U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[X] Quarterly Report under Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarter period ended June 30, 2000
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Exchange Act
For the transition period from _________ to _________
Commission File number 0-16449
OMNIS TECHNOLOGY CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 94-3046892
(State of incorporation) (IRS Employer Identification No.)
981 Industrial Road, Building B
San Carlos, CA 94070
(Address of principal executive offices)
(650) 632-7100
(Registrant's telephone number)
Check whether the issuer: (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act during the past 12 months (or
for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
As of July 18, 2000, there were 10,237,077 shares of registrant's Common Stock,
$.10 par value, outstanding.
<PAGE>
OMNIS TECHNOLOGY CORPORATION AND SUBSIDIARIES
INDEX
PART I. FINANCIAL INFORMATION
Page No.
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets -
June 30, 2000 and March 31, 2000 3
Condensed Consolidated Statements of Operations -
Three Months ended June 30, 2000 and 1999 4
Condensed Consolidated Statements of Cash Flows -
Three Months ended June 30, 2000 and 1999 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 20
Item 2. Changes in Securities 20
Item 3. Defaults upon Senior Securities 21
Item 4. Submission of Matters to a Vote of Security Holders 21
Item 5. Other Information 21
Item 6. Exhibits and Reports on Form 8-K 21
Signatures 22
2
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PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
<TABLE>
OMNIS TECHNOLOGY CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
<CAPTION>
June 30, 2000 March 31, 2000
------------- --------------
(Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 762,000 $ 1,238,000
Trade accounts receivable, less allowance for
doubtful accounts and returns of $114,375 and
$179,279 at June 30 and March 31,
respectively 742,000 594,000
Inventory 20,000 26,000
Other current assets 962,000 397,000
----------- -----------
Total current assets 2,486,000 2,255,000
----------- -----------
Property, furniture and equipment, net 993,000 923,000
Intangibles 1,040,000 --
-----------
Total assets $ 4,519,000 $3,178,000
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Note payable $ 10,000 $ 56,000
Note payable to stockholder 3,083,000 2,028,000
Accounts payable 401,000 460,000
Accrued liabilities 1,732,000 591,000
Deferred revenue 251,000 206,000
----------- -----------
Total current liabilities 5,477,000 3,341,000
----------- -----------
Long-term debt -- --
Total liabilities 5,477,000 3,341,000
----------- -----------
Stockholders' equity:
Preferred stock 300,000 300,000
Common stock 1,024,000 1,004,000
Paid-in capital 51,315,000 50,374,000
Deferred compensation (1,776,000) (2,045,000)
Accumulated deficit (52,056,000) (50,082,000)
Accumulated other comprehensive income 235,000 286,000
----------- -----------
Total stockholders' deficiency (958,000) (163,000)
----------- -----------
Total liabilities and stockholders' equity $ 4,519,000 $ 3,178,000
=========== ===========
<FN>
See notes to consolidated financial statements.
</FN>
</TABLE>
3
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<TABLE>
OMNIS TECHNOLOGY CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<CAPTION>
Three Months Ended
June 30,
----------------------------
2000 1999
----------- -----------
<S> <C> <C>
Net revenues:
Products $ 814,000 $ 1,104,000
Services 172,000 267,000
----------- -----------
Total net revenues 986,000 1,371,000
Costs of Sales:
Cost of product revenues 34,000 41,000
Cost of service revenues 231,000 54,000
----------- -----------
Total cost of sales 265,000 95,000
----------- -----------
Gross profit 721,000 1,276,000
Operating Expenses:
Sales and marketing 1,365,000 530,000
Research and development 580,000 385,000
General and administrative 706,000 243,000
----------- -----------
Total operating expenses 2,651,000 1,158,000
----------- -----------
Operating income (loss) (1,930,000) 118,000
----------- -----------
Other income (expense):
Interest income 16,000 3,000
Interest expense and other, net (61,000) (6,000)
----------- -----------
(45,000) (3,000)
----------- -----------
Income (loss) before income taxes (1,975,000) 115,000
Income tax expense (1,000) 4,000
----------- -----------
Net income (loss) $ (1,974,000) $ 111,000
=========== ===========
Basic Net income (loss) per share $ (0.19) $ 0.01
Weighted average number of common shares outstanding 10,124,026 9,679,829
Diluted net income (loss) per share $ (0.19) $ 0.01
Fully diluted number of common shares outstanding 11,764,999 10,170,940
<FN>
See notes to consolidated financial statements.
