-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, MirPyXzIOXvIafRf0lOBAJOpnmZM8KV0Saf87JF1liyRE5ayO6DSkZxOIzpkypOR v/yj4MOwtujju66uy6T06w== 0000891618-98-003098.txt : 19980630 0000891618-98-003098.hdr.sgml : 19980630 ACCESSION NUMBER: 0000891618-98-003098 CONFORMED SUBMISSION TYPE: 10KSB PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19980331 FILED AS OF DATE: 19980629 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: OMNIS TECHNOLOGY CORP CENTRAL INDEX KEY: 0000820738 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-PREPACKAGED SOFTWARE [7372] IRS NUMBER: 943046892 STATE OF INCORPORATION: DE FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10KSB SEC ACT: SEC FILE NUMBER: 000-16449 FILM NUMBER: 98656408 BUSINESS ADDRESS: STREET 1: 851 TRAEGER AVE #100 CITY: SAN BRUNO STATE: CA ZIP: 94066 BUSINESS PHONE: 6507174174 MAIL ADDRESS: STREET 1: 989 E HILLSDALE BLVD. #400 CITY: FOSTER CITY STATE: CA ZIP: 94404 FORMER COMPANY: FORMER CONFORMED NAME: BLYTH HOLDINGS INC DATE OF NAME CHANGE: 19920703 10KSB 1 FORM 10KSB FOR THE PERIOD ENDING MARCH 31, 1998 1 ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM 10-KSB (MARK ONE) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED MARCH 31, 1998 [ ] 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) 851 TRAEGER AVENUE DELAWARE SAN BRUNO, CALIFORNIA 94066 94-3046892 (STATE OF INCORPORATION) (ADDRESS OF PRINCIPAL (I.R.S. EMPLOYER EXECUTIVE IDENTIFICATION NO.) OFFICES INCLUDING ZIP CODE)
(650) 829-6000 (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE) 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 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: $7,982,905 The aggregate market value of the voting stock held by non-affiliates was $1,594,370 as of June 15, 1998, based on the last sales price reported for such date. As of June 15, 1998, the registrant had 2,125,827 shares of its Common Stock outstanding and 62,282 shares of its Series A Preferred stock outstanding. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Company's 1998 Proxy Statement to be filed not later than 120 days after the close of the fiscal year are incorporated in Part III of this Form 10-KSB. Transitional Small Business Disclosure Format (check one): [ ] Yes [X] No ================================================================================ 2 PART I THIS ANNUAL REPORT ON FORM 10-KSB INCLUDES A NUMBER OF FORWARD-LOOKING STATEMENTS THAT REFLECT THE COMPANY'S CURRENT VIEWS WITH RESPECT TO FUTURE EVENTS AND FINANCIAL PERFORMANCE. THESE FORWARD-LOOKING STATEMENTS ARE SUBJECT TO CERTAIN RISKS AND UNCERTAINTIES, INCLUDING THOSE DISCUSSED IN "MANAGEMENT'S DISCUSSIONS AND ANALYSIS OF FINANCIAL 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 ("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 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. 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 uses including financial management, decision support, executive information, sales and marketing, and multi-media authoring systems. In addition to these products, the Company provides consulting, 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. In addition, in August 1997, the stockholders of the Company approved a one for ten reverse stock split. All share and per share information contained in this report Form 10-KSB has been adjusted to reflect such reverse stock split. RECENT DEVELOPMENTS Fiscal 1998 was a year of significant change for OMNIS. At the beginning of the year the Company decided to change its direction significantly in an attempt to achieve profitability. A new Chief Executive Officer was hired to re-focus the Company's sales and marketing effort. This change in focus resulted in the Company spending significant resources on new marketing programs, including an effort to develop mass market awareness of the Company. The Company was renamed in attempts to align its corporate identity with its product identity. A new management team was built around the new Chief Executive Officer to carry out this strategy. See "KEY MANAGEMENT CHANGES" below. The Company's efforts to implement this new marketing strategy did not result in new revenue growth. During the latter half of fiscal year 1998, the Company attempted to raise additional capital through its existing investor base and new funding sources, but had limited success. See Item 6, "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION OR PLAN OF OPERATION." As a 2 3 result, the Company was forced to drastically reduce its cash flows, resulting in significant reductions in workforce, cancellation of nearly all third-party consultants that the Company retained, and a halt to all non-essential purchasing activities. Additionally, the Company began to structure an informal workout plan to repay its creditors. In the fiscal third quarter, the Company lost significant personnel, including several key Vice Presidents and its new Chief Executive Officer and Chairman. As a result of the losses incurred by the Company in fiscal year 1998, the Company formed a committee of its creditors (the "Creditor Committee") in February 1998, to structure a repayment plan whereby the Company would repay its creditors over time, with the objective of avoiding further litigation or formal bankruptcy proceedings. The Creditor Committee has reviewed the Company's financial plans and has agreed with the Company on a repayment plan (the "Workout Plan"). The Creditor Committee has distributed the plan of repayment as proposed by the Company to all U.S.-based unsecured creditors. The Creditor Committee has asked each creditor to choose one of three payment options and return a ballot indicating the option they have selected no later than July 10, 1998. Should at least 90% of all creditors representing at least 95% of total amount of claims in the Workout Plan approve the Workout Plan, the Company expects to begin repayment to customers in the quarter ending September 1998. See Item 3, "LEGAL PROCEEDINGS." If a payment plan is not agreed to by the Company's creditors, the Company will continue to attempt to negotiate with the creditors individually. The Company believes that it will be very difficult to successfully negotiate a satisfactory agreement with each or a significant majority of its creditors outside of this Plan. The Company may not be successful in these negotiations. The Company does not have sufficient cash to repay its creditors in full and does not expect to have enough cash to do so in the near future. Accordingly, there is a significant risk that the Company's creditors could force the Company to file for bankruptcy protection. In addition, the Company may not be able to make required repayments under a plan approved by its creditors, which could also require the Company to file for bankruptcy. The Company expects to sell additional shares of Series A capital stock during fiscal 1999 to fund the Workout Plan with its creditors, when and if approved. See Item 6, "MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION." While the Company expects to fund the Workout Plan with its creditors through the sale of additional shares of Series A stock, there can be no assurance that the Workout Plan will be satisfactory to all creditors, that the Workout Plan will effectively preclude any involuntary liquidation petitions, or that the Company will be able to consummate the sale of additional preferred stock. Additionally, there can be no assurance that the Company can meet the ongoing terms of the Workout Plan, when and if approved. To the extent the Company is unable to obtain approval for the Workout Plan, or is unable to obtain additional financing, the Company's operating results and financial condition will be materially and adversely affected. KEY MANAGEMENT CHANGES Due to significant financial difficulties and other factors, the Company lost several executives in the third quarter of fiscal 1998. In February 1998, the Chief Executive Officer and Chairman of the Company resigned, and the Chief Financial Officer of the Company assumed the interim position of Chief Executive Officer and Chairman. In April 1998, OMNIS Software Inc. hired Mr. Kevin J. Doyle as Vice President of Worldwide Marketing and Mr. Larry Barcot Vice President of North American Sales. These additions are intended to revitalize a sales effort which had been impacted by the reductions in the Company's personnel during the last two quarters of fiscal 1998. Each of these executives have been associated with OMNIS' technology for at least nine years. INDUSTRY BACKGROUND EVOLUTION OF CLIENT/SERVER COMPUTING The evolution of computing has been characterized by several distinct stages. In the 1970s, mainframe and minicomputer systems with character-oriented user terminals emerged as the principal structure for 3 4 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, minicomputer, or workstation, and messages linking client and server are exchanged through connecting networks. In the last several years the Internet has become a new alternative for the dissemination and collection of information, with clients accessing data using applications known as "browsers". As a result of the adoption of the client/server model by large businesses, the market for application development tools has grown rapidly as businesses seek to develop applications which will operate in traditional client/server environments and across the Internet. At the same time, 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. LIMITATIONS OF EXISTING OBJECT-ORIENTED PROGRAMMING ENVIRONMENTS Software object components should be easy to use, modify, and re-use so that developers do not need to commit to lengthy and complex development of applications that become difficult to change. Businesses should be able to support their most recent product offerings and corporate positioning by deploying applications rapidly and modifying them in ways that reflect the businesses' strategic differentiation. Until recently, the promise of object-oriented programming could not be fully realized because the competing object-oriented programming languages were not compatible, causing significant barriers to true object re-use. Businesses have been hesitant to fully embrace object-oriented programming and frequently have elected to continue to custom develop applications using traditional non-object-oriented environments, starting from scratch with each new application. As a result, application development is frequently slow and expensive with resulting applications which, once built, are frequently difficult to deploy and modify. LIMITATIONS OF CURRENT BROWSER TECHNOLOGY Increasingly, businesses have been using the Internet to reach more customers, to reach them more directly, and to create an extended virtual corporation among their vendors, partners, and contractors. As businesses turn to the Internet, they are realizing that only a few applications can operate through traditional browsers. While browsers will continue to become more sophisticated, they are likely to remain primarily viewing tools: their limited engines and memory constraints generally restrict the kinds of Web-based mission-strategic applications that can be operated over the Internet. Instead of browsers, businesses need powerful new crossware (software that supports cross database, cross platform, cross object, cross component) applications, and software applications which have the ability to operate across the Internet with a wide variety of: - platforms (e.g., Windows, Windows NT, and Macintosh); - databases (e.g., DB2, Oracle, Informix, and Sybase); - object types built using the C++ and Basic programming languages (i.e., standard and custom object GUI objects); and 4 5 - component formats (e.g., ActiveX from Microsoft Corporation ("Microsoft") and Java Beans from JavaSoft and others). BUSINESS STRATEGY The Company's product development strategy is to develop sophisticated crossware application development tools to enable businesses to build mission-strategic software applications which have the following benefits: - Integrate with existing systems and execute across a variety of platforms, databases, and components. - Extend the client/server model across the Internet. - Deliver superior object-oriented functionality at a lower cost than applications developed using other software development tools. - Enable developers to transform the way they work by rapidly delivering solutions and services to their end customers. - Develop reusable program components and reduce the cost of solution delivery. The Company has expanded its customer base by dividing its products into two families: OMNIS 7(3), which is designed to appeal to existing customers, and OMNIS Studio, which is designed to appeal to new and existing value and performance-focused customers. OMNIS 7(3) 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) has already attracted a large customer base with its cross-platform, cross-database capabilities. The Company expects this product to continue to generate demand among programmers and developers of sophisticated client/server software. OMNIS Studio is the Company's premium product line and the first commercially available application development tool which integrates ActiveX and Java Beans components. OMNIS Studio is an object-oriented rapid application development tool, offering easy visual assembly of components and objects. The Company's growth strategy is focused on capitalizing on its past successes and its installed customer base while at the same time attracting a large number of new customers. The Company believes that it 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 to the Company's products, the Company is seeking to communicate better with its existing customers and respond more quickly to their needs. In addition, the Company is seeking to expand its marketing capabilities to address new markets and attract new customers. PRODUCTS The Company's product offerings provide solutions to a broad range of business challenges. OMNIS 7(3) has been the Company's main product line for many years and continues to be the main source of revenue. OMNIS Studio is an enhanced product offering with technical abilities in excess of OMNIS 7(3). Current and future OMNIS 7(3) customers can efficiently convert and migrate their applications to OMNIS Studio on their own or with support from the Company's technical and professional services staff. OMNIS 7(3) OMNIS 7(3) 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 already established a large customer base. With its cross-platform, cross-database capabilities, the Company expects this product to continue to generate demand among programmers and developers of sophisticated client/server software. 5 6 Written in C++, the OMNIS 7(3) product was widely embraced by the Company's customers, partners, and Value Added Resellers (VAR), and now has a large installed base. The Company has continued to develop, support, and upgrade OMNIS 7(3). Management believes that 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, which is a target market for OMNIS 7(3). The OMNIS 7(3) 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 OMNIS 7(3) product line also includes Web Enabler and OMNIS Web Rad. These products enable 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 for OMNIS 7(3) vary with the configuration of the product licensed and have list prices ranging from $500 to $2,700. OMNIS 7(3) applications can be deployed with data access services via the optimized OMNIS 7(3) database or configured with data access services to leading databases (i.e., DB2, Oracle and Informix). When customers deploy an application developed using the OMNIS 7(3) database, they must purchase an OMNIS 7(3) database deployment license for each end-user. The global list prices for the database deployment licenses of OMNIS 7(3) generally range from $20 to $165 per user, depending upon quantities purchased and/or the distribution channel. The Company has recently announced a similar pricing structure for non-OMNIS database deployment licenses. OMNIS STUDIO OMNIS Studio is the Company's premium product line and the first commercially available application development tool which integrates ActiveX and Java Beans components. OMNIS Studio is an object-oriented rapid application development tool, offering easy visual assembly of components and objects. Key features of OMNIS Studio include cross-platform support for Windows95 and Windows98, Windows NT, Windows 3.1, and MacOS; local and portable data caching; a powerful code inspector; a versatile report writer; a multiple-mode debugger; and support for localization and multi-lingual implementation. OMNIS Studio includes two powerful subsystems: the Component Integrator and the Web Integrator. These two subsystems deliver a significant portion of OMNIS Studio's crossware capabilities. The Component Integrator provides a development environment where developers can combine, integrate, optimize, and 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 Component Integrator allows developers to easily re-use objects and components, combining and customizing them to quickly create new business applications. The Web Integrator allows businesses to web-enable their applications in numerous ways, creating object applications, browser-less web applications, or agent-oriented application servers. The Web Integrator provides support for the leading Internet standards including SMTP/POP3, FTP, HTTP, TCP/IP, and HTML translators as well GIF and JPEG file formats. The OMNIS Studio product family includes two additional products: OMNIS Studio Data Access Manager and OMNIS Studio Production Manager. With OMNIS Studio Data Access Manager (DAM), OMNIS Studio developers can develop applications which enable 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. OMNIS Studio Production Manager provides application development teams and application development managers with better control over developing their crossware applications. OMNIS Production Manager offers a complete 6 7 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. OMNIS Studio delivers high value at a moderate cost for large and complex application development teams. 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, will allow 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 the OMNIS Studio product family vary with the configuration of the products licensed and generally have United States list prices ranging from $950 to $2,700. OMNIS Studio applications can be deployed with data access services via the OMNIS Cache, an OMNIS Studio subsystem, or configured with data access services to leading databases (i.e. DB2, Oracle, and Informix). When a customer deploys an application developed using the OMNIS Cache they must purchase an OMNIS Cache for each end-user. The global list prices for OMNIS Cache generally range from $100 to $250 per user in US dollar equivalents depending upon quantities purchased and/or distribution channel. The Company has recently announced a similar pricing structure for non-OMNIS Cache deployment licenses. YEAR 2000 COMPLIANCE Many existing computer programs use only two digits to identify a year in the date field. These programs were designed and developed without considering the impact of the upcoming change in the century. If not corrected, many computer applications could fail or create erroneous results by or at the year 2000. The Company believes it has designed its products to effectively handle the Year 2000 issue. The majority of the Company's internal applications were built using OMNIS products which the Company believes is Year 2000 compliant. Therefore, the Company believes that it has mitigated its risks on the Year 2000 issue with its internal applications. There can be no assurance that the Company is fully Year 2000 compliant or that Year 2000 compliance issues will not arise with respect to products furnished by third party manufacturers, the Company's own products, or suppliers that may result in unforeseen costs or delays to the Company and therefore have a material adverse effect on the Company. SALES, MARKETING AND DISTRIBUTION SALES The Company sells its products in North America primarily through account representatives who follow-up on leads generated by the Company's marketing department and respond to incoming calls from current and new customers. In addition, for larger enterprise sales, the Company employs a coordinated sales and engineering team to meet with potential customers. All North American account representative personnel are located at the corporate offices in San Bruno, California. The Company also sells its products in Europe primarily through a direct sales force operating from sales offices in the United Kingdom, Germany, Scandinavia, and Benelux. The Company is committed to expanding sales growth by making additional sales to its current customer base and increasing the number of new customers. To enable this sales growth, the Company recently hired a Vice President of North American Sales and developed relationships with key VARs, service providers, and distributors, thereby allowing the Company to leverage its sales force. An important part of the Company's growth strategy is to widen market penetration and sales through VARs, service providers, and other partnerships. Because applications developed by these partners require users of the applications to purchase deployment licenses from the Company, the Company believes that it can develop additional revenue by encouraging these partners to expand their development efforts using the Company's software development tools. Over the past year, the Company has worked with these partners to better distribute consulting opportunities between the Company's in-house service personnel and these 7 8 partners. By removing conflict and competition between the Company's in-house service personnel and these partners, the Company believes it can improve its working relationship with these partners and encourage them to develop additional applications utilizing the Company's products. INTERNATIONAL DISTRIBUTION The Company has non-exclusive distributor relationships in over 25 countries as well as exclusive distribution relationships in Australia, France, and Japan. All of the Company's exclusive distributors