SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB/A
(Mark One)
[X] Annual report pursuant to Section 13 or 15(d) of the Securities and
Exchange Act of 1934 for the fiscal year ended March 31, 2000
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities and
Exchange Act of 1934 for the transition period from ________________ to
_____________
Commission File No. 0- 16449
OMNIS TECHNOLOGY CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 94-3046892
(STATE OF INCORPORATION) (I.R.S. EMPLOYER
IDENTIFICATION NO.)
981 Industrial Way, Bldg. B
San Carlos, CA 94070-4117
(ADDRESS OF PRINCIPAL EXECUTIVE
OFFICES INCLUDING ZIP CODE)
(650) 632-7100
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE
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Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $. 10 par value
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Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act during the past 12 months (or
for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days. [X]
Yes [ ] No
Check if disclosure of delinquent filers pursuant to Item 405 of Regulation S-B
is not contained in this form, and no disclosure will be contained, to the best
of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. |_|
Issuer's revenues for its most recent fiscal year: $6,210,150
The aggregate market value of the voting stock held by non-affiliates was
$15,290,680 as of June 15, 2000, based on the last sales price reported for such
date.
As of June 15, 2000, the registrant had 10,211,797 shares of its Common Stock
outstanding and 300,000 shares of its Series A Preferred Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
None
Transitional Small Business Disclosure Format (check one): |_| Yes [X] No
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PART I
THIS ANNUAL REPORT ON FORM 10-KSB INCLUDES A NUMBER OF FORWARD-LOOKING
STATEMENTS THAT REFLECT THE COMPANY'S CURRENT VIEWS WITH RESPECT TO FUTURE
EVENTS AND FINANCIAL PERFORMANCE. THESE FORWARD-LOOKING STATEMENTS ARE SUBJECT
TO CERTAIN RISKS AND UNCERTAINTIES, INCLUDING THOSE DISCUSSED IN "MANAGEMENT'S"
DISCUSSION AND ANALYSIS OF FINANCIAL PERFORMANCE AND RESULTS OF OPERATIONS,"
BELOW THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM HISTORICAL
RESULTS OR ANTICIPATED RESULTS.
ITEM 1. BUSINESS
THE COMPANY
Omnis Technology Corporation (the "Company" or "Omnis"), through its
operating subsidiaries, Omnis Software Inc., a California corporation, Omnis
Holdings Limited and Omnis Software Limited, limited liability companies
organized under the laws of England, and Omnis Software GmbH, a German
corporation, develops software tools and delivers consulting services. The
Company's products are designed to allow customers to develop software solutions
which can be continuously enhanced to respond to changing business and technical
needs. The Company's products support the full life cycle of applications and
are designed for rapid development and deployment of sophisticated Web and
client/server applications, providing true reuse of software objects and the
ability to integrate objects from disparate programming languages on a number of
different operating system platforms. The Company's products are used by
corporations, system integrators, independent software vendors, small
businesses, and independent consultants to deliver custom software solutions for
a wide range of uses including financial management, decision support, executive
information, sales and marketing, and multi-media authoring systems. In addition
to these products, the Company provides technical support and training to help
plan, analyze, implement, and maintain application software based on the
Company's technology.
The Company was incorporated under the laws of the State of Delaware on
August 5, 1987 pursuant to a reorganization of predecessor companies originally
incorporated under the laws of England in 1983. As used herein, the "Company"
refers to Omnis Technology Corporation and its consolidated subsidiaries. In the
first quarter of fiscal year 1998, Blyth Software, Inc. changed its name to
Omnis Software Inc., Blyth Holdings Limited changed its name to Omnis Holdings
Limited, Blyth Software Limited changed its name to Omnis Software Limited, and
Blyth Software GmbH changed its name to Omnis Software GmbH. In September 1997,
the Company's stockholders approved a proposed change of the parent company's
name from Blyth Holdings, Inc. to Omnis Technology Corporation.
RECENT DEVELOPMENTS
Fiscal 2000:
In April 1999, the Company's Board of Directors (the "Board of Directors")
adopted the Omnis Technology Corporation 1999 Stock Option Plan (the "1999
Plan") in order to consolidate options to be issued to directors, officers, key
employees, consultants and advisors under a single option plan and to terminate
prior stock plans. The 1999 Plan was adopted by the Board of Directors and
1,500,000 shares of the common stock of the Company were reserved for issuance
under the 1999 Plan. In April 1999 the Company granted incentive stock options
to its employees to acquire a total of 411,000 shares of the common stock of the
Company at an exercise price of $1.02 per share, with the right to exercise such
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options vesting over a three-year period. In July 1999 the Company granted
options for a total of 258,650 of the Company's common stock to the president of
the Company, Gwyneth Gibbs, and to two directors of the Company, Gerald Chew and
Douglas Marshall. The right of Mrs. Gibbs to exercise her option vests over a
three year period and the options granted to Messrs. Chew and Marshall vested on
July 31, 1999. Also, in July 1999 the Company granted options for an additional
75,000 shares of the Company's common stock to certain consultants (25,000 of
which vested immediately and 50,000 of which vest over a three-year period). The
1999 Plan was approved by the shareholders of the Company at the Annual Meeting
of Shareholders on September 29, 1999.
At the Annual Meeting of Shareholders on September 29, 1999, the
shareholders of the Company also approved an amendment to the 1994 Employee
Stock Purchase Plan of the Company (the "1994 Plan") to increase the number of
shares reserved for issuance under the 1994 Plan to 400,000 shares. On January
12, 2000, the Board of Directors of the Company terminated all existing offering
periods under the 1994 Plan as of March 31, 2000 and amended the 1994 Plan to
establish six-month offering periods. The foregoing transactions have resulted
in substantial charges to the earnings of the Company for non-cash compensation
expenses in fiscal year 2000.
A material non-cash compensation expense was recognized for the 1999 fiscal
year and will result in the restatement of certain of the Company's reported
items for the second and third quarters. Non-cash compensation expense for the
second and third fiscal quarters increased $554,843 and $669,802 respectively.
The Company also incurred an approximate $1.8 million additional non-cash
compensation expense in the fourth quarter. In total, non-cash compensation
expense increased approximately $3.1 million for the fiscal year. This
adjustment had no effect on total stockholder's equity. See "Management's
Discussion and Analyses of Financial Performance and Results of
Operations-Non-Cash Compensation Expense".
On December 23, 1999, the Company obtained a $3,000,000 line of credit from
Astoria Capital Partners, L.P. ("Astoria") pursuant to the terms of a Credit
Facility Agreement dated as of December 21, 1999 (the "Credit Facility
Agreement"). The line of credit had a term of six months and was extended by the
further agreement of the Company and Astoria on April 30, 2000 for an additional
period of four months. Under these arrangements the Company may draw up to
$500,000 from the line of credit per month as set forth in the Credit Facility
Agreement. In connection with the issuance of the line of credit, the Company
issued a Promissory Note in the principal amount of up to $3,000,000 to Astoria
Capital Partners, L.P. dated as of December 21, 1999 and amended on April 30,
2000. All principal and accrued interest on the Promissory Note is due and
payable on August 31, 2000 or upon a Change of Control (as such term is defined
in the Credit Facility Agreement), if earlier. The Promissory Note bears
interest at 8 percent per annum and has a default rate of interest of 10 percent
per annum. The Promissory Note is secured by certain assets of the Company.
While any debt is outstanding or the line of credit remains in effect, except
for any debt owing to the Astoria or debt issued contemporaneously with payment
of the debt in full and termination of the line of credit, the Company may not
incur any indebtedness without the written consent of Astoria, except the
Company may incur junior debt in the aggregate principal amount of up to
$500,000 in connection with the purchase or lease of property (whether or not in
the ordinary course of business).
In addition, and also in connection with the issuance of the line of
credit, the Company issued to Astoria a non-transferable warrant (the "Warrant")
to purchase shares of capital stock of the Company. The Warrant may be
exercised, and shares of capital stock of the Company will be issued upon
exercise of the Warrant, only in connection with one or more Qualifying
Offerings (as such term is defined in the Warrant) of securities of the Company.
The Warrant may be exercised for up to $3,000,000 of shares of the capital stock
of the Company issued in one or more Qualifying Offerings at the price per share
of such securities in each such Qualifying Offering, as further provided and
qualified by the Warrant. The Company has granted to Astoria certain
registration rights with respect to any shares of capital stock issued upon
exercise of the Warrant as described in the Warrant. The Warrant terminates on
August 31, 2001; and in this connection the Company has no independent
obligation to issue any securities, consummate any offering of its securities or
accept any offer to issue or sell any of its securities on or before such date.
Important developments also occurred in the product line of the Company
during fiscal year 2000. Omnis 7(TM) is a cross-platform rapid application
development tool for the development of form-based client-server applications
that has been the main product line of the Company for a number of years.(1)
Omnis
____________________________
1 Omnis is a registered trademark of Omnis Software Limited. Omnis Studio and
Omnis 7 are trademarks of Omnis Technology Corporation. All other products or
service names mentioned herein are trademarks of their respective owners. These
products are discussed in detail below.
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Studio is the current premium rapid application development tool product offered
by the Company, containing the main functions of the Omnis 7 product plus
numerous additional features and enhancements. In mid 1999, new incentives were
instituted by the Company to encourage existing customers using Omnis 7 to
migrate to Omnis Studio.
The Omnis Studio Web Client was announced in fiscal year 1999 and released
in April 1999. The Omnis Studio Web Client is additional software for use with
Omnis Studio that makes Omnis Studio web-enabled, designed to use
object-oriented programming for the development of Internet based forms, using
drag and drop and wizards, and can include controls like dropdown lists, tabs
and sidebars to ease navigation through the solution in a web browser. With this
program Omnis applications can be viewed on the Internet using a standard web
browser, such as newer versions of Microsoft Internet Explorer or Netscape
Navigator.
In August 1999, Omnis also introduced a beta version of Omnis Studio
running on the Linux operating system and a full version was released at the end
of 1999. Following this launch a new North American management team joined the
Company in November of 1999 (discussed below). The objective of this team is to
build up the North American organization behind a strategy designed to make it
easier for new developers and developers more familiar with competitive software
tool sets to evaluate, purchase and learn Omnis Studio.
Fiscal 1999
At the beginning of the 1999 fiscal year the Company's financial
difficulties resulting from the losses incurred in fiscal year 1998 dictated the
implementation of a rigorous cost cutting plan. The Company worked to form a
committee of its creditors (the "Creditor Committee") in February 1998, to
structure a workout agreement whereby the Company would repay its creditors over
time, with the objective of avoiding possible litigation or formal bankruptcy
proceedings. A workout plan was negotiated and put into place in June 1998. The
Company began repayment to customers in the quarter ending September 1998 and
completed payment of all such liabilities in March 1999 coincident with the
restructuring of the capital of the Company during the same period.
On March 19, 1999, the Company's Board of Directors authorized the issuance
of 300,000 shares of Series A Convertible Preferred Stock (the "Preferred
Shares") and 7,600,000 shares of Common Stock (the "Common Shares")
(collectively, the Preferred Shares and the Common Shares shall be referred to
as the "Shares"). The Restated Articles of Incorporation of the Company vest in
the Board of Directors the authority to issue the Shares. On March 31, 1999 the
Company filed with the Secretary of State of Delaware a Certificate of
Designations setting forth the rights, preferences and privileges of the
Preferred Shares. Pursuant to the terms of a Letter of Intent executed by and
between the relevant parties on February 22, 1999, on March 31, 1999 the Company
entered into stock purchase agreements with Astoria, an affiliate of an existing
shareholder, Gwyneth Gibbs, president of the Company and certain members of the
Board of Directors or their affiliates. Under the terms of the Stock Purchase
Agreement with Astoria, the Company agreed to issue and Astoria agreed to
purchase 300,000 Preferred Shares at a purchase price of $1.6667 per share for
an aggregate purchase price of $500,000 and 2,543,344 Common Shares at a
purchase price of $0.25 per share, for an aggregate purchase price of $635,836
(collectively, the "Astoria Shares"). The Astoria Shares were issued and sold to
Astoria in consideration of the cancellation of the indebtedness of the Company
to Astoria. The Company also entered into a Common Stock Purchase Agreement with
Astoria whereby Astoria purchased 1,000,000 Common Shares at a price of $0.25
per share for an aggregate purchase price of $250,000. The Common Stock Purchase
Agreement and Stock Purchase Agreement granted certain registration rights and
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rights of first refusal to Astoria. Pursuant to the terms of the stock purchase
agreements entered into with certain members of the Board of Directors,
including Mrs. Gibbs (the "Board of Directors Agreements"), the Company agreed
to issue, in the aggregate 4,000,000 Common Shares at a price of $0.25 per
share, for aggregate purchase price of $1,000,000. The Board of Directors
Agreements did not grant any registration rights or rights of first refusal to
the parties.
The proceeds from the sale of the Common Shares to the Board of Directors
were used to satisfy the debt owed, in its entirety, to the Omnis Class 2
Creditors (the "Creditors") pursuant to the Work Out Agreement entered into
between the Company and the Creditors in fiscal year 1999. The proceeds from the
sale of the Shares to Astoria were used for working capital purposes.
KEY MANAGEMENT CHANGES
In late November 1999 James W. Dorst and Jerald Lipscomb joined the
Company. Mr. Dorst was appointed Chief Operating Officer and Chief Financial
Officer and was also named as a Director of the Company. Mr. Lipscomb joined as
Chief Evangelist of the Company. Messrs. Dorst and Lipscomb began the task of
building the Company's North American organization and repositioning the Company
to build its revenue base and developer community in the United States. In
December 1999, Mr. William L. Scott, an experienced technology executive, joined
the Company as Senior Vice President of Sales and Marketing, North America. In
February, 2000 Bryce Burns was elected as a Director of the Company to fill a
vacancy on the Board of Directors.
INDUSTRY
EVOLUTION OF ENTERPRISE COMPUTING
The evolution of computing has been characterized by several distinct
stages. In the 1970s, mainframe and minicomputer systems with character-oriented
user terminals emerged as the principal structure for enterprise computing. This
was followed in the 1980s by the introduction of personal computers and
workstations which primarily addressed personal productivity applications such
as word processing and spreadsheets. In the late 1980s, local and
enterprise-wide networks connecting these desktop systems became increasingly
prevalent, initially for accessing file storage archives (file servers) and
electronic mail communications.
Building on this infrastructure, client/server computing emerged as an
important new architecture for corporate computing in the early 1990s. In the
client/server computing model, application software is divided into two
components: a "client" handling functions such as the user interface, local data
storage, manipulation and presentation, and a "server" handling tasks such as
data management and access, storage, and retrieval for multiple clients.
Typically, the client software runs in a single-user desktop system, while the
server operates utilizing a shared mainframe or workstation, and messages
linking client and server are exchanged through connecting networks. These
networks could be either Local Area Networks ("LANs") or Wide Area Networks
("WANs") with the distinction being intuitive: LANs generally connected clients
together with a server within a building or department while WANs typically
utilized dedicated communication lines and linked remote facilities together
over greater distances.
In the last several years the Internet has become an alternative to
dedicated communication lines for the dissemination and collection of
information, with clients accessing data from remote servers using applications
known as "browsers" via the Internet. Virtual Private Networks ("VPNs") where
individual clients can access departmental and enterprise servers have become
commonplace. The existence of this new infrastructure has led to an explosion in
electronic commerce, the development of electronic communities and "Portals",
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and password protected corporate "Intranets" for the secure transmission of
critical corporate information.
This evolution continues with the client/server paradigm moving to an
Application Service Provider ("ASP") model, where clients access remote servers
which host the entire application and related data. In essence the classic
"computer room" is being replaced by off-site Internet hosting facilities where
the bulk of the computing is handled in larger more economic computing
facilities. New wireless technologies fit into this movement of computing power
to larger Internet-enabled facilities, with Wireless Access Protocols ("WAPs")
emerging. These new wireless technologies are being designed to allow remote
clients to access and transmit data efficiently without the requirement of a
hard-wired physical connection.
As a result of these watershed changes in the computing environment, the
market for application development tools has grown rapidly as businesses seek to
develop applications which will address these new paradigms and allow for secure
data transmission across the Internet. At the same time the overall computing
environment is becoming more complex, and businesses are seeking to reduce
application development times and efficiently utilize their software development
resources. As a result, businesses are increasingly seeking software development
tools which allow them to take advantage of the software re-use potential of
object-oriented programming.
OBJECT-ORIENTED PROGRAMMING ENVIRONMENTS
Software development tools based on object-oriented programming models are
generally recognized as the most efficient solution to enterprise application
development. Object-oriented programming languages aggregate functions and data
into classes and objects. Object-based application development tools then
provide a set of software components and libraries for the creation and storage
and manipulation of objects in the relevant programming language. This structure
enables re-use of the software in the development of other applications. By
contrast traditional non-object or imperative mode programming models require
the developer to "start from scratch" with each new application, which is
extremely inefficient.
Object-oriented programming environments, such as Omnis Studio software,
allow the development of object components that are efficient to use, modify,
and re-use so that developers do not need to commit to more lengthy and complex
development of applications. This permits businesses to support their most
recent product offerings and corporate positioning by deploying and modifying
applications more rapidly and efficiently.
BROWSER TECHNOLOGY
Increasingly, businesses also have been using the Internet to reach more
customers and to create an extended virtual "corporation" among their vendors,
partners, and contractors. While Internet browsers will continue to become more
sophisticated, they are likely to remain primarily viewing tools. Other
applications are used to provide the actual customer solutions, with most of the
processing performed on the servers.
In addition to browsers, in the current environment most businesses need
powerful crossware applications (software that supports cross database, cross
platform, cross object and cross component uses) that have the ability to
operate across the Internet with a wide variety of:
-- Platforms (e.g., Windows 95, 98 and 2000, Windows NT, Macintosh and
Linux);
-- Databases (e.g., DB2, Oracle, Informix, Sybase and SQL);
-- Object Types built using the C++ and other programming languages; and
-- Component Formats (e.g., ActiveX from Microsoft Corporation
("Microsoft") and Java Beans from JavaSoft and others).
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PRODUCTS
Omnis 7(3) has been the Company's main product line for many years and
continues to be a major source of revenue. Omnis Studio is an enhanced
object-oriented product offering with technical features and cross-platform
capabilities which exceed those of Omnis 73.
Omnis7(3)
Omnis 7(3) (the "Classic") is the Company's long standing product line,
covering the full range of application development and deployment needs from
prototyping through build and release. Omnis 7(3) is a high performance tool for
rapid development of business enterprise applications that has established a
large customer base. With its cross-platform, cross-database capabilities, the
Company expects this product to continue to generate some level of demand among
programmers and developers of client/server software for at least the next 18
months.