</FN>
</TABLE>
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<TABLE>
OMNIS TECHNOLOGY CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<CAPTION>
Three Months Ended
June 30,
------------------
2000 1999
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $(1,974,000) $ 111,000
Adjustments to reconcile net income (loss) to net cash
used by operating activities:
Depreciation and amortization expense 99,000 79,000
Non cash compensation 269,000 --
Legal fees capitalized to stock issuance costs -- (29,000)
Change in assets and liabilities:
Trade accounts receivable (148,000) (21,000)
Inventory 6,000 --
Other current assets (565,000) 274,000
Accounts payable and accrued liabilities 1,083,000 (133,000)
Deferred revenues 44,000 (14,000)
---------- --------
Net cash provided by (used for) operating activities (1,186,000) 267,000
---------- --------
Cash flows from investing activities:
Purchases of property, furniture and equipment (178,000) (42,000)
Acquisition of software assets (1,040,000)
Proceeds from sale of fixed assets -- 1,000
---------- --------
Net cash used by investing activities (1,218,000) (41,000)
---------- --------
Cash flows from financing activities:
Exercise of stock options 61,000 --
Net proceeds from common stock issuance 900,000 --
Proceeds from stockholder note 1,055,000 --
Repayments of debt (47,000) (45,000)
---------- --------
Net cash provided by (used for) financing activities 1,969,000 (45,000)
---------- --------
Effect of exchange rate changes on cash (41,000) (21,000)
---------- --------
Net increase (decrease) in cash and cash equivalents (476,000) 161,000
Cash and cash equivalents at beginning of period 1,238,000 271,000
---------- --------
Cash and cash equivalents at end of period $ 762,000 $ 432,000
========== ========
</TABLE>
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OMNIS TECHNOLOGY CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. The unaudited financial information furnished herein reflects all
adjustments, consisting only of normal recurring items, which in the
opinion of management are necessary to fairly state the Company's financial
position, the results of its operations and the changes in its financial
position for the periods presented. These financial statements should be
read in conjunction with the Company's audited financial statements for the
year ended March 31, 2000. The results of operations for the period ended
June 30, 2000 are not necessarily indicative of results to be expected for
any other interim period or the fiscal year ending March 31, 2001.
2. The Company has adopted Statement of Financial Accounting Standards No.
128, "Earnings per Share" (SFAS 128). SFAS 128 requires a dual presentation
of basic and diluted EPS. Basic EPS excludes dilution and is computed by
dividing net income (loss) by the weighted average of common shares
outstanding for the period. Diluted EPS reflects the potential dilution
that could occur if securities and other contracts to issue stock were
exercised or converted into common stock, unless the effect of such
securities would be anti-dilutive.
3. 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 June
30, 2000.
The Company also filed a second lawsuit against Compass alleging additional
acts of infringement for periods after 1994. A trial was conducted in this
case before Judge Barbara J. Rothstein of the United States District Court
for the Western District of Washington. On July 25, 2000, the District
Court ruled that Compass reproduced and distributed unauthorized copies of
Omnis Software using duplicates of existing serial numbers. The Court
awarded statutory damages to Omnis in the amount of approximately $150,000
in addition to injunctive relief and attorney fees from Compass. It is not
known at this time whether or not Compass will appeal this judgement.
BTN- Germany Litigation. The Company entered into a professional
development services agreement with BTN Versandhandel GmbH ("BTN") of
Leiferde, Germany for the development of an Omnis application. The Company
developed and delivered a version of the application to BTN. BTN failed to
pay the Company as agreed, claiming there were flaws in the application 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.
6
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OMNIS TECHNOLOGY CORPORATION AND SUBSIDIARIES
This report on Form 10-QSB includes a number of forward-looking statements
that reflect the Company's current view with respect to future events and
financial performance. These forward-looking statements are subject to certain
risks and uncertainties, including those discussed in "Management's Discussion
and Analysis of Financial Condition and Results of Operations," and the
Company's actual results may differ materially from historical or anticipated
results. The Company operates in one segment, the developing, marketing and
supporting of software products; however, the Company manages its businesses in
two geographical locations: North America and Europe. The following table
presents information concerning the Company's North American and European
operations.
<TABLE>
<CAPTION>
Three Months Ended
June 30
----------------------------------------------
2000 1999
------------------ ----------------
<S> <C> <C>
Revenue by geographic region (1):
Revenue from North America $ 438,000 $ 519,000
Revenue from Europe 548,000 852,000
Total $986,000 $1,371,000
Operating income (loss) by geographic region (1):
North America $(1,613,000) $ 114,000
Europe (317,000) 4,000
Total $(1,930,000) $ 118,000
<FN>
(1) Revenues are broken out geographically by ship from location.