provide primary customer service and support for their markets. The Company is in the process of extending this distributor network to address additional international markets. Distributors in Latin America and in the Pacific Rim are managed from the San Bruno, California office, while distributors in Europe, Middle East, and Africa are managed from the United Kingdom office. The Company believes that in order to increase sales opportunities and achieve profitability, the Company will be required to expand its international operations. The Company has committed and continues to commit significant management time and financial resources to developing direct and indirect international sales and support channels. There can be no assurance, however, that the Company will be able to maintain or increase international market demand for its products. To the extent that the Company is unable to do so in a timely manner, the Company's international sales will be limited, and the Company's business operating results and financial condition could be materially and adversely affected. International operations are subject to inherent risks, including the impact of possible recessionary environments in economies outside the United States, costs of localizing products for foreign markets, longer receivables collection periods, and 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 support of its selling efforts, the Company conducts numerous marketing programs including public relations efforts, trade conferences, seminars, direct mail campaigns, and direct customer communications. The Company conducts user conferences in the United States, the United Kingdom, and Germany and periodically conducts meetings with customer groups to obtain direct feedback of customers' needs. The Company also provides a variety of collateral marketing materials and demonstration applications to stimulate customer interest. The Company has committed to focusing its marketing resources on the needs of its partners in efforts to make them more successful. The Company believes these efforts will help the Company generate additional revenues. As part of this effort the Company hired a Vice President of Worldwide Marketing, and the Company plans to implement a number of programs specifically designed for the OMNIS Partner channel. These programs include regional OMNIS Development Centers intended to help end-users and channel partners with implementation and development efficiencies on a regional level, training courses taught by seasoned OMNIS developers who are recognized within the OMNIS community, and regional trade conferences which will differ from OMNIS' past trade shows in that the conferences will be OMNIS specific and will showcase the various features and competitive advantageous of OMNIS' products. PROFESSIONAL SERVICES As part of its global sales efforts, the Company markets professional services. These professional services provide customers with a wide range of consulting services and product training. Professional service revenues include fees for software programming projects (implementation and migration) and providing the Company's programming personnel to major customers. The Company believes that eliminating conflict and competition 8 9 between the Company's professional services and the services provided by the Company's business partners will result in improved utilization of the Company's service professionals for higher margin consulting projects as well as increased demand for service professionals to assist the Company's business partners in their development efforts. To this end, the Company has reduced the amount of consulting projects it contracts for internally in favor of distributing these consulting opportunities to its partner channel. The Company has realized significantly reduced revenues as a result of this planned reduction in professional services and expects this trend to continue in the future. CUSTOMER SERVICES AND 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 support services are an important element of the Company's business strategy. The Company offers customer service programs to meet customer support requirements. Registered users of the Company's products can purchase an annual comprehensive subscription service to obtain maintenance releases and associated technical support and documentation. Other services under this program include telephone technical support during regular business hours and access to an electronic bulletin board where users can exchange development tips and commentary. The customer resource library provides in-depth analyses of specific product features, example code, programming short cuts, and optimization techniques. The Company's technical support team, comprised of experienced OMNIS developers, focuses on problem solving and resolution in networking, connectivity, security, and other technical issues. Technical support representatives are regularly trained in basic and advanced uses of OMNIS products. The Company operates the technical support function through a consolidated database, combining customer information from the United States, United Kingdom, and German support center databases into single database structure, 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 support center in San Bruno, which primarily supports the Company's United States and Canadian 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. Support centers in the United Kingdom and Germany provide 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 1998, no customer accounted for more than 10% of total net revenues. In fiscal year 1997, one customer in the United States accounted for approximately 13% of total net revenues. As is the case with other participants in the software industry, the Company generally ships product as orders are received. As a result, the Company has historically operated with little backlog. Because of this short cycle between receipt of an order and shipment, the Company does not believe that its backlog as of any particular date is meaningful. 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 which represents an emerging marketplace. 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 9 10 Company will be able to respond effectively to customer requirements and competitive offerings in this market. As the market evolves, the Company anticipates that competition is likely to increase from both existing and future market participants, most of whom are larger companies and have greater financial, technical, marketing, sales, and distribution resources and a larger installed base of customers than the Company. Moreover, if such competition were to enter the Company's market, it might be required to increase defensive measures to maintain its position in these target markets. This increased effort could adversely affect operating results due to increased marketing programs, price declines, longer sales cycles, and increased product development expenses, among other things. There can be no assurance that the Company could compete effectively with such new products. PRODUCT DEVELOPMENT Since its inception in the United Kingdom, the Company has benefited from having a global perspective in terms of partners, customers, technological outlook, and products. Since 1985 the Company's corporate research facilities have been based in England. The Company believes that developing new products is best accomplished with a cross-disciplinary approach, combining the talents and perspectives of a multi-faceted virtual development team that includes developers, customers, VARs, sales and marketing, technical support, quality assurance, and professional 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 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. 10 11 COMPETITION The applications development tools software market is rapidly changing and intensely competitive. The Company currently encounters competition from several direct competitors, including Sybase Corporation, Forte Software Inc., and Centura Software Corporation (formerly Gupta Corporation). In addition, the Company competes indirectly with several other companies. These include (a) the relational database vendors, such as Oracle 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.; and (d) shrink-wrap database software suppliers such as Lotus, Delphi, and ACIUS. The Company believes that none of these competitors currently support both ActiveX and Java Beans components. While the Company fully expects most large competitors to ultimately offer crossware development tools which support both ActiveX and Java Beans, the Company believes that it currently has a time to market advantage over competitors who may enter the market at a later time. 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, and 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 (i.e. Oracle, Sybase, and Informix). As the client/server 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 things. There can be no assurance that the Company could compete effectively with such new products. 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 11 12 that restricts use of products to a specified number of users. The Company generally relies on shrink-wrap licenses which become effective when a customer opens the package. Because they are not negotiated with or signed by the licensees, in order to retain exclusive ownership rights to its software and technology, the Company generally provides its software in object code only, with contractual restrictions on copying, disclosure, and transferability. There can be no assurance that these protections will be adequate, or that the Company's competitors will not independently develop technologies that are substantially equivalent or superior to the Company's technology. Copyright and other protection for intellectual property may be unavailable or restricted in certain foreign countries. In addition, shrink-wrap licenses may be unenforceable under the laws of certain jurisdictions. Nevertheless, the Company believes that its copyright and license protections are important. However, because of the rapid pace of technological change in the computer software industry, factors such as the product knowledge, ability, and experience of the Company's personnel, brand name recognition, customer support, and ongoing product maintenance and enhancement may be more significant in maintaining the Company's competitive advantage. 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. OMNIS 7 and OMNIS Studio are the trademarks of OMNIS Technology Corporation. All trademarks are the property of their respective owners of the companies that produce them. The Company is currently involved in litigation related to copyright infringement. Please see Item 3, "LEGAL PROCEEDINGS". PRODUCTION The Company uses subcontractors in the United States 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 its distributors in some international markets to localize the products, including conversion of the product and product documentation to native languages, where necessary. The production of the resulting localized product is then handled by the distributor for that market. The Company requires that quality control tests be performed on all duplicated disks and finished products. Quality control personnel work in the United Kingdom operation to help ensure product quality. The Company produces software and documentation based upon forecasts of monthly sales. EMPLOYEES At June 15, 1998, the Company had 47 employees, including 14 in product development, 15 in sales and marketing, 9 in customer support and consulting, and 9 in finance and administration. Of these 47 employees, 34 employees are based in Europe, and 13 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 has recently changed and added new senior management as well as other personnel. This group has had limited experience working together and the Company is continuing to enhance its internal infrastructure and management information systems which is critical to the Company's success. The Company's success also 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 12 13 believes that its future success will depend to a significant extent on its ability to recruit, hire and retain highly skilled management and employees for product development, sales, marketing, and customer service. Competition for such personnel in the software industry is intense, and there can be no assurance that the Company will be successful in attracting and retaining such personnel. EXECUTIVE OFFICERS OF THE REGISTRANT The following sets forth certain information regarding the executive officers of the Company as of June 26, 1998:
NAME AGE POSITION ---- --- -------- Kenneth Holmes.... Chairman, Chief Executive Officer, and Chief Financial 32 Officer David R. Seaman... 45 Vice President, Chief Technical Officer, and Founder Gwyneth Gibbs..... 55 Vice President, Research and Development Colin Starr....... 38 Director, European Sales Kevin J. Doyle.... 42 Vice President, Worldwide Marketing Larry A. Barcot... 49 Vice President, North American Sales
Mr. Holmes has served as Chairman, Chief Executive Officer, and Chief Financial Officer of the Company since February 1998, and Director of Finance since he joined the Company in August of 1997. Prior to joining the Company, Mr. Holmes served as Assistant Controller of NeXT Software, Inc. from July 1996 to March 1997. From March 1994 to July 1996, Mr. Holmes was Controller at ENlighten Software Solutions, Inc., a worldwide independent supplier of software for system administration. Mr. Holmes was an accountant with KPMG Peat Marwick LLP from August 1991 through March 1994. 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. Mrs. Gibbs is the Vice President of Research and Development. She joined the Company in October 1994, initially responsible for Research and Development in Europe and with world-wide responsibility since January 1998. Prior to joining the Company, Mrs. Gibbs was Technical Director of an intelligent database start-up for 6 years, and before that held a number of positions in UK development organizations. Mr. Starr is the Director, European Sales. He joined the Company in September 1997, and assumed his current role in February 1998. Prior to joining the Company, Mr. Starr spent 9 years with Dun & Bradstreet Software (formerly Geac Corporation), serving as Director of Marketing -- UK for 2 years and as Customer Services Director -- UK for 3 years until 1997. Mr. Doyle is the Vice President of Worldwide Marketing and has served in this position since April, 1998. Prior to joining the Company, Mr. Doyle has had over 22 years of technology consulting experience, including over 14 years experience developing and delivering solutions using the products of OMNIS Software. Mr. Doyle was a founder of the Macintosh Consultants Network, formed in 1988. Mr. Barcot is the Vice President of North American Sales and has served in this position since April, 1998. Prior to joining the Company, Mr. Barcot had been involved in the technology industry since 1976. Since 1984, Mr. Barcot has provided consulting and software development services for companies on an international basis, the majority of software development projects were completed using tools from OMNIS Software. ITEM 2. PROPERTIES The Company currently leases approximately 22,178 square feet of office space in San Bruno, California pursuant to a lease which expires on May 31, 2002, and had base monthly rental payments of $58,772 plus a percentage of operating costs and property taxes above the 1997 base year. The rent increased to $60,990 per month in 1998, and increases to $63,207 per month in 1999, $65,425 per month in 2000, and $67,643 per month in 2001. In addition, the Company is currently paying an additional $10,000 per month in previously 13 14 owed rent and expects to make such payments for the next 15 months. The Company is currently seeking to reduce its current facility in San Bruno, California through either a sublease, renegotiation with its landlord, or relocating its offices to a different facility pending negotiation with its current landlord. The Company owns property in the United Kingdom which it uses for its research and development. The Company also leases 2,738 square feet of office space for its European sales headquarters office in Bracknell, England. The lease, which expires on February 17, 2001, has monthly rental payments of L3,100 plus L1,300 for common area maintenance. The Company also leases 2,370 square feet of office space (formerly its London sales office) in London, England. The lease, which expires on November 1, 2012, has monthly rental payments of L2,370. During the year, the Company sublet all of the London office space for which it receives a monthly rental of L1,375 per quarter plus 100% reimbursement for common area maintenance. The sublease terminates on December 25, 1999. The Company leases property in Germany which it uses as a sales office. The space is 457 square meters and has monthly rental payments of DM 11,783. The lease will expire May 14, 2007, with a Company option to terminate the lease in May 2002. The Company believes that these facilities are more than adequate to meet its requirements for fiscal year 1999. ITEM 3. LEGAL PROCEEDINGS COMPASS SOFTWARE On March 16, 1998, the Company was served with a lawsuit which claims that the Company and two of its officers aided in software copyright infringement. The case has been transferred to the Eastern District Court of Washington state. The plaintiff, Compass Software ("Compass"), a former channel partner of OMNIS, seeks damages in the amount of $2 million. OMNIS had previously received a favorable judgment from Compass in 1994 (the "1994 Claim") in the Eastern District Court of Washington state related to the Company's claims that Compass illegally distributed OMNIS' software products. Compass has not paid the judgment under the 1994 Claim. OMNIS believes Compass' copyright infringement suit has no merit and has been brought primarily in an attempt to force the Company to abandon the judgment under the 1994 Claim. The Company currently has no intention of reducing or forgiving its judgment. In June 1998, the Company executed on its judgment on the 1994 claim by purchasing, at a judgment lien sale, the rights to the current infringement suit brought by Compass. In light of this purchase, the Company has filed a motion to dismiss the suit brought against the Company. CREDITORS As a result of the losses and negative cash flows incurred by the Company in fiscal year 1998, the Company was unable to meet its obligations. The Company has been negotiating with a group of its creditors to structure a Workout Plan whereby the Company would repay the creditors over time, thereby possibly avoiding further litigation and collection activities, or formal bankruptcy proceedings. In February 1998, the Company called a general meeting of all creditors to discuss a plan of repayment (the "Workout Plan"). The total debt represented by the 106 creditors invited to the general meeting was approximately $1.3 million. Of this group, 7 creditors made up 55% of the $1.3 million, and 58% of the creditors were owed less than $2,000 each. As a result of that meeting, a representative group of creditors formed a committee which has reviewed the financial plans of the Company including financial forecasts for the next 3 years. The Workout Plan includes the following repayment options: 1. All creditors with claims at or below $2,000 may elect to receive a cash repayment of 75% of the amount of their claim within 30 days from the effective date of the agreement. 2. Any creditor with a claim greater than $2,000 can elect to reduce their claim to $2,000 and receive a cash repayment equal to 75% of the amount of their claim within 30 days from the effective date of the agreement. 14 15 3. Any creditor with a claim greater than $2,000 who does not elect option 2, may elect to receive scheduled payments over approximately a three (3) year period with interest accruing at 10% annually. 4. Any creditor with a claim greater than $2,000, who does not elect option 2, may elect to receive a cash repayment equal to 20% of the amount of their claim within 30 days of the effective date of the agreement. The Workout Plan was agreed to by this representative group of creditors and has been distributed to the creditors of the Company for approval. The Workout Plan is subject to approval by July 10, 1998. If at least 90% of all creditors representing at least 95% of total amount of claims in the Workout Plan approve the Workout Plan, the Company expects to begin repayment to customers in the quarter ending September 1998. Each of these creditors have been contacted regarding the proposed Workout Plan with the Creditor Committee and the Company expects to receive approval or denial of the proposed plan by July 10, 1998. Under the terms of the Workout Plan, creditors which have agreed to the Workout Plan and who have begun legal actions must dismiss their lawsuits. Creditors who do not agree to the Workout Plan as proposed may at their option continue to seek payment from the Company individually. If a payment plan is not agreed to by the Company's creditors, the Company will continue to attempt to negotiate with the creditors individually. The Company believes that it will be very difficult to successfully negotiate a satisfactory agreement with each or a significant majority of its creditors outside of this Workout Plan. The Company may not be successful in these negotiations. The Company does not have sufficient cash to repay its creditors in full and does not expect to have enough cash to do so in the near future. Accordingly, there is a significant risk that the Company's creditors could force the Company to file for bankruptcy protection. In addition, the Company may not be able to make required repayments under a plan approved by its creditors, which could also require the Company to file for bankruptcy. The Company owes a significant amount to its creditors. Certain of these filed lawsuits against the Company for the amounts due them. These claims aggregate approximately $393,000. Information regarding these lawsuits are set forth in the table below.