Written in C++, the Classic product was widely embraced by the Company's
customers, partners, and value-added resellers ("VARs"). The Company has
continued to develop, support and upgrade Omnis 7(3), but recently announced its
intention to drop enhancements to the product by the Fall of 2001. Management
believes that for the near-term there continues to be worldwide demand for a
low-cost, high performance procedural application development tool for business
enterprise applications in client/server and Internet environments, but that, in
the longer term, customers would be best served by migrating to the Omnis Studio
product.
The Classic product family includes several products: the Omnis 7(3)
development environment, Omnis Change Management System, and Omnis Version
Control System, which together address a wide range of team and application
management tasks, including version tracking and control, change management, and
turnkey build-and-release functionality. The Classic product line also includes
Web enabling functionality that allows users of Omnis 7(3) to adapt their
applications for the Internet. Web Enabler supports leading industry standards,
including SMTP/POP3, FTP, HTTP, TCP/IP, and HTML, along with GIF and JPEG file
formats. The license fees and pricing for the Classic remain unchanged and vary
with the configuration of the product licensed. List prices range from $585 to
$1,499.
The Classic applications can be deployed with data access services through
the Omnis 7(3) proprietary database or configured with data access services to
leading databases such as DB2, Oracle, Sybase and Informix. When customers
deploy an application, they require a deployment license for each end-user. The
global list prices for the database deployment licenses of Omnis 7(3) generally
range from $18 to $165 per user, depending upon quantities purchased and the
distribution channel used.
OMNIS STUDIO
Omnis Studio is the Company's premium product line and was the first
commercially available application development tool which integrated ActiveX and
Java Beans components. Omnis Studio is an object-oriented rapid application
development tool, offering efficient visual assembly of components and objects.
Key features of Omnis Studio include cross-platform support for Windows 95,
Windows 98, Windows NT, Windows 2000, MacOS and Linux; local and portable data
caching; a powerful code inspector; a versatile report writer; a multiple-mode
debugger; and support for localization and multilingual implementation. At the
time of this filing Omnis Studio was the only generally available rapid
application development tool which runs on all of the foregoing platforms.
Omnis Studio includes two powerful subsystems: the Component Integrator and
the Omnis Studio Web Client. The Component Integrator provides a development
environment where software developers can combine, integrate, optimize, and
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extend third-party components such as ActiveX and Java Beans. Because Omnis
Studio understands different object models, developers can work in a single
integration environment using a single interface, regardless of component or
object type.
The Omnis Studio Data Access Manager enables developers to use a single
interface to view, access and manipulate all industry-leading databases. High
performance drivers provide fast and easy access to IBM's DB2 Universal Server,
and databases supplied by Oracle Corporation, Sybase Incorporated, and Informix
Corporation. Most other leading databases, including Microsoft's SQL Server
database, are accessible via ODBC.
The Omnis Studio Version Control System ("VCS") provides application
development teams and application development managers with better control over
developing their crossware applications. The Omnis Studio VCS offers a complete
tool set for version tracking and control, component storage and security, and
build-and-release, so that team managers can easily roll-back changes, split
development, or create custom builds.
The Omnis Studio Web Client was released in April 1999 and provides a novel
way of deploying business solutions on the World Wide Web. Web solutions are
written using Omnis Studio, bringing all the benefits of a 4GL to the Internet,
such as rapid prototyping, efficient customization, and straightforward
debugging. With Omnis Studio, web forms are developed using drag and drop
techniques and helpful wizards, and can include controls like dropdown lists,
tabs and sidebars to ease navigation through the solution in a web browser. The
server application is developed using standard Omnis technology. Once developed,
the solution can be efficiently set up. The server runs an Omnis engine that
sits between the web server and the database, and Omnis applications can be
viewed on the Internet using a standard web browser, such as newer versions of
Microsoft Internet Explorer or Netscape Navigator.
BUSINESS STRATEGY
The Company's product development strategy is to continue to develop
sophisticated application development tools to enable businesses to build
mission-critical software applications which have the following characteristics:
-- Provide integration with existing systems and execute across a variety
of platforms and databases.
-- Allow the extension of the Client/Server model across the Internet into
the ASP and emerging WAP markets
-- Deliver superior object-oriented functionality at a lower cost than any
of its competitors.
-- Enable its customers to provide solutions faster than the Company's
competitors.
-- Encourage the development of reusable program components and reduce the
cost of solution delivery.
The Company's growth strategy is focused on continuing to garner revenue
from its existing customer base, reconnecting with prior corporate customers and
at the same time attracting a large number of new customers. The Company has a
very loyal core group of software developers among its customer base, many of
whom have used the Company's products for several years and who are interested
in expanding the number of applications which are developed using the Company's
products. In order to capitalize on the commitment of existing customers as well
as introducing Omnis Studio to new developers the Company has implemented the
following:
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o In recognition of the importance of the initial user installation
experience Omnis has significantly improved the ease of installation by
providing a more intuitive interface and by creating Wizards (such as
our "Application Builder") to illustrate how quickly meaningful
applications can be created.
o The sales price of an Omnis Studio developers kit has been reduced to
eliminate cost as a barrier to product adoption. Omnis now offers a
range of support programs coupled with moderate runtime license fees.
These support programs are designed to give existing developers a
defined path to migrate from our Classic products to Omnis Studio and to
provide new developers with the help they need to become productive
Omnis programmers as quickly as possible.
o A complete Website redesign to allow for downloading evaluation versions
of Omnis Studio as well as an on-line store allowing the purchase of
development kits directly from our Website. In addition the Company
provides enhanced web-based functionality for our developer community as
well as an on-line database of solutions that our developers offer
potential customers.
o A tactical marketing effort which emphasizes efficient advertising in
targeted developer communities and attendance at appropriate trade
shows. This provides the Company with exposure to the potential customer
base and, combined with leads generated from downloads at our website,
provides a database of sales leads that our inside sales team can
pursue. The North American team also prequalifies corporate
opportunities for appropriate follow-up by our North American technical
sales team. The Company believes its Omnis Studio products are easy to
use and easy to learn and enable developers to assemble their
applications with drag-and-drop ease via an elegant and intuitive user
interface. The Company believes that the practical and visual interface
of Omnis Studio, along with its component and web integration, allows
developers from many different backgrounds and skill levels to build
more types of applications more quickly and less expensively by
following common rules for assembly.
The license fees for Omnis Studio Developer Kits were substantially reduced
in fiscal year 2000 and generally have a United States list price of $149. The
Company has shifted its revenue model to a support-based program, with a variety
of supported developer programs.
The Company has also instituted special support programs for the North
American market:
o Incubator Partner Program - The Incubator Program is designed to attract
new developers and to provide a migration path for Classic developers to
transition their applications to Omnis Studio. This program provides
North American technical voice support, subsidized training and, upon
completion of training, subsidized runtime licenses for applications
which are developed within the first 12 months of participation in the
program. In addition the program provides access to the Omnis Developer
Portal where developers can share information, code snippets and where
additional wizards are provided as a part of the program.
o Preferred Partner Program: Incubator "graduates" and established Studio
developers can participate in the Preferred Program offering many of the
same benefits of the Incubator Programs with additional functionality.
In particular, Preferred Partners have access to more robust Omnis
Studio enhancements and externals, appropriate for the more experienced
user.
Omnis Studio applications can be deployed with data access services through
the Omnis Proprietary database (generally suitable for smaller departmental
applications) or configured with data access services to leading databases
(e.g., DB2, Oracle, Sybase and Informix). When customers deploy an application a
deployment license is required for each end-user. The global list prices for the
database deployment licenses of Omnis Studio, depend upon quantities purchased
and the distribution channel used.
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SALES, MARKETING AND DISTRIBUTION
SALES
The Company sells its products in North America primarily through technical
sales representatives who follow-up on qualified leads generated by the
Company's inside sales department. Inside sales leads are generated from
responses to targeting advertising in technical trade media, trade show
attendees, web-site downloads of evaluation copies of Omnis Studio and legacy
customer inquiries. For larger enterprise sales, the Company employs a technical
sales group to meet directly with qualified potential customers. North American
technical account representatives are located throughout the country and inside
sales personnel are located at the corporate offices in San Carlos, California.
The Company sells Omnis Studio directly over the Internet on its Website at
www.omnis.net, as well as through established Internet based software retailers.
Overseas, the Company sells its products primarily through a direct sales force
operating from sales offices in the United Kingdom, Germany, Scandinavia, and
Benelux.
The Company is committed to expanding sales growth by making additional
sales to its current customer base and increasing the number of new customers.
The Incubator and Preferred Partner Programs are designed to enable Omnis to
give its customers the tools they need to build their own businesses as quickly
and successfully as possible. Sales initiatives are focused upon the following
markets:
o Existing customers and legacy opportunities: The Company is committed to
retaining and building its existing and former customer base. In the
years Omnis has been in business many of the Fortune 500 companies have
been Omnis users. It is our aim to return them to the fold, reeducate
and transition Classic developers to Omnis Studio over the next 24
months.
o Linux Marketplace: We are focusing marketing efforts on capturing the
new Linux software developer community. We believe this represents a new
wave of younger developers who will soon be writing significant
enterprise applications. Presently Omnis Studio is the only known
generally available rapid application development tool that runs on
Windows, MacOS and Linux operating systems.
o Application Service Providers: Management believes that the Company's
Web Client technology can offer significant advantages in the small to
medium sized ASP market. We expect that, as our customers evolve to this
newer model of providing hosted applications solutions, Omnis Studio and
Web Client will be a part of their success.
The Company recognizes that, given all the internal changes of the past several
years, our products have not achieved the market penetration that the technology
deserves. We also recognize that our competitors are generally much stronger
than we are financially and organizationally. While we plan to focus on the
foregoing markets, we also will be working hard to "Align and Redirect" Omnis
Studio in development environments where Omnis is not presently the preferred
tool.
INTERNATIONAL DISTRIBUTION
The Company has non-exclusive distributor relationships in over 25
countries as well as an exclusive distribution relationship in France. All of
the Company's exclusive distributors provide primary customer service and
support for their markets. Distributors in Latin America and in the Pacific Rim
are managed from the San Carlos, California office, while distributors in
Europe, Middle East and Africa are managed from the United Kingdom office of the
Company.
The Company believes that in order to increase sales opportunities, it will
be required to expand its international operations. The Company has committed
and continues to commit significant management
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time and financial resources to developing direct and indirect international
sales and support channels. There can be no assurance, however, that the Company
will be able to maintain or increase international market demand for its
products. To the extent that the Company is unable to do so in a timely manner,
the Company's international sales will be limited, and the Company's business
operating results and financial condition could be materially and adversely
affected.
International operations are subject to inherent risks, including the
impact of possible recessionary environments in economies outside the United
States, additional costs of localizing products for foreign markets, longer
receivables collection periods, greater difficulty in accounts receivable
collection, unexpected changes in regulatory requirements, difficulties and
costs of staffing and managing foreign operations, reduced protection for
intellectual property rights in some countries, potentially adverse tax
consequences, and political and economic instability. There can be no assurance
that the Company or its distributors or resellers will be able to sustain or
increase international revenues from licenses or from maintenance and service,
or that the foregoing factors will not have a material adverse effect on the
Company's future international revenues, and consequently, on the Company's
business, operating results, and financial condition.
MARKETING
In fiscal 2000, the Company has substantially increased both its Marketing
team and its expenditures on Marketing.
In support of its direct and reseller sales efforts, the Company conducts
numerous marketing programs including print and web media advertising, direct
mail programs, trade show presentations, and strategic marketing programs with
partners. The purpose of these efforts is to build awareness and generate
quality sales prospects that lead to increased market share and revenues.
The Company has also initiated a comprehensive rebranding campaign that
included a complete redesign of its web site and change of corporate identity
giving it a much more professional and substantive feel.
Current initiatives include leveraging the Company's first mover advantage
in the Linux market through partnerships, aggressively promoting the Company's
powerful web application deployment technology, and providing technical papers
and collateral material to support the new developer programs and pricing
infrastructure that were introduced in fiscal year 2000.
TRAINING SERVICES
As part of its global sales efforts, the Company offers professional
training programs to its customers and prospective customers. These classes,
held at various locations throughout the world, emphasize foundation skills (for
the newer developer), advanced classes (for the more experienced developer) and
classes designed to assist existing customers in the migration from Omnis 7(3)
to Omnis Studio. Training services are offered as fundamental components of our
Partner Programs as well as to augment sales efforts. The Company believes that
appropriate training programs in combination with ease of installation and use,
low cost of initial adoption and web-based provision of additional developer
services, will maximize the probability of future success.
TECHNICAL SUPPORT
Because the Company's products are used by customers to build applications
which may become a critical component of their business operations, continuing
customer technical support services are an important element of the Company's
business strategy. The Company offers customer service programs to
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meet customer support requirements. Customers who participate in the Company's
annual support programs receive maintenance releases and associated technical
support and documentation. Recently, the Company has begun to offer real-time
telephone support to its North American customers as well as high-level e-mail
support from its primary engineering offices in the United Kingdom.
The Company's technical support team focuses on problem solving and
resolution in installation and other ongoing technical issues. Technical support
representatives are trained in basic and advanced uses of Omnis products. The
Company operates the technical support function through a consolidated database,
combining customer information from the United States, United Kingdom, and
German support center databases into single database structure, thereby enabling
its worldwide technical support staff to work from the same database and have
simultaneous access to the same information. The global support strategy
includes a worldwide high-level support center in the United Kingdom, which
supports the Company's United States, Canadian and United Kingdom customers and
some of the Company's foreign distributors. These distributors are responsible
for supporting those customers to whom they have sold the Company's products. A
support center in Germany provides support for the Company's direct customers in
Europe and the Company's European based distributors. In addition, the Company
has improved its website to better provide technical support to its customers.
The Company believes its customers are now better able to find answers to many
of their questions quickly and easily on the Company's website.
CUSTOMERS
The Company has customers in a wide range of industries, including
financial services, pharmaceuticals, manufacturing, telecommunications,
aerospace, defense, and universities. In fiscal year 2000, one customer, Nortel,
accounted for approximately 19.3% percent of total net revenues. No other
customer accounted for more than 10 percent of total net revenues.
As is generally the case with other participants in the software industry,
the Company generally ships products as orders are received. As a result, the
Company has historically operated with little backlog. Because of this short
cycle between receipt of an order and shipment, the Company does not believe
that its backlog as of any particular date is meaningful.
The Company's customers can be segmented into two general categories:
1. Corporate IT Departments -- The bulk of the Company's revenue has been
generated from sales to information technology departments of large
corporations.
2. Independent Software Vendors ("ISVs"), Developers -- ISVs typically have
written their own vertical application software which they sell as a
complete package to end-user customers. This category would also include
value added resellers ("VARs") and software consulting companies who
provide contract programming services to their customers.
The Company's products are designed to enable the development of
applications which operate in traditional client/server environments as well as
across the Internet. Some of the Company's customers have purchased copies of
the Company's products for evaluation purposes. There can be no assurance that
these customers will broadly implement new projects or that they will purchase
additional products from the Company. The Company's future financial performance
will depend on the growth of the Company's sector of the computing market and on
its ability to compete effectively in this market. There can be no assurance
that this market will continue to grow or that the Company will be able to
respond effectively to customer requirements and competitive offerings in this
market.
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As the market evolves, the Company anticipates that competition is likely
to increase from both existing and future market participants, most of whom are
larger companies and have greater financial, technical, marketing, sales, and
distribution resources and a larger installed base of customers than the
Company. There can be no assurance that the Company could compete effectively
with such competitors.
PRODUCT DEVELOPMENT
Since its inception in the United Kingdom, the Company has benefited from
having a global perspective in terms of partners, customers, technological
outlook and products. The Company's corporate research facilities are based in
England.
The Company believes that developing new products is best accomplished with
a cross-disciplinary approach, combining the talents and perspectives of a
multi-faceted virtual development team that includes developers, customers,
VARs, sales and marketing, technical support, quality assurance, and technical
services. In the course of planning products, the Company's product development
team filters industry trends, ideas from customers and potential customers,
partners and potential partners, feedback from the Company's own sales,
marketing, technical support, and professional services staff, and general
business information and then analyzes the potential risks and benefits of
pursuing a given strategy.
The software industry is characterized by rapid technological advances,
frequent new product introductions, rapid enhancements of existing products
through new releases, and changing customer requirements. The future success of
the Company will largely depend on its ability to enhance its current products
and to successfully develop new products which keep pace with technology trends,
competitive offerings, and evolving customer requirements. In particular, the
Company believes it must continue to enhance the basic functionality of its
products and extend the product line to keep pace with the advances in hardware,
operating systems, programming languages, databases, and Internet-related
technology. Any failure of the Company to anticipate new technology developments
and customer needs or any significant delays in product development and
introduction could result in a loss of competitiveness and revenues. Because of
the complexity of software products, new product introductions may contain
undetected software errors that, despite quality assurance testing by the
Company, are discovered only after a product has been installed and used by
customers. Although the Company has not experienced any material adverse effects
from such errors to date, there can be no assurance that errors will not be
discovered in the future which would cause delays in shipments, loss of revenues
or require significant design changes that could adversely affect the Company's
competitive position and operating results. There can be no assurance that any
of the Company's product development efforts will lead to a commercially viable
product, and the Company is unable to predict whether or when proposed new
products, product enhancements, or product extensions might be released or
whether, when released, they will achieve market acceptance.
The Company markets its products to customers for the development,
deployment, and management of Internet and client/server applications. The
Company's license agreements with its customers typically contain provisions
designed to limit the Company's exposure to potential product liability claims.
It is possible, however, that the limitation of liability provisions contained
in the Company's license agreements may not be effective as a result of existing
or future federal, state or local laws, or ordinances or unfavorable judicial
decisions. Although the Company has not experienced any product liability claims
to date, the sale and support of its products by the Company may entail the risk
of such claims, which are likely to be substantial in light of the use of its
products in business-critical applications. A successful product liability claim
brought against the Company could have a material adverse effect upon the
Company's business, operating results, and financial condition.
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COMPETITION
The applications development tools software market is rapidly changing and
intensely competitive. The Company currently encounters competition from several
direct competitors, including Microsoft Corporation (Visual Basic), Inprise
Corporation (Delphi), Allaire Corporation (Cold Fusion) and Magic Software
Enterprises. In addition, the Company competes indirectly with several other
companies. These include (a) the relational database vendors, such as Oracle,
Sybase and Informix, who provide application development tools primarily for
customers who use their database technology; (b) 4GL application tools vendors
such as Progress Software Corporation and Cognoscente Software International
Incorporated; (c) CASE tools vendors such as Knowledgeware Inc. and Intersolv
Inc.; (d) shrink-wrap database software suppliers such as Lotus, Microsoft
Access, and ACIUS, and (e) developers in Java as competition for the Omnis web
client technology.
