> <C>
Operating loss by geographic region(1):
Revenue from North America $ (197,000) $ (917,000)
Revenue from Europe (214,000) (232,000)
---------- -----------
Total (411,000) (1,149,000)
========== ===========
</TABLE>
(1) Revenues are broken out geographically by ship from location.
2. COMPREHENSIVE INCOME (LOSS)
Comprehensive income includes changes in the balance of items that are reported
directly in a separate component of stockholders' equity on the condensed
consolidated balance sheets. The reconciliation of net loss to comprehensive
loss is as follows.
<TABLE>
<CAPTION> Three Months Six Months
Ended September 30, Ended September 30,
----------------------- ------------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Loss $(532,000) $(275,000) $(421,000) $(1,356,000)
Other comprehensive (loss) gain
Foreign currency translation adjustments (75,000) 1,000 (57,000) 68,000
--------- --------- --------- -----------
Total comprehensive loss $(607,000) $(274,000) $(478,000) $(1,258,000)
========= ========= ========= ===========
</TABLE>
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
This Item 2, as well as other portions of this document, include certain
forward-looking statements about the Company's business, 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
materially from predicted results. Such risks include, among others
- the Company's liquidity,
- 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 this discussion should be read in conjunction with
the discussion of "Risk Factors" in this Item 2 and the Company's audited
consolidated financial statements,
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including the notes thereto, included in its annual report for the fiscal year
ended March 31, 1999, on Form 10-KSB/A filed with the Commission on July 29,
1999.
OVERVIEW
The Company, through its domestic and international subsidiaries,
develops and markets software application development tools and related
technical services. Its main products are the OMNIS 7(3)(TM) client/server
application development software group of products and the more advanced OMNIS
Studio(R) rapid application development (RAD) tools. The Company markets its
products primarily through its indirect channel consisting of value added
resellers (VARs), Distributors, and OEM relationships.
The Company's management team has taken steps to improve the Company's
cash flow through the following:
- more aggressive marketing of its products;
- focusing research and development expenditures on products that have
a shorter return or "payback" period;
- improving operational efficiencies; and
- significantly reducing operating expenses.
The steps reflect management's decision to focus on product revenues and
de-emphasize its consulting services offerings over the past 21 months.
The Company had positive cash flow provided by operating activities of
$141,000 in the six months ended September 30, 1999, compared to negative
cash flow used for operating activities of $1,953,000 in the six months ended
September 30, 1998.
Omnis Strategy
The Company's product strategy is to develop sophisticated 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.
- 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.
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The Company's 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. The Company believes that its OMNIS Studio(R)
and OMNIS 7(3)TM 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.
The Company's Products
Omnis Studio(R)
The OMNIS Studio(R) development tool is the Company's premium product
line and was one of the first commercially available application development
tools that integrated ActiveX and Java Beans components. OMNIS Studio is an
object-oriented rapid application development (RAD) tool, offering efficient
visual assembly of components and objects. OMNIS Studio currently provides
cross-platform support for Linux, Microsoft(R) Windows(R)95 and Windows98,
Windows NT(R), Windows 3.1 and Mac OS operating systems; 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 customers using OMNIS 7(3) to change to OMNIS Studio.
The OMNIS Studio programming language combines a 4GL (fourth generation
object-oriented programming language) and its own "dot notation," which is a
hierarchical language that permits the user to manipulate any object down to its
individual attributes and events. OMNIS Studio contains a proprietary set of
Data Access Modules (DAMs) that provide access to 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 databases and movement of objects and data from one database to another.
The Linux version of OMNIS Studio was released in September 1999. This
version enables OMNIS developers to create and deliver their application in
Linux environments in addition to existing platforms. 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(TM) was announced in late 1998 and released
in April 1999. The OMNIS Studio Web Client 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.
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Using the Web Client, a user can view OMNIS applications on the Internet
with a standard web browser, such as 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.