AMOUNT PLAINTIFF COURT DATE OF SUIT OF CLAIM --------- ----- ------------ -------- Lois Paul & Partners Superior Court of California April 27, 1998 $160,000 Bloor Research Supreme Court of England April 29, 1998 71,000 EMS Group Superior Court, San Francisco March 5, 1998 64,000 Miller Freeman Santa Clara Superior Court June 25, 1998 36,000 Romac International San Francisco Municipal Court April 20, 1998 25,000 Programmer's Paradise, Inc. San Mateo Municipal Court January 22, 1998 19,000 ACI US, Inc. Superior Court of California May 12, 1998 10,000 Collaborative Marketing Corp. Municipal Court of Santa Clara June 1, 1998 5,000 Walk'n Water Municipal Court of Santa Clara January 21, 1998 3,000 -------- Total $393,000
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 The Company's Common Stock was traded on the National Association of Securities Dealers Automated Quotation System ("Nasdaq") National Market System ("NMS") until February 1998. Due to changes in the minimum listing requirements by Nasdaq and the deterioration in the Company's financial condition, the 15 16 Company's stock was de-listed during February 1998. It is currently traded on the Nasdaq Bulletin Board ("BB") under the symbol "OMNS". In order for the Company to regain its status on the NMS, the Company must significantly improve its financial condition. The Company is not forecasting any significant improvement in financial performance to warrant applying for NMS listing, and does not expect to be in a position to do so for several years. The following table sets forth the high and low closing prices for the Company's Common Stock for fiscal years 1997 and 1998, as adjusted for the 1 for 10 reverse stock split of the Company's common stock in September 1997.
HIGH LOW FISCAL YEAR 1997 CLOSING CLOSING ---------------- ------- ------- April 1 to June 30, 1996................................... $36.87 $26.88 July 1 to September 30, 1996............................... $26.25 $10.94 October 1 to December 31, 1996............................. $15.34 $ 5.00 January 1 to March 31, 1997................................ $15.64 $ 4.69
HIGH LOW FISCAL YEAR 1998 CLOSING CLOSING ---------------- ------- ------- April 1 to June 30, 1997.................................. $11.880 $4.690 July 1 to September 30, 1997.............................. $11.250 $6.250 October 1 to December 31, 1997............................ $ 6.500 $0.500 January 1 to March 31, 1998............................... $ 0.875 $0.313
On June 15, 1998, the closing price for the Company's Common Stock on the Nasdaq Bulletin Board was $0.75 and there were approximately 103 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 or Plan of Operation -- Liquidity and Capital Resources." 16 17 ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION 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):
FISCAL YEARS ENDED MARCH 31, ---------------- 1998 1997 ----- ----- Percent Of Total Net Revenues: Net revenues: Product........................................... 53% 45% Services.......................................... 47 55 ---- --- Total net revenues........................ 100 100 Operating expenses: Cost of product................................... 6 11 Cost of services.................................. 39 36 Selling and marketing............................. 84 55 Research and development.......................... 36 27 General and administrative........................ 38 35 ---- --- Total operating expenses.................. 204 164 Operating loss...................................... (104) (64) Other income (expense), net......................... (1) (13) ---- --- Net loss............................................ (105)% (77)% ==== === Gross margins: Gross margin on product revenues.................. 88% 76% Gross margin on service revenues.................. 18% 34%
Total Net Revenues. Total net revenues decreased 23% to $8.0 million in fiscal year 1998 from $10.4 million in fiscal year 1997. International revenues, primarily product revenues, accounted for 39% and 37% of total net revenues in fiscal years 1998 and 1997, 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 decreased 11% to $4.2 million in fiscal year 1998 from $4.7 million in fiscal year 1997. The decline in product revenues in fiscal year 1998 as compared to fiscal year 1997 was largely a result of significant reductions in the Company's direct sales force. Service revenues decreased 33% to $3.8 million in fiscal 1998 from $5.7 million in fiscal year 1997. The decrease in service revenues in fiscal year 1998 as compared to fiscal year 1997 was due to a planned reduction of consulting services and a decrease in product revenue which affected customer support revenues. The Company expects consulting revenue to continue to decrease both as a percentage of total revenues and in total dollars in future quarters. In fiscal year 1998, no customer accounted for more than 10% of total revenues. In fiscal year 1997, one customer in the United States accounted for approximately 13% of total net revenue. 17 18 The Company sells its products in U.S. Dollars in North America and principally in British Pounds Sterling and German Deutsche Marks in the United Kingdom, Germany, and other European countries. 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 percentage of product revenues was 12% in fiscal year 1998 as compared to 24% in fiscal year 1997. The decrease in cost of product revenues as a percentage of product revenues is mainly due to amortization of previously capitalized software development costs in 1997 with no corresponding amortization in 1998. Amortization of capitalized software development costs was $300,000 in fiscal year 1997. The Company no longer capitalizes research and development costs and as of the end of fiscal year 1997 had fully amortized all software development costs recorded in previous fiscal years. 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 82% in fiscal year 1998 from 66% in fiscal year 1997. The increase in cost of services revenues as a percentage of services revenues in fiscal 1998 as compared to fiscal years 1997 was primarily due to a planned reduction in consulting services, which lead to less efficiently utilized consulting staff. Additionally, the Company decreased its consulting staff in fiscal year 1998 which resulted in severance costs and other termination costs that are included in the cost of services revenue. Selling and Marketing Expenses. Selling and marketing expenses increased to $6.7 million in fiscal year 1998 from $5.7 million in fiscal year 1997, representing 84% and 55% of total net revenues during such periods, respectively. The increase in selling and marketing was primarily due to significant increases in headcount and consultant costs in the marketing group in the first two quarters of the fiscal year. 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. The Company is no longer following this increased marketing campaign and expects selling and marketing expenses to be significantly lower in future periods. Research and Development Expenses. Research and development expenses in absolute dollars remained relatively constant for fiscal years 1998 and 1997. During fiscal year 1998, the Company consolidated its world-wide research and development activities into its development facility in England. 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 1998 or 1997 because the Company believes its current process for developing software is essentially completed concurrently with the establishment of technological feasibility (as defined by SFAS 86). At the end of fiscal year 1997, the Company had fully amortized the previously capitalized internal software development costs and no such costs were recognized during fiscal year 1998. General and Administrative Expenses. General and administrative expenses decreased to $3.1 million in fiscal year 1998 from $3.6 million in fiscal year 1997. These decreases are related to stringent cost controls and other cost conservation methods introduced during fiscal year 1998, which were partially offset by significant severance and related termination costs resulting from the Company's reduction in force in the latter half of fiscal year 1998. Other Income (Expense), Net. Other income (expense) is primarily comprised of interest income, interest expense, gains and losses on foreign currency transactions, and other income. Interest income reflects earnings from the Company's cash position. Interest expense primarily relates to the Company's $1 million note payable and capital leases in fiscal year 1998 and convertible debentures in fiscal year 1997. Interest expense was $146,000 in fiscal year 1998 and $1,757,000 in fiscal year 1997. The interest expense in fiscal year 1997 was primarily due to a $1.3 million charge related to the conversion price discount on the $7.35 million 18 19 principal amount of the Company's 8% Convertible Notes. See Note 5 of the Notes to the Consolidated Financial Statements. Income Tax Expense. Income tax expense was $17,000 in fiscal year 1998, compared to $30,000 in fiscal year 1997. At March 31, 1998, the Company had net operating loss carry forwards of approximately $35.7 million for federal income tax purposes, $7.9 million for state tax purposes, and $5.3 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 Revenue Code. An "ownership change" took place in fiscal year 1992, and the Company is limited to $780,000 per year of federal and California net operating loss carry forwards accrued through that date (a total of $7.8 million federal and $1.3 million California). The Company has not examined whether any other "ownership change" has occurred which would further limit the utilization of net operating losses and credits. See Note 8 of the Notes to Consolidated Financial Statements. 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 1999. RISK FACTORS 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. In addition, revenues in quarters after a new product release may be significantly affected by the amount of upgrade revenue, which tends to increase soon after the release of a new product and then decline rapidly. The Company has experienced significant losses during fiscal year 1998. As a result of this and other factors, the Company used approximately $6 million of cash during fiscal year 1998. As a result, the report of the Company's independent auditors on the Company's financial statements included herein contains a paragraph stating that there is a substantial doubt as to the ability of the Company to continue as a going concern. In November 1997, the Company took several actions expected to reduce future operating costs and cash flows, including a 15% reduction in headcount, a significant cut in marketing expenses, and the implementation of stringent expense monitoring controls. The Company has recently raised $1 million in secured debt financing (the "secured debt") from a significant stockholder, which is secured by substantially all of the Company's assets. In April and May 1998, the Company sold convertible Preferred Stock resulting in net proceeds of approximately $500,000 from the significant stockholder who had previously loaned the 19 20 Company $1,000,000 described above. The stockholder has the right to purchase an additional 62,500 shares at his option, at a price of $8.00 per share at anytime prior to October 1, 1998. Management expects there will be additional significant expense and cash flow savings during the first and second quarter of fiscal year 1999. However, the Company is operating with minimal cash resources and, should the Company continue to experience losses from operations, it will need to seek additional financing. There can be no assurance that the Company will be able to raise additional financing in this time frame on commercially reasonable terms, or at all. If the Company is unsuccessful in raising this capital, the Company may be required to cease operations and declare bankruptcy. Under such circumstances, the Company's secured creditors would have a first claim on all, or substantially all, of the Company's assets. See "LIQUIDITY AND CAPITAL RESOURCES" below. The Company'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. The Company's future operating results will depend, to a considerable extent, on its ability to rapidly and continuously develop new products that offer its customers enhanced performance at competitive prices. Inherent in this process are a number of risks. The development of new, enhanced software products is a complex and uncertain process requiring high levels of innovation from the Company's designers as well as accurate anticipation of customer and technical trends by the marketing staff. Once a product is developed, the Company must rapidly bring it into production, a process that requires long lead times on some product components and accurate forecasting of production volumes, among other things, in order to achieve acceptable product costs. The Company's operating results will also be affected by the volume, mix, and timing of orders received during a period and by conditions in the industries that it serves as well as the general economy. Additionally, the Company operates on a global basis with offices or distributors in Europe, Asia, and Latin America 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 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. 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. 20 21 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 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 to replace the decreasing service revenues with new product revenues. The Company has recently been sued by Compass for copyright infringement. In addition, the Company has also been served with lawsuits by several of its creditors. The Company is currently negotiating with these creditors through the Creditor's Committee. There can be no assurance that the Company will be successful in resolving any of these lawsuits favorably to the Company. If the Company loses any of these judgments, it may be forced to cease operations and declare bankruptcy. LIQUIDITY AND CAPITAL RESOURCES At March 31, 1998, the Company's principal sources of liquidity consisted of cash and cash equivalents of $242,000. In October 1997, the Company closed an interim debt financing of $1,000,000 with a significant stockholder of the Company (the "Lending Stockholder"). This debt financing is secured by substantially all of the Company's assets and was originally scheduled to be repaid by December 31, 1997. The Lending Stockholder has extended the due date of the notes payable to June 30, 1998. Although the Company believes that the notes will continue to be extended until it is repaid in full, there can be no assurance that it will be extended. The Company currently does not have sufficient cash to repay this note, and does not anticipate that it will have sufficient cash to repay the notes in the foreseeable future. In April 1998, the Company agreed to sell up to 126,000 shares of Series A preferred stock, at a price of $8.00 per share, to the same stockholder. The stockholder has the right to purchase such shares, at his option, at such price per share at anytime prior to October 1, 1998. Each share of preferred stock converts into 10 shares of common stock. Concurrent with the execution of this agreement, the Company sold the first 50,000 shares of Series A preferred stock, with net proceeds of approximately $400,000. Additionally, the stockholder purchased 12,500 shares in May 1998 for net proceeds of approximately $100,000. These proceeds were used to fund the Company's operations. The Company expects to sell the additional shares of Series A preferred stock in the upcoming quarters, a portion of which will fund future working capital requirements. See Item 1, "BUSINESS -- RECENT DEVELOPMENTS". On June 2, 1996 the Company sold $7.35 million of 8% Convertible Debentures (the "Notes") under Regulation S of the Securities Act of 1933, as amended. As of June 2, 1997, all of the Notes had either been redeemed or converted and an aggregate of 1,120,221 shares of Common Stock had been issued upon conversion of Notes. See Note 5 of the Notes to the Consolidated Financial Statements. The Company's working capital (deficit) position decreased to ($3) million at March 31, 1998, from $5.5 million at March 31, 1997, primarily due to $6.0 million in cash used in operations during fiscal year 1998. The Company has operated at a loss for the last several years and has significant past due balances owed to creditors. In fiscal year 1998, operations of the Company generated a significant reduction in cash. The Company's new management team has begun to take steps to improve the Company's cash flow through (i) more effective marketing of its products; (ii) focusing research and development expenditures on products that have a shorter payback period; (iii) improving operational efficiencies; (iv) significantly reducing its operating expenses; and, (v) attempting to negotiate with its creditors. With these improvements, the 21 22 Company continues to generate a cash flow loss and does not expect to become profitable prior to fiscal year 1999. There can be no assurance that the Company will be able to significantly reduce its cash used in operations or achieve profitability in the near future or at all. In addition, there can be no assurance that the Company's negotiations with its creditors will be successful. If the Company is unsuccessful in reaching an agreement with its creditors, the Company believes that it may be required to file for bankruptcy. Accordingly, the Company may need to raise significant additional funds to support operations. The Company does not currently have an established line of credit with a commercial bank. Such a credit facility will be difficult to obtain with the Company's historical operating results. Accordingly, in order to obtain additional funds in the future, the Company would need to seek additional equity capital which would be dilutive to current stockholders. The Company is not currently attempting to raise additional capital, but such activity may be required to continue operations. There can be no assurance that the Company will be able to raise additional capital on commercially reasonable terms should the Company need additional funds in the future. 