The Company believes that its ability to compete depends on factors both
within and outside its control, including the timing and success of new products
developed by the Company and its competitors, product performance and price,
distribution, and customer support. There can be no assurance that the Company
will be able to compete successfully with respect to these factors. In
particular, competitive pressures from existing and new competitors who offer
lower prices or introduce new products, including "native" products that fully
utilize the capabilities of a particular operating platform, could result in
delays in purchase decisions by or loss of sales to potential customers or cause
the Company to institute price reductions, any of which would adversely affect
the Company's results of operations. In particular, software licenses which
permit developers to develop configurable applications and deliver those
applications to end-users, have been and may continue to be subject to
significant pricing pressures which could have an adverse effect on the
Company's business and results of operations. There can be no assurance that the
Company will be able to maintain its price structure or that entry of future
competitors in the Company's current market will not result in pricing pressures
in the future.
Additional competitive factors influencing the market for the Company's
products include product functionality and features, platforms, performance,
vendor and product reputation, product and service quality. These items may also
result in market confusion, delays in purchases, intensified competition, price
restructuring, or price reductions. The Company believes that the broad
functionality of its products, including its cross platform capability and its
important features for group development, application deployment and maintenance
has enabled the Company to compete effectively to date, particularly for
professional development environments in major corporations. The Company's
primary focus on client/server application development tools may be a
disadvantage in competing with vendors who can provide a greater range of
products to customers who wish to deal with a limited number of suppliers (such
as Oracle, Sybase, and Informix).
As the web-based market evolves, the Company anticipates that competition
is likely to increase from both existing and future market participants, most of
whom are larger companies and have greater financial, technical, marketing,
sales, and distribution resources and a larger installed base of customers than
the Company. Moreover, if such competition were to enter the crossware market,
which is the principal market in which the Company participates, the Company
might be required to increase defensive measures to maintain its position in
these target markets. This increased effort could adversely affect operating
results due to increased marketing programs, price declines, longer sales
cycles, and increased product development expenses, among other factors. There
can be no assurance that the Company could compete effectively with such new
products.
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INTELLECTUAL PROPERTIES AND OTHER PROPRIETARY RIGHTS
The Company relies primarily on a combination of trade secret, copyright
and trademark laws and contractual provisions to protect its proprietary rights.
In addition to trademark and copyright protections, the Company licenses its
products to end users on a "right to use" basis pursuant to a perpetual license
agreement that restricts use of products to a specified number of users. The
Company generally relies on "shrink-wrap" or "click-wrap" licenses which become
effective when a customer opens the package or downloads and installs software
on its system. In order to retain exclusive ownership rights to its software and
technology, the Company generally provides its software in object code only,
with contractual restrictions on copying, disclosure, and transferability. There
can be no assurance that these protections will be adequate, or that the
Company's competitors will not independently develop technologies that are
substantially equivalent or superior to the Company's technology.
Copyright and other protection for intellectual property may be unavailable
or restricted in certain foreign countries. In addition, shrink-wrap or
click-wrap licenses may be unenforceable under the laws of certain
jurisdictions. Nevertheless, the Company believes that its copyright and license
protections are important. However, because of the rapid pace of technological
change in the computer software industry, factors such as the product knowledge,
ability, and experience of the Company's personnel, brand name recognition,
customer support, and ongoing product maintenance and enhancement may be more
significant in maintaining the Company's competitive advantage.
As the number of software products available in the market increases and
the functions and features of these products further overlap, the Company
anticipates that software products may become increasingly subject to
infringement claims. There can be no assurance that third parties will not
assert infringement claims against the Company in the future with respect to any
current or future product. Any such assertion, whether with or without merit,
could require the Company to enter into costly litigation or royalty
arrangements. If required, such royalty arrangements may not be available on
reasonable terms, or at all.
The Company is currently involved in litigation related to copyright
infringement. Please see Item 3, "LEGAL PROCEEDINGS".
The Company has filed a final patent application in the United States for
certain of its Omnis Studio Web Client technologies and has instituted a
procedure for preparing and filing additional provisional and final patent
applications as appropriate for its developing technologies. At this time the
Company has not been granted any patents on any of its proprietary technologies
and there is no assurance that any such patents will be granted. Patent
protection may become important in the protection of the commercial viability of
the Company's innovative products and the failure to obtain such patent
protection could have an adverse effect on the commercial viability of such
products. The Company's success therefore may in part depend on its ability to
obtain strong patent protection or licenses to strong patents in the future. It
is not possible to anticipate the breadth or degree of protection that patents
would afford any product of the Company or the underlying technologies. There
can be no assurance that any patents issued or licensed to the Company will not
be successfully challenged in the future or that any Omnis product will not
infringe the patents of third parties.
The level of research and development efforts in areas related to the Omnis
products makes it possible that third parties will obtain patents or other
proprietary rights that may be necessary or useful to its products. In recent
years the practice of applying for and issuing software patents in the United
States and other jurisdictions has accelerated and the scope and validity of
such patents are frequently in dispute. In cases where third parties are the
first to invent a particular product or technology, it is possible that such
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parties would obtain patents that would be sufficiently broad to prevent the
Company from marketing the same or similar products. Although the Company is not
presently aware that any patents necessary to its products have been issued for
which licenses are not available to the Company, it is possible that
applications for such patents have been made or that such patents have been
issued in one or more relevant jurisdictions. The scope and validity of such
patents, if issued, the extent to which the Company may desire or need to obtain
licenses under such patents, and the cost and availability of such licenses are
currently unknown. There can be no assurance others may not independently
develop or obtain technology similar to that of the Company.
PRODUCTION
The Company uses subcontractors in the United Kingdom to perform its
manufacturing operations, which include duplication and preparation of software
media, documentation, and packaging. The principal materials used in the
manufacture of the Company's products are CD ROMs, boxes, binders, and
multi-color printed materials which the Company obtains from its manufacturers.
The Company utilizes certain of its distributors in some international
markets to localize the products, including conversion of the product and
product documentation to native languages, where necessary. The production of
the resulting localized product is then handled by the distributor for that
market.
The Company requires that quality control tests be performed on all
duplicated disks and finished products. Quality control personnel work in the
United Kingdom operation to help ensure product quality. The Company produces
software and documentation based upon forecasts of monthly sales.
EMPLOYEES
At May 11, 2000, the Company had 69 employees, including 23 in product
development, 21 in sales and marketing, 15 in customer support and consulting,
and 10 in finance and administration. Of these 69 employees, 48 employees are
based in Europe, and 21 are located in the United States. The Company's
employees are not represented by any collective bargaining organization, and the
Company has never experienced a work stoppage. Further, the Company believes its
relationships with its employees are good.
The Company's success depends to a significant extent upon a number of key
management and technical personnel, the loss of one or more of whom could
adversely affect its business. In addition, the Company believes that its future
success will depend to a significant extent on its ability to recruit, hire and
retain highly skilled management and employees for product development, sales,
marketing, and customer service. Competition for such personnel in the software
industry is intense, and there can be no assurance that the Company will be
successful in attracting and retaining such personnel.
EXECUTIVE OFFICERS OF THE REGISTRANT
The following sets forth certain information regarding the executive
officers of the Company as of May 31, 2000:
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Name Age Position
---- --- --------
Philip Barrett 45 Chairman of the Board
Gwyneth Gibbs 57 President and interim Chief Executive Officer
Geoffrey Wagner 43 Secretary
David R. Seaman 46 Chief Technical Officer and Founder
James W. Dorst 45 Chief Operating Officer, Chief Financial Officer
Jerald Lipscomb 36 Chief Evangelist
Mr. Barrett was appointed Chairman of the Company in February 1999. He is
the former President and owner of Oregon Pro Sport, a company that manages
professional sports teams including the Cascade Surge. Oregon Pro Sport was
founded by Mr. Barrett in January 1995 and sold in November 1998. Prior to that
time Mr. Barrett was the President and a partial owner of Supra Products, Inc.
Mr. Barrett commenced his employment with Supra Products, Inc. in September 1984
and worked in the sales, finance and marketing divisions of that company until
he became its President and partial owner in 1992. Supra Products was sold in
September 1994 to Berwind Industries, Inc. He is also a director of the Company.
Mrs. Gibbs was appointed President and interim Chief Executive Officer in
October 1998. She joined the Company in October 1994, initially responsible for
Research and Development in Europe and subsequently with world-wide
responsibility in January 1998. Prior to joining the Company, Mrs. Gibbs was
Technical Director of an intelligent database start-up for 6 years, and before
that held a number of positions in UK development organizations. She is also a
director of the Company.
Mr. Wagner was appointed Secretary of the Company in February 1999. He is
currently the General Partner of Rockport Group L.P. In September 1990 Mr.
Wagner co-founded the Rockport Group L.P. and has been a General Partner since
its inception. Rockport Group, L.P. invests its capital in a variety of
industries, including technology, healthcare and apparel. Prior to 1990 Mr.
Wagner held sales executive positions at several leading Wall Street firms
including five years at Bear, Steams & Co., Inc. and five years at Kidder,
Peabody & Co., Inc. Mr. Wagner is also a director of the Company.
Mr. Seaman is the Chief Technical Officer and is a Founder of the Company.
He has served as a Vice President of the Company since June 1990 and has served
as Research and Development Director since June 1982. He served as Managing
Director of Blyth Software, Ltd. from September of 1990 until June of 1993.
Mr. Dorst has 14 years of senior corporate management experience and, prior
to joining the Company, was Chief Financial Officer and Chief Information
Officer of Savoir Technology Group, Inc. (SVTG: NASDAQ) from 1995 to 1999. Mr.
Dorst was the Chief Financial Officer of Accolade, Inc. from 1994 to 1995 and
Chief Financial Officer of Drypers Corporation from 1986 to 1993. He is also a
director of the Company.
Mr. Lipscomb has served as Chief Evangelist for the Company since November
1999. Prior to this Mr. Lipscomb spent 13 years as President of Dynabyte
Corporation, a custom software development solution provider.
ITEM 2. PROPERTIES
The Company leases 3,800 square feet of office space in San Carlos,
California pursuant to a lease which expires on August 31, 2000 and has base
monthly rent of $7,706.
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The Company owns property in the United Kingdom which it uses for its
research and development activities. The Company also leases 1,300 square feet
of office space for its European sales headquarters office in Harefield,
England. The lease, which expires on June 23, 2002, has monthly rental payments
of $3,141 plus $477 for common area maintenance. Until March 2000, the Company
leased 2,370 square feet of office space (formerly its London sales office) in
London, England. The lease had monthly rental payments of $3,820. Until December
1999, the Company sublet all of the London office space for which it received a
rental of $3,820 per month, plus 100 percent reimbursement for common area
maintenance. The sublease terminated on December 25, 1999. The Company then
negotiated a termination of this lease in March 2000. A premium of $76,523 had
to be paid in order to avoid any future contractual liability, of which
approximately $15,000 is expected to be reclaimed from the leasees for repairs
and renovations.
The Company leases property in Germany which it uses as a sales office. The
space is 457 square meters and has monthly rental payments of $21,470. 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 adequate to meet its
requirements for fiscal year 2001.
ITEM 3. LEGAL PROCEEDINGS
COMPASS LITIGATION. 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 obtained a full dismissal of that case with
prejudice on November 29, 1999, and no appeal was filed by Compass within the
time allowed by law.
In this connection the Company previously had sued Compass in 1994 for illegally
infringing and distributing the Company's software products. This matter was
settled with an agreement that Compass would pay certain amounts and would not
make illegal copies of the Company's software in the future. Compass failed to
pay the promised amounts when due. The Company then obtained a judgment for
breach of contract against Compass. As part of its efforts to enforce its
judgment against Compass, the Company purchased, at a judgment lien sale,
certain intangible property of Compass including the rights to the 1998
infringement suit brought by Compass ("Execution Sale"). Compass then requested
the applicable trial court to set aside the Execution Sale. The trial court
granted the request and the Company appealed the judgment. The court of appeal
subsequently ruled in favor of the Company and directed the trial court to
determine the amount of fees to be awarded to the Company. That amount had not
been determined as of May 9, 2000.
The Company also filed an second lawsuit against Compass alleging additional
acts of infringement for periods after 1994, which case is now pending. Trial in
this case is scheduled for July 5, 2000. Compass has asserted a counterclaim
alleging refusal of the Company to sell products to Compass. The Company
believes that this counterclaim has no merit.
BTN - GERMANY. The Company entered into a professional development services
agreement with BTN Versandhandel GmbH of Leiferde, Germany for the development
of an OMNIS application. The Company developed and delivered a version of the
application to BTN. BTN failed to pay the Company as agreed,claiming there were
flaws in the application and the project was suspended by the Company awaiting
their payment. BTN commenced legal action against the Company in Germany
claiming damages of approximately DM250,000 for failure to perform under the
services agreement. The Company has countersued BTN claiming the balance owed
under the contract of approximately DM60,000. The Company is defending against
the BTN claim and is pursuing its counterclaim against BTN.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
In fiscal 2000, the Company's Common Stock was traded on the Nasdaq
Bulletin Board ("BB") under the symbol "OMNS".
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On May 30, 2000 the Company's Common Stock was listed for trading on the
NASDAQ Small Cap Market.
The following table sets forth the high and low closing prices for the
Company's Common Stock for fiscal years 1999 and 2000.
HIGH LOW
FISCAL YEAR 1999 CLOSING CLOSING
---------------- ------- -------
April 1 to June 30, 1998 $ 0.906 $0.587
July 1 to September 30, 1998 $ 0.906 $0.375
October 1 to December 31, 1998 $ 0.562 $0.187
January 1 to March 31, 1999 $ 0.437 $0.093
HIGH LOW
FISCAL YEAR 2000 CLOSING CLOSING
---------------- ------- -------
April 1 to June 30, 1999 $ 3.000 $ 0.750
July 1 to September 30, 1999 $ 7.187 $ 2.250
October 1 to December 31, 1999 $ 22.000 $ 5.000
January 1 to March 31, 2000 $ 21.000 $ 12.000
On June 15, 2000, the closing price for the Company's Common Stock on the
Nasdaq Small Cap Market was $6.875 and there were approximately 182 holders of
record of the Company's Common Stock. This does not include stockholders whose
Common Stock is held in street name.
The Company has never declared or paid dividends on its Common Stock. The
Company intends to retain earnings, if any, for the operation and expansion of
the Company's business, and therefore does not anticipate paying any cash
dividends in the foreseeable future. See "Management's Discussion and Analysis -
Liquidity and Capital Resources."
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL PERFORMANCE AND
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the "RISK
FACTORS" section below and the Company's audited consolidated financial
statements, including the notes thereto, included in this annual report.
Management's Discussion and Analysis of Financial Condition and Results of
Operations, as well as other portions of this document, include certain
forward-looking statements about the Company's business and new products,
revenues, expenditures and operating and capital requirements. In addition,
forward-looking statements may be included in various other Company documents to
be issued concurrently or in the future and in oral or other statements made by
representatives of the Company to investors and others from time to time.
Forward-looking statements are subject to risks and uncertainties that could
cause actual results to differ from predicted results. Such risks include, among
others, the Company's continuing liquidity problems, significant variability in
operating results, including variability in product revenues and gross margins,
fluctuating demand for new and established products, dependence on development
of new products, increasing expenses for marketing and development of new
products, historical lack of profitability, rapid technological change that
affects the ability of the Company to respond to customer or market demands,
risks associated with global operations, the continued and future acceptance of
the Company's products, the rate of growth in the industries of the Company's
products, the presence of competitors with greater technical, marketing and
financial resources, and the ability of the Company to successfully expand its
operations. Any of such statements and the following discussion should be read
in conjunction with the "RISK FACTORS" section below and the Company's audited
consolidated financial statements, including the notes thereto, included in this
annual report.
RESULTS OF OPERATIONS
The following table sets forth, as a percentage of revenues, certain
consolidated statement of operations data for the periods indicated (subtotals
not adjusted for rounding):
Percent Of Total Net Revenues:
Fiscal Year Ended March 31,
-----------------------------
2000 1999
---- ----
Net revenues:
Product 80% 73%
Services 20 27
-------- --------
Total net revenues 100 100
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Operating expenses:
Cost of product 3 6
Cost of services 4 6
Selling and marketing 52 34
Research and development 37 24
General and administrative 77 39
------- -------
Total operating expenses 174 109
Operating loss (74) (9)
Other income (expense), net (2) (6)
------- -------
Net loss (76%) (15%)
------- -------
Gross margins:
Gross margin on product revenues 77% 67%
Gross margin on service revenues 15% 21%
TOTAL NET REVENUES. Total net revenues increased 6% to $6.2 million in
fiscal year 2000 from $5.9 million in fiscal year 1999. International revenues,
accounted for 55% and 58% of total net revenues in fiscal years 2000 and 1999,
respectively. See Note 11 of the Notes to Consolidated Financial Statements.
The Company's revenues are derived from two sources: fees from software
licensing and fees for services, including consulting, training, maintenance and
product support. Product revenues increased 17% to $5 million in fiscal year
2000 from $4.3 million in fiscal year 1999.
Service revenues decreased 23% to $1.2 million in fiscal 2000 from $1.6
million in fiscal year 1999. The decrease in service revenues in fiscal year
2000 as compared to fiscal year 1999 was due to a planned reduction of
consulting.
In fiscal year ended March 31, 2000, one customer in the United States
accounted for approximately 19.3% of revenue. No single customer accounted for
more than 10% of revenues during the fiscal year ended March 31, 1999 or 1998.
The Company sells its products in U.S. Dollars in North America, British
Pounds Sterling in the United Kingdom and German Deutsche Marks in Germany. As
the Company recognizes revenues and expenses in U.S. Dollars, British Pounds
Sterling, and German Deutsche Marks but reports its financial results in U.S.
Dollars, changes in exchange rates may cause variances in the Company's
period-to-period revenues and results of operations in future periods. Foreign
exchange gains and losses have not been material to the Company's performance to
date.
COST OF PRODUCT REVENUES. Cost of product revenues is comprised of direct
costs associated with software product sales including software packaging,
documentation, and physical media costs. Cost of product revenues as a
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percentage of product revenues was 4% in fiscal year 2000 as compared to 8% in
fiscal year 1999. The decrease in cost as a percentage of total net revenues was
mainly due to decrease in headcount in the production department.
COST OF SERVICES REVENUES. Cost of services revenues includes consulting,
technical support, maintenance services, and training, which consist primarily
of personnel costs. Cost of services revenues as a percentage of net service
revenues increased to 23% in fiscal year 2000 from 22% in fiscal year 1999. The
increase in cost of services revenues as a percentage of services revenues in
fiscal 2000 as compared to fiscal year 1999 was primarily due to the increase in
headcount in the technical support department during fiscal 2000.