OMNIS 7(3)TM
OMNIS 7(3)TM development tool is a cross-platform application
development tool for the development of form-based client/server software
applications. OMNIS 7(3) has been the Company's main product line for a number
of years and continues to be an important source of revenue for the Company.
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.
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 (to access any server database using the SQL
Browser) and the OMNIS VCS.
The Company intends to continue to maintain OMNIS 7(3) for the
foreseeable future, but the Company does not anticipate adding significant
enhancements to the functions of OMNIS OMNIS 7(3). In general, the Company
licenses OMNIS 7(3) only to existing OMNIS 7(3) users desiring to upgrade to the
latest version of OMNIS 7(3).
Applications developed with OMNIS Studio or OMNIS 7(3) require the OMNIS
Runtime software, which acts as a software environment shell for the
application, and the Company licenses the OMNIS Runtime to end users and to
certain developers, who sublicense the OMNIS Runtime to end users of those
developers' applications.
With the Company's change in strategy, the Company had a net loss of
$532,000 in the three months ended September 30, 1999 and of $421,000 in the six
months ended September 30, 1999, compared to a net loss of $275,000 in the three
months ended September 30, 1998 and of $1,356,000 in the six months ended
September 30, 1998. There can be no assurance that the Company will return to
profitability in the near future or thereafter.
Management believes that the Company's plan to aggressively market its
products, reduce "payback" period, improve operational efficiencies and reduce
operating expenses should provide the Company with cash from operating
activities to fund the ongoing operations of the Company beyond the next twelve
months. While the Company is not currently seeking
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additional financing, there can be no assurance that the Company will be able to
raise additional capital at any time in the future on commercially reasonable
terms, or at all, should the need arise to fund future operations. If the
Company is unsuccessful in raising capital when needed, the Company may be
required to cease operations.
RESULTS OF OPERATIONS FOR THE THREE AND SIX MONTHS ENDED SEPTEMBER 30, 1999, AND
SEPTEMBER 30, 1998
REVENUES
Total net revenues for the three months ended September 30, 1999 were
$1,184,000, representing a decrease of 7% as compared to total net revenues of
$1,274,000 for the three months ended September 30, 1998. Total net revenues for
the six months ended September 30, 1999 were $2,556,000, representing a decrease
of 3% as compared to total net revenues of $2,648,000 for the six months ended
September 30, 1998.
Product revenues increased during the three months ended September 30,
1999 to $948,000 from $869,000 in the three months ended September 30, 1998.
Product revenues increased during the six months ended September 30, 1999 to
$2,052,000 from $1,779,000 in the six months ended September 30, 1998. Service
revenues for the three months ended September 30, 1999 decreased 42% to $236,000
from $405,000 for the three months ended September 30, 1998. Service revenues
which primarily consist of maintenance revenues for the six months ended
September 30, 1999, decreased 42% to $504,000 from $869,000 for the six months
ended September 30, 1998. Maintenance revenue, which primarily consists of fees
from email and telephone support to the Company's customers, decreased during
the period ending September 30, 1999 due to the decrease in the annual support
fees being charged to customers.
As has been the situation in the three months and six months ended
September 30, 1999, the Company does not expect to receive significant service
revenues related to consulting services in future periods as it focuses on
higher margin product related revenue and shifts consulting opportunities to
its external partners.
COST OF SALES
Cost of product revenues is comprised of direct costs associated with
software product sales including software packaging, documentation, and physical
media costs. Cost of service revenues is comprised of customer support
(maintenance) expenses, including technical support salaries and related
expenses, and consulting related costs, including consultant salaries and
related costs incurred in delivering customer consulting and training services.
Cost of product revenues as a percentage of product revenues decreased
to 3% in the three months ended September 30, 1999 compared to 9% in the three
months ended September 30, 1998. Cost of product revenues as a percentage of
product revenues decreased from 11% in the six months ended September 30, 1998
to 3% in the six months ended September 30, 1999. This decrease is due primarily
to an inventory obsolescence write-off during the six months ended September 30,
1998.