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 Not applicable. PART III ITEM 9.DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS, AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT Information regarding directors of the Company is incorporated by reference from "Election of Directors" in the Company's 1998 Proxy Statement for the Company's 1998 Annual Meeting of Stockholders. Current Executive Officers of the Company found under the caption "Executive Officers of the Registrant" in Part I hereof is also incorporated by reference into this Item 10. ITEM 10. EXECUTIVE COMPENSATION The information required in this item is incorporated by reference from the section entitled "Executive Compensation", "Election of Directors -- Director Compensation", and "Certain Transactions" in the Company's 1998 Proxy Statement. ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by this item is incorporated by reference from the section entitled "Security Ownership of Certain Beneficial Owners and Management" in the Company's 1998 Proxy Statement. ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required by this Item is incorporated by reference from the section entitled "Executive Compensation" and "Certain Transactions" in the Company's 1998 Proxy Statement. 22 23 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.(7) 3.2 Certificate of Designations, as corrected.(7) 3.3 Bylaws, as amended. 10.1 Definitive Trust Deed dated October 26, 1983, among Blyth Holdings Limited, Blyth Software Limited and Geoffrey Paul Smith, Paul Nelson Wright and Suntrust Limited (relating to pension scheme).(1) 10.2 Service Agreement dated July 30, 1990, between OMNIS Technology Corporation and David Seaman.(2) 10.3 Deed of Guarantee dated June 1, 1993, between OMNIS Technology Corporation and A. Levy & Son Limited.(3) 10.4 Form of Subscription Agreement for purchase of Units of the Company's securities.(3) 10.5 Form of Stock Purchase Warrant sold to purchaser of Units of the Company's securities.(3) 10.6 Common Stock Purchase Agreement dated March 31, 1993, between OMNIS Technology Corporation and General Reinsurance Corp.(4) 10.7 Form of Indemnification Agreement entered into between the Company and all of its directors and certain of its officers.(4) 10.8 The OMNIS Technology Corporation Amended and Restated 1987 Stock Option Plan, as amended.(4) 10.9 The OMNIS Technology Corporation 1993 Directors' Warrant Plan and form of Director's Warrant.(9) 10.10 The OMNIS Technology Corporation 1994 Employee Stock Purchase Plan, as amended.(10) 10.11 Registration Rights Agreement effective as of January 3, 1994, between the Company and Migration Software Systems Limited.(4) 10.12 Warrant to Purchase shares of Common Stock dated January 3, 1994, granted to Migration Software Systems Limited.(4) 10.13 Warrant to Purchase Common Stock issued to Swartz Investments, Inc.(5) 10.14 Form of Registration Rights Agreement among the Company, Purchasers of 8% Convertible Debentures due March 31, 1997, and Swartz Investments, Inc.(5) 10.15 Form of Warrant to Purchase Common Stock issued to certain persons affiliated with Swartz Investments, LLC.(6) 10.16 Form of Registration Rights Agreement among the Company and Swartz Investments, LLC and its designees.(6) 10.17 Note Purchase Agreement dated as of October 14, 1997.(7) 10.18 Note Purchase Agreement dated as of October 31, 1997.(7) 10.19 Series A Convertible Preferred Stock Purchase Agreement dated as of April 1, 1998.(7) 10.20 Employee Agreement between the Company and Kevin Doyle dated April 1, 1998.(7)
23 24
EXHIBIT NUMBER DESCRIPTION ------- ----------- 10.21 Employee Agreement between the Company and Larry Barcot dated April 1, 1998.(7) 10.22 Shareholder Rights Agreement dated April 1, 1998.(7) 10.23 The 1996 Stock Plan and form of Option Agreement.(8) 10.24 The 1993 Advisors' Warrant Plan and form of warrant.(9) 21.1 Subsidiaries of the Company.(2) 23.1 Independent Auditors' Consent. 27.1 Financial data schedule.
- --------------- (1) Incorporated by reference to the Annual Report on Form 10-K filed by the Company with the Commission on July 13, 1990. (2) Incorporated by reference to the Annual Report on Form 10-K filed by the Company with the Commission on June 28, 1991. (3) Incorporated by reference to the Annual Report on Form 10-K filed by the Company with the Commission on June 26, 1992. (4) Incorporated by reference to the Annual Report filed by the Company with the Commission on June 28, 1994. (5) Incorporated by reference to the Current Report on Form 8-K filed by the Company with the Commission on April 7, 1995. (6) Incorporated by reference to the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 1996. (7) Incorporated by reference to the Current Report on Form 8-K filed by the Company with the Commission on June 16, 1998. (8) Incorporated herein by reference to the Registrant's Annual Report on Form 10-K, as amended, for the fiscal year ended March 31, 1997, filed by the Registrant with the Commission on July 29, 1997. (9) Incorporated herein by reference to the Registrant's Registration Statement on Form S-8 (Registration Number 33-81008) filed June 30, 1994. (10) Incorporated herein by reference to the Registrant's Registration Statement on Form S-8 (Registration Number 333-38449) filed October 22, 1997. (b) Reports on Form 8-K No reports on Form 8-K were filed during the quarter ended March 31, 1998. 24 25 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: June 26, 1998 OMNIS TECHNOLOGY CORPORATION By: /s/ KENNETH P. HOLMES ------------------------------------ Kenneth P. Holmes Chairman, Chief Executive Officer, and Chief Financial Officer Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
SIGNATURES TITLE DATE ---------- ----- ----
/s/ KENNETH P. HOLMES June 22, 1998 - -------------------------------------------------------- Chairman, Chief Executive Kenneth P. Holmes Officer, and Chief Financial Officer /s/ RICHARD J. HANSCHEN Director June 22, 1998 - -------------------------------------------------------- Richard J. Hanschen /s/ WILLIAM E. KONRAD Director June 22, 1998 - -------------------------------------------------------- William E. Konrad /s/ DAVID COLBY Director June 22, 1998 - -------------------------------------------------------- David Colby
25 26 OMNIS TECHNOLOGY CORPORATION AND SUBSIDIARIES (FORMERLY BLYTH HOLDINGS, INC. AND SUBSIDIARIES) CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED MARCH 31, 1998 AND 1997 AND INDEPENDENT AUDITORS' REPORT F-1 27 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 (formerly Blyth Holdings, Inc. and subsidiaries) as of March 31, 1998 and 1997, 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 generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of OMNIS Technology Corporation and subsidiaries at March 31, 1998 and 1997, and the results of their operations and their cash flows for the years then ended in conformity with generally accepted accounting principles. The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company has incurred losses and negative cash flows from operations, has a working capital and stockholders' deficiency at March 31, 1998, limited cash resources, and significant past due amounts due to creditors. These matters, among others, raise substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. DELOITTE & TOUCHE LLP San Jose, California May 22, 1998 F-2 28 OMNIS TECHNOLOGY CORPORATION AND SUBSIDIARIES (FORMERLY BLYTH HOLDINGS, INC. AND SUBSIDIARIES) CONSOLIDATED BALANCE SHEETS MARCH 31, 1998 AND 1997 (IN THOUSANDS, EXCEPT SHARE AMOUNTS) ASSETS
1998 1997 -------- -------- CURRENT ASSETS: Cash and cash equivalents................................. $ 242 $ 6,150 Trade accounts receivable (less allowances for doubtful accounts of $162 in 1998 and $676 in 1997)............. 602 1,743 Inventories............................................... 74 18 Other current assets...................................... 625 686 -------- -------- Total current assets.............................. 1,543 8,597 Property, furniture and equipment, net...................... 1,472 1,450 Other assets................................................ 400 -- -------- -------- Total assets...................................... $ 3,415 $ 10,047 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY) CURRENT LIABILITIES: Obligations under line of credit.......................... $ 145 $ 5 Current portion of long-term debt (principally related party)................................................. 1,165 91 Accounts payable.......................................... 1,417 928 Accrued liabilities....................................... 970 1,118 Deferred revenue.......................................... 862 927 -------- -------- Total current liabilities......................... 4,559 3,069 Long-term debt.............................................. 111 1,646 -------- -------- Total liabilities................................. 4,670 4,715 -------- -------- Commitments and contingencies (Note 10) Stockholders' equity (deficiency): Preferred stock -- $1.00 par value; 300,000 shares authorized; none issued................................ -- -- Common stock -- $.10 par value; 4,000,000 shares authorized; outstanding: 1998, 2,125,827 shares; 1997, 1,737,353 shares....................................... 212 174 Paid-in capital........................................... 42,881 41,038 Accumulated deficit....................................... (44,499) (36,147) Foreign currency translation adjustment................... 151 267 -------- -------- Total stockholders' equity (deficiency)........... (1,255) 5,332 -------- -------- Total liabilities and stockholders' equity (deficiency).................................... $ 3,415 $ 10,047 ======== ========
See notes to consolidated financial statements. F-3 29 OMNIS TECHNOLOGY CORPORATION AND SUBSIDIARIES (FORMERLY BLYTH HOLDINGS, INC. AND SUBSIDIARIES) CONSOLIDATED STATEMENTS OF OPERATIONS YEARS ENDED MARCH 31, 1998 AND 1997 (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
1998 1997 ---------- ---------- Net Revenues: Product................................................... $ 4,198 $ 4,731 Services.................................................. 3,785 5,669 ---------- ---------- Total net revenues................................ 7,983 10,400 Operating Expenses: Cost of product revenues.................................. 505 1,158 Cost of service revenues.................................. 3,104 3,722 Selling and marketing..................................... 6,714 5,685 Research and development.................................. 2,875 2,866 General and administrative................................ 3,066 3,605 ---------- ---------- Total operating expenses.......................... 16,264 17,036 ---------- ---------- Operating Loss.............................................. (8,281) (6,636) Other income (expense): Interest income........................................... 83 428 Interest expense and other, net........................... (137) (1,757) ---------- ---------- Total other income (expense)...................... (54) (1,329) ---------- ---------- Loss before income taxes.................................... (8,335) (7,965) Income tax expense.......................................... (17) (30) ---------- ---------- Net loss.................................................... $ (8,352) $ (7,995) ========== ========== Net loss per share -- basic and diluted..................... $ (4.07) $ (6.67) ========== ========== Weighted average common shares outstanding.................. 2,052,285 1,198,972 ========== ==========
See notes to consolidated financial statements. F-4 30 OMNIS TECHNOLOGY CORPORATION AND SUBSIDIARIES (FORMERLY BLYTH HOLDINGS, INC. AND SUBSIDIARIES) CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY) FOR THE YEARS ENDED MARCH 31, 1998 AND 1997 (IN THOUSANDS, EXCEPT SHARE AMOUNTS)
TOTAL FOREIGN STOCK- COMMON STOCK CURRENCY HOLDERS' ------------------- PAID-IN ACCUMULATED TRANSLATION EQUITY SHARES AMOUNT CAPITAL DEFICIT ADJUSTMENT (DEFICIENCY) --------- ------ ------- ----------- ----------- ------------ Balances, April 1, 1996........... 975,379 $ 98 $35,722 $(28,152) $124 $ 7,792 Common stock options and warrants exercised....................... 5,175 -- 122 -- -- 122 Issuance of warrants.............. -- -- 114 -- -- 114 Common stock issued upon conversion of convertible debentures payable (net of issuance costs of $377)......... 747,938 75 5,019 -- -- 5,094 Common stock issued............... 8,860 1 61 -- -- 62 Foreign currency translation adjustment...................... -- -- -- -- 143 143 Net loss.......................... -- -- -- (7,995) -- (7,995) --------- ---- ------- -------- ---- ------- Balances, March 31, 1997.......... 1,737,353 174 41,038 (36,147) 267 5,332 Common stock options and warrants exercised....................... 2,500 -- 10 -- -- 10 Common stock issued upon conversion of debt (net of issuance costs of $148)......... 372,283 37 1,773 -- -- 1,810 Common stock issued............... 13,691 1 60 -- -- 61 Foreign currency translation adjustment...................... -- -- -- -- (116) (116) Net loss.......................... -- -- -- (8,352) -- (8,352) --------- ---- ------- -------- ---- ------- Balances, March 31, 1998.......... 2,125,827 $212 $42,881 $(44,499) $151 $(1,255) ========= ==== ======= ======== ==== =======
See notes to consolidated financial statements. F-5 31 OMNIS TECHNOLOGY CORPORATION AND SUBSIDIARIES (FORMERLY BLYTH HOLDINGS, INC. AND SUBSIDIARIES) CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED MARCH 31, 1998 AND 1997 (IN THOUSANDS)