SELLING AND MARKETING EXPENSES. Selling and marketing expenses increased to
$3.2 million in fiscal year 2000 from $2.0 million in fiscal year 1999,
representing 52% and 34% of total net revenues during such periods,
respectively. The increase in selling and marketing was primarily due to
significant increase in headcount in the marketing group coupled with an
increase in trade-show participation and marketing programs in the fourth
quarter 2000. The Company had refocused its sales and marketing department in an
attempt to generate revenues related to its new Studio product line, including
an increased trade show presence, additional advertising and marketing
collateral generation, and an increased market awareness campaign.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses
increased to $2.3 million in fiscal year 2000 from $1.4 million in 1999, due to
an increase in headcount in this department. (as defined by SFAS 86). At the end
of fiscal year 1997, the Company had fully amortized the previously capitalized
internal software development costs and no such costs were recognized during
fiscal years 1999 or 2000.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased to $4.8 million in fiscal year 2000 from $2.3 million in fiscal year
1999. This increase in fiscal year 2000 is due to a $3.1 million charge to
compensation expense stemming from the granting of certain options at below fair
market value prior to the approval of the 1999 stock option plan by the
Shareholders of the Company.
NON-CASH COMPENSATION EXPENSE. The Company determined during the closing
process for the 1999 fiscal year that certain securities issued under the
Company's 1994 Employee Stock Purchase Plan and 1999 Stock Option Plan were not
correctly recorded in accordance with generally accepted accounting principals.
In April and July 1999, the Board of Directors of the Company granted
certain stock options under the Company's 1999 Stock Option Plan. The Company
recorded options granted to employees with an exercise price equal to the
trading price of the shares of common stock of the Company at the date of grant,
as determined in good faith by the Board of Directors of the Company, and
options granted to non-employees with an exercise price equal to 85% of the
trading price of the shares of common stock of the Company at the date of grant,
as determined in good faith by the Board of Directors of the Company. It has
been determined that applicable accounting rules and regulations require that
such options be recorded by the Company based on the fair market value of the
shares on the date of the later approval of the plan by the stockholders of the
Company on September 29, 1999.
The Company also determined that shares issued to employees pursuant to
rights granted under the Company's 1994 Employee Stock Purchase Plan must be
restated as a result of increases in the authorized shares for the plan that
were approved by the stockholders of the Company in September 1999.
Accordingly, certain charges against earnings for non-cash compensation
that were not made in the quarters ended September 30, 1999 and December 31,
1999 must be made in the current fiscal year and certain prior recorded items
must be amended. Certain of the Company's quarterly financial information has
been restated herein to provide for such charges. (see the notes to the
Company's audited Financial Statements attached hereto). Non-cash compensation
expense for the second and third fiscal quarters increased $555,000 and $670,000
respectively. The Company also incurred an approximate $1.8 million additional
non-cash compensation expense in the fourth quarter. In total, non-cash
compensation expense increased approximately $3.1 million for the fiscal year.
This adjustment had no effect on total stockholders' equity, however, it will
result in additional non-cash compensation charges against earnings of
approximately $270,000 per quarter for approximately the next two and one-half
fiscal years. The Company will be required to provide restated financial
statement information in future reports or disclosure documents in which
financial information is included. These adjustments have had no effect on total
shareholder's equity.
OTHER INCOME (EXPENSE). Other income (expense) is primarily comprised of
interest income, interest expense, gains and losses on foreign currency
transactions, and other income. Interest income reflects earnings from the
Company's cash position. Interest expense primarily relates to the Company's $2
million note payable and capital leases as of March 31, 2000. Interest expense
was $39,000 in fiscal year 2000 and $249,000 in fiscal year 1999.
INCOME TAX EXPENSE. The Company had an income tax benefit of $2,000 in
fiscal year 2000, compared to an income tax expense of $4,000 in fiscal year
1999. At March 31, 2000, the Company had net operating loss carry forwards of
approximately $40.2 million for federal income tax purposes, $8.0 million for
state tax purposes and $8.0 million for foreign taxes. The Tax Reform Act of
1986, as amended, and the California Conformity Act of 1987 impose substantial
restrictions on the utilization of net operating loss and tax credit carry
forwards in the event of an "ownership change," as defined by the Internal
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Revenue Code. An "ownership change" took place in fiscal year 1999, and the
Company is limited to approximately $146,000 per year of federal and California
net operating loss carry forwards accrued through that date (a total of $2.9
million federal and $0.7 million California).
INFLATION. The Company believes that inflation has not had a material
impact on the Company's operating results to date and does not expect inflation
to have a material impact on the Company's operating results in fiscal year
2001.
RISK FACTORS
QUARTERLY FLUCTUATIONS. The Company has experienced significant quarterly
fluctuations in operating results and anticipates such fluctuations in the
future. The Company generally ships orders as received and, as a result,
typically has little or no backlog. Quarterly revenues and operating results,
therefore, depend on the volume and timing of orders received during the
quarter, which are difficult to forecast. Furthermore, the Company has typically
sold to large corporate enterprises, significant partners, and distributors
which often purchase in significant quantities, and therefore, the timing of the
receipt of such orders could cause significant fluctuations in operating
results. Historically, the Company has often recognized a substantial portion of
its license revenues in the last month of the quarter. Service revenues tend to
fluctuate as consulting projects, which may continue over several quarters, are
undertaken or completed. Operating results may also fluctuate due to factors
such as the demand for the Company's products, the size and timing of customer
orders, changes in the proportion of revenues attributable to licenses and
service fees, commencement or conclusion of significant consulting 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 ability of the Company to develop,
introduce, and market new and enhanced versions of the Company's products on a
timely basis, changes in the level of operating expenses, changes in the
Company's sales incentive plans, budgeting cycles of its customers, customer
order deferrals in anticipation of enhancements or new products offered by the
Company or its competitors, nonrenewal of maintenance agreements, product life
cycles, software bugs and other product quality problems, personnel changes,
changes in the Company's strategy, the level of international expansion,
seasonal trends and general domestic and international economic and political
conditions, among others. Accordingly, the Company believes that
period-to-period comparisons of its operating results are not necessarily
meaningful and should not be relied upon as indications of future performance.
EXPENSE LEVELS. The Company's expense levels are based, in significant
part, on the Company's expectations as to future revenues and are therefore
relatively fixed in the short term. If revenue levels fall below expectations,
net income is likely to be disproportionately adversely affected because a
proportionately smaller amount of the Company's expenses vary with its revenues.
There can be no assurance that the Company will be able to achieve profitability
on a quarterly or annual basis in the future. Due to all the foregoing factors,
it is likely that in some future quarter the Company's operating results will be
below the expectations of public market analysts and investors. In such event,
the price of the Company's Common Stock would likely be materially adversely
affected.
FUTURE OPERATING RESULTS. The Company's future operating results will
depend, to a considerable extent, on its ability to rapidly and continuously
develop new products that offer its customers enhanced performance at
competitive prices. Inherent in this process are a number of risks. The
development of new, enhanced software products is a complex and uncertain
process requiring high levels of innovation from the Company's designers as well
as accurate anticipation of customer and technical trends by the marketing
staff.
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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, and
Asia, 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 products are typically used to develop applications that are
critical to a corporate customer's business and the purchase of the Company's
products is often part of a customer's larger business process, reengineering
initiative, or implementation of client/server or web-based computing. As a
result, the license and implementation of the Company's software products
generally involves a significant commitment of management attention and
resources by prospective customers. Accordingly, the Company's sales process is
often subject to delays associated with a long approval process that typically
accompanies significant initiatives or capital expenditures. For these and other
reasons, the sales cycle associated with the license of the Company's products
is often lengthy and subject to a number of significant delays over which the
Company has little or no control. There can be no assurance that the Company
will not experience these and additional delays in the future. Therefore, the
Company believes that its quarterly operating results are likely to vary
significantly in the future.
The development and introduction of new or enhanced products also requires
the Company to manage the transition from older, displaced products in order to
minimize disruptions in customer ordering patterns and excessive levels of older
product inventory and to ensure that adequate supplies of new products can be
delivered to meet customer demand. Because the Company is continuously engaged
in this product development and transition process, its operating results may be
subject to considerable fluctuations, particularly when measured on a quarterly
basis.
LIQUIDITY AND CAPITAL RESOURCES. At March 31, 2000, the Company's principal
sources of liquidity consisted of cash and cash equivalents of $1,237,901 and an
unused available short-term credit facility of $1,000,000.
On December 23, 1999, the Company obtained a $3,000,000 line of credit from
Astoria Capital Partners, L.P. ("Astoria") pursuant to the terms of a Credit
Facility Agreement dated as of December 21, 1999. The line of credit had a term
of six months, and was extended by further agreement on April 30, 2000 for an
additional period of four months. Under these arrangements the Company may draw
up to $500,000 from the line of credit per month as set forth in the Credit
Facility Agreement. In connection with the issuance of the line of credit, the
Company issued a Promissory Note in the principal amount of up to $3,000,000 to
Astoria dated as of December 21, 1999 and amended on April 30, 2000. All
principal and accrued interest on the Promissory Note is due and payable on May
31, 2000 or upon a Change of Control (as such term is defined in the Credit
Facility Agreement), if earlier. The Promissory Note bears interest at 8% per
annum and has a default rate of interest of 10% per annum. The Promissory Note
is secured by certain assets of the Company. While any debt is outstanding or
the line of credit remains in effect, except for any debt owing to Astoria or
debt issued contemporaneously with payment of the debt in full and termination
of the line of credit, the Company shall not incur any indebtedness without the
written consent of Astoria, except the Company may incur junior debt in the
aggregate principal amount of up to $500,000 in connection with the purchase or
lease of property (whether or not in the ordinary course of business).
In addition, and also in connection with the issuance of the line of
credit, the Company issued to Astoria a non-transferable warrant to purchase
shares of capital stock of the Company. The Company issued the Warrant pursuant
to an exemption from registration under section 4(2) of the Securities Act of
1933, as amended. The Warrant may be exercised, and shares of capital stock of
the Company will be issued upon exercise of the Warrant, only in connection with
one or more Qualifying Offerings (as such term is defined in the Warrant) of
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securities of the Company. The Warrant may be exercised for up to $3,000,000 of
shares of the capital stock of the Company issued in one or more Qualifying
Offerings at the price per share of such securities in each such Qualifying
Offering, as further provided and qualified by the Warrant. The Company has
granted to Astoria certain registration rights with respect to any shares of
capital stock issued upon exercise of the Warrant as described in the Warrant.
The Warrant terminates on Augutst 31, 2001; and in this connection the Company
has no independent obligation to issue any securities, consummate any offering
of its securities or accept any offer to issue or sell any of its securities on
or before such date. Copies of the Credit Facility Agreement and forms of the
Promissory Note and Warrant are incorporated herein by reference.
On March 19, 1999, the Company's Board of Directors authorized the issuance
of 300,000 shares of Series A Convertible Preferred stock (the "Preferred
Shares") and 7,600,000 shares of Common stock (the "Common Shares")
(collectively, the Preferred Shares and the Common Shares shall be referred to
as the "Shares"). The Restated Articles of Incorporation of the Company vest in
the Board of Directors the authority to issue such Shares. On March 31, 1999 the
Company filed with the Secretary of State of Delaware a Certificate of
Designations setting forth the rights, preferences and privileges of the
Preferred Stock. Pursuant to the terms of the Letter of Intent executed by and
between the parties on February 22, 1999, on March 31, 1999 the Company entered
into stock purchase agreements with Astoria, an affiliate of an existing
shareholder, Gwyneth Gibbs, president of the Company and certain members of the
Board of Directors or their affiliates. Under the terms of the Stock Purchase
Agreement with Astoria, the Company agreed to issue and Astoria agree to
purchase 300,000 Preferred Shares at a purchase price of $1.6667 per share for
an aggregate purchase price of $500,000 and 2,543,344 Common Shares at a
purchase price of $0.25 per share, for an aggregate purchase price of $635,836
(collectively, the "Astoria Shares"). The Astoria Shares were issued and sold to
Astoria in consideration of the cancellation of the indebtedness of the Company
to Astoria. The Company also entered into a Common Stock Purchase Agreement with
Astoria whereby Astoria purchased 1,000,000 Common Shares at a price of $0.25
per share for an aggregate purchase price of $250,000. The Common Stock Purchase
Agreement and Stock Purchase Agreement grant certain registration rights and
rights of first refusal to Astoria. Pursuant to the terms of the stock purchase
agreements entered into with certain members of the Board of Directors,
including Mrs. Gibbs (the "Board of Directors Agreements"), the Company agreed
to issue, in the aggregate 4,000,000 Common Shares at a price of $0.25 per
share, for aggregate purchase price of $1,000,000. The Board of Directors
Agreements do not grant any registration rights or rights of first refusal to
the parties.
The proceeds from the sale of the Common Shares to the Board of Directors
was used to satisfy the debt owed, in its entirety, to the Omnis Class 2
Creditors (the "Creditors") pursuant to the Work Out Agreement entered into
between the Company and the Creditors. The proceeds from the sale of the Shares
to Astoria will be used for working capital purposes.
The Company's working capital position decreased to ($1,106,000) at March
31, 2000 from $390,000 at March 31, 1999.
The Company has operated at a loss for the last several years. The
Company's new management team has taken steps to improve the Company's business
prospects through (i) more targeted marketing of its products; (ii) increased
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investments in infrastructure; (iii) improved operational systems and (iv) a
renewed focus on returning the Company to long-term profitability. However these
initiatives have and will require financial resources and additional financing
will be required to continue to pursue the initiatives noted above.
The Company does not currently have an established line of credit with a
commercial bank and has funded operations over the past several months through a
working capital facility provided by a major shareholder. Such future credit
facility may be difficult to obtain with the Company's historical operating
results. On June 29, 2000, Astoria Capital Partners, Ltd., agreed to extend the
Maturity Date of the Credit Facility Agreement until April 1 2001 or to convert
the facility to equity at terms still to be negotiated. The Company believes
that it has sufficient working capital, or will be able to obtain sufficient
working capital, to continue operations through March 31, 2001.
KEY PERSONNEL AND MANAGEMENT. The success of the Company depends to a
significant extent upon a number of key management and technical personnel, the
loss of one or more of whom could adversely affect its business. In addition the
Company believes that its future success will depend to a significant extent on
its ability to recruit, hire and retain highly skilled management and employees
for product development, sales, marketing, and customer service. Competition for
such personnel in the software industry is intense, and there can be no
assurance that the Company will be successful in attracting and retaining such
personnel. Management of the Company will also be required to manage any growth
of the Company in a manner that requires a significant amount of management time
and skill. There can be no assurance that the Company will be successful in
managing any future growth or that any failure to manage such growth will not
have a material adverse effect on the Company's business, operating results or
financial condition.
DEPENDENCE ON PRINCIPAL PRODUCTS. Any factor adversely affecting sales of
the Company's principal products, including but not limited to Omnis Studio and
Omnis Studio Web Client, would have a material adverse effect on the Company.
The future financial performance of the Company will depend in significant part
upon the successful development, introduction and customer acceptance of new or
enhanced versions of its principal products and other products. There can be no
assurance that the Company will be successful in marketing its principal
products or any new or enhanced products the Company may develop in the future.
In addition competitive pressures or other factors may result in price erosion
that could have a material adverse effect on the Company's results of operation.
INTELLECTUAL PROPERTY PROTECTION. The Omnis products include technologies
developed by the Company. The Company relies primarily on a combination of trade
secret, copyright and trademark laws and contractual provisions to protect its
proprietary rights in such technologies. There is no assurance that such laws
and contractual provisions will adequately protect the intellectual properties
and other proprietary rights of the Company. The Company has filed a final
United States patent application for certain of its Studio Web Client
technologies. At this time the Company has not filed any final patent and has
initiated a procedure for preparing and filing additional provisional and final
patent applications as appropriate for its developing technologies. Granted any
patents on any of its proprietary technologies and there is no assurance that
any such patents will be granted. Patent protection may become important in the
protection of the commercial viability of the Company's innovative products and
the failure to obtain such patent protection could have an adverse effect on the
commercial viability of such products. The Company's success therefore may in
part depend on its ability to obtain strong patent protection or licenses to
strong patents in the future. It is not possible to anticipate the breadth or
degree of protection that patents would afford any product of the Company or the
underlying technologies. There can be no assurance that any patents issued or
licensed to the Company will not be successfully challenged in the future or
that any Omnis product will not infringe the patents of third parties. As the
number of software products available in the market increases and the functions
and features of these products further overlap, the Company anticipates that
software products may become increasingly subject to infringement claims. There
can be no assurance that third parties will not assert infringement claims
against the Company in the future with respect to any current or future product.
Any such assertion, whether with or without merit, could require the Company to
enter into costly litigation or royalty arrangements. If required, such royalty
arrangements may not be available on reasonable terms, or at all. See Part 1 -
Business - "Intellectual Properties and Other Proprietary Rights".
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INTERNATIONAL OPERATIONS. Additionally, the Company operates on a global
basis with offices or distributors in Europe and Asia as well as in North
America. International operations are subject to inherent risks, including costs
and difficulties in staffing and managing foreign operations; difficulties in
obtaining and managing local distributors; the costs and difficulties in
localizing products into languages other than English for foreign markets;
political or economic instability, unexpected regulatory changes and
fluctuations in interest or exchange rates in the specific countries in which
the Company distributes its products or in international markets in general;
longer receivables collection periods and greater difficulty in accounts
receivable collection; import/export duties and quotas; reduced protection for
intellectual property rights in some countries; and potentially adverse tax
consequences. Also, as the Company continues to operate more internationally,
seasonality may become an increasing factor in its financial performance. There
can be no assurance that these factors or any combination of these factors will
not adversely affect the international revenues or overall financial performance
of the Company.
DELAYS IN SALES AND COMMITMENTS. The Company's products are typically used
to develop applications that are critical to a customer's business and the
purchase of the Company's products is often part of a customer's larger business
process, reengineering initiative, or implementation of client/server computing.
As a result, the license and implementation of the Company's software products
generally involves a significant commitment of management attention and
resources by prospective customers. Accordingly, the Company's sales process is
often subject to delays associated with a long approval process that typically
accompanies significant initiatives or capital expenditures. For these and other
reasons, the sales cycle associated with the license of the Company's products
is often lengthy and subject to a number of significant delays over which the
Company has little or no control. There can be no assurance that the Company
will not experience these and additional delays in the future. Therefore, the
Company believes that its quarterly operating results are likely to vary
significantly in the future.
CHANGES IN PRICING STRUCTURE. The Company has recently announced a
reduction in certain portions of its pricing structure for fiscal year 1999 and
beyond. There is no guarantee that this reduction in price will lead to
increased unit volume or other additional revenue streams to replace this lost
revenue, which could lead to a significant cash flow strain on the core
operations of the Company. Additionally, the Company is relying on increased
revenues related to its new OMNIS Studio product line, which have not generated
revenues as originally projected by the Company. There is no assurance that this
product line will generate the revenues needed to sustain the Company in coming
quarters and beyond. The Company has committed to decreasing sales conflicts
with its partners particularly in the service revenue area and has already taken
a number of steps in this regard. This has had and will continue to have a
negative effect on service revenues as compared to previous quarters and years.
