10QSB 1 0001.txt 10QSB U.S. SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-QSB (Mark One) [X] Quarterly Report under Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarter period ended June 30, 2000 [ ] Transition Report Pursuant to Section 13 or 15(d) of the Exchange Act For the transition period from _________ to _________ Commission File number 0-16449 OMNIS TECHNOLOGY CORPORATION (Exact name of registrant as specified in its charter) Delaware 94-3046892 (State of incorporation) (IRS Employer Identification No.) 981 Industrial Road, Building B San Carlos, CA 94070 (Address of principal executive offices) (650) 632-7100 (Registrant's telephone number) Check whether the issuer: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] As of July 18, 2000, there were 10,237,077 shares of registrant's Common Stock, $.10 par value, outstanding. OMNIS TECHNOLOGY CORPORATION AND SUBSIDIARIES INDEX PART I. FINANCIAL INFORMATION Page No. Item 1. Financial Statements: Condensed Consolidated Balance Sheets - June 30, 2000 and March 31, 2000 3 Condensed Consolidated Statements of Operations - Three Months ended June 30, 2000 and 1999 4 Condensed Consolidated Statements of Cash Flows - Three Months ended June 30, 2000 and 1999 5 Notes to Condensed Consolidated Financial Statements 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 8 PART II. OTHER INFORMATION Item 1. Legal Proceedings 20 Item 2. Changes in Securities 20 Item 3. Defaults upon Senior Securities 21 Item 4. Submission of Matters to a Vote of Security Holders 21 Item 5. Other Information 21 Item 6. Exhibits and Reports on Form 8-K 21 Signatures 22 2 PART I. FINANCIAL INFORMATION ITEM 1. Financial Statements OMNIS TECHNOLOGY CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS ASSETS
June 30, 2000 March 31, 2000 ------------- -------------- (Unaudited) Current assets: Cash and cash equivalents $ 762,000 $ 1,238,000 Trade accounts receivable, less allowance for doubtful accounts and returns of $114,375 and $179,279 at June 30 and March 31, respectively 742,000 594,000 Inventory 20,000 26,000 Other current assets 962,000 397,000 ----------- ----------- Total current assets 2,486,000 2,255,000 ----------- ----------- Property, furniture and equipment, net 993,000 923,000 Intangibles 1,040,000 -- ----------- Total assets $ 4,519,000 $3,178,000 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Note payable $ 10,000 $ 56,000 Note payable to stockholder 3,083,000 2,028,000 Accounts payable 401,000 460,000 Accrued liabilities 1,732,000 591,000 Deferred revenue 251,000 206,000 ----------- ----------- Total current liabilities 5,477,000 3,341,000 ----------- ----------- Long-term debt -- -- Total liabilities 5,477,000 3,341,000 ----------- ----------- Stockholders' equity: Preferred stock 300,000 300,000 Common stock 1,024,000 1,004,000 Paid-in capital 51,315,000 50,374,000 Deferred compensation (1,776,000) (2,045,000) Accumulated deficit (52,056,000) (50,082,000) Accumulated other comprehensive income 235,000 286,000 ----------- ----------- Total stockholders' deficiency (958,000) (163,000) ----------- ----------- Total liabilities and stockholders' equity $ 4,519,000 $ 3,178,000 =========== =========== See notes to consolidated financial statements.
3 OMNIS TECHNOLOGY CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
Three Months Ended June 30, ---------------------------- 2000 1999 ----------- ----------- Net revenues: Products $ 814,000 $ 1,104,000 Services 172,000 267,000 ----------- ----------- Total net revenues 986,000 1,371,000 Costs of Sales: Cost of product revenues 34,000 41,000 Cost of service revenues 231,000 54,000 ----------- ----------- Total cost of sales 265,000 95,000 ----------- ----------- Gross profit 721,000 1,276,000 Operating Expenses: Sales and marketing 1,365,000 530,000 Research and development 580,000 385,000 General and administrative 706,000 243,000 ----------- ----------- Total operating expenses 2,651,000 1,158,000 ----------- ----------- Operating income (loss) (1,930,000) 118,000 ----------- ----------- Other income (expense): Interest income 16,000 3,000 Interest expense and other, net (61,000) (6,000) ----------- ----------- (45,000) (3,000) ----------- ----------- Income (loss) before income taxes (1,975,000) 115,000 Income tax expense (1,000) 4,000 ----------- ----------- Net income (loss) $ (1,974,000) $ 111,000 =========== =========== Basic Net income (loss) per share $ (0.19) $ 0.01 Weighted average number of common shares outstanding 10,124,026 9,679,829 Diluted net income (loss) per share $ (0.19) $ 0.01 Fully diluted number of common shares outstanding 11,764,999 10,170,940 See notes to consolidated financial statements.