1998 1997 ------- ------- Cash flows from operating activities: Net loss.................................................. $(8,352) $(7,995) Adjustments to reconcile net loss to net cash used for operating activities: Depreciation and amortization expense.................. 653 846 Noncash convertible debenture interest................. 131 905 Premium on redemption of convertible debentures........ -- 392 Debt issue costs expensed upon redemption of convertible debentures................................ -- 70 Amortization and write-off of capitalized software development costs..................................... -- 300 Gain on disposal of property........................... -- (3) Changes in assets and liabilities: Trade accounts receivable............................ 1,102 556 Inventories.......................................... (55) 53 Other current assets................................. 44 483 Accounts payable and accrued liabilities............. 363 402 Deferred revenue..................................... (66) (174) ------- ------- Net cash used for operating activities............ (6,180) (4,165) ------- ------- Cash flows from investing activities: Purchases of property, furniture and equipment............ (423) (438) Proceeds from sale of fixed assets........................ 81 34 Other assets.............................................. (400) 52 ------- ------- Net cash used for investing activities............ (742) (352) ------- ------- Cash flows from financing activities: Net borrowings (repayments) on line of credit............. 100 (144) Repayments of long-term debt.............................. (246) (1,622) Proceeds from issuance long-term debt..................... 1,098 7,025 Proceeds from common stock issuance....................... 61 62 Exercise of stock options and warrants.................... 10 122 ------- ------- Net cash provided by financing activities......... 1,023 5,443 ------- ------- Effect of exchange rate changes on cash..................... (9) 95 Increase (decrease) in cash and equivalents................. (5,908) 1,021 Cash and equivalents -- beginning of year................... 6,150 5,129 ------- ------- Cash and equivalents -- end of year......................... $ 242 $ 6,150 ======= ======= Cash paid for: Interest.................................................. $ 34 $ 451 Income taxes.............................................. $ 13 $ 30
F-6 32 OMNIS TECHNOLOGY CORPORATION AND SUBSIDIARIES (FORMERLY BLYTH HOLDINGS, INC. AND SUBSIDIARIES) CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED MARCH 31, 1998 AND 1997 (CONCLUDED) NONCASH TRANSACTIONS: During fiscal 1998, convertible debenture noteholders converted $1,828,000 of 8% debentures, plus accrued interest of $9,000, into 372,283 shares of common stock. Such amount has been recorded net of issuance costs of $182,000 in the consolidated statements of stockholders' equity (deficiency). See Note 5. Also, during fiscal 1998, the Company acquired assets under capital lease in the amount of $333,000. During fiscal 1997, convertible debenture noteholders converted $4,524,000 of 8% debentures, plus accrued interest of $42,000, into 747,938 shares of common stock. Such amount has been recorded net of issuance costs of $377,000 in the consolidated statements of stockholders' equity (deficiency). In addition, as discussed in Note 5, upon issuance of the convertible debentures, $1,297,000, representing the amount relating to the debentures' Conversion Discount, was allocated to additional paid-in capital. Upon redemption of certain of these debentures, the Company recorded the premium of $392,000 paid upon redemption as a reduction in paid-in capital. See Note 5. See notes to consolidated financial statements. F-7 33 OMNIS TECHNOLOGY CORPORATION AND SUBSIDIARIES (FORMERLY BLYTH HOLDINGS, INC. AND SUBSIDIARIES) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED MARCH 31, 1998 AND 1997 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES Organization -- OMNIS Technology Corporation and its subsidiaries (the "Company" or "OMNIS"), formerly Blyth Holdings, Inc. and subsidiaries, 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 an accumulated deficit of $44,499,000 at March 31, 1998, negative cash flows from operations of $6,921,000 in fiscal 1998, has working capital and stockholders' deficiencies of $3,016,000 and $1,255,000, respectively, at March 31, 1998, limited cash resources, and significant past due amounts to creditors. These matters, among others, raise substantial doubt about its ability to continue as a going concern for a reasonable period of time. The financial statements do not include any adjustments relating to the recoverability or classification of assets or the amounts and classification of liabilities that might result from the outcome of this uncertainty. The Company's continued existence is dependent on its ability to obtain additional financing sufficient to allow it to meet its obligations as they become due and to achieve profitable operations. The Company has (1) established a creditor's committee intended to structure a Workout Plan whereby the Company would make predetermined payment amounts to creditors, thereby possibly avoiding further litigation or formal bankruptcy proceedings (see Note 10), (2) received Series A Preferred Stock equity financing of $400,000 in April 1998 and $100,000 in May 1998 from a significant stockholder (see Note 12), and (3) increased marketing efforts which it believes will increase revenues in fiscal 1999. Management also believes, however, that it may be necessary to obtain additional financing to fund operations. Management's ability to achieve these objectives cannot be determined at this time. 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. F-8 34 OMNIS TECHNOLOGY CORPORATION AND SUBSIDIARIES (FORMERLY BLYTH HOLDINGS, INC. AND SUBSIDIARIES) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) YEARS ENDED MARCH 31, 1998 AND 1997 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. 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 debt instruments 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 intangible assets at a minimum on an annual basis, and in addition, whenever events or changes indicate that the carrying amount of an asset may not be recoverable. Capitalized Software Development Costs -- Software development costs are capitalized when technological feasibility has been established. The Company did not capitalize any software development costs in fiscal 1998 or 1997 since the net realizability for most of the Company's current development efforts could not be determined. Amortization of capitalized software development costs charged to cost of product revenues was none and $300,000 for the years ended March 31, 1998 and 1997, respectively. 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 method in accordance with APB No. 25, Accounting For Stock-Based Compensation. Net Loss Per Share -- Net loss per share is computed based on the weighted average number of common shares outstanding during the period. 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 Earnings Per Shares (EPS). Basic EPS excludes dilution and is computed by dividing net income 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 F-9 35 OMNIS TECHNOLOGY CORPORATION AND SUBSIDIARIES (FORMERLY BLYTH HOLDINGS, INC. AND SUBSIDIARIES) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) YEARS ENDED MARCH 31, 1998 AND 1997 excludes common equivalent shares, as their effect is anti-dilutive. Prior periods have been restated to conform with SFAS 128. 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 and cash equivalents and trade 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, 1998 and 1997. Recent Accounting Pronouncements -- In October 1997, the American Institute of Certified Public Accountants issued Statement of Position (SOP) 97-2, Software Revenue Recognition, which supersedes SOP 91-1, also entitled "Software Revenue Recognition." The Company is required to adopt SOP 97-2 prospectively for software transactions entered into beginning April 1, 1998. The adoption of SOP 97-2 is not expected to have a material impact on the Company's financial statements. In June 1997, the Financial Accounting Standards Board adopted Statements of Financial Accounting Standards No. 130 Reporting Comprehensive Income, which requires that an enterprise report, by major components and as a single total, the change in its net assets during the period from non-owner sources; and No. 131 Disclosures about Segments of an Enterprise and Related Information, which establishes annual and interim reporting standards for enterprise business segments and related disclosures about its products, services, geographic areas, and major customers. The Company has not yet identified its reporting segments. Adoption of these statements will not impact the Company's consolidated financial position, results of operations or cash flows. Both statements are effective for the Company's fiscal year ended March 31, 1999. F-10 36 OMNIS TECHNOLOGY CORPORATION AND SUBSIDIARIES (FORMERLY BLYTH HOLDINGS, INC. AND SUBSIDIARIES) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) YEARS ENDED MARCH 31, 1998 AND 1997 2. PROPERTY, FURNITURE, AND EQUIPMENT Property, furniture and equipment at March 31 consist of:
1998 1997 ------- ------- (IN THOUSANDS) Land and building......................................... $ 716 $ 703 Leasehold improvements.................................... 53 74 Office equipment, furniture and fixtures.................. 5,289 4,889 Automobiles............................................... 123 379 ------- ------- Total........................................... 6,181 6,045 Accumulated depreciation and amortization................. (4,710) (4,595) ------- ------- Property, furniture and equipment -- net.................. $ 1,471 $ 1,450 ======= =======
3. ACCRUED LIABILITIES Accrued liabilities at March 31 consist of:
1998 1997 ------- ------- (IN THOUSANDS) Salaries and benefits..................................... $ 212 $ 284 Commissions............................................... 34 85 Other..................................................... 724 749 ------- ------- Total........................................... $ 970 $ 1,118 ======= =======
4. LINE OF CREDIT The Company's wholly-owned subsidiaries in the United Kingdom, OMNIS Holdings Limited and OMNIS Software Limited, and in Germany, OMNIS Software GmbH, have a line of credit with a bank that allows these subsidiaries to borrow up to $206,000 at March 31, 1998, automatically upon overdraft of the subsidiaries operating bank account. Interest on the overdrafts are at the bank's prime rate plus 3% for the United Kingdom and interest for the Germany subsidiary is 10%. Borrowings under the lines of credit are secured by all assets of OMNIS Holdings Limited, OMNIS Software Limited, OMNIS Software GmbH, a life insurance policy, and a money market account. There were $145,000 and $5,000 of borrowings under the lines of credit at March 31, 1998 and 1997, respectively. F-11 37 OMNIS TECHNOLOGY CORPORATION AND SUBSIDIARIES (FORMERLY BLYTH HOLDINGS, INC. AND SUBSIDIARIES) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) YEARS ENDED MARCH 31, 1998 AND 1997 5. SHORT-TERM AND LONG-TERM DEBT Short-term and long-term debt at March 31 consists of:
1998 1997 ------ ------ (IN THOUSANDS) Capital lease obligations................................... $ 263 $ 27 Convertible debenture notes................................. -- 1,646 Note payable to finance company, 8.57%, due upon demand..... 13 64 Note payable to stockholder, 10%, due June 30, 1998, secured by all of the company's assets............................ 1,000 -- ------ ------ 1,276 1,737 Less current portion........................................ 1,165 91 ------ ------ Total long-term debt.............................. $ 111 $1,646 ====== ======
Convertible Debenture Notes -- In June 1996, the Company sold $7,350,000 of convertible debenture notes (the Notes). The Notes accrued interest at an annual rate of 8%, beginning on the date of issue, with the principal due and payable three years from the date of issue if and to the extent that the Notes were not previously redeemed or converted. The Notes were convertible at the option of the Noteholders into common stock at a price equal to the lesser of $3.25 or 85% of the average closing bid price for the common stock on the NASDAQ National Market for the five trading days prior to the date of conversion. The conversion of the Notes at 85% of the average closing bid price of the Company's common stock resulted in the Notes being issued at a 15% discount (the Conversion Discount). Upon issuance of the Notes, the amount related to the Conversion Discount of $1,297,000 was allocated to additional paid-in capital and, therefore, such amount represented an original issue discount to the Notes. The Conversion Discount was amortized to interest expense from the date of issuance through the date the security is most favorably convertible to the noteholders, with a corresponding increase to the original principal amount of the Notes. In addition, the stated 8% annual interest is being recognized using the effective interest method over the term of the Notes. During the year ended March 31, 1997, a total of $1,297,000 was recorded as interest expense relating to amortization of the Conversion Discount. During fiscal 1997, the Company redeemed $998,000 of Notes for a total cost of $1,390,000. The premium paid of $392,000 was recorded as a reduction of the additional paid-in capital established upon original issuance of the debentures, as described in the previous paragraph. Related issuance costs totaling $70,000 were also expensed upon redemption. During fiscal 1997, $4,524,000 of 8% convertible debentures, plus accrued interest, were converted into 747,938 shares of the Company's common stock. On June 2, 1997, the Noteholders converted the remaining $1,828,000 of Notes, plus accrued interest of $9,000 into 372,283 shares of the Company's common stock. Such amount was recorded net of issuance costs of $182,000 in the first quarter of fiscal 1998. 6. STOCKHOLDERS' EQUITY (DEFICIENCY) Common Stock -- In September 1998, the Company's stockholders approved a 1-for-10 reverse stock split of all the outstanding common stock and authorized preferred stock. All share and per share amounts have been retroactively restated to reflect the stock split. F-12 38 OMNIS TECHNOLOGY CORPORATION AND SUBSIDIARIES (FORMERLY BLYTH HOLDINGS, INC. AND SUBSIDIARIES) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) YEARS ENDED MARCH 31, 1998 AND 1997 Warrants -- The Company granted five-year warrants to purchase 2,000 and 7,000 shares of common stock to the Company's Board of Directors under the 1993 Director's Warrant Plan during fiscal 1998 and 1997, respectively. The warrants were granted with an exercise price equal to the fair market value of the common stock at the date of grant and generally vest over three years. In connection with the issuance of the 8% convertible debentures in 1997, the Company granted warrants to purchase 137,200 shares of common stock at $3.38 per share. A value of $114,000 has been allocated to such warrants granted in fiscal 1997 and recorded as additional paid-in capital. The following summarizes warrants outstanding:
WARRANTS EXERCISE PRICE -------- ---------------- Warrants outstanding at April 1, 1996........... 222,342 $10.00 - $160.00 Granted....................................... 20,720 $10.90 - $ 33.80 Exercised..................................... (5,000) $10.00 - $ 20.40 Canceled...................................... (137,500) $20.00 - $ 20.40 -------- Warrants outstanding at March 31, 1997.......... 100,562 $10.90 - $160.00 Granted....................................... 4,500 $ 4.13 - $ 6.88 Exercised..................................... (2,500) $ 4.13 Canceled...................................... (27,000) $33.75 - $ 85.00 -------- Warrants outstanding at March 31, 1998.......... 75,562 $ 4.13 - $160.00 ========
The warrants expire at various dates between 1999 and 2002. At March 31, 1998, there were 63,625 warrants exercisable. Employee Stock Purchase Plan -- The Company offers a benefit to its employees to purchase shares of the Company's common stock through its 1994 Employee Stock Purchase Plan (the Plan). The Company originally reserved 22,500 shares of common stock for issuance under the Plan. In September, 1997, stockholders of the Company amended the Plan to increase the number of shares reserved for issuance to 40,000 shares. The Plan permits eligible employees to purchase common stock through payroll deductions of up to a maximum of 10% of their eligible compensation at 85% of the fair market value at the beginning or end of each six-month purchase period. During fiscal years 1998 and 1997, 13,691 shares were issued at a weighted average price of $4.50 per share and 8,860 shares were issued at a weighted average price of $7.00 per share, respectively. The weighted average fair value of the fiscal 1998 and 1997 awards was considered insignificant. At March 31, 1998, 17,449 shares have been reserved for future issuance. 7. 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 the 10 year term expires. In anticipation of the termination of the 1987 Plan, the stockholders of the Company approved the 1996 Stock Plan ("the 1996 Plan"). The 1996 Plan is administered by a committee of the Board which is empowered to grant options to purchase up to 130,000 shares of common stock, of either non- qualified or incentive stock options. The exercise price is determined by the committee at the time of the granting of an option, but in the case of incentive stock options, the exercise price shall not be less than the fair F-13 39 OMNIS TECHNOLOGY CORPORATION AND SUBSIDIARIES (FORMERLY BLYTH HOLDINGS, INC. AND SUBSIDIARIES) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) YEARS ENDED MARCH 31, 1998 AND 1997 market value on the date of the grant. Generally, options vest ratably and become exercisable over a four year period. The following tables summarize the activity under both Plans:
OPTIONS OUTSTANDING -------------------- WEIGHTED OPTIONS AVERAGE AVAILABLE EXERCISE FOR GRANT SHARES PRICE --------- -------- -------- Balances, April 1, 1996..................................... 69,445 180,626 $35.80 Additional authorization.................................. 45,000 -- -- Granted (weighted average fair value: $2.00 per share).... (121,600) 121,600 12.20 Canceled.................................................. 145,900 (145,900) 36.10 Exercised................................................. -- (175) 10.00 -------- -------- Balances, March 31, 1997.................................... 138,745 156,151 17.20 Additional authorization.................................. 85,000 -- -- Granted (weighted average fair value: $1.14 per share).... (126,075) 126,075 7.09 Canceled.................................................. 245,577 (245,577) 9.71 -------- -------- Balances, March 31, 1998.................................... 343,247 36,649 $24.96 ======== ========
Additional information regarding options outstanding under both Plans as of March 31, 1998 is as follows:
OPTIONS OUTSTANDING ----------------------- OPTIONS EXERCISABLE WEIGHTED ---------------------- AVERAGE WEIGHTED WEIGHTED WEIGHTED RANGE OF REMAINING AVERAGE AVERAGE AVERAGE EXERCISE NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE PRICES OUTSTANDING LIFE (YEARS) PRICE EXERCISABLE PRICE -------------- ----------- ------------ -------- ----------- -------- $ 5.13 - 8.75.. 12,700 9.13 $ 6.69 -- $ -- 15.63 - 25.63.. 4,320 4.47 19.98 3,151 20.34 33.13 - 52.50.. 19,629 5.51 37.87 14,981 37.70 -------------- ------ ---- ------ ------ ------ $ 5.13 - 52.50.. 36,649 6.64 $24.96 18,132 $34.68 ====== ======
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, no compensation expense has been recognized in the financial statements for employee stock arrangements. Statement of Financial Accounting Standards No. 123, Accounting For Stock-Based Compensation, (SFAS 123) requires the disclosure of pro forma net loss and net loss per share had the Company adopted the fair value method as of the beginning of fiscal 1996. Under SFAS 123, the fair 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, 40% in 1998 and 1997; risk free interest rates, 5.9% and 5.8% in 1998 and 1997; and no dividends during the expected term. The Company's calculations are based on a F-14 40 OMNIS TECHNOLOGY CORPORATION AND SUBSIDIARIES (FORMERLY BLYTH HOLDINGS, INC. AND SUBSIDIARIES) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) YEARS ENDED MARCH 31, 1998 AND 1997 multiple option valuation approach and forfeitures are recognized as they occur. If the computed fair values of the 1998 and 1997 awards had been amortized to expense over the vesting period of the awards, pro forma net loss would have been $8,396,000 ($4.09 per share) in 1998 and $8,213,000 ($6.90 per share) in 1997. However, the impact of outstanding non-vested stock options granted prior to 1996 has been excluded from the pro forma calculation; accordingly, the 1998 and 1997 pro forma adjustments are not indicative of future period pro forma adjustments, when the calculation will apply to all applicable stock options. 8. INCOME TAXES Income tax expense consists of:
1998 1997 ---- ---- (IN THOUSANDS) Current: Federal................................................... $-- $-- State..................................................... 13 27 Foreign................................................... 4 3 --- --- Total............................................. $17 $30 === ===
Pre-tax foreign loss was $1,059,000 and $1,610,000 in 1998 and 1997, 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 carryforwards. Significant components of the Company's net deferred tax assets are as follows (in thousands):
1998 1997 -------- -------- Deferred tax assets Net operating losses................................... $ 14,927 $ 11,571 Depreciation........................................... 516 317 Accruals and reserves recognized in different periods............................................. 1,069 824 Tax credits............................................ 753 673 Capitalized software................................... 348 443 -------- -------- Total.......................................... 17,613 13,828 Valuation allowance.................................... (17,613) (13,828) -------- -------- Net deferred tax assets................................ $ -- $ -- ======== ========
The net operating losses included in deferred tax assets at March 31, 1998, includes $366,000 of tax benefits relating to the exercise and sale by employees of certain incentive stock options. If the Company becomes profitable, the benefit associated with the stock compensation will be recorded as an adjustment to stockholders' equity. Due to uncertainties surrounding the timing of realizing the benefits of its net favorable tax attributes in future tax returns, the Company has placed a full valuation allowance against its net deferred tax assets at March 31, 1998 and 1997. The net change in the valuation allowance was an increase of $3,785,000 in 1998 and $2,448,000 in 1997. F-15 41 OMNIS TECHNOLOGY CORPORATION AND SUBSIDIARIES (FORMERLY BLYTH HOLDINGS, INC. AND SUBSIDIARIES) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) YEARS ENDED MARCH 31, 1998 AND 1997 At March 31, 1998, the Company had net operating loss carryforwards of $35.7 million for federal income tax purposes, $7.9 million for state tax purposes, and $5.3 million for foreign tax purposes which expire at various dates through 2012. 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 carryforwards in the event of an "ownership change," as defined by the Internal Revenue Code. An "ownership change" took place in 1992, and the Company is limited to using $780,000 per year of federal and California net operating loss carryforwards accrued through that date (a total of $7,859,000 federal and $1,280,000 California). It has not been determined whether there have been subsequent ownership changes which would further limit the net operating losses and credits. 9. 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 OMNIS Retirement Benefits Scheme ("the ORB Plan"). The only participant in the ORB Plan is the Chief Technical Officer of OMNIS Software Limited. The ORB Plan provides retirement benefits upon attaining normal retirement age, and incidental benefits in the case of death or termination of employment prior to retirement. OMNIS Software Limited makes annual contributions based on the participant's salary to fund these retirement benefits. The ORB Plan is partially insured through the Sun Life Assurance Society. OMNIS Software Limited retains the right to terminate the ORB Plan at any time upon 30 days' written notice. OMNIS Software Limited sponsors the OMNIS Software Limited Retirement Benefits Scheme ("the OSL Plan") for substantially all of its employees in the United Kingdom. The OSL Plan provides retirement benefits upon attaining normal retirement age, and incidental benefits in the case of death or termination of employment prior to retirement. OMNIS Software Limited contributes an amount from 5% to 8% of each participant's compensation to fund such benefits. In addition, participants are entitled to make voluntary contributions under the OSL Plan. The Company contributed a total of $153,000 and $139,000 to the ORB and OSL plans for the years ended March 31, 1998 and 1997, respectively. The Company sponsors the OMNIS Software Inc. 401(k) Savings and Retirement Plan ("the Plan") for its employees based in the United States. Employees meeting the eligibility requirements, as defined, may contribute specified percentages of their salaries. Under the Plan, which is qualified under Section 401(k) of the federal tax laws, the Company's Board of Directors, at its sole discretion, may make a discretionary profit-sharing contribution to the Plan. Moreover, the Company is not obligated, but may at its discretion, pay certain administrative costs on behalf of the Plan. For the years ended March 31, 1998 and 1997, discretionary contributions of $14,000 and $14,000, respectively, were made to the Plan. F-16 42 OMNIS TECHNOLOGY CORPORATION AND SUBSIDIARIES (FORMERLY BLYTH HOLDINGS, INC. AND SUBSIDIARIES) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) YEARS ENDED MARCH 31, 1998 AND 1997 10. 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, 1998 are as follows:
YEAR ENDING CAPITAL OPERATING MARCH 31, LEASES LEASES ----------- ------- --------- (IN THOUSANDS) 1999........................................................ $178 $ 943 2000........................................................ 92 966 2001........................................................ 35 906 2002........................................................ 12 903 2003........................................................ -- 232 Thereafter.................................................. -- 467 ---- ------ Total minimum lease payments................................ 317 $4,417 ====== Less: Amount representing interest........................ (54) ---- Lease obligations........................................... $263 ====
Equipment under capital leases had a net book value of $263,000 and $73,000 at March 31, 1998 and 1997, respectively. Rent expense of $876,000 and $559,000 was incurred in 1998 and 1997, respectively. LITIGATION Compass Software On March 16, 1998, the Company was served with a lawsuit which claims that the Company and two of its officers aided in software copyright infringement. The case has been transferred to the Eastern District Court of Washington state. The plaintiff, Compass Software ("Compass"), a former channel partner of OMNIS seeks damages in the amount of $2 million. OMNIS had previously received a favorable judgment from Compass in 1994 (the "1994 Claim") in the Eastern District Court of Washington state related to the Company's claims that Compass illegally distributed OMNIS' software products. Compass has not paid the judgment under the 1994 Claim, OMNIS believes Compass' copyright infringement suit has no merit and has been brought primarily in an attempt to force the Company to abandon the judgment under the 1994 Claim. The Company currently has no intention of reducing or forgiving its judgment. In June 1998, the Company executed on its judgment on the 1994 claim by purchasing at a judgment lien sale the rights to the current infringement suit brought by Compass. In light of this purchase, the Company has filed a motion to dismiss the suit brought against the Company. CREDITORS As a result of the losses and negative cash flows incurred by the Company in fiscal year 1998, the Company was unable to meet its obligations. The Company has been negotiating with a group of its creditors F-17 43 OMNIS TECHNOLOGY CORPORATION AND SUBSIDIARIES (FORMERLY BLYTH HOLDINGS, INC. AND SUBSIDIARIES) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) YEARS ENDED MARCH 31, 1998 AND 1997 to structure a Workout Plan whereby the Company would repay the creditors over time, thereby possibly avoiding further litigation and collection activities, or formal bankruptcy proceedings. In February 1998, the Company called a general meeting of all creditors to discuss a plan of repayment (the "Workout Plan"). The total debt represented by the 106 creditors invited to the general meeting was approximately $1.3 million. Of this group, 7 creditors made up 55% of the $1.3 million, and 58% of the creditors were owed less than $2,000 each. As a result of that meeting, a group of creditors formed a committee which has reviewed the financial plans of the Company including financial forecasts for the next 3 years. The Workout Plan includes the following repayment options: 1. All creditors with claims at or below $2,000 may elect to receive a cash repayment of 75% of the amount of their claim within 30 days from the effective date of the agreement. 2. Any creditor with a claim greater than $2,000 can elect to reduce their claim to $2,000 and receive a cash repayment equal to 75% of the amount of their claim within 30 days from the effective date of the agreement. 3. Any creditor with a claim greater than $2,000 who does not elect option 2, may elect to receive scheduled payments over approximately a three (3) year period with interest accruing at 10% annually. 4. Any creditor with a claim greater than $2,000, who does not elect option 2, may elect to receive a cash repayment equal to 20% of the amount of their claim within 30 days of the effective date of the agreement. The Workout Plan was agreed to by this representative group of creditors and has been distributed to the creditors of the Company for approval. The Workout Plan is subject to approval by July 10, 1998. If at least 90% of all creditors representing at least 95% of total amount of claims in the Workout Plan approve the Workout Plan, the Company expects to begin repayment to customers in the quarter ending September 1998. Each of these creditors have been contacted regarding the proposed Workout Plan with the Creditor Committee and the Company expects to receive approval or denial of the proposed plan by July 10, 1998. Under the terms of the Workout Plan, creditors which have agreed to the Workout Plan and who have begun legal actions must dismiss their lawsuits. Creditors who do not agree to the Workout Plan as proposed may at their option continue to seek payment from the Company individually. If a payment plan is not agreed to by the Company's creditors, the Company will continue to attempt to negotiate with the creditors individually. The Company believes that it will be very difficult to successfully negotiate a satisfactory agreement with each or a significant majority of its creditors outside of this Workout Plan. The Company may not be successful in these negotiations. The Company does not have sufficient cash to repay its creditors in full and does not expect to have enough cash to do so in the near future. Accordingly, there is a significant risk that the Company's creditors could force the Company to file for bankruptcy protection. In addition, the Company may not be able to make required repayments under a plan approved by its creditors, which could also require the Company to file for bankruptcy. F-18 44 OMNIS TECHNOLOGY CORPORATION AND SUBSIDIARIES (FORMERLY BLYTH HOLDINGS, INC. AND SUBSIDIARIES) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) YEARS ENDED MARCH 31, 1998 AND 1997 The Company owes a significant amount to its creditors. Certain of these filed lawsuits against the Company for the amounts due them. These claims aggregate approximately $393,000. Information regarding these lawsuits are set forth in the table below.
AMOUNT PLAINTIFF COURT DATE OF SUIT OF CLAIM --------- ----- ------------ -------- Lois Paul & Partners Superior Court of California April 27, 1998 $160,000 Bloor Research Supreme Court of England April 29, 1998 71,000 EMS Group Superior Court, San Francisco March 5, 1998 64,000 Miller Freeman Santa Clara Superior Court June 25, 1998 36,000 Romac International San Francisco Municipal Court April 20, 1998 25,000 Programmer's Paradise, Inc. San Mateo Municipal Court January 22, 1998 19,000 ACI US, Inc. Superior Court of California May 12, 1998 10,000 Collaborative Marketing Corp. Municipal Court of Santa Clara June 1, 1998 5,000 Walk'n Water Municipal Court of Santa Clara January 21, 1998 3,000 -------- Total $393,000
11. SEGMENT INFORMATION The following table presents information concerning the Company's domestic and foreign operations. The Company's operating revenues were generated primarily from the sale of software and service contracts related to that software.