There can be no guarantee that the Company will be able replace the decreasing
service revenues with new product revenues.
FORWARD LOOKING STATEMENTS. Certain of the matters discussed under the
captions "Business," "Properties," "Legal Proceedings," "Management's Discussion
and Analysis of Financial Condition and Results of Operations," and elsewhere in
this report may constitute "forward-looking" statements for purposes of the
Securities Act of 1933, as amended, and the Exchange Act of 1934, as amended,
and, as such, may involve known and unknown risks, uncertainties and other
factors that may cause the actual results, performance or achievements of the
Company to be materially different from future results, performance or
achievements expressed or implied by such forward-looking statements. 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. When used in this report,
the words "anticipates," "estimates," "believes," "continues," "expects,"
"projections," "forecasts," "intends," "may," "might," "could," "should," and
similar expressions are intended to be among the statements that identify
forward-looking statements. Such forward-looking statements are based on a
number of assumptions and involve a number of risks and uncertainties, and
therefore actual results could materially differ. These risks and uncertainties
include, among others, the Company's continuing liquidity problems, significant
variability in operating results, including variability in product revenues and
gross margins, fluctuating demand for new and established products, dependence
on development of new products, increasing expenses for marketing and
development of new products, historical lack of profitability, rapid
technological change that affects the ability of the Company to respond to
customer or market demands, risks associated with global operations, the
continued and future acceptance of the Company's products, the rate of growth in
the industries of the Company's products, the presence of competitors with
greater technical, marketing and financial resources, and the ability of the
Company to successfully expand its operations.
ITEM 7. FINANCIAL STATEMENTS
The consolidated financial statements of the Company, including the notes
thereto, together with the independent auditors' reports thereon are presented
beginning on Page F-1.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
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PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS, AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
ELECTION OF DIRECTORS
The Bylaws of the Company provide that the Board of Directors shall be
composed of seven directors divided into three classes composed of two members
in each of Classes I and II and three members in Class III. The directors are
elected to serve staggered three-year terms, with the term of one class of
directors expiring each year.
In November 1999, the Board appointed Mr. James Dorst to the Board of
Directors to fill a vacancy in the Class III Directors. In February 2000, the
Board appointed Mr. Bryce Burns to the Board of Directors. Mr. Burns was also
appointed to the Audit Committee of the Board. The members of the Board of
Directors of the Company as of March 31,2000 and currently are Mr. Philip
Barrett, Mr. Gerald Chew, Mrs. Gwyneth Gibbs, Mr. Douglas Marshall, Mr. Geoffrey
Wagner, Mr. James Dorst and Mr. Bryce Burns.
The term of the following Class I Directors will expire at the 2002 Annual
Meeting of Stockholders:
Name of Director Age* Principal Occupation Director Since
--------------------------------------------------------------------------------
Douglas Marshall(1) 44 Vice President of Marketing
Bank of America 1998
Geoffrey Wagner(2) 43 General Partner, Rockport Group
L.P., a private investment firm 1998
There are no arrangements or understandings between any director or executive
officer and any other person pursuant to which he or she is or was to be
selected as a director or officer of the Company.
The term of the following Class III Directors will expire at the 2000 Annual
Meeting of Stockholders:
Name of Director Age* Principal Occupation Director Since
--------------------------------------------------------------------------------
Gwyneth Gibbs 57 President and Interim Chief Executive
Officer of the Company 1999
James Dorst 45 Chief Operating Officer and Chief
Financial Officer of the Company 1999
Bryce Burns(2) 42 Executive of Novell, Inc. 2000
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The term of the following Class II Directors will expire at the 2001 Annual
Meeting of Stockholders:
Name of Director Age* Principal Occupation Director Since
--------------------------------------------------------------------------------
Gerald Chew(1) 40 Executive Vice President of Ancora 1998
Capital & Management Group, LLC,
and Managing Director of The Cairn
Group, a management consulting firm
Philip Barrett(2) 45 Chairman of the Board 1998
* As of July 20, 2000.
(1) Member of the Compensation Committee
(2) Member of the Audit Committee
Except as follows, each nominee or director has been engaged in his
principal occupation set forth above during the past five years; there is no
family relationship between any director or executive officer of the Company.
Mr. Barrett was appointed Chairman of the Company in February 1999. He
is the former President and owner of Oregon Pro Sport, a company that manages
professional sports teams including the Cascade Surge. Oregon Pro Sport was
founded by Mr. Barrett in January 1995 and sold in November 1998. Prior to that
time Mr. Barrett was the President and a partial owner of Supra Products, Inc.
Mr. Barrett commenced his employment with Supra Products, Inc. in September 1984
and worked in the sales, finance and marketing divisions of that company until
he became its President and partial owner in 1992. Supra Products was sold in
September 1994 to Berwind Industries, Inc.
Mr. Chew is currently Executive Vice President of Ancora Capital
& Management Group, LLC since June 1998 and Managing Director of The Cairn Group
since February 1997. From August 1996 to February 1997, he was Chief Operating
Officer of Spot Magic, Inc. From November 1992 to July 1996, Mr. Chew served as
Executive Director of Strategy Development for U S WEST, Inc. Since December
1995, Mr. Chew has served as Director of MDSI Mobile Data Solutions, Inc. Mr.
Chew also serves as a Director of a number of private companies.
Mrs. Gibbs was appointed President and interim Chief Executive Officer
of the Company in October 1998, and was elected to the Board of Directors in
February 1999. She joined the Company in October 1994, was initially responsible
for Research and Development in Europe and subsequently was assigned world wide
responsibility for Research and Development in January 1998. Prior to joining
the Company, Mrs. Gibbs was Technical Director of an intelligent database
start-up for 6 years, and before that held a number of positions in UK
development organizations.
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Mr. Marshall is currently Vice President with Bank of America where he
has held a number of marketing positions including Vice President of Advertising
and Marketing Communications as well as product development and management
roles. Prior to joining Bank of America in August of 1994, Mr. Marshall served
as Marketing Director and Northwest Region manager for US Travel, a global
travel management company. From June 1984 to July 1998, Mr. Marshall held a
number of marketing positions with Seafirst Bank, a Seattle, Washington-based
subsidiary of Bank of America Corporation.
Mr. Wagner was appointed Secretary of the Company in February 1999. He
is currently the General Partner of Rockport Group L.P. In September 1990 Mr.
Wagner co-founded the Rockport Group L.P. and has been a General Partner since
its inception. Rockport Group, L.P. invests its capital in a variety of
industries, including technology, healthcare and apparel. Prior to 1990 Mr.
Wagner held sales executive positions at several leading Wall Street firms
including five years at Bear, Stearns & Co., Inc. and five years at Kidder,
Peabody & Co., Inc.
Mr. Dorst was appointed Chief Operating Officer and Chief Financial
Officer of the Company in November 1999. He has 14 years of senior corporate
management experience and prior to joining the Company, was Chief Financial
Officer and Chief Information Officer of Savoir Technology Group, Inc. from 1995
to 1999. Mr. Dorst was the Chief Financial Officer of Accolade, Inc. from 1994
to 1995 and Chief Financial Officer of Drypers Corporation from 1986 to 1993.
Mr. Burns currently heads the Business Planning and Release Management
Group of Novell, Inc., a major networking software provider. Previously Burns
served as Executive Vice President and Chief Operating Officer of Caldera
Systems, Inc., a leader in the provision of Linux-based business solutions and
also was President of Applied Medical Informatics, Inc. a medical software
company. Mr. Burns holds a BS degree in Medical Biology from the University of
Utah and an MBA from Brigham Young University.
BOARD MEETINGS AND COMMITTEES
The Board of Directors of the Company held a total of nine meetings and
did not take any action by written consent during the fiscal year ended March
31, 2000. No director serving during the fiscal year attended fewer than 75% of
the aggregate of all meetings of the Board of Directors and the committees of
the Board upon which such director served.
The Company has a Compensation Committee and an Audit Committee of the
Board. The Board of Directors does not have any nominating committee or any
committee performing such functions. The Compensation Committee is generally
responsible for evaluating and recommending to the Board of Directors of the
Company the granting of stock options to employees, including officers, and
other eligible persons, and the setting of compensation for the executive
officers of the Company. The executive officers of the Company have been
delegated the responsibility of administering
29
<PAGE>
compensation programs (other than stock based) for the other employees of the
Company, subject to overall budget review and approval by the Board of
Directors.
Messrs. Chew and Marshall are currently the members of the Compensation
Committee.
The Audit Committee is generally responsible for recommending
engagement of the Company's independent public accountants and is generally
responsible for approving the services performed by such independent public
accountants and for reviewing and evaluating the Company's accounting principles
and its system of internal accounting controls.
Messrs. Barrett, Wagner and Burns are currently the members of the
Audit Committee.
DIRECTOR COMPENSATION
The Company reimburses directors for travel and other out-of-pocket
expenses incurred in attending Board meetings but no cash compensation is
otherwise paid to directors.
The 1993 Directors' Warrant Plan (the "Director Plan") was adopted by
the Board of Directors in September 1993 and was approved by the stockholders in
August 1994. The Director Plan provided for automatic non-discretionary grants
of warrants to non-employee Directors ("Outside Directors"). Each Outside
Director elected on or after the date of adoption of the Director Plan was
automatically granted a warrant to purchase 30,000 shares of Common Stock upon
the date he or she became a director of the Company (an "Initial Warrant")
pursuant to a vesting schedule related to the term of such director. Directors
Mr. Barrett, Mr. Chew, Mr. Marshall, and Mr. Wagner each received such a grant
when they were appointed to the Board of Directors. Thereafter, each Outside
Director was automatically granted a warrant to purchase 5,000 shares of Common
Stock on September 1 of each year, provided that he or she had served for at
least six (6) months as of such date and was then serving as an Outside Director
("Subsequent Warrant").
In April 1999, the Board of Directors determined that it was in the
best interests of the Company to adopt the Omnis Technology Corporation 1999
Stock Option Plan (the "1999 Plan") to consolidate options to be issued to
directors, officers, key employees, consultants and advisors under a single
option plan and to terminate the Director Plan, the 1993 Advisors Plan and the
1996 Stock Option Plan, except as to warrants and options then issued and
outstanding under such plans. The 1999 Plan was adopted by the Board of
Directors and 1,500,000 shares of the common stock of the Company were reserved
for issuance under the 1999 Plan. The stockholders of the Company approved the
1999 Plan during the 1999 Annual Stockholders' Meeting.
30
<PAGE>
At the 1999 Annual Meeting, the stockholders approved the granting of
nonincentive stock option to director Gerald Chew in the amount of 96,825 shares
of the common stock of the Company, a nonincentive stock option to director
Douglas Marshall representing 96,825 shares of the common stock of the Company,
and an incentive stock option to Gwyneth Gibbs representing 65,000 shares of
common stock of the Company under the 1999 Option Plan. Options granted to such
directors are on terms consistent with the 1999 Stock Option Plan, with the
vesting of the options for Messrs. Chew and Marshall as of July 31, 1999 and
vesting of one-third of the options of Mrs. Gibbs on July 31, 2000 with monthly
vesting of the remainder of such options in equal installments over the
following 24 months; and with an exercise price for the shares determined by the
Special Committee of the Board as of July 31, 1999. Under the 1999 Option Plan,
the relevant option would terminate upon the removal of a director for cause or
death or disability in the case of Messrs. Chew and Marshall; or upon the
termination of the employment or death or disability of Mrs. Gibbs pursuant to
the specific terms of the Plan.
As of July 20, 2000, warrants to purchase approximately 134,137 shares
of the Company's Common Stock under the Director Plan were outstanding.
Current Executive Officers of the Company found under the caption
"Executive Officers of the Registrant" in Part I hereof is also incorporated by
reference into this Item 9.
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's officers and directors, and persons who own more than ten percent of a
registered class of the Company's equity securities, to file reports of
ownership on Form 3 and changes in ownership on Form 4 or 5 with the Securities
and Exchange Commission (the "SEC") and the National Association of Securities
Dealers, Inc. Such officers, directors and ten-percent stockholders are also
required by SEC rules to furnish the Company with copies of all forms that they
file pursuant to Section 16(a). Based solely on its review of the copies of such
forms received by it, the Company believes that all Section 16(a) filing
requirements applicable to its officers, directors and ten-percent stockholders
were complied with in a timely fashion, except for Bryce J. Burns, Gerald F.
Chew, James W. Dorst and Douglas G. Marshall, each of whom failed to file a Form
3 on a timely basis which Form 3 was related to one transaction.
ITEM 10. EXECUTIVE COMPENSATION
Summary Compensation
The following table shows, as to the Chief Executive Officer and each
of the other current executive officers and former executive officers whose
salary plus bonus exceeded $100,000, information concerning compensation awarded
to, earned by or paid for services to the Company in all capacities during the
last three fiscal years:
31
<PAGE>
<TABLE>
SUMMARY COMPENSATION TABLE
<CAPTION>
Long-term
Compensation
Annual Compensation Awards
--------------------------------------------------------------------
Other Annual All Other
Name and Principal Position Year Salary($) Bonus($) Compensation($) Options Compensation
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Gwyneth Gibbs (1) 2000 107,884 40,000 22,283 65,000
Interim Chief Executive Officer, 1999 79,874 33,209 22,855 5,000
President 1998 77,117 -- 23,386 --
David R. Seaman (2) 2000 141,303 -- 28,762 24,000
Chief Technical Officer and 1999 143,253 -- 51,256 5,000
Research & Development 1998 142,069 -- 35,150 2,000
Director
Matthew Simmons (3) 2000 30,981 -- 106,539 24,000
1999 45,004 -- 81,211 3.500
1998 32,690 -- 63,645 --
<FN>
----------
(1) Mrs. Gibbs, 57* joined the Company in October 1994, was initially
responsible for Research and Development in Europe and subsequently was
assigned worldwide responsibility for Research and Development in January
1998. Mrs. Gibbs was appointed President and interim Chief Executive
Officer of the Company in October 1998, and was elected to the Board of
Directors in February 1999. Prior to joining the Company, Mrs. Gibbs was
Technical Director of an intelligent database start-up for 6 years, and
before that held a number of positions in UK development organizations.
Mrs. Gibbs is paid in U.K. pounds sterling, which have been converted
into U.S. dollars at the exchange rate in effect on March 31 of the
applicable fiscal year. "Other Annual Compensation" represents amounts
contributed to the OMNIS Software Limited Retirement Scheme on Mrs.
Gibbs' behalf (an aggregate of $21,459 in 1998, $20,921 in 1999 and
$5,346 in 2000).
(2) Mr. Seaman, 47*, is the Chief Technical Officer of the Company. He has
served as a Vice President of the Company since June 1990 and has served
as Research and Development Director since June 1982. He served as
Managing Director of Blyth Software Ltd. (now Omnis Software Ltd.) from
September of 1990 until June of 1993. Mr. Seaman is paid in U.K. pounds
sterling, which have been converted into U.S. dollars at the exchange
rate in effect on March 31 of the applicable fiscal year. "Other Annual
Compensation" represents the value of the use of an automobile and
amounts paid or reimbursed for automobile use ($3,343 in 1998 and $12,875
in 1999) and amounts contributed to the Blyth Holdings Limited Retirement
Benefits Scheme and the OMNIS Software Limited Retirement Scheme on Mr.
Seaman's behalf (an aggregate of $31,807 in 1998, $38,381 in 1999 and
$27,900 in 2000).
(3) Mr. Simmons, 26*, served as Vice President of North American Operations
since January 1999 until his employment terminated in November of 1999.
He joined the Company in August 1995, and has held a variety of positions
within the UK Sales and Marketing division. Prior to joining
32
<PAGE>
the Company, Mr. Simmons worked for a Rapid Application Development tool
vendor for 18 months. Mr. Simmons is paid in U.K. pounds sterling, which
have been converted into U.S. dollars at the exchange rate in effect on
March 31 of the applicable fiscal year. "Other Annual Compensation"
represents the value of the use of an automobile and amounts paid or
reimbursed for automobile use ($10,059 in 1998, $3,603 in 1999 and $6,384
in 2000), a mobile phone ($322 in 1999), amounts contributed to the OMNIS
Software Limited Retirement Scheme on Mr. Simmons' behalf (an aggregate
of $419 in 1998, $1,807 in 1999 and $1,037 in 2000) and commissions
($57,683 in 1998, $71,135 in 1999 and $56,271 in 2000).
(*) Ages are as of July 20, 2000.
</FN>
</TABLE>
Stock Option Grants and Exercises
<TABLE>
The following table shows, as to the individuals named in the Summary
Compensation Table above, (the "Named Executive Officers") information
concerning stock options granted during the fiscal year ended March 31, 2000.
This table also sets forth hypothetical gains or "option spreads" for the
options at the end of their respective ten-year terms, as calculated in
accordance with the Rules of the Securities and Exchange Commission. Each gain
is based on an arbitrarily assumed annualized rate of compound appreciation of
the market price at the date of the grant of 5% and 10% from the date the option
was granted to the end of the option term. The 5% and 10% rates of appreciation
are specified by the rules of the Securities and Exchange Commission and do not
represent the Company's estimate or projection of future Common Stock prices.
The Company does not necessarily agree that this method properly values an
option. Actual gains, if any, on option exercises are dependent on the future
performance of the Company's Common Stock and overall market conditions.
<CAPTION>
Option Grants in the Last Fiscal Year
Individual Grants (1) Potential Realizable
-------------------------------------------------------------- Value at Assumed
Number of Annual Rates of Stock
Securities % of Total Options Price Appreciation
Underlying Granted to of Option Term (3)
Options Employees in Exercise Expiration --------------------
Name Granted (1) (#) Fiscal Year (2) Price ($/Sh) Date 5% ($) 10% ($)
---- --------------- --------------- ------------ ----- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Gwyneth Gibbs (5) 65,000 7.03% $ 3.88 7/31/09 $ 158,607 $ 401,942
David R. Seaman 24,000 2.60% 1.02 4/13/09 15,395 39,015
Matthew Simmons (4) 24,000 2.60% 1.02 4/13/09 15,395 39,015
<FN>
(1) Options granted under the Company's 1999 Stock Plan are granted with an
exercise price less than at 100% of fair market value of the Company's
Common Stock at the Measurement Date and vest over a three-year period.
(2) During the fiscal year ended March 31, 2000, the Company granted a total of
924,825 options to employees.
(3) This column sets forth hypothetical gains or "option spreads" for the
options at the end of their respective ten-year terms, as calculated in
accordance with the rules of the Securities and Exchange Commission. Each
gain is based on an arbitrarily assumed annualized rate of compound
appreciation of the market price at the date of grant of 5% and 10% from
the date the option was granted to the end of the option term. The 5% and
10% rates of appreciation are specified by the rules of the Securities and
Exchange Commission and do not represent the Company's estimate or
projection of future performance of the Company's Common Stock and overall
market conditions.