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Cost of service revenues decreased as a percentage of service revenues
from 25% in the three months ended September 30, 1998 to 19% in the three months
ended September 30, 1999. Cost of service revenues decreased as a percentage of
service revenues from 23% in the six months ended September 30, 1998 to 19% in
the six months ended September 30, 1999. 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 those consultants are
typically fully utilized. The Company does not require significant management
resources for the consulting division, which reduces overhead costs of that
division.
SELLING AND MARKETING EXPENSE
Selling and marketing expenses increased to $569,000 for the three
months ended September 30, 1999 as compared to $495,000 for the three months
ended September 30, 1998. The increase in sales and marketing expense was
primarily due to the Company's spending on participation in the LinuxWorld
trade show held in August of 1999 in San Jose, California. Selling and
marketing expenses for the six months ended September 30, 1999 were $1,099,000,
which is similar to the six months ended September 30, 1998, which was
$1,074,000.
RESEARCH AND DEVELOPMENT EXPENSE
Research and development costs increased to $521,000 for the three
months ended September 30, 1999 as compared to $361,000 for the three months
ended September 30, 1998, primarily due to an increase of headcount at the
Company's Research and Development Center of the Company in the United Kingdom.
Research and development costs increased to $906,000 for the six months ended
September 30, 1999 as compared to $697,000 for the six months ended September
30, 1998. 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 increased to $554,000 for the three
months ended September 30, 1999 as compared to $426,000 for the three months
ended September 30, 1998. This increase was primarily due to an increase in
legal and accounting fees partially caused by the need of the Company's new law
firm and new accounting firm (which were hired by the Company during the fiscal
year ended March 31, 1999) to learn about the Company and to prepare the
Company's Annual Report on Form 10KSB, Proxy Statement (Form 14A) and the
Registration Statement on Form SB-2 that registered previously issued shares and
was filed during the three months ended September 30, 1999.
General and administrative expenses decreased to $797,000 for the six
months ended September 30, 1999, as compared to $1,628,000 for the six months
ended September 30, 1998. General and administrative expenses for the six months
ended September 30, 1998 included a write-off of approximately $540,000 of the
Company's lease deposit associated with the Company's former headquarters in San
Bruno, California, as a result of its negotiation with its landlord to vacate
its lease space.
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Additionally the Company recognized a write-off related to the disposal
of leased equipment that resulted in a non-recurring charge of $110,000 during
the six months 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 remained the same at $2,000 for the three
months ended September 30, 1999 and September 30, 1998. Interest income also
remained the same at $4,000 for the six months ended September 30, 1999 and
September 30, 1998. Interest expense decreased to $2,000 for the three months
ended September 30, 1999, from $76,000 for the three months ended September 30,
1998, and $5,000 for the six months ended September 30, 1999 compared to
$113,000 for the six months ended September 30, 1998. These decreases are
primarily due to the conversion of a promissory note from the Company to a
significant shareholder to equity stock in March 1999.
PROPERTIES
During the initial part of fiscal year ended March 31, 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 required payment of 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 that it uses for
research and development. The Company also leased 2,738 square feet of office
space for the European sales headquarters office in Bracknell, England. The
Bracknell lease, which was to expire in February 2001, had monthly rental
payments of approximately $5,100 plus approximately $2,200 for common area
maintenance. The Company agreed to 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. That lease, which expires on November 1, 2012,
has monthly rental payments of approximately $3,900. During the year, the
Company sublet all of the London office space, for which it has been receiving a
rental of approximately $2,300 per month plus 100% reimbursement for common area
maintenance. As a result of a sublease review, the sublease rent charged has
been increased to approximately $3,900 per month, backdated to November 1997.
The sublease terminates on December 25, 1999.
The Company leases property in Germany for use as a sales office. The space is
457 square meters and has monthly rental payments of approximately $6,600. 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.
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<PAGE> 14
All of the foregoing rental obligations are payable in the local
currency but for purposes of this discussion have been translated into U.S.
Dollars using the exchange rate at September 30, 1999.