</FN>
</TABLE>
COMPREHENSIVE INCOME (LOSS)
Comprehensive income includes changes in the balance of items that are reported
directly in a separate component of stockholders' equity on the condensed
consolidated balance sheets. The reconciliation of net loss to comprehensive
loss is as follows:
7
<PAGE>
Three Months Ended
June 30
-----------------------------------------
2000 1999
Net income (loss): $(1,974,000) $ 111,000
Other comprehensive (loss) gain
Foreign currency translation
adjustments (50,000) (37,000)
Total comprehensive income (loss) (2,024,000) 74,000
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
This Item 2, as well as other portions of this document, includes
certain forward-looking statements about the Company's business, revenues,
expenditures and operating and capital requirements. In addition,
forward-looking statements may be included in various other Company documents to
be issued concurrently or in the future and in oral or other statements made by
representatives of the Company to investors and others from time to time.
Forward-looking statements are subject to risks and uncertainties that could
cause actual results to differ materially from predicted results. Such risks
include, among others
- the Company's liquidity,
- significant variability in operating results, including variability
in product revenues and gross margins,
- fluctuating demand for new and established products,
- dependence on development of new products,
- increasing expenses for marketing and development of new products,
- historical lack of profitability,
- rapid technological change that affects the ability of the Company
to respond to customer or market demands,
- risks associated with global operations,
- the continued and future acceptance of the Company's products,
- the rate of growth in the industries of the Company's products,
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- the presence of competitors with greater technical, marketing and
financials resources, and
- the ability of the Company to successfully expand its operations.
Any of such statements and this discussion should be read in conjunction with
the discussion of "Risk Factors" in this Item 2 and the Company's audited
consolidated financial statements, including the notes thereto, included in its
annual report for the fiscal year ended March 31, 2000, on Form 10-KSB/A filed
with the Commission on July 31, 2000.
OVERVIEW
The Company, through its domestic and international subsidiaries,
develops and markets software application development tools and related
technical services. Its main products are the OMNIS 7(3)(TM) client/server
application development software group of products, ("Classic") and the more
advanced OMNIS Studio(TM)(1) rapid application development (RAD) tools. The
Company markets its products via direct telemarketing, direct corporate outside
sales force and through its indirect channel consisting of VAR's, Distributors,
and OEM relationships.
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
investment in infrastructure; and (iii) improving operational systems. The
Company reduced cash used in operations from $2,514,000 in fiscal year 1999 to
$849,000 in fiscal year 2000. The Company had negative cash flow used by
operating activities of $1,186,000 in the three months ended June 30, 2000
compared to positive cash flow provided from operating activities of $267,000 in
the three months ended June 30, 1999 and had a net loss of $1,974,000 in the
three months ended June 30, 2000. There can be no assurance that the Company
will be able to attain profitability in the near future or thereafter.
While the Company is presently seeking additional financing, there can
be no assurance that the Company will be able to raise additional capital at any
time in the future on commercially reasonable terms, or at all. If the Company
is unsuccessful in raising capital when needed, the Company could be required to
cease operations.
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:
--------
1 OMNIS is a registered trademark of OMNIS Software Limited. OMNIS Studio and
OMNIS 7 and OMNIS Studio Web Client are trademarks of OMNIS Technology
Corporation. All other products or service names mentioned herein are trademarks
of their respective owners.
9
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--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 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:
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 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
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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.
11
<PAGE>
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 2000, AND JUNE 30,
1999
REVENUES
Total net revenues for the three months ended June 30, 2000, were $986,000,
representing a decrease of 28.1% as compared to total net revenues of $1,371,000
for the three months ended June 30, 1999. This decrease is due primarily to the
reduction in selling price of development kits and runtimes and the
repositioning of the OMNIS Studio product line.
Product revenues decreased during the three months ended June 30, 2000, to
$814,000 from $1,104,000 in the three months ended June 30, 1999. This decrease
is due to a reduction in sales price of OMNIS Studio development kit and license
fees to motivate existing customers to upgrade from Omnis 7 as well as attract
new developers.
Service revenues for the three months ended June 30, 2000 decreased 35.6%
to $172,000 from $267,000 for the three months ended June 30, 1999. The majority
of this decrease is due to the Company's decision to phase out its consulting
offerings. Maintenance revenue, which primarily consists of email and telephone
support to the Company's customers, decreased slightly during the period ending
June 30, 2000, due to the decrease in the annual support fee being charged to
customers.