(4) The employment of Mr. Simmons terminated in November of 1999 prior to the
vesting of these options granted to him.
(5) Employees who are eligible may participate in the 1994 Stock Purchase Plan
("Purchase Plan") to purchase up to $25,000 of shares of the Common Stock
of the Company during each calendar year at 85% of fair market value as
described in more detail below in "Other Employee Benefit Plans - 1994
Employee Stock Purchase Plan." Mrs. Gibbs purchased 40,132 shares under
this Plan during fiscal
33
<PAGE>
year 2000. Mr. Seaman and Mr. Simmons elected not to purchase shares under
the Plan during fiscal 2000. As of July 20, 2000, Mrs. Gibbs and Mr. Seaman
are eligible to participate in the Purchase Plan.
</FN>
</TABLE>
No options were exercised by the Named Executive Officers during the last
fiscal year. The following table shows, as to the Named Executive Officers, the
value of unexercised options at March 31, 2000.
Aggregated Fiscal Year-End Option Values
Number of Securities Underlying
Unexercised
Options/SARS at March 31, 2000
------------------------------
(#)(1)
------
Name Exercisable Unexercisable Value(3)
---- ----------- ------------- --------
Gwyneth Gibbs................... 4,951 68,049 $1,034,327
David R. Seaman................. 14,764 27,236 $418,140
Matthew Simmons (2)............. 0 0 -
(1) The Company has not granted any stock appreciation rights and its stock
plans do not provide for the granting of such rights.
(2) The employment of Mr. Simmons terminated in November of 1999 and therefore
all of his options expired at year end.
(3) In accordance with SEC rules, values are calculated by subtracting the
exercise price from the fair market value of the underlying common stock.
For purposes of this table, fair market value is deemed to be closing bid
price of the common stock on 3/31/00, which was $19.00 per share.
Other Employee Benefit Plans
Employment Contracts
The Service Agreement effective April 1, 1990 between the Company and Mr.
Seaman retains Mr. Seaman as the Company's Chief Technical Officer for an
initial term of four (4) years, which is automatically renewed for subsequent
two year terms unless the agreement is terminated by either party by delivery of
six months prior notice. The Service Agreement was automatically renewed for two
year terms in April 1994, April 1996, and April 1998. It provides for an annual
base salary of 48,000 pounds sterling, with annual increases based on a United
Kingdom consumer index throughout the term of the agreement. In addition, Mr.
Seaman is entitled to an annual incentive bonus of 25% of his base salary if
certain annual profitability goals are achieved (no bonuses have been paid to
date), to an automobile and payments or reimbursements for automobile expenses,
and to Company contributions to a retirement plan on his behalf. See "Blyth
Holdings Limited Retirement Benefits Scheme" and "OMNIS Software Limited
Retirement Benefits Scheme."
Blyth Holdings Limited Retirement Benefits Scheme
The Company, through its United Kingdom subsidiary, OMNIS Holdings Limited
(formerly Blyth Holdings Limited), sponsors a retirement plan, the Blyth
Holdings Retirement Benefits Scheme ("BRBS Retirement Plan"). The only
participant in the BRBS Retirement Plan is David R. Seaman. Participation in the
BRBS Retirement Plan is frozen; no additional employees may participate. The
BRBS Retirement Plan provides
34
<PAGE>
retirement benefits upon attainment of normal retirement age and incidental
benefits in case of death or termination of employment prior to retirement. A
participant's normal retirement benefit is 66.66% of his final remuneration,
reduced if the participant has less than ten years of service with OMNIS
Holdings Limited. OMNIS Holdings Limited makes annual contributions under the
BRBS Retirement Plan to fund promised retirement benefits. The BRBS Retirement
Plan is partially insured through the Sun Life Assurance Society. The assets
held under the BRBS Retirement Plan which are not used to pay insurance premiums
are held in trust for investment purposes for the benefit of the BRBS Retirement
Plan. OMNIS Holdings Limited retains the right to terminate the BRBS Retirement
Plan at any time upon thirty days prior written notice. Company contributions to
this scheme were suspended at the Chief Technical Officer's request with effect
from December 31, 1999 although there is the option for payments to be resumed
at some future date.
OMNIS Software Limited Retirement Benefits Scheme
The Company also sponsors a retirement plan called the OMNIS Software Ltd.
Retirement Benefits Scheme ("OMNIS Software Retirement Plan") for substantially
all employees of OMNIS Software Limited (formerly OMNIS Software Limited). The
OMNIS Software Retirement Plan provides retirement benefits upon attainment of
normal retirement age and incidental benefits in case of death or termination of
employment prior to retirement. OMNIS Software Limited makes annual
contributions under the OMNIS Software Retirement Plan to fund promised
retirement benefits. In addition, participants are entitled to make voluntary
contributions under the OMNIS Software Retirement Plan to increase their
benefits. Currently, OMNIS Software Limited contributes an amount ranging from
3% to 8% of each participants' compensation under the OMNIS Software Retirement
Plan. OMNIS Software Limited retains the right to terminate the OMNIS Software
Retirement Plan at any time upon thirty days prior written notice.
401(k) Employee Savings Plan
The Company established a 401(k) Employee Savings and Retirement Plan (the
"401(k) Plan") in November 1992. The 401(k) Plan is a qualified profit sharing
plan and salary deferral program under the Federal tax laws and is administered
by the Company. All employees of the Company (except for certain specifically
excluded classifications as defined in the 401(k) Plan) are eligible to
participate in the 401(k) Plan on the first day of each quarter upon attainment
of age 21. Participants may defer from 1% to 15% of their total salary
(including bonuses and commissions) each pay period through contributions to the
401(k) Plan. The Company makes a matching contribution of 10% of the amount
contributed by the participant up to a maximum of 15% of the salary deferral.
All salary deferral and Company matching contributions are credited to separate
accounts maintained in trust for each participant and are invested, at the
participant's direction, in one or more of the investment funds available under
the 401(k) Plan. All account balances are adjusted at least annually to reflect
the investment earnings and losses of the trust fund.
35
<PAGE>
Each participant is fully vested in the portion of his or her account under
the 401(k) Plan which such participant contributed. The portion contributed by
the Company vests over five years. Distribution may be made from a participant's
account upon termination of employment, retirement, disability, death or in the
event of financial hardship or attainment of age 59 1/2.
The federal tax laws limit the amount which may be added to a participant's
account for any one year under a qualified plan such as the 401(k) Plan to the
lesser of (i) $30,000 or (ii) 25% of the participant's compensation (net of
salary deferral contributions) for the year. In addition, not more than $10,500
of compensation may be deferred by a participant through salary deferral
contributions in any one calendar year.
1994 Employee Stock Purchase Plan
The 1994 Employee Stock Purchase Plan (the "Purchase Plan") was adopted by
the Board of Directors in May 1994 and the Stockholders in August 1994. As a
result of a 1-for-10 reverse split approved by the stockholders at the 1997
Annual Meeting (the "Reverse Split"), the total of 400,000 shares of Common
Stock then reserved for issuance under the Purchase Plan were split into 40,000
shares. In July 1998, the Board of Directors amended the Purchase Plan to
increase the number of shares of common stock of the Company reserved for
issuance under the Plan to 250,000 and this amendment was approved by the
stockholders in the 1998 Annual Meeting. At the Annual Meeting of Shareholders
on September 29, 1999, the shareholders of the Company also approved an
amendment to the 1994 Employee Stock Purchase Plan of the Company (the "1994
Plan") to increase the number of shares reserved for issuance under the 1994
Plan to 400,000 shares. On January 12, 2000, the Board of Directors of the
Company terminated all existing offering periods under the 1994 Plan as of March
31, 2000 and amended the 1994 Plan to establish six-month offering periods. The
foregoing transactions have resulted in substantial charges to the earnings of
the Company for non-cash compensation expenses in fiscal year 2000. As of March
31, 2000, the number of shares of common stock of the Company elected to be
purchased by participating employees of the Company was 357,159 when adjusted
for the reverse stock split in 1997 under the terms of the Plan.
Administration. The Purchase Plan, which is intended to qualify under
Section 423 of the Code, is administered by the Board of Directors or its
Compensation Committee (the "Administrator"). The Compensation and Options
Committee of the Board of Directors currently acts as Administrator of the
Purchase Plan. All questions of interpretation or application of the Purchase
Plan are determined by the Administrator, and its decisions are final,
conclusive and binding upon all participants.
Eligibility and Participation; Withdrawal. Company employees are eligible to
participate in the Purchase Plan if they are customarily employed for at least
20 hours per week and more than five months per year. Moreover, the Board may
designate that such employees of its subsidiaries are eligible to participate in
the Purchase Plan. However, no employee may be granted the right to purchase
more than $25,000 worth of Common Stock annually. Eligible employees become
participants in the Purchase Plan by filing with the payroll office of the
Company a subscription agreement authorizing payroll deductions prior to the
applicable offering date of up to 10% of the employee's compensation for an
Offering Period (as defined below). An employee may withdraw from the Purchase
Plan at any time by giving written notice to the Company. In such a case, all of
the payroll deductions credited to the employee's account and not yet used to
purchase Common Stock are refunded.
36
<PAGE>
Offering Periods. The Purchase Plan is implemented by consecutive and
overlapping offering periods of two years ("Offering Periods") with a new
Offering Period commencing on the first trading day on or after October 1 and
April 1 of each year. The Administrator may change the commencement date and
duration of Offering Periods without obtaining stockholder approval.
Purchase Price. The purchase price per share at which shares are sold to
employees under the Purchase Plan is 85% of the lower of the fair market value
of the Company's Common Stock (a) on the date of commencement of the Offering
Period or (b) on the applicable Exercise Date within such Offering Period. The
applicable "Exercise Date" is the last day of the particular six-month exercise
period within the Offering Period. The fair market value of the Company's Common
Stock on a given date shall be the closing sale price on the Nasdaq Bulletin
Board. In the event the Common Stock is quoted on the Nasdaq system (but not on
the Nasdaq Bulletin Board), the fair market value shall be the average of the
closing bid and ask prices for the Company's Common Stock on the date of such
determination. In the absence of an established market for the Common Stock, the
fair market value shall be determined in good faith by the Board of Directors.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
<TABLE>
The following table sets forth as of July 20, 2000, certain information
with respect to the beneficial ownership of the Company's voting securities by
(i) any person (including any "group" as that term is used in Section 13 (d) (3)
of the Exchange Act) known by the Company to be the beneficial owner of more
than 5% of any class of the Company's voting securities, (ii) each director and
each nominee for director, (iii) each of the named executive officers identified
in the Summary Compensation Table appearing herein, and (iv) all directors and
executive officers of the Company as a group.
<CAPTION>
Number of Percent of Number of Percent of
Shares of Total of Shares of Total of
Preferred Preferred Common Common
Name and Address (1) Stock (2) Stock (2) Stock Stock
-------------------- -------- --------- ----- -----
<S> <C> <C> <C> <C>
Astoria Capital Partners L.P. 300,000 100.0% 4,022,923 37.45%
6600 - 92nd Avenue, S.W.
Portland, Oregon 97223
Philip Barrett (3) 1,671,667 15.56%
Gerald Chew (4) 118,492 1.10%
Gwyneth Gibbs (5) 130,334 1.21%
Douglas Marshall (6) 118,492 1.10%
Geoffrey Wagner (7) 2,291,667 21.34%
David Seaman (8) 37,822 *
Larry Barcot (9) 166,645 1.55%
Matthew Simmons 172,280 1.60%
Bryce Burns 0 0.0%
James Dorst 0 0.0%
All directors and executive officers as a group (10) 4,707,398 43.83%
*less than 1%
37
<PAGE>
<FN>
(1) Except as otherwise indicated below, the persons whose names appear in the
table above have sole voting and investment power with respect to all
shares of stock shown as beneficially owned by them, subject to community
property laws, where applicable.
(2) "Preferred Stock" refers to the Series A Convertible Preferred Stock, which
is convertible into 1.667 shares of the Common Stock.
(3) Includes warrants to purchase 21,667 shares of Common Stock convertible
within 60 days of July 20, 2000 held by Mr. Barrett and 1,650,000 shares of
Common Stock owned by Philip and Debra Barrett Charitable Remainder Trust,
of which Mr. Barrett is a trustor and trustee. Grant of warrants subject to
qualification with State securities laws.
(4) Represents warrants and options to purchase shares of Common Stock
convertible within 60 days of July 20, 2000 held by Mr. Chew. Grant of
warrants subject to qualification with State securities laws.
(5) Includes options to purchase 30,201 shares of Common Stock exercisable
within sixty (60) days of July 20, 2000 held by Mrs. Gibbs.
(6) Represents warrants and options to purchase shares of Common Stock
convertible within 60 days of July 20, 2000 held by Mr. Marshall. Grant of
warrants subject to qualification with State securities laws.
(7) Includes warrants to purchase 21,667 shares of Common Stock convertible
within 60 days of July 20, 2000 held by Mr. Wagner, 1,420,000 shares of
Common Stock owned by Rockport Group LP, of which Mr. Wagner is the sole
general partner, 850,000 shares of Common Stock owned by RCJ Capital
Partners LP, of which Rockport Group LP is the sole general partner;
Director Geoffrey Wagner is the sole general partner of Rockport Group LP,
and 10,000 shares of Common Stock purchased on April 5, 1999 by a trust of
which the reporting person's wife is the sole beneficiary; the reporting
person disclaims beneficial ownership of such 10,000 shares except to the
extent of his pecuniary interest in such shares. Grant of warrants subject
to qualification with State securities laws.
(8) Includes options to purchase 27,040 shares of Common Stock exercisable
within sixty (60) days of July 20, 2000 held by Mr. Seaman.
(9) Represents options to purchase 166,645 shares of Common Stock exercisable
within sixty (60) days of July 20, 2000 held by Mr. Barcot.
(10) Includes the shares, options, and warrants described in footnotes 3 to 9.
</FN>
</TABLE>
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On December 23, 1999, the Company obtained a $3,000,000 line of credit from
Astoria Capital Partners, L.P. ("Astoria") pursuant to the terms of a Credit
Facility Agreement dated as of December 21, 1999 (the "Credit Facility
Agreement"). The line of credit had a term of six months and was extended by the
further agreement of the Company and Astoria on April 30, 2000 for an additional
period of four months. Under these arrangements the Company may draw up to
$500,000 from the line of credit per month as set forth in the Credit Facility
Agreement. In connection with the issuance of the line of credit, the Company
issued a Promissory Note in the principal amount of up to $3,000,000 to Astoria
Capital Partners, L.P. dated as of December 21, 1999 and amended on April 30,
2000. All principal and accrued interest on the Promissory Note is due and
payable on August 30, 2000 or upon a Change of Control (as such term is defined
in the Credit Facility Agreement), if earlier. The Promissory Note bears
interest at 8% per annum and has a default rate of interest of 10% per annum.
The Promissory Note is secured by certain assets of the Company. While any debt
is outstanding or the line of credit remains in effect, except for any debt
owing to the Astoria or debt issued contemporaneously with payment of the debt
in full and termination of the line of credit, the Company must not incur any
indebtedness without the written consent of Astoria, except the Company may
incur junior debt in the aggregate principal amount of up to $500,000 in
connection with the purchase or lease of property (whether or not in the
ordinary course of business).
38
<PAGE>
In addition, and also in connection with the issuance of the line of
credit, the Company issued to Astoria a Non-Transferable Warrant (the "Warrant")
to purchase shares of capital stock of the Company. The Warrant may be
exercised, and shares of capital stock of the Company will be issued upon
exercise of the Warrant, only in connection with one or more Qualifying
Offerings (as such term is defined in the Warrant) of securities of the Company.
The Warrant may be exercised for up to $3,000,000 of shares of the capital stock
of the Company issued in one or more Qualifying Offerings at the price per share
of such securities in each such Qualifying Offering, as further provided and
qualified by the Warrant. The Company has granted to Astoria certain
registration rights with respect to any shares of capital stock issued upon
exercise of the Warrant as described in the Warrant. The Warrant terminates on
August 31, 2001; and in this connection the Company has no independent
obligation to issue any securities, consummate any offering of its securities or
accept any offer to issue or sell any of its securities on or before such date.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a)The following documents are filed as a part of this Annual Report on
Form 10-KSB:
1. Consolidated Financial Statements required to be filed by Item 7 of
Form 10-KSB. See Index to Consolidated Financial Statements of the
Company at page F-1.
2. Exhibits:
Exhibit Number Description
-------------- -----------
3.1 Restated Certificate of Incorporation, as amended and
corrected.(1)
3.2 Certificate of Amendment of Certificate of Incorporation dated
February 9, 1999(5)
3.3 Certificate of Designations dated March 31, 1999, as
corrected.(3)
3.4 Bylaws, as amended.(2)
10.1 Omnis Technology Corporation 1994 Employee Stock Purchase Plan,
as amended (4)
10.2 Omnis Technology Corporation 1999 Stock Option Plan and form of
option agreement (5)
10.3 At-Will Employment Agreement between the Company and James W.
Dorst dated as of
39
<PAGE>
November 23, 1999. (6)
10.4 Incentive Stock Option Agreement between the Company and James W.
Dorst dated as of November 23, 1999. (6)
10.5 Stock Purchase Agreement with Astoria Capital Partners, L.P.
dated March 31, 1999. (4)
10.6 Common Stock Purchase Agreement with Astoria Capital Partners,
L.P. dated March 31, 1999. (4)
10.7 Common Stock Purchase Agreement with Gwyneth Gibbs dated March
31, 1999. (4)
10.8 Common Stock Purchase Agreement with Philip and Debra Barrett
Charitable Remainder Trust dated March 31, 1999. (4)
10.9 Common Stock Purchase Agreement with RCJ Capital Partners dated
March 31, 1999. (4)
10.10 Common Stock Purchase Agreement with Rockport Group, L.P. dated
March 31, 1999. (4)
10.11 Credit Facility Agreement between the Company and Astoria Capital
Partners, L.P. dated as of December 21, 1999. (6)
10.12 Form of Promissory Note dated as of December 21, 1999 issued by
the Company to Astoria Capital Partners, L.P. (6)
10.13 Form of Non-Transferable Warrant dated as of December 21, 1999
issued by the Company to Astoria Capital Partners, L.P. (6)
10.14 Form of Amendment to Credit Facility Agreement, Promissory Note
and Non-Transferrable Warrant between the Company and Astoria
Capital Partners, L.P. dated April 30, 2000.
10.15 Incentive Stock Option Agreement between the Company and Bryce
Burns dated as of February 14, 2000.
10.16 At-Will Employment Agreement between the Company and Jerald
Lipscomb dated as of November 24, 1999.
10.17 Incentive Stock Option Agreement between the Company and Jerald
Lipscomb dated November 24, 1999.