RISK FACTORS
QUARTERLY FLUCTUATIONS
The Company has experienced significant quarterly fluctuations in
operating results and anticipates such fluctuations to continue in the future.
The Company generally ships orders as they are received and, as a result,
typically the Company 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. The Company has typically sold to
large corporate enterprises, significant customers, and distributors that 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, although the Company is in the process of
reducing this area of business.
The Company's operating results may also fluctuate due to factors such
as
- the demand for its 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 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 Company's ability to develop, introduce, and market new and
enhanced versions of its products on a timely basis,
- changes in the level of operating expenses,
- changes in the Company's sales incentive plans,
- budgeting cycles of the Company's customers,
- customer order deferrals in anticipation of enhancements or new
products offered by the Company or its competitors,
14
<PAGE> 15
- nonrenewal of maintenance agreements,
- product life cycles,
- software bugs and other product quality problems,
- personnel changes, including the Company's ability to hire and
retain key employees,
- changes in the Company's strategy,
- the level of international expansion,
- seasonal trends and general domestic and international economic and
political conditions, and
- the Company's liquidity and the availability of funds, among others.
The development and introduction of new or enhanced products also
requires that the Company manages the transition from older, displaced products.
The transitional process must be managed effectively in order to (1) minimize
disruptions in customer ordering patterns, (2) avoid excessive levels of older
product inventory and (3) 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.
For the reasons described above, 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 product 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.
15
<PAGE> 16
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 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; and the
Company's ability to attract and retain employees necessary to support growth.
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 planning
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 patent protection or licenses to 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 or other intellectual property rights of third parties.
INTERNATIONAL OPERATIONS
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
16
<PAGE> 17
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.
CHANGES IN PRICING STRUCTURE
The Company announced a reduction in certain portions of its pricing
structure for fiscal year 1999 and beyond and intends other price reductions or
adjustments for one or more products in the future. There is no guarantee that
such reduction in prices will lead to increased unit volume or other additional
revenue streams to replace any 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 has 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 to replace the decreasing service revenues with new product revenues.
YEAR 2000
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, 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.
17
<PAGE> 18
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 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 the Company's 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 it 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 has completed the testing and
assessment of Year 2000 compliance for all third party hardware and software and
non-information technology ("non IT") systems used by the Company, and the
Company believes that all such systems are Year 2000 compliant. The Company has
occasionally received updates from its software suppliers, and the Company has
installed those updates as soon as practical after receiving them. If the
Company receives updates from its suppliers in the future, the Company will
install those upgrades or replace the applicable hardware, software or other
systems as soon as practical. In the event that any hardware, software or non IT
system, or any upgrade or replacement, is not Year 2000 compliant, the Company
plans to have adequate technical staff available to respond promptly to address
any failure that may occur.
The internal costs of such Year 2000 compliance are not known at this
time. The Company cannot assure that it 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.
This section is a Year 2000 Readiness Disclosure pursuant to the Year
2000 Information and Readiness Disclosure Act of 1998.
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
18
<PAGE> 19
assumptions and involve a number of risks and uncertainties, and therefore
actual results could materially differ. These risks and uncertainties include,
among others, 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/or
financial resources, and the ability of the Company to successfully expand its
operations.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1999, the Company's principal sources of liquidity
consisted of cash and cash equivalents of $363,000, as compared to $271,000 at
March 31, 1999. The Company's working capital position decreased to $15,000 at
September 30, 1999 from $390,000 at March 31, 1999.
The Company operated at a loss for the six months ended September 30,
1999. 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, the Company had positive cash flow provided by
operating activities of $141,000 in the six months ended September 30, 1999
compared to negative cash flow used for operating activities of $1,953,000 in
the six months ended September 30, 1998. The Company also had a net loss of
$421,000 in the six months ended September 30, 1999 compared to a net loss of
$1,356,000 in the six months ended September 30, 1998. However, there can be no
assurance that the Company will be able to continue that trend and return to
profitability in the near future or thereafter.
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.