COST OF SALES
Cost of product revenues is comprised of direct costs associated with
software product sales including software packaging, documentation, and physical
media costs. Cost of service revenues is comprised of customer support
(maintenance) expenses, including technical support salaries and related
expenses, and consulting related costs, including consultant salaries and
related costs incurred in delivering customer consulting and training services.
Cost of product revenues as a percentage of product revenues increased
slightly from 3.7% in the three months ended June 30, 1999 to 4.2% in the three
months ended June 30, 2000 as a direct result of the decrease in average sales
price of the Company's products.
Cost of service revenues increased as a percentage of service revenues from
20% in the three months ended June 30, 1999, to 134% in the three months ended
June 30, 2000. This is due to the establishment of a technical support
department in the US this year that offers real time telephone support to its
North American customers. Previously, only email support was available from the
engineering office in the United Kingdom.
SALES AND MARKETING EXPENSE
Sales and marketing expenses increased to $1,365,000 for the three months
ended June 30, 2000 as compared to $530,000 for the three months ended June 30,
1999. The increase in sales and marketing expenses was primarily due to
increases in targeted advertising, direct mail programs, trade show
participation and strategic marketing programs with partners.
RESEARCH AND DEVELOPMENT EXPENSE
Research and development costs increased to $580,000 for the three months
ended June 30, 2000, as compared to $385,000 for the three months ended June 30,
1999, primarily due to an increase of staff at its Research and Development
Center in the United Kingdom. The Company continues to invest in the development
of its newer product line, OMNIS Studio, aimed at sales opportunities that the
Company believes will expand its installed base of customers.
GENERAL AND ADMINISTRATIVE EXPENSE
General and administrative expenses increased to $706,000 for the three
months ended June 30, 2000, as compared to $243,000 for the three months ended
June 30, 1999. General and administrative expense for the three months ended
June 30,2000 included the recognition of
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non-cash compensation expense of $269,000 that resulted from the issuance of
certain options at below fair market value. This increase was also due to an
increase in headcount.
OTHER INCOME (EXPENSE)
Other income (expense) is comprised primarily of interest income earned on
cash and cash equivalents, interest expense, and any gain or loss on foreign
currency transactions. Interest income increased to $16,000 for the three months
ended June 30, 2000, from $3,000 for the three months ended June 30, 1999,
primarily due to higher average balances of cash and cash equivalents. Interest
expense increased to $61,000 for the three months ended June 30, 2000, from
$6,000 for the three months ended June 30, 1999 primarily due to the $3.0
million promissory note obtained from a significant stockholder.
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.
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.
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
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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. 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.
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
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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.
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
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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. The
Company has initiated procedures for preparing and filing additional provisional
and final patent applications as appropriate for its developing technologies.
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. 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.
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.
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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 instituted reductions in certain portions of its pricing
structure. 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 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 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
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continuing liquidity problems, significant variability in operating results,
including variability in product revenues and gross margins, fluctuating demand
for new and established products, dependence on development of new products,
increasing expenses for marketing and development of new products, historical
lack of profitability, rapid technological change that affects the ability of
the Company to respond to customer or market demands, risks associated with
global operations, the continued and future acceptance of the Company's
products, the rate of growth in the industries of the Company's products, the
presence of competitors with greater technical, marketing and financial
resources, and the ability of the Company to successfully expand its operations.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 2000, the Company's principal sources of liquidity consisted of
cash and cash equivalents of $762,000, as compared to $432,000 at June 30, 1999.
The Company's working capital position was a deficit of $1,086,000 at March 31,
2000 and a deficit of $2,991,000 at June 30, 2000 compared to $477,000 at June
30, 1999.
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 paymentof 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 theCompany 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;
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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.
The Company reduced cash used in operations from $2,514,000 in fiscal year
1999 to $849,000 in fiscal year 2000, the Company had negative cash flow used by
operating activities of $1,186,000 in the three months ended June 30, 2000
compared to positive cash flow provided from for operating activities of
$267,000 in the three months ended June 30, 1999. The Company had a net loss of
$1,974,000 in the three months ended June 30, 2000. There can be no assurance
that the Company will be able to attain profitability in the near future or
thereafter.