1998 1997 ------- ------- (IN THOUSANDS) Revenue by geographic region: North America.......................................... $ 4,905 $ 6,580 Europe................................................. 3,078 3,820 ------- ------- Total.......................................... $ 7,983 $10,400 ======= ======= Operating loss by geographic region: North America.......................................... $(7,218) $(5,073) Europe................................................. (1,063) (1,563) ------- ------- Total.......................................... $(8,281) $(6,636) ======= ======= Total assets: North America.......................................... $ 1,817 $ 7,688 Europe................................................. 1,598 2,359 ------- ------- Total.......................................... $ 3,415 $10,047 ======= ======= Export sales from the North America: (included in total North America sales above): Latin America.......................................... $ 196 $ 564 Asia................................................... 35 175 Australia.............................................. 39 34 Canada................................................. 154 169 Caribbean.............................................. -- 11 Europe................................................. 2 2 ------- ------- Total.......................................... $ 426 $ 955 ======= =======
F-19 45 OMNIS TECHNOLOGY CORPORATION AND SUBSIDIARIES (FORMERLY BLYTH HOLDINGS, INC. AND SUBSIDIARIES) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) YEARS ENDED MARCH 31, 1998 AND 1997 One customer accounted for 13% of net revenues in 1997. No customer accounted for revenues in excess of 10% in 1998. 12. SUBSEQUENT EVENTS In April 1998, the Company agreed to sell up to 126,000 shares of Series A preferred stock, at a price of $8.00 per share, to a significant stockholder. The stockholder has the right to purchase such shares, at his option, at such price per share at anytime prior to October 1, 1998. Each share of preferred stock converts into 10 shares of common stock, has voting and registration rights, is entitled to cummulative dividends of $0.10 per share in preference to common stockholders, and has a preference in liquidation over common stockholders in the amount of $8.00 per share, including all accrued or declared but unpaid dividends, as defined. Concurrent with the execution of this agreement, the Company sold the first 50,000 shares of Series A preferred stock, with net proceeds of approximately $400,000. Additionally, the stockholder purchased 12,500 shares in May 1998 for net proceeds of approximately $100,000. These proceeds will be used to fund the Company's operations. The Company expects to sell the additional shares of Series A preferred stock in the upcoming quarters, a portion of which will fund future working capital requirements. In April 1998, the Company granted 540,000 non-qualified stock options to 2 newly hired Vice Presidents at $0.78 per share. These options cliff vest in six years, but may be accelerated based on the performance of the Company's stock price as of September 30, 1998. F-20 46 EXHIBIT INDEX
EXHIBIT NUMBER EXHIBIT TITLE ------- ------------- 3.1 Restated Certificate of Incorporation, as amended and corrected.(7) 3.2 Certificate of Designations, as corrected.(7) 3.3 Bylaws, as amended. 10.1 Definitive Trust Deed dated October 26, 1983, among Blyth Holdings Limited, Blyth Software Limited and Geoffrey Paul Smith, Paul Nelson Wright and Suntrust Limited (relating to pension scheme).(1) 10.2 Service Agreement dated July 30, 1990, between OMNIS Technology Corporation and David Seaman.(2) 10.3 Deed of Guarantee dated June 1, 1993, between OMNIS Technology Corporation and A. Levy & Son Limited.(3) 10.4 Form of Subscription Agreement for purchase of Units of the Company's securities.(3) 10.5 Form of Stock Purchase Warrant sold to purchaser of Units of the Company's securities.(3) 10.6 Common Stock Purchase Agreement dated March 31, 1993, between OMNIS Technology Corporation and General Reinsurance Corp.(4) 10.7 Form of Indemnification Agreement entered into between the Company and all of its directors and certain of its officers.(4) 10.8 The OMNIS Technology Corporation Amended and Restated 1987 Stock Option Plan, as amended.(4) 10.9 The OMNIS Technology Corporation 1993 Directors' Warrant Plan and form of Director's Warrant.(9) 10.10 The OMNIS Technology Corporation 1994 Employee Stock Purchase Plan, as amended.(10) 10.11 Registration Rights Agreement effective as of January 3, 1994, between the Company and Migration Software Systems Limited.(4) 10.12 Warrant to Purchase shares of Common Stock dated January 3, 1994, granted to Migration Software Systems Limited.(4) 10.13 Warrant to Purchase Common Stock issued to Swartz Investments, Inc.(5) 10.14 Form of Registration Rights Agreement among the Company, Purchasers of 8% Convertible Debentures due March 31, 1997, and Swartz Investments, Inc.(5) 10.15 Form of Warrant to Purchase Common Stock issued to certain persons affiliated with Swartz Investments, LLC.(6) 10.16 Form of Registration Rights Agreement among the Company and Swartz Investments, LLC and its designees.(6) 10.17 Note Purchase Agreement dated as of October 14, 1997.(7) 10.18 Note Purchase Agreement dated as of October 31, 1997.(7) 10.19 Series A Convertible Preferred Stock Purchase Agreement dated as of April 1, 1998.(7) 10.20 Employee Agreement between the Company and Kevin Doyle dated April 1, 1998.(7) 10.21 Employee Agreement between the Company and Larry Barcot dated April 1, 1998.(7) 10.22 Shareholder Rights Agreement dated April 1, 1998.(7) 10.23 The 1996 Stock Plan and form of Option Agreement.(8) 10.24 The 1993 Advisors' Warrant Plan and form of warrant.(9) 21.1 Subsidiaries of the Company.(2) 23.1 Independent Auditors' Consent.
F-21 47
EXHIBIT NUMBER EXHIBIT TITLE ------- ------------- 27.1 Financial data schedule.
- --------------- (1) Incorporated by reference to the Annual Report on Form 10-K filed by the Company with the Commission on July 13, 1990. (2) Incorporated by reference to the Annual Report on Form 10-K filed by the Company with the Commission on June 28, 1991. (3) Incorporated by reference to the Annual Report on Form 10-K filed by the Company with the Commission on June 26, 1992. (4) Incorporated by reference to the Annual Report filed by the Company with the Commission on June 28, 1994. (5) Incorporated by reference to the Current Report on Form 8-K filed by the Company with the Commission on April 7, 1995. (6) Incorporated by reference to the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 1996. (7) Incorporated by reference to the Current Report on Form 8-K filed by the Company with the Commission on June 16, 1998. (8) Incorporated herein by reference to the Registrant's Annual Report on Form 10-K, as amended, for the fiscal year ended March 31, 1997, filed by the Registrant with the Commission on July 29, 1997. (9) Incorporated herein by reference to the Registrant's Registration Statement on Form S-8 (Registration Number 33-81008) filed June 30, 1994. (10) Incorporated herein by reference to the Registrant's Registration Statement on Form S-8 (Registration Number 333-38449) filed October 22, 1997. F-22 EX-3.3 2 BYLAWS, AS AMENDED. 1 EXHIBIT 3.3 CERTIFICATE OF SECRETARY The undersigned Secretary of Blyth Holdings Inc. hereby certifies that by Action by Unanimous Written Consent, effective as of May 15, 1995, Article V of the Bylaws of Blyth Holdings Inc. was amended and restated in its entirety, to provide as follows: "Section 1. The Board of Directors shall elect a President and Secretary, and it may, if it so determines, choose a Chairman of the Board and a Vice Chairman of the Board from among its members. The Board of Directors may also choose one or more Vice Presidents, one or more Assistant Secretaries, a Treasurer and one or more Assistant Treasurers. Each such officer shall hold office until the first meeting of the Board of Directors after the annual meeting of stockholders next succeeding his election, and until his successor is elected and qualified or until his earlier resignation or removal. Any officer may resign at any time upon written notice to the corporation. The Board of Directors may remove any officer with or without cause at any time, but such removal shall be without prejudice to the contractual rights of such officer, if any, with the corporation. Any vacancy occurring in any office of the corporation by death, resignation, removal or otherwise may be filled for the unexpired portion of the term by the Board of Directors at any regular or special meeting. Section 2. The officers of the corporation shall have such powers and duties in the management of the corporation as may be prescribed by the Board of Directors and, to the extent not so provided, as generally pertain to their respective offices, subject to the control of the Board of Directors. The Board of Directors may require any officer, agent or employee to give security for the faithful performance of his duties." IN WITNESS WHEREOF, the undersigned has set her hand hereunto effective as of May 15, 1995. /s/ Judith M. O'Brien ------------------------------------- Judith Mayer O'Brien, Secretary 2 AMENDMENT TO BY-LAWS OF BLYTH HOLDINGS INC. Section V. Special meetings of the stockholders for any purpose or purposes unless otherwise prescribed by statute or by the Certificate of Incorporation may be called by its President and shall be called by its President or Secretary at the request in writing of a majority of the Board of Directors, or at the request in writing of stockholders owning 10 percent in the amount of the entire capital stock and entitled to vote. Such request shall state the purpose or purposes of the proposed meeting. 3 CERTIFICATE OF SECRETARY I certify that I am the Secretary of Blyth Holdings Inc., a Delaware corporation (the "Corporation"), and that the foregoing document, entitled "Amendment to By-Laws of Blyth Holdings Inc.," constitutes an amendment to the By-Laws of the Corporation, which the Board of Directors adopted at a meeting held September 28, 1987, and the stockholders ratified by written consent. Date: October 15, 1987 ------------------------ /s/Ellen Vande Kieft ------------------------------------- Ellen Vande Kieft, Secretary 4 BYLAWS OF BLYTH HOLDINGS INC. ARTICLE I OFFICES Section 1. The registered office shall be located at 1209 Orange Street, in the City of Wilmington, County of New Castle, State of Delaware. Section 2. The corporation may also have offices at such other places both within and without the State of Delaware as the board of directors may from time to time determine or the business of the corporation may require. ARTICLE II MEETINGS OF STOCKHOLDERS Section 1. All meetings of the stockholders for the election of directors shall be held in San Mateo, California, at such place as may be fixed from time to time by the board of directors, or at such other place either within or without the State of Delaware as shall be designated from time to time by the board of directors and stated in the notice of the meeting. Meetings of stockholders for any other purpose may be held at such time and place, within or without the State of Delaware, as shall be stated in the notice of the meeting or in a duly executed waiver of notice thereof. Section 2. Annual meetings of stockholders, commencing with the year 1988, shall be held on the 2nd Tuesday of July if not a legal holiday, and if a legal holiday, then on the next secular day following, at 10:00 A.M., or at such other date and time as shall be designated from time to time by the board of directors and stated in the notice of the meeting, at which they shall elect by a 5 plurality vote a board of directors, and transact such other business as may properly be brought before the meeting. Section 3. Written notice of the annual meeting stating the place, date and hour of the meeting shall be given to each stockholder entitled to vote at such meeting not less than 10 nor more than 60 days before the date of the meeting. Section 4. The officer who has charge of the stock ledger of the corporation shall prepare and make, at least ten days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present. Section 5. Special meetings of the stockholders, for any purpose or purposes, unless otherwise prescribed by statute or by the certificate of incorporation, may be called by the president and shall be called by the president or secretary at the request in writing of a majority of the board of directors, or at the request in writing of stockholders owning a majority in amount of the entire capital stock of the corporation issued and outstanding and entitled to vote. Such request shall state the purpose or purposes of the proposed meeting. -2- 6 Section 6. Written notice of a special meeting stating the place, date and hour of the meeting and the purpose or purposes for which the meeting is called, shall be given not less than 10 nor more than 60 days before the date of the meeting, to each stockholder entitled to vote at such meeting. Section 7. Business transacted at any special meeting of stockholders shall be limited to the purposes stated in the notice. Section 8. The holders of 50% of the stock issued and outstanding and entitled to vote thereat, present in person or represented by proxy, shall constitute a quorum at all meetings of the stockholders for the transaction of business except as otherwise provided by statute or by the certificate of incorporation. If, however, such quorum shall not be present or represented at any meeting of the stockholders, the stockholders entitled to vote thereat, present in person or represented by proxy, shall have power to adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present or represented. At such adjourned meeting at which a quorum shall be present or represented, any business may be transacted which might have been transacted at the meeting as originally notified. If the adjournment is for more than 30 days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. Section 9. When a quorum is present at any meeting, the vote of the holders of a majority of the stock having voting power present in person or represented by proxy shall decide any question brought before such meeting, unless the question is one upon which by express provision of the -3- 7 statutes or of the certificate of incorporation a different vote is required, in which case such express provision shall govern and control the decision of such question. Section 10. Unless otherwise provided in the certificate of incorporation, each stockholder shall at every meeting of the stockholders be entitled to one vote in person or by proxy for each share of the capital stock having voting power held by such stockholder, but no proxy shall be voted on after three years from its date, unless the proxy provides for a longer period. Section 11. Unless otherwise provided in the certificate of incorporation, any action required to be taken at any annual or special meeting of stockholders of the corporation, or any action which may be taken at any annual or special meeting of such stockholders, may be taken without a meeting, without prior notice and without a vote, if a consent in writing, setting forth the action so taken shall be signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted. Prompt notice of the taking of the corporate action without a meeting by less than unanimous written consent shall be given to those stockholders who have not consented in writing. ARTICLE III DIRECTORS Section 1. The business of the corporation shall be managed by or under the direction of its board of directors which may exercise all such powers of the corporation and do all such lawful acts and things as are not by statute or by the certificate of incorporation or by these by-laws directed or required to be exercised or done by the stockholders. -4- 8 Section 2. The number of directors which shall constitute the whole board shall be seven (7). Except as provided in Section 3 of this Article, the directors shall serve for terms of three (3) years each, provided that of the initial seven (7) directors, two (2) shall be elected to terms ending at the annual meeting of stockholders in 1988, two (2) shall be elected to terms ending at the annual meeting of stockholders in 1989, and three (3) shall be elected to terms ending at the annual meeting of stockholders in 1990. Each director elected shall hold office until his successor is elected and qualified. Directors need not be stockholders. Section 3. Vacancies and newly created directorships resulting from any increase in the authorized number of directors may be filled by a majority of the directors then in office, though less than a quorum, or by a sole remaining director, and the directors so chosen shall hold office for the remainder of the term of the directors whom they replaced and until their successors are duly elected and shall qualify, unless sooner displaced. If there are no directors in office, then an election of directors may be held in the manner provided by statute. If, at the time of filling any vacancy or any newly created directorship the directors then in office shall constitute less than a majority of the whole board (as constituted immediately prior to any such increase), the Court of Chancery may, upon application of any stockholder or stockholders holding at least 10% of the total number of the shares at the time outstanding having the right to vote for such directors, summarily order an election to be held to fill any such vacancies or newly created directorships, or to replace the directors chosen by the directors then in office. MEETINGS OF THE BOARD OF DIRECTORS Section 4. The board of directors of the corporation may hold meetings, both regular and special, either within or without the State of Delaware. -5- 9 Section 5. The first meeting of each newly elected board of directors shall be held at such time and place as shall be fixed by the vote of the stockholders at the annual meeting and no notice of such meeting shall be necessary to the newly elected directors in order legally to constitute the meeting, provided a quorum shall be present. In the event of the failure of the stockholders to fix the time or place of such first meeting of the newly elected board of directors, or in the event such meeting is not held at the time and place so fixed by the stockholders, the meeting may be held at such time and place as shall be specified in a notice given as hereinafter provided for special meetings of the board of directors, or as shall be specified in a written waiver signed by all of the directors. Section 6. Regular meetings of the board of directors may be held without notice at such time and at such place as shall from time to time be determined by the board. Section 7. Special meetings of the board may be called by the president on three days' notice to each director, either personally, by mail, or by telegram, telex, or facsimile transmission; special meetings shall be called by the president or secretary in like manner and on like notice on the written request of two directors unless the board consists of only one director, in which case special meetings shall be called by the president or secretary in like manner and on like notice on the written request of the sole director. Section 8. At all meetings of the board, 50% of the directors shall constitute a quorum for the transaction of business, and the act of a majority of the directors present at any meeting at which there is a quorum shall be the act of the board of directors, except as may be otherwise specifically provided by statute or by the certificate of incorporation. If a quorum shall not be present at any meeting of the board of directors, the directors present thereat may adjourn the -6- 10 meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present. Section 9. Any