Management believes that the Company's plan to aggressively market its
products, reduce "payback" period, improve operational efficiencies and reduce
operating expenses should provide the Company with cash from operating
activities to fund the ongoing operations of the Company beyond the next twelve
months. However, any projections of future cash needs and cash flows are subject
to substantial uncertainty. If current cash and cash that may be generated from
operations are insufficient to satisfy the Company's liquidity requirements, the
Company may seek to obtain a line of credit or sell additional equity or debt
securities.
19
<PAGE> 20
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, or the Company may
need to sell debt securities, which would decrease the equity of current
stockholders in the Company. 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.
OMNIS TECHNOLOGY CORPORATION AND SUBSIDIARIES
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
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 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 our 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 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 ("BTN") 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. The Company suspended the project
awaiting BTN's payment. BTN commenced legal action against the Company in
Germany claiming damages of approximately $136,000 (DM250,000) as of September
30, 1999 for failure to perform under the service agreement. The Company has
countersued BTN claiming the balance owed under the contract of approximately
$33,000 (DM60,000) as of September 30, 1999. The Company believes that the claim
by BTN is meritless and intends to aggressively pursue its counterclaim against
BTN.
20
<PAGE> 21
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the annual meeting of shareholders held on September 29, 1999, the following
matters were submitted and approved by a vote of security holders:
To elect the following directors:
Geoffrey Wagner (For: 9,359,260; Withheld: 16,702)
Douglas Marshall (For: 9,359,280; Withheld: 16,682)
The following directors were continued in office: Philip Barrett, Gerald Chew,
and Mrs. Gwyneth Gibbs.
To approve the adoption of the Omnis Technology Corporation 1999 Stock Option
Plan. (For: 7,866,438; Against: 7,894; Abstain: 15,724)
To ratify the grant of stock options in the total amount of 258,650 shares of
the common stock of the Company to certain of the Directors and Officers of the
Company under the Omnis Technology Corporation 1999 Stock Option Plan. (For:
7,865,240; Against: 9,062; Abstain: 15,754)
To approve an amendment to the Company's 1994 Employee Stock Purchase Plan to
increase the number of shares of Common Stock reserved for issuance under the
Plan by 150,000 shares from 250,000 shares to 400,000 shares. (For: 7,867,507;
Against: 8,077; Abstain: 14,472)
To ratify the appointment of Grant Thornton LLP as independent public
accountants of the Company for the fiscal year ending March 31, 2000. (For:
9,359,318; Against: 2,095; Abstain: 14,549)
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
27.1 Financial Data Schedule
21
<PAGE> 22
(b) No reports on Form 8-K were on filed during the quarter ended September 30,
1999.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: November 15, 1999
OMNIS TECHNOLOGY CORPORATION (Registrant)
/s/ GWYNETH GIBBS
--------------------------------------------
Gwyneth Gibbs
President, interim Chief Executive Officer,
and interim Chief Financial Officer
22
<PAGE> 23
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NUMBER TITLE
- -------------- -----
<S> <C>
27.1 Financial Data Schedule
</TABLE>
23
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-START> JUL-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 363,000
<SECURITIES> 0
<RECEIVABLES> 927,000
<ALLOWANCES> 196,000
<INVENTORY> 23,000
<CURRENT-ASSETS> 1,468,000
<PP&E> 3,778,000
<DEPRECIATION> 2,990,000
<TOTAL-ASSETS> 2,256,000
<CURRENT-LIABILITIES> 1,453,000
<BONDS> 0
0
300,000
<COMMON> 983,000
<OTHER-SE> (486,000)
<TOTAL-LIABILITY-AND-EQUITY> 2,256,000
<SALES> 1,184,000
<TOTAL-REVENUES> 1,184,000
<CGS> 71,000
<TOTAL-COSTS> 1,715,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,000
<INCOME-PRETAX> (532,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (532,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (532,000)
<EPS-BASIC> (0.05)
<EPS-DILUTED> (0.05)
</TABLE>