10.18. Incentive Stock Option Agreement between the Company and Jerald
Lipscomb dated February 22, 2000.
21.1 Subsidiaries of the Company.(7)
23.1 Independent Auditors' Consent.
40
<PAGE>
27.1 Financial data schedule.
--------------
(1) Incorporated herein by reference to the Current Report on Form 8-K filed by
the Company with the Commission on June 16, 1998.
(2) Incorporated herein by reference to the Annual Report on form 10-KSB, as
amended, for the fiscal year ended March 31, 1998, filed by the Company
with the Commission on June 29, 1998.
(3) Incorporated herein by reference to the Current Report on Form 8-K filed by
the Company with the Commission on April 15, 1999.
(4) Incorporated herein by reference to the Current Report on Form 8-K filed by
the Company with the Commission on April 17, 2000.
(5) Incorporated herein by reference to the Company's Annual Report on Form
10-KSB/A, as amended, for the fiscal year ended March 31, 1999, filed by
the Company with the Commission on July 29, 1999.
(6) Incorporated herein by reference to the Company's Quarterly Report on Form
10-QSB filed by the Company with the Commission on February 14, 2000.
(7) Incorporated herein by reference to the Annual Report on Form 10-K filed by
the Company with the Commission on June 28, 1991.
(b) Reports on Form 8-K
Reports were filed by the Company on Form 8-K during the last quarter of the
period covered by this report as follows:
(1) Form 8-K - January 7, 2000. This Form 8-K reported the appointment of James
W. Dorst as a Class III director of the Company and as Chief Financial
Officer and Chief Operating Officer of the Company. This Form 8-K also
reported the line of credit facility obtained by the Company from Astoria
Capital Partners, L.P. for $3 million. In this connection the Company
issued a Promissory Note in the principal amount of up to $3,000,000 to
Astoria Capital Partners, L.P. In addition, and also in connection with the
issuance of the line of credit facility, the Company issued to Astoria
Capital Partners, L.P. a Non-Transferable Warrant to purchase shares of
capital stock of the Company. See Item 1, "Business-Recent
Developments-Fiscal 2000".
41
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Dated: July 28, 2000 OMNIS TECHNOLOGY CORPORATION
By: /s/ GWYNETH M. GIBBS
------------------------
Gwyneth M. Gibbs
President and Interim Chief Executive Officer
<TABLE>
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this report has been signed below by the following persons on behalf of
the Registrant and in the capacities and on the dates indicated.
<CAPTION>
Signatures Title Date
---------- ----- ----
<S> <C> <C>
/s/GWYNETH M. GIBBS
--------------------------
Gwyneth M. Gibbs President and Interim Chief Executive Officer July 28, 2000
/s/PHILIP D. BARRETT
--------------------------
Philip D. Barrett Chairman July 28, 2000
/s/GEOFFREY P. WAGNER
--------------------------
Geoffrey P. Wagner Director July 28, 2000
/s/GERALD F. CHEW
--------------------------
Gerald F. Chew Director July 28, 2000
/s/DOUGLAS MARSHALL
--------------------------
Douglas Marshall Director July 28, 2000
/s/JAMES W. DORST
--------------------------
James W. Dorst Director July 28, 2000
/s/BRYCE BURNS
-------------------------
Bryce Burns Director July 28, 2000
</TABLE>
42
<PAGE>
OMNIS TECHNOLOGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS FOR
THE YEARS ENDED MARCH 31, 2000 AND 1999
AND INDEPENDENT AUDITORS' REPORTS
1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
of OMNIS Technology Corporation:
We have audited the accompanying consolidated balance sheets of OMNIS
Technology Corporation and subsidiaries (the "Company") as of March 31, 2000 and
1999, and the related consolidated statements of operations, stockholders'
equity (deficiency), and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements present fairly, in all material
respects, the consolidated financial position of OMNIS Technology Corporation
and subsidiaries at March 31, 2000 and 1999, and the consolidated results of
their operations and their cash flows for the years then ended in conformity
with accounting principles generally accepted in the United States of America.
/s/ GRANT THORNTON LLP
GRANT THORNTON LLP
San Francisco, California
May 26, 2000 (except for the basis of presentation paragraph of Note 1, as to
which the date is June 29, 2000)
2
<PAGE>
<TABLE>
OMNIS TECHNOLOGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MARCH 31, (in thousands, except share and per share amounts)
------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
ASSETS 2000 1999
-------- --------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 1,238 $ 271
Accounts receivable (less allowances for doubtful
accounts of $179 in 2000 and $150 in 1999) 594 764
Inventories 26 13
Other current assets 397 609
-------- --------
Total current assets 2,255 1,657
Property, furniture and equipment, net 923 890
Other assets -- 10
-------- --------
Total assets $ 3,178 $ 2,557
-------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
CURRENT LIABILITIES:
Current portion of long-term debt $ 56 $ 82
Note payable to stockholder 2,028 --
Accounts payable 460 240
Accrued liabilities 591 533
Deferred revenue 206 412
-------- --------
Total current liabilities 3,341 1,267
Long-term debt -- 28
-------- --------
Total liabilities 3,341 1,295
-------- --------
Commitments and contingencies (Note 10)
Stockholders' equity (deficiency):
Preferred stock - $1.00 par value; 300,000 shares authorized;
issued and outstanding: 300,000 shares 300 300
Common stock - $.10 par value; 20,000,000 shares authorized; issued
and outstanding: 2000, 10,035,238; 1999, 9,679,829 shares 1,004 967
Paid-in capital 50,373 45,180
Deferred compensation (2,044)
Accumulated deficit (50,082) (45,386)
Accumulated other comprehensive income 286 201
-------- --------
Total stockholders' equity (deficiency) (163) 1,262
-------- --------
Total liabilities and stockholders' equity (deficiency) $ 3,178 $ 2,557
-------- --------
<FN>
See notes to consolidated financial statements.
</FN>
</TABLE>
3
<PAGE>
OMNIS TECHNOLOGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED MARCH 31,
(in thousands, except share and per share amounts)
--------------------------------------------------------------------------------
2000 1999
----------- -----------
Net revenues:
Product $ 4,998 $ 4,277
Services 1,212 1,582
----------- -----------
Total net revenues 6,210 5,859
Operating expenses:
Cost of product revenues 195 333
Cost of service revenues 277 347
Selling and marketing 3,221 2,002
Research and development 2,287 1,418
General and administrative 4,804 2,297
----------- -----------
Total operating expenses 10,784 6,397
----------- -----------
Operating loss (4,574) (538)
Other income (expense):
Interest income 14 7
Interest expense and other, net (138) (352)
----------- -----------
Total other income (expense) (124) (345)
----------- -----------
Loss before income taxes (4,698) (883)
Income tax (expense) benefit 2 (4)
----------- -----------
Net loss $ (4,696) $ (887)
----------- -----------
Basic and diluted net loss per share $ (0.48) $ (0.41)
Weighted average number of common
shares outstanding 9,768,440 2,148,499
See notes to consolidated financial statements
4
<PAGE>
<TABLE>
OMNIS TECHNOLOGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
YEARS ENDED MARCH 31, 2000 and 1999
(in thousands, except share amounts)
------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Series A
Preferred Stock Common Stock
------------------------ ----------------------- Paid-in Accumulated
Shares Amount Shares Amount Capital Deficit
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balances, April 1, 1998 -- $ -- 2,125,827 $ 212 $ 42,881 $ (44,499)
Preferred stock issued 124,564 125 -- -- 875 --
Redemption of preferred stock (124,564) (125) -- -- 125 --
Common and preferred stock issued upon
conversion of debt 300,000 300 2,543,344 254 582 --
Stock issued in conjunction with private
placement (net of issuance costs of $35) 5,000,000 500 715 --
Common stock issued 10,658 1 2 --
Net loss -- -- -- -- -- (887)
Foreign currency translation adjustment -- -- -- -- -- --
Comprehensive loss -- -- -- -- -- --
---------- ---------- ---------- ---------- ---------- ----------
Balances, March 31, 1999 300,000 300 9,679,829 967 45,180 (45,386)
Common stock options exercised 10,090 1 8 --
Common stock issued 345,319 36 2,048 --
Options granted 3,137 --
Net loss -- -- -- -- -- (4,696)
Foreign currency translation adjustment -- -- -- -- -- --
Comprehensive loss -- -- -- -- -- --
---------- ---------- ---------- ---------- ---------- ----------
Balances, March 31, 2000 300,000 $ 300 10,035,238 $ 1,004 $ 50,373 $ (50,082)
========== ========== ========== ========== ========== ==========
Total
Other Stock Holders'
Deferred Comprehensive Comprehensive Equity
Compensaton Income Loss (Deficiency)
----------- ------- ---------- ----------
Balances, April 1, 1998 $ -- $ 151 $ (1,255)
Preferred stock issued -- -- 1,000
Redemption of preferred stock -- -- --
Common and preferred stock issued upon
conversion of debt -- -- 1,136
Stock issued in conjunction with private
placement (net of issuance costs of $35) -- -- 1,215
Common stock issued -- -- 3
Net loss -- -- $ (887) (887)
Foreign currency translation adjustment -- 50 50 50
Comprehensive loss -- -- $ (837)
------- ------- ---------- ----------
Balances, March 31, 1999 -- 201 1,262
Common stock options exercised -- -- 9
Common stock issued -- -- 2,084
Options granted (2,044) -- 1,093
Net loss -- -- $ (4,696) (4,696)
Foreign currency translation adjustment -- 85 85 85
Comprehensive loss -- -- $ (4,611)
------- ------- ---------- ----------
Balances, March 31, 2000 $(2,044) $ 286 $ (163)
======= ======= ========== ==========
<FN>
See notes to consolidated financial statements.
</FN>
</TABLE>
5
<PAGE>
<TABLE>
OMNIS TECHNOLOGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED MARCH 31, (in thousands)
------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
2000 1999
------- -------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(4,696) $ (887)
Adjustments to reconcile net loss to net cash used for
operating activities:
Depreciation and amortization expense 341 423
Non cash compensation 3,058 --
(Gain) Loss on disposal of property (3) 100
Changes in assets and liabilities:
Trade accounts receivable 171 (163)
Inventories (14) 61
Other current assets 222 16
Accounts payable and accrued liabilities 278 (1,614)
Deferred revenue (206) (450)
------- -------
Net cash used for operating activities (849) (2,514)
------- -------
Cash flows from investing activities:
Purchases of property, furniture and equipment (392) (17)
Proceeds from sale of fixed assets 17 77
Other assets -- 390
------- -------
Net cash provided by (used for) investing activities (375) 450
------- -------
Cash flows from financing activities:
Net borrowings (repayments) on line of credit 120 (145)
Proceeds from stockholder note 2,028 --
Repayments of debt (174) (30)
Proceeds from preferred stock issuance -- 1,000
Net proceeds from common stock issuance 119 1,218
Exercise of stock options 9 --
------- -------
Net cash provided by financing activities 2,102 2,043
------- -------
Effect of exchange rate changes on cash 89 50
Increase in cash and equivalents 967 29
Cash and equivalents - beginning of year 271 242
------- -------
Cash and equivalents - end of year $ 1,238 $ 271
------- -------
Cash paid for:
Interest $ 9 $ 141
Income taxes $ -- $ 3
</TABLE>
7
<PAGE>
OMNIS TECHNOLOGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED MARCH 31, 2000 and 1999 (CONCLUDED)
--------------------------------------------------------------------------------
NONCASH TRANSACTIONS:
During fiscal 1999, a note payable for $1,000,000 plus accrued interest
of $135,836 were converted into 300,000 shares of preferred stock and 2,543,344
shares of common stock. See Note 6.
8
<PAGE>
OMNIS TECHNOLOGY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000 and 1999
--------------------------------------------------------------------------------
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION - OMNIS Technology Corporation and its subsidiaries (the
"Company" or "OMNIS"), develops, markets, and supports software products for the
development and deployment of applications for accessing multi-user databases in
workgroup and enterprise-wide client/server computing environments. The
Company's family of products is used by corporations, system integrators, small
businesses, and independent consultants to deliver custom information management
applications for a wide range of users including financial management, decision
support, executive information, sales and marketing, and multi-media authoring
systems. In addition to these products, OMNIS provides consulting, technical
support and training to help plan, analyze, implement, and maintain application
software based on the Company's technology.
The consolidated financial statements include OMNIS Technology
Corporation and its wholly-owned subsidiaries, OMNIS Holdings Limited, OMNIS
Software Limited, OMNIS Software Inc., and OMNIS Software GmbH.
Significant accounting policies applied in the preparation of the
accompanying consolidated financial statements of the Company follow:
BASIS OF PRESENTATION - The financial statements have been prepared on
a basis which contemplates the Company's continuation as a going concern and the
realization of its assets and liquidation of its liabilities in the ordinary
course of business. The Company has a stockholders' deficiency of $163,000 at
March 31, 2000, and negative cash flows from operations of $849,000 in fiscal
2000. These matters, among others, raise substantial doubt about its ability to
continue as a going concern for a reasonable period of time. The line of credit,
from a significant shareholder, which was due at August 31, 2000, will be either
extended to April 1, 2001 or converted into equity. Management believes that
with this extension it has sufficient working capital to continue operations
through March 31, 2001. The Company's continued existence is dependent on its
ability to obtain additional financing and to achieve profitable operations.
PRINCIPLES OF CONSOLIDATION - The accompanying consolidated financial
statements include the accounts of the Company and its wholly-owned
subsidiaries. All significant intercompany balances and transactions are
eliminated in consolidation.
PRODUCT REVENUE - Revenue related to product sales is recognized when
the product is shipped, the collection of the related receivable is probable,
and no significant vendor or post-contract support obligations remain.
Insignificant vendor and post contract support obligations, including
maintenance for the first 30 days, is included in product revenue and the
estimated cost of providing this maintenance is accrued and charged to cost of
product revenues.
SERVICE REVENUE - Service revenue is generated from consulting,
technical support, and training. Product support revenue is recognized ratably
over the related contractual term, generally one year. Revenue from consulting
and training is recognized when the services are provided.
9
<PAGE>
COST OF PRODUCT AND SERVICE REVENUES - Cost of product revenues
includes cost of production materials and related documentation and amortization
of capitalized software development costs. Cost of service revenues principally
includes payroll and other costs associated with the customer support function.
Other costs specifically identifiable with the revenue source have been
classified accordingly.
CASH EQUIVALENTS - The Company considers all highly liquid investments
purchased with a maturity of three months or less to be cash equivalents.
INVENTORIES - Inventories, principally finished goods, are stated at
the lower of cost on a first-in, first-out (FIFO) basis, or market value.
PROPERTY, FURNITURE AND EQUIPMENT - Property, furniture, and equipment
are stated at cost. Capital leases are recorded at the present value of the
minimum lease payments at the date of acquisition. Depreciation and amortization
is computed on a straight-line basis over the estimated useful lives of the
assets or lease term whichever is shorter, which range from 3 to 25 years.
Leasehold improvements are amortized on a straight-line basis over the shorter
of the lease term or the estimated useful lives of the assets.
LONG-LIVED ASSETS - The Company has adopted Statement of Financial
Accounting Standards No. 121, Accounting For The Impairment Of Long-Lived Assets
And For Long-Lived Assets To Be Disposed Of (SFAS 121), which requires that
long-lived assets, certain identifiable intangibles, and goodwill related to
those assets used by an entity be reviewed for impairment whenever events or
changes indicate that the carrying amount of an asset may not be recoverable.
The Company's policy is to review the recoverability of all long lived assets
and intangible assets at a minimum on an annual basis, and in addition whenever
events or changes indicate that the carrying amount of an asset may not be
recoverable.
CAPITALIZED SOFTWARE DEVELOPMENT COSTS - Costs for the development of
new software products and substantial enhancements to existing software products
are expensed as incurred until technological feasibility has been established,
at which time any additional costs would be capitalized in accordance with SFAS
86. The Company did not capitalize any research and development costs in fiscal
year 2000 or 1999 because the Company believes its current process for
developing software is essentially completed concurrently with the establishment
of technological feasibility.
INCOME TAXES - Income taxes are accounted for using the asset and
liability approach for financial reporting which requires recognition of
deferred tax liabilities and assets for the expected future tax consequences of
temporary differences between the financial statement carrying amounts and the
tax bases of assets and liabilities and net operating loss and tax credit carry
forwards. Valuation allowances are established when necessary to reduce deferred
tax assets to the amounts expected to be realized.
STOCK-BASED COMPENSATION - The Company accounts for stock-based awards
to employees using the intrinsic value method in accordance with APB No. 25,
Accounting For Stock-Based Compensation. Transactions with non-employees are
amounted based on the fair value of the consideration received or the fair value
of the equity instrument issued, whichever is more reliably measurable.
NET LOSS PER SHARE - Net loss per share is computed based on the
weighted average number of common shares outstanding during the period. Net loss
per share excludes dilution and is computed by dividing net loss by the weighted
average of common stock outstanding for the period. Diluted EPS reflects the
potential dilution that could occur if securities or other contracts to issue
common stock were exercised or converted into common stock. However, due to the
Company's net loss position for all periods presented, diluted EPS excludes
potential dilutive securities as their effect is anti-dilutive.
10
<PAGE>
CONCENTRATION OF CREDIT RISK AND SIGNIFICANT RISKS AND UNCERTAINTIES -
Financial instruments which potentially subject the Company to a concentration
of credit risk principally consist of cash, cash equivalents and accounts
receivable. The Company places its cash and cash equivalents with what it
believes are high quality financial institutions. The Company sells its products
primarily to companies in North America and Europe. To reduce credit risk,
management performs ongoing credit evaluations of its customers' financial
condition. The Company maintains reserves for potential credit losses.
The Company 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; 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, patent
product, regulatory or other factors; risks associated with changes in domestic
or international economic and/or political conditions or regulations;
availability of necessary components; and the Company's ability to attract and
retain employees necessary to support growth.
ESTIMATES - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
FOREIGN CURRENCY TRANSLATION - All assets and liabilities of operations
outside the United States are translated into U.S. dollars from their functional
currency, which is the local currency, at year-end exchange rates. Income and
expense items are translated at the average exchange rate for the year. Gains
and losses resulting from translation are included in stockholders' equity.
Gains and losses on foreign currency transactions have been included in the
statements of operations. Such gains and losses have not been significant for
the years ended March 31, 2000 and 1999.