action required or permitted to be taken at any meeting of the board of directors or of any committee thereof may be taken without a meeting, if all members of the board or committee, as the case may be, consent thereto in writing and the writing or writings are filed with the minutes of proceedings of the board or committee. Section 10. Members of the board of directors, or any committee designated by the board of directors, may participate in a meeting of the board of directors, or any committee, by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and such participation in a meeting shall constitute presence in person at the meeting. COMMITTEES OF DIRECTORS Section 11. The board of directors may, by resolution passed by a majority of the whole board, designate one or more committees, each committee to consist of one or more of the directors of the corporation. The board may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. In the absence or disqualification of a member of a committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another member of the board of directors to act at the meeting in the place of any such absent or disqualified member. Any such committee, to the extent provided in the resolution of the board of directors, shall have and may exercise all the powers and authority of the board of directors in the management of -7- 11 the business and affairs of the corporation, and may authorize the seal of the corporation to be affixed to all papers which may require it; but no such committee shall have the power or authority in reference to amending the certificate of incorporation (except that a committee may, to the extent authorized in the resolution or resolutions providing for the issuance of shares of stock adopted by the board of directors as provided in Section 151(a) of the Delaware General Corporation Law, fix any of the preferences or rights of such shares relating to dividends, redemption, dissolution, any distribution of assets of the corporation or the conversion into, or the exchange of such shares for, shares of any other class or classes or any other series of the same or any other class or classes of stock of the corporation) adopting an agreement of merger or consolidation, recommending to the stockholders the sale, lease or exchange of all or substantially all of the corporation's property and assets, recommending to the stockholders a dissolution of the corporation or a revocation of a dissolution, or amending the by-laws of the corporation; and, unless the resolution or the certificate of incorporation expressly so provide, no such committee shall have the power or authority to declare a dividend or to authorize the issuance of stock or to adopt a certificate of ownership and merger. Such committee or committees shall have such name or names as may be determined from time to time by resolution adopted by the board of directors. Section 12. Each committee shall keep regular minutes of its meetings and report the same to the board of directors when required. COMPENSATION OF DIRECTORS Section 13. Unless otherwise restricted by the certificate of incorporation or these by-laws, the board of directors shall have the authority to fix the compensation of directors. The directors may be paid their expenses, if any, of attendance at each meeting of the board of directors and may -8- 12 be paid a fixed sum for attendance at each meeting of the board of directors or a stated salary as director. No such payment shall preclude any director from serving the corporation in any other capacity and receiving compensation therefor. Members of special or standing committees may be allowed like compensation for attending committee meetings. REMOVAL OF DIRECTORS Section 14. Unless otherwise restricted by the certificate of incorporation or by law, any director or the entire board of directors may be removed, with or without cause, by the holders of a majority of shares entitled to vote at an election of directors. ARTICLE IV NOTICES Section 1. Whenever, under the provisions of the statutes or of the certificate of incorporation or of these by-laws, notice is required to be given to any director or stockholder, it shall not be construed to mean personal notice, but such notice may be given in writing, by mail, addressed to such director or stockholder, at his address as it appears on the records of the corporation, with postage thereon prepaid, and such notice shall be deemed to be given at the time when the same shall be deposited in the United States mail. Notice to directors may also be given by telegram, telex, or facsimile transmission. Section 2. Whenever any notice is required to be given under the provisions of the statutes or of the certificate of incorporation or of these by-laws, a waiver thereof in writing, signed by the person or persons entitled to said notice, whether before or after the time stated therein, shall be deemed equivalent thereto. ARTICLE V -9- 13 OFFICERS Section 1. The officers of the corporation shall be chosen by the board of directors and shall be a president, a vice-president, a secretary and a treasurer. The board of directors may also choose additional vice-presidents, and one or more assistant secretaries and assistant treasurers. Any number of offices may be held by the same person, unless the certificate of incorporation or these by-laws otherwise provide. Section 2. The board of directors at its first meeting after each annual meeting of stockholders shall choose a president, one or more vice-presidents, a secretary and a treasurer. Section 3. The board of directors may appoint such other officers and agents as it shall deem necessary who shall hold their offices for such terms and shall exercise such powers and perform such duties as shall be determined from time to time by the board. Section 4. The salaries of all officers and agents of the corporation shall be fixed by the board of directors. Section 5. The officers of the corporation shall hold office until their successors are chosen and qualified. Any officer elected or appointed by the board of directors may be removed at any time by the affirmative vote of a majority of the board of directors. Any vacancy occurring in any office of the corporation shall be filled by the board of directors. THE PRESIDENT Section 6. The president shall be the chief executive officer of the corporation, shall preside at all meetings of the stockholders and the board of directors, shall have general and active management of the business of the corporation and shall see that all orders and resolutions of the board of directors are carried into effect. -10- 14 Section 7. He shall execute bonds, mortgages and other contracts requiring a seal, under the seal of the corporation, except where required or permitted by law to be otherwise signed and executed and except where the signing and execution thereof shall be expressly delegated by the board of directors to some other officer or agent of the corporation. THE VICE-PRESIDENTS Section 8. In the absence of the president or in the event of his inability or refusal to act, the vice-president (or in the event there be more than one vice-president, the vice-presidents in the order designated by the directors, or in the absence of any designation, then in the order of their election) shall perform the duties of the president, and when so acting shall have all the powers of and be subject to all the restrictions upon the president. The vice-presidents shall perform such other duties and have such other powers as the board of directors may from time to time prescribe. THE SECRETARY AND ASSISTANT SECRETARY Section 9. The secretary shall attend all meetings of the board of directors and all meetings of the stockholders and record all the proceedings of the meetings of the corporation and of the board of directors in a book to be kept for that purpose and shall perform like duties for the standing committees when required. He shall give, or cause to be given, notice of all meetings of the stockholders and special meetings of the board of directors, and shall perform such other duties as may be prescribed by the board of directors or president, under whose supervision he shall be. He shall have custody of the corporate seal of the corporation and he, or an assistant secretary, shall have authority to affix the same to any instrument requiring it and when so affixed, it may be attested by his signature or by the signature of such assistant secretary. The board of directors may give general -11- 15 authority to any other officer to affix the seal of the corporation and to attest the affixing by his signature. Section 10. The assistant secretary, or if there be more than one, the assistant secretaries in the order determined by the board of directors (or if there be no such determination, then in the order of their election) shall, in the absence of the secretary or in the event of his inability or refusal to act, perform the duties and exercise the powers of the secretary, and shall perform such other duties and have such other powers as the board of directors may from time to time prescribe. THE TREASURER AND ASSISTANT TREASURERS Section 11. The treasurer shall have the custody of the corporate funds and securities and shall keep full and accurate accounts of receipts and disbursements in books belonging to the corporation and shall deposit all moneys and other valuable effects in the name and to the credit of the corporation in such depositories as may be designated by the board of directors. Section 12. He shall disburse the funds of the corporation as may be ordered by the board of directors, taking proper vouchers for such disbursements, and shall render to the president and the board of directors, at its regular meetings, or when the board of directors so requires, an account of all his transactions as treasurer and of the financial condition of the corporation. Section 13. If required by the board of directors, he shall give the corporation a bond (which shall be renewed every six years) in such sum and with such surety or sureties as shall be satisfactory to the board of directors for the faithful performance of the duties of his office and for the restoration to the corporation, in case of his death, resignation, retirement or removal from office, of all books, papers, vouchers, money and other property of whatever kind in his possession or under his control belonging to the corporation. -12- 16 Section 14. The assistant treasurer, or if there shall be more than one, the assistant treasurers in the order determined by the board of directors (or if there be no such determination, then in the order of their election) shall, in the absence of the treasurer or in the event of his inability or refusal to act, perform the duties and exercise the powers of the treasurer and shall perform such other duties and have such other powers as the board of directors may from time to time prescribe. ARTICLE VI CERTIFICATES FOR SHARES Section 1. The shares of the corporation shall be represented by a certificate or shall be uncertificated. Certificates shall be signed by, or in the name of the corporation by, the chairman or vice-chairman of the board of directors, or the president or a vice-president and the treasurer or an assistant treasurer, or the secretary or an assistant secretary of the corporation. Upon the face or back of each stock certificate issued to represent any partly paid shares, or upon the books and records of the corporation in the case of uncertificated partly paid shares, shall be set forth the total amount of the consideration to be paid therefor and the amount paid thereon shall be stated. If the corporation shall be authorized to issue more than one class of stock or more than one series of any class, the powers, designations, preferences and relative, participating, optional or other special rights of each class of stock or series thereof and the qualification, limitations or restrictions of such preferences and/or rights shall be set forth in full or summarized on the face or back of the certificate which the corporation shall issue to represent such class or series of stock, provided that, except as otherwise provided in section 202 of the Delaware General Corporation Law of Delaware, in lieu of the foregoing requirements, there may be set forth on the face or faces of the certificate -13- 17 which the corporation shall issue to represent such class or series of stock, a statement that the corporation will furnish without charge to each stockholder who so requests the powers, designations, preferences and relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights. Within a reasonable time after the issuance or transfer of uncertificated stock, the corporation shall send to the registered owner thereof a written notice containing the information required to be set forth or stated on certificates pursuant to Sections 151, 156, 202(a) or 218(a) of the Delaware General Corporation Law or a statement that the corporation will furnish without charge to each stockholder who so requests the powers, designations, preferences and relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights. Section 2. Any of or all the signatures on a certificate may be facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the corporation with the same effect as if he were such officer, transfer agent or registrar at the date of issue. LOST CERTIFICATES Section 3. The board of directors may direct a new certificate or certificates or uncertificated shares to be issued in place of any certificate or certificates theretofore issued by the corporation alleged to have been lost, stolen or destroyed. When authorizing such issue of a new certificate or certificates or uncertificated shares, the board of directors may require the owner, or his -14- 18 legal representative, to give the corporation a bond in such sum as it may direct as indemnity against the corporation with respect to the certificate alleged to have been lost, stolen or destroyed. TRANSFER OF STOCK Section 4. Upon surrender to the corporation or the transfer agent of the corporation of a certificate for shares duly endorsed or accompanied by proper evidence of succession, assignation or authority to transfer, it shall be the duty of the corporation to issue a new certificate to the person entitled thereto, cancel the old certificate and record the transaction upon its books. Upon receipt of proper transfer instruments from the registered owner of uncertificated shares such uncertificated shares shall be canceled and issuance of new equivalent uncertificated shares or certificated shares shall be made to the person entitled thereto and the transaction shall be recorded upon the books of the corporation. FIXING RECORD DATE Section 5. In order that the corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or to express consent to corporate action in writing without a meeting, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the board of directors may fix, in advance, a record date, which shall not be more than 60 nor less than 10 days before the date of such meeting, nor more than 60 days prior to any other action. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting: provided, however, that the board of directors may fix a new record date for the adjourned meeting. -15- 19 REGISTERED STOCKHOLDERS Section 6. The corporation shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends, and to vote as such owner, and to hold liable for calls and assessments a person registered on its books as the owner of shares, and shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of Delaware. ARTICLE VII GENERAL PROVISIONS DIVIDENDS Section 1. Dividends upon the capital stock of the corporation, subject to the provisions of the certificate of incorporation, if any, may be declared by the board of directors at any regular or special meeting, pursuant to law. Dividends may be paid in cash, in property, or in shares of the capital stock, subject to the provisions of the certificate of incorporation. Section 2. Before payment of any dividend, there may be set aside out of any funds of the corporation available for dividends such sum or sums as the directors from time to time, in their absolute discretion, think proper as a reserve or reserves to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the corporation, or for such other purpose as the directors shall think conducive to the interest of the corporation, and the directors may modify or abolish any such reserve in the manner in which it was created. -16- 20 ANNUAL STATEMENT Section 3. The board of directors shall present at each annual meeting, and at any special meeting of the stockholders when called for by vote of the stockholders, a full and clear statement of the business and condition of the corporation. CHECKS Section 4. All checks or demands for money and notes of the corporation shall be signed by such officer or officers or such other person or persons as the board of directors may from time to time designate. FISCAL YEAR Section 5. The fiscal year of the corporation shall be fixed by resolution of the board of directors. SEAL Section 6. The corporate seal shall have inscribed thereon the name of the corporation, the year of its organization and the words "Corporate Seal, Delaware." The seal may be used by causing it or a facsimile thereof to be impressed or affixed or reproduced or otherwise. INDEMNIFICATION Section 7. The corporation shall indemnify its officers and directors to the extent permitted by the General Corporation Law of Delaware. The Corporation may indemnify employees and agents of the corporation in accordance with Delaware law as the board of directors shall determine in its sole discretion. -17- 21 ARTICLE VIII AMENDMENTS Section 1. These by-laws may be altered, amended or repealed or new by-laws may be adopted by the stockholders or by the board of directors, when such power is conferred upon the board of directors by the certificate of incorporation, at any regular meeting of the stockholders or of the board of directors or at any special meeting of the stockholders or of the board of directors if notice of such alteration, amendment, repeal or adoption of new by-laws be contained in the notice of such special meeting. If the power to adopt, amend or repeal by-laws is conferred upon the board of directors by the certificate of incorporation, it shall not divest or limit the power of the stockholders to adopt, amend or repeal by-laws. -18- 22 CERTIFICATE OF SECRETARY I certify that I am the Secretary of Blyth Holdings Inc., a Delaware corporation (the "Corporation"), and that the foregoing document, consisting of 23 pages, constitutes the By-laws of the Corporation which the Board of Directors adopted at a meeting held August 7, 1987. /s/Ellen Vande Kieft ------------------------------------- Ellen Vande Kieft, Secretary -19- EX-23.1 3 INDEPENDENT AUDITORS' CONSENT 1 EXHIBIT 23.1 INDEPENDENT AUDITORS' CONSENT We consent to the incorporation by reference in Registration Statements No. 33-65538, 33-81008, 33-46166, and 33-32677 of OMNIS Technology Corporation (formerly Blyth Holdings, Inc.) on Form S-8 of our report dated May 22, 1998 (which expresses an unqualified opinion and includes an explanatory paragraph concerning certain factors which raise substantial doubt about the Company's ability to continue as a going concern) appearing in this Annual Report on Form 10-KSB of OMNIS Technology Corporation for the year ended March 31, 1998. DELOITTE & TOUCHE LLP San Jose, California June 26, 1998 EX-27.1 4 FINANCIAL DATA SCHEDULE
5 YEAR MAR-31-1998 APR-01-1997 MAR-31-1998 242,000 0 764,000 162,000 74,000 1,543,000 6,182,000 4,710,000 3,415,000 4,559,000 0 0 0 212,000 (1,467,000) 3,415,000 4,198,000 7,983,000 3,609,000 16,264,000 54,000 0 137,000 (8,352,000) 17,000 (8,352,000) 0 0 0 (8,352,000) (4.07) (4.07)
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