The Company does not currently have an established line of credit with a
commercial bank. Such a credit facility may be difficult to obtain with the
Company's historical operating results. Accordingly, in order to obtain
additional funds in the future, the Company will need to seek additional equity
capital which would be dilutive to current stockholders. The Company is
currently attempting to raise additional capital which will be required to
continue operations. There can be no assurance that the Company will be able to
raise additional capital on commercially reasonable terms should the Company
need additional funds in the future.
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PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings
COMPASS LITIGATION
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 June 30, 2000. The Company also filed a second lawsuit
against Compass alleging additional acts of infringement for periods after 1994.
A trial was conducted in this case before Judge Barbara J. Rothstein of the
United States District Court for the Western District of Washington. On July 25,
2000, the District Court ruled that Compass reproduced and distributed
unauthorized copies of Omnis Software using duplicates of existing serial
numbers. The Court awarded statutory damages to Omnis in the amount of
approximately $150,000 in addition to injunctive relief and attorney fees from
Compass. It is not known at this time whether or not Compass will appeal this
judgement.
BTN - GERMANY LITIGATION.
The Company entered into a professional development services agreement with
BTN Versandhandel GmbH ("BTN") of Leiferde, Germany for the development of an
Omnis application. The Company developed and delivered a version of the
application to BTN. BTN failed to pay the Company as agreed, claiming there were
flaws in the application 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 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Pursuant to an Asset Purchase Agreement dated as of May 19, 2000 (the
"Agreement"), the Company agreed to issue a total of up to 150,000 shares of its
common stock to The Wainer Group, an Australian partnership (the "Wainer
Group"), in exchange for all rights to a software system known as "Metamorph"
and related rights and assets. The Agreement was entered into by and among the
Company, the Wainer Group, Dirk Wainer, Shirley-Anne Wainer, Dennis Janossich
and Joseph Bernard as to all matters, and Paradigm Designs Software Pty Ltd., an
Australian corporation ("Paradigm"), as to certain matters (the "Metamorph
Transaction").
Under the Agreement the Company is also required to pay a percentage
royalty to the Wainer Group for certain sales of the Metamorph software during a
period of 5 years. The Agreement further provides for certain software
development work and related services to be performed by the Wainer Group for a
period of months following the closing date of May 19, 2000 (the "Closing"). The
Agreement also grants a nonexclusive license to Paradigm for use of the
Metamorph software under certain circumstances.
At the Closing the Company issued 112,500 shares of the Common Stock of the
Company to the Wainer Group, with a trading value of $8.00 per share as of the
Closing. The remaining 37,500 shares of the Common Stock will be issued to the
Wainer Group by the Company if and when the required software development work
has been completed by the Wainer Group. The Wainer Group shares are subject to
additional terms and conditions as set forth in the Agreement.
The shares of Common Stock issued in the Metamorph Transaction were and
will be issued by the Company pursuant to an exemption from registration for
nonpublic offerings under Section 4(2) of the Securities Act. None of the Wainer
Group shares have been registered. The Company may be required to register such
shares in the future in connection with certain other registrations of its
Common Stock pursuant to the terms and conditions of the Wainer Group Piggyback
Registration Rights attached as Exhibit G to the Agreement and made a part
thereof.
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ITEM 3. Defaults Upon Senior Securities
None.
ITEM 4. Submission of Matters to a Vote of Security Holders
None.
ITEM 5. Other Information
None.
ITEM 6. Exhibits and Reports On Form 8-K
(a) Exhibits:
3.1 Restated Certificate of Incorporation, as amended and corrected.(1)
3.2 Certificate of Amendment of Certificate of Incorporation dated February
9, 1999(2)
3.3 Certificate of Designations dated March 31, 1999, as corrected.(3)
3.4 Bylaws, as amended.(4)
10.1 Asset Purchase Agreement dated as of May 19, 2000, by and among the Omnis
Technology Corporation, the Wainer Group, DirkWainer, Shirley-Anne Wainer,
Dennis Janossich and Joseph Bernard as to all matters, and Paradigm Designs
Software Pty Ltd., as to certain matters.(5)
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 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.
(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 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.
(5) This is not a material contract but is being supplied in connection with
the discussion of the Metamorph Transaction contained in this 10-QSB.
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(b) No reports on Form 8-K were filed during the quarter ended June 30, 2000.
SIGNATURES
In accordance with the Exchange Act, the registrant caused this report to
be signed on its behalf by the undersigned thereunto duly authorized.
Date: August 10, 2000
OMNIS TECHNOLOGY CORPORATION
(Registrant)
/s/ GWYNETH GIBBS
------------------------------------------
Gwyneth Gibbs, President and Interim Chief
Executive Officer
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