2. OTHER CURRENT ASSETS
Other current assets at March 31 consist of:
(in thousands)
2000 1999
Receivable from trust $ -- $259
Other receivable 113 148
VAT receivable 11 --
Prepaid insurance 59 80
Prepaid rent 51 53
Prepaid trade show expense 95 --
Other 68 69
---- ----
Total 397 609
---- ----
11
<PAGE>
3. PROPERTY, FURNITURE, AND EQUIPMENT
Property, furniture and equipment at March 31 consist of:
(in thousands)
2000 1999
Land and building $ 684 $ 691
Office equipment, furniture and fixtures 2,998 2,887
Automobiles -- 120
------- -------
Total 3,682 3,698
Accumulated depreciation and amortization (2,759) (2,808)
------- -------
Property, furniture and equipment - net $ 923 $ 890
------- -------
4. ACCRUED LIABILITIES
Accrued liabilities at March 31 consist of:
(in thousands)
2000 1999
---- ----
Salaries and benefits $454 $131
Professional fees 112 76
Other 25 326
---- ----
Total $591 $533
---- ----
5. LINE OF CREDIT
Costs for the development of new software products and substantial
enhancements to existing software products are expensed as incurred until
technological feasibility has been established, at which time any additional
costs would be capitalized in accordance with SFAS 86. The Company did not
capitalize any research and development costs in fiscal year 2000 or 1999
because the Company believes its current process for developing software is
essentially completed concurrently with the establishment of technological
feasibility.
As of March 31, 2000 the borrowings on the line of credit was $2,028,000.
6. LONG-TERM DEBT
<TABLE>
Long-term debt at March 31 consists of:
(in thousands)
<CAPTION>
2000 1999
<S> <C> <C>
Capital lease obligations $ 29 $ 72
Note payable to finance company 27 38
------ ------
56 110
Less current portion -- 82
------ ------
Total long-term debt $ 56 $ 28
------ ------
</TABLE>
12
<PAGE>
The shareholder has a warrant to purchase up to $3,000,000 worth of
Capital stock of the Company at the time the company completes a qualified
offering and at the price per share used in the offering, as further provided
and qualifed by the Warrant.
7. STOCKHOLDERS' EQUITY (DEFICIENCY)
WARRANTS - During April 1999, the 1993 Director's Warrant Plan and the
1993 Advisors' Plan were terminated, except as such Plan applies to any warrants
then outstanding under such Plan.
<TABLE>
The following summarizes warrants outstanding:
<CAPTION>
Weighted
Average
Remaining
Contractual
Warrants Exercise Price Life (Years)
-------- -------------- ------------
<S> <C> <C> <C>
Warrants outstanding at April 1, 1998 75,562 $ 4.13 - $160.00 1.07
Granted (weighted average fair value of $0.57 per share) 125,000 $ 0.781 3.30
Exercised -
Canceled (16,833) $65.00 - $160.00 -
-----------
Warrants outstanding at March 31, 1999 183,729 $0.781 - $ 58.50 2.86
Granted -
Exercised -
Canceled (30,759) $0.781 - $58.50 -
-----------
Warrants outstanding at March 31, 2000 152,970 $0.781 - $ 33.75 1.91
-----------
</TABLE>
The warrants expire at various dates to 2003. At March 31, 2000, there
were 99,637 warrants exercisable at a weighted average exercise price of $10.18.
EMPLOYEE STOCK PURCHASE PLAN - The Company offers a benefit to its
employees to purchase shares of the Company's common stock through its 1994
Employee Stock Purchase Plan (the "Plan"). The Company originally reserved
22,500 shares of common stock for issuance under the Plan. In September, 1998,
stockholders of the Company amended the Plan to increase the number of shares
reserved for issuance to 250,000 shares. In September of 1999, the Plan was
further amended to increase the number of shares reserved for issuance to
400,000 shares. The Plan permits eligible employees to purchase common stock
13
<PAGE>
through payroll deductions of up to a maximum of 10% of their eligible
compensation at 85% of the fair market value at the beginning or end of each
six-month purchase period. During fiscal years 2000 and 1999, 317,819 shares
were issued at a weighted average price of $0.31 per share and 10,658 shares
were issued at a weighted average price of $0.28 per share, respectively. At
March 31, 2000, 42,841 shares have been reserved for future issuance.
CONVERTIBLE PREFERRED STOCK - The Company has outstanding 300,000
shares of convertible Series A preferred stock. Dividends shall be paid at the
option of the Board of Directors at the rate of $0.125 per share per annum, in
preference to all other stockholders. Preferred stock ranks senior to the
company's common stock as to liquidation rights. Each share of preferred stock
may be converted, at the option of the holder, into 1.667 shares of common
stock. In effecting the conversion, any unpaid dividends on the preferred stock
shall be disregarded.
8. STOCK OPTIONS
The Company has employee stock options outstanding under two different
stock option plans. Under the Company's Amended and Restated 1987 Stock Option
Plan ("the 1987 Plan"), incentive stock options to purchase shares of common
stock have been granted to directors, officers, key employees, and consultants.
The 1987 Plan had a ten year term which expired in 1997. Options granted and
outstanding under the 1987 Plan remain in force until either exercised by the
holder, canceled when the holder terminates employment, or until their 10 year
term expires. In anticipation of the termination of the 1987 Plan, the
stockholders of the Company approved the 1996 Stock Plan ("the 1996 Plan"). The
1996 Plan was administered by a committee of the Board which was empowered to
grant options to purchase up to 600,000 shares of common stock, of either
non-qualified or incentive stock options. In April 1999, the Board of Directors
adopted the Omnis Technology Corporation 1999 Stock Option Plan (the "1999
Plan") to consolidate options to be issued to employees, consultants, advisors
and directors under a single option plan and terminated the Directors Plan, the
Advisors Plan and the 1996 Plan, except as to warrants and options then issued
and outstanding under such plans. 1,500,000 shares of the common stock of the
Company were reserved for issuance under the 1999 Plan. The stockholders of the
Company approved the 1999 Plan during the last annual meeting. Generally,
options vest ratably and become exercisable over a three year period. Under
these Plans, the exercise price for the option is determined at the time of the
granting of the option, but in the case of incentive stock options, the exercise
price shall not be less than the fair market value on the date of the grant.
14
<PAGE>
<TABLE>
The following tables summarize the activity under all Plans:
<CAPTION>
Options Outstanding
-------------------
Options Weighted
Available Average
For Exercise
Grant Shares Price
----- ------ -----
<S> <C> <C> <C>
Balances, April 1, 1998 343,247 36,649 $ 24.96
Additional authorization 470,000 - -
Granted (weighted average fair value: $0.76 per share) (731,500) 731,500 0.77
Canceled 132,550 (132,550) 1.08
---------- ----------
Balances, March 31, 1999 214,297 635,599 $ 2.11
Additional authorization 1,500,000 - -
Granted (weighted average fair value: $7.80 per share) (1,290,300) 1,290,300 6.32
Canceled 259,450 (259,450) 1.09
Canceled due to termination of Plan (454,747) -
Exercised - (10,090) 0.75
---------- ----------
Balances, March 31, 2000 228,700 1,656,359 $ 5.56
</TABLE>
<TABLE>
Additional information regarding options outstanding under all Plans as of March
31, 2000 is as follows:
<CAPTION>
Options Outstanding
-----------------------
Options Exercisable
Weighted ------------------------
Average Weighted Weighted Weighted
Range Of Remaining Average Average Average
Exercise Number Contractual Exercise Number Exercise
Price Outstanding Life (Years) Price Exercisable Price
----- ----------- ------------ ----- ----------- -----
<S> <C> <C> <C> <C> <C>
$ 0.75 - 0.78 361,660 8.12 $ 0.78 173,589 $ 0.78
1.02 - 3.88 716,650 9.17 2.05 218,650 3.55
5.13 - 8.75 178,575 9.55 7.28 4,219 6.76
12.00 - 23.75 381,395 9.75 15.00 3,523 20.37
33.13 - 52.50 18,079 0.15 37.11 17,936 37.14
---------------- --------- ---- -------- ------- -------
$ 0.75 - 52.50 1,656,359 9.06 $ 5.70 417,917 $ 4.02
</TABLE>
ADDITIONAL STOCK PLAN INFORMATION
The Company accounts for its stock-based awards using the intrinsic
value method in accordance with Accounting Principles Board No. 25, Accounting
For Stock Issued To Employees, and its related interpretations. Accordingly, as
the Company awards stock options with exercise prices equal to fair market
value, no compensation expense has been recognized in the financial statements
for employee stock arrangements.
15
<PAGE>
Statement of Financial Accounting Standards No. 123, Accounting For
Stock-Based Compensation, ("SFAS 123") requires the disclosure of pro forma net
loss and net loss per share had the Company adopted the fair value method as of
the beginning of fiscal 1996. Under SFAS 123, the fair value of stock-based
awards to employees is calculated through the use of option pricing models, even
though such models were developed to estimate the fair value of freely tradable,
fully transferable options without vesting restrictions, which significantly
differ from the Company's stock option awards. These models also require
subjective assumptions, including future stock price volatility and estimated
term. These calculations were made using the Black-Scholes option pricing model
with the following weighted average assumptions: expected life, 36 months
following vesting; stock volatility, 179% and 140% in 2000 and 1999
respectively; risk free interest rates, 6.0% and 5.7% in 2000 and 1999
respectively; and no dividends during the expected term. The Company's
calculations are based on a multiple option valuation approach and forfeitures
are recognized as they occur. If the computed fair values of the 2000 and 1999
awards had been amortized to expense over the vesting period of the awards, pro
forma net loss would have been $6,406,000 ($5.87 per share) in 2000 and
$1,168,000 ($0.54 per share) in 1999. However, the impact of outstanding
non-vested stock options granted prior to 1996 has been excluded from the pro
forma calculation; accordingly, the 2000 and 1999 pro forma adjustments are not
indicative of future period pro forma adjustments, when the calculation will
apply to all applicable stock options.
9. INCOME TAXES
Income tax (expense) benefit consists of:
(in thousands)
2000 1999
----- -----
Current:
Federal $ -- $ --
State 2 (3)
Foreign -- (1)
----- -----
Total $ 2 $ (4)
----- -----
Pretax foreign income (loss) was ($607,000) and $624,000 in 2000 and
1999, respectively.
The effective tax rate differs from the federal statutory income tax
rate principally due to the unavailability of net operating loss carryforwards
or carrybacks and other permanent differences.
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amount of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes, as well as
operating loss carry forwards. Significant components of the Company's net
deferred tax assets are as follows (in thousands):
2000 1999
-------- --------
Deferred tax assets
Net operating losses $ 14,764 $ 15,883
Depreciation 703 702
Accruals and reserves recognized in different periods 3,221 1,278
Tax credits 788 690
16
<PAGE>
Capitalized software -- --
-------- --------
Total 19,476 18,553
Valuation allowance (19,476) (18,553)
-------- --------
Net deferred tax assets $ -- $ --
-------- --------
Due to uncertainties surrounding the timing of realizing the benefits
of its net favorable tax attributes in future tax returns, the Company has
placed a full valuation allowance against its net deferred tax assets at March
31, 2000 and 1999. The net change in the valuation allowance was an increase of
$923,000 in 2000 and $940,000 in 1999.
At March 31, 2000, the Company had net operating loss carryforwards of
$40.2 million for federal income tax purposes, $ 8.0 million for state tax
purposes, and $8.0 million for foreign tax purposes which expire at various
dates through 2020.
The Tax Reform Act of 1986, as amended, and the California Conformity
Act of 1987 impose substantial restrictions on the utilization of net operating
loss and tax credit carry forwards in the event of an "ownership change," as
defined by the Internal Revenue Code. An "ownership change" took place in 2000,
and the Company is limited to using approximately $146,000 per year of federal
and California net operating loss carry forwards accrued through that date (a
total of $2.9 million federal and $0.7 million California).
10. RETIREMENT PLANS
The Company sponsors two defined contribution plans for its employees
in the United Kingdom ("the U.K."). Both plans have been approved by the U.K.'s
Department of Inland Revenue. The Company's subsidiary OMNIS Software Limited
sponsors the Blyth Holdings Retirement Benefits Scheme ("the BRBS Plan"). The
only participant in the BRBS Plan is the Chief Technical Officer of OMNIS
Software Limited. The BRBS Plan provides retirement benefits upon attaining
normal retirement age, and incidental benefits in the case of death or
termination of employment prior to retirement. OMNIS Software Limited makes
annual contributions based on the participant's salary to fund these retirement
benefits. The BRBS Plan is partially insured through the Sun Life Assurance
Society. OMNIS Software Limited retains the right to terminate the BSRB Plan at
any time upon 30 days' written notice. Company contributions to this scheme were
suspended at the Chief Technical Officer's request with effect from December 31,
1999 although thiere is the option for payments to be resumed at some future
date.
OMNIS Software Limited sponsors the OMNIS Software Limited Retirement
Benefits Scheme ("the OSL Plan") for substantially all of its employees in the
United Kingdom. The OSL Plan provides retirement benefits upon attaining normal
retirement age, and incidental benefits in the case of death or termination of
employment prior to retirement. OMNIS Software Limited contributes an amount
ranging from 3% to 8% of each participant's compensation to fund such benefits.
In addition, participants are entitled to make voluntary contributions under the
OSL Plan.
The Company contributed a total of $87,000 and $85,000 to the ORB and
OSL plans for the years ended March 31, 2000 and 1999, respectively.
The Company sponsors the OMNIS Software Inc. 401(k) Savings and
Retirement Plan ("the Plan") for its employees based in the United States.
Employees meeting the eligibility requirements, as defined, may contribute
specified percentages of their salaries. Under the Plan, which is qualified
under Section 401(k) of
17
<PAGE>
the federal tax laws, the Company's Board of Directors, at its sole discretion,
may make a discretionary profit-sharing contribution to the Plan. Moreover, the
Company is not obligated, but may at its discretion, pay certain administrative
costs on behalf of the Plan. For the years ended March 31, 2000 and 1999,
discretionary annual contributions of $3,000 were made to the Plan for both
years.
11. COMMITMENTS AND CONTINGENCIES
LEASES
The Company leases its facilities under non-cancelable operating lease
agreements expiring in 2002. Rent expense on these leases is recognized ratably
over the entire lease term. The Company is required to pay property taxes,
insurance and normal maintenance costs.
Future minimum rental commitments under equipment capital leases and
non-cancelable operating leases as of March 31, 2000 are as follows:
(in thousands)
Year Ending Capital Operating
March 31, Leases Leases
--------- ------ ------
2001 $ 17 $ 127
2002 -- 88
2003 -- 15
2004 -- --
----- -----
Total minimum lease payments 17 $ 230
Less: Amount representing interest (1) --
----- -----
Lease obligations $ 16
-----
Equipment under capital leases had a net book value of $15,000 and
$64,000 at March 31, 2000 and 1999, respectively.
Rent expense of $223,000 and $921,000 was incurred in 2000 and 1999,
respectively.
LITIGATION
COMPASS SOFTWARE. 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 obtained a full dismissal of that
case with prejudice on November 29, 1999, and no appeal was filed by Compass
within the time allowed by law.
In this connection the Company previously had sued Compass in 1994 for
illegally infringing and distributing the Company's software products. This
matter was settled with an agreement that Compass would pay certain amounts and
would not make illegal copies of the Company's software in the future. Compass
failed to pay the promised amounts when due. The Company then obtained a
judgment for breach of contract against Compass. As part of its efforts to
enforce its judgment against Compass, the Company purchased, at a judgment lien
sale, certain intangible property of Compass including the rights to the 1998
infringement suit brought by Compass ("Execution Sale"). Compass then requested
the applicable trial court to set aside the Execution Sale. The trial court
granted the request and the Company appealed the judgment. The court of appeal
subsequently ruled in favor of the Company and directed the trial court to
determine the amount of fees to be awarded to the Company. That amount had not
been determined as of May 9, 2000.
The Company also filed a second lawsuit against Compass alleging
additional acts of infringement for periods after 1994, which case is now
pending. Trial in this case is scheduled for July 5, 2000. Compass has asserted
a counterclaim alleging refusal of the Company to sell products to Compass. The
Company believes that this counterclaim has no merit.
BTN - GERMANY. The Company entered into a professional development
services agreement with BTN Versandhandel GmbH of Leiferde, Germany for the
development of an OMNIS application. The Company developed and delivered a
version of the application to BTN. BTN failed to pay the Company as
agreed,claiming there were flaws in the application and the project was
suspended by the Company awaiting their payment. BTN commenced legal action
against the Company in Germany claiming damages of approximately DM250,000 for
failure to perform under the services agreement. The Company has countersued BTN
claiming the balance owed under the contract of approximately DM60,000. The
Company is defending against the BTN claim and is pursuing its counterclaim
against BTN.
18
<PAGE>
12. SEGMENT INFORMATION
<TABLE>
The Company is engaged in one industry segment, however manages its two segments
based on geographical location: North America and Europe. The Company's
operating revenues were generated primarily from the sale of software and
service contracts related to that software. The following table presents
information concerning the Company's domestic and foreign operations.
<CAPTION>
North Rest of
America UK Germany World Total
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Fiscal year 2000:
Net Revenues $ 2,400 $ 2,553 $ 851 $ 406 $ 6,210
Operating Loss (3,958) (290) (326) (4,574)
Interest and other expense, net (22) (101) -- (123)
Identifiable assets 1,700 1,261 217 3,178
Depreciation and amortization expense 156 160 25 341
Income tax benefit (2) -- -- (2)
Net loss (3,980) (390) (326) (4,696)
Fiscal year 1999:
Net Revenues $ 2,021 $ 2,631 $ 772 $ 435 $ 5,859
Operating Income (loss) (1,169) 651 (20) (538)
Interest and other expense, net (339) (1) (5) (345)
19
<PAGE>
Identifiable assets 991 1,365 201 2,557
Depreciation and amortization expense 265 134 24 423
Income tax expense 4 -- -- 4
Net Income (loss) (1,511) 649 (25) (887)
</TABLE>
One customer accounted for 19.3% of net revenues in 2000. No other
customer accounted for revenues in excess of 10% in 1999.
Restatement of Quarterly Results
During the year-end closing process, it was determined that certain shares
awarded or options granted were not correctly recorded during the current fiscal
year. Accordingly, certain quarterly information has been restated as follows:
Quarter ended Quarter ended
September 30, 1999 December 31, 1999
As Reported Restated As Reported Restated
----------- -------- ----------- --------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
Sales $1,184,428 $1,184,428 $2,346,763 $2,346,763
Cost of Sales 70,231 70,231 83,886 83,886
Gross Margin 1,114,197 1,114,197 2,262,877 2,262,877
Selling, General & Admin 1,644,618 2,199,461 1,831,466 2,501,268
Operating Income/(Loss) (530,421) (1,085,264) 431,411 (238,391)
Interest income, exp, other (1,427) (1,427) (107) (107)
---------- --------- --------- ----------
Net Income/(Loss) (531,848) (1,086,691) 431,304 (238,498)
========== ========= ========= ==========
Earnings per share $ (.05) (.11) .04 (.02)
Shares used in calculation 9,683,348 9,683,348 9,844,050 9,844,050
The expense recorded in the fourth quarter related to the above was $1,832,802.
20