4 OMNIS TECHNOLOGY CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Three Months Ended June 30, ------------------ 2000 1999 ---- ---- Cash flows from operating activities: Net income (loss) $(1,974,000) $ 111,000 Adjustments to reconcile net income (loss) to net cash used by operating activities: Depreciation and amortization expense 99,000 79,000 Non cash compensation 269,000 -- Legal fees capitalized to stock issuance costs -- (29,000) Change in assets and liabilities: Trade accounts receivable (148,000) (21,000) Inventory 6,000 -- Other current assets (565,000) 274,000 Accounts payable and accrued liabilities 1,083,000 (133,000) Deferred revenues 44,000 (14,000) ---------- -------- Net cash provided by (used for) operating activities (1,186,000) 267,000 ---------- -------- Cash flows from investing activities: Purchases of property, furniture and equipment (178,000) (42,000) Acquisition of software assets (1,040,000) Proceeds from sale of fixed assets -- 1,000 ---------- -------- Net cash used by investing activities (1,218,000) (41,000) ---------- -------- Cash flows from financing activities: Exercise of stock options 61,000 -- Net proceeds from common stock issuance 900,000 -- Proceeds from stockholder note 1,055,000 -- Repayments of debt (47,000) (45,000) ---------- -------- Net cash provided by (used for) financing activities 1,969,000 (45,000) ---------- -------- Effect of exchange rate changes on cash (41,000) (21,000) ---------- -------- Net increase (decrease) in cash and cash equivalents (476,000) 161,000 Cash and cash equivalents at beginning of period 1,238,000 271,000 ---------- -------- Cash and cash equivalents at end of period $ 762,000 $ 432,000 ========== ========
5 OMNIS TECHNOLOGY CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 1. The unaudited financial information furnished herein reflects all adjustments, consisting only of normal recurring items, which in the opinion of management are necessary to fairly state the Company's financial position, the results of its operations and the changes in its financial position for the periods presented. These financial statements should be read in conjunction with the Company's audited financial statements for the year ended March 31, 2000. The results of operations for the period ended June 30, 2000 are not necessarily indicative of results to be expected for any other interim period or the fiscal year ending March 31, 2001. 2. The Company has adopted Statement of Financial Accounting Standards No. 128, "Earnings per Share" (SFAS 128). SFAS 128 requires a dual presentation of basic and diluted EPS. Basic EPS excludes dilution and is computed by dividing net income (loss) by the weighted average of common shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur if securities and other contracts to issue stock were exercised or converted into common stock, unless the effect of such securities would be anti-dilutive. 3. Compass Litigation. In March 1998 the Company was sued by Compass Software ("Compass") in the Federal District Court for the Eastern District of Washington claiming damages in the range of $2 Million for software copyright infringement and related claims. The Company obtained a full dismissal of that case with prejudice on November 29, 1999, and no appeal was filed by Compass within the time allowed by law. In this connection the Company previously had sued Compass in 1994 for illegally infringing and distributing the Company's software products. This matter was settled with an agreement that Compass would pay certain amounts and would not make illegal copies of the Company's software in the future. Compass failed to pay the promised amounts when due. The Company then obtained a judgment for breach of contract against Compass. As part of its efforts to enforce its judgment against Compass, the Company purchased, at a judgment lien sale, certain intangible property of Compass including the rights to the 1998 infringement suit brought by Compass ("Execution Sale"). Compass then requested the applicable trial court to set aside the Execution Sale. The trial court granted the request and the Company appealed the judgment. The court of appeal subsequently ruled in favor of the Company and directed the trial court to determine the amount of fees to be awarded to the Company. That amount had not been determined as of June 30, 2000. The Company also filed a second lawsuit against Compass alleging additional acts of infringement for periods after 1994. A trial was conducted in this case before Judge Barbara J. Rothstein of the United States District Court for the Western District of Washington. On July 25, 2000, the District Court ruled that Compass reproduced and distributed unauthorized copies of Omnis Software using duplicates of existing serial numbers. The Court awarded statutory damages to Omnis in the amount of approximately $150,000 in addition to injunctive relief and attorney fees from Compass. It is not known at this time whether or not Compass will appeal this judgement. BTN- Germany Litigation. The Company entered into a professional development services agreement with BTN Versandhandel GmbH ("BTN") of Leiferde, Germany for the development of an Omnis application. The Company developed and delivered a version of the application to BTN. BTN failed to pay the Company as agreed, claiming there were flaws in the application and the project was suspended by the Company awaiting their payment. BTN commenced legal action against the Company in Germany claiming damages of approximately DM250,000 for failure to perform under the services agreement. The Company has countersued BTN claiming the balance owed under the contract of approximately DM60,000. The Company is defending against the BTN claim and is pursuing its counterclaim against BTN. 6 OMNIS TECHNOLOGY CORPORATION AND SUBSIDIARIES This report on Form 10-QSB includes a number of forward-looking statements that reflect the Company's current view with respect to future events and financial performance. These forward-looking statements are subject to certain risks and uncertainties, including those discussed in "Management's Discussion and Analysis of Financial Condition and Results of Operations," and the Company's actual results may differ materially from historical or anticipated results. The Company operates in one segment, the developing, marketing and supporting of software products; however, the Company manages its businesses in two geographical locations: North America and Europe. The following table presents information concerning the Company's North American and European operations.
Three Months Ended June 30 ---------------------------------------------- 2000 1999 ------------------ ---------------- Revenue by geographic region (1): Revenue from North America $ 438,000 $ 519,000 Revenue from Europe 548,000 852,000 Total $986,000 $1,371,000 Operating income (loss) by geographic region (1): North America $(1,613,000) $ 114,000 Europe (317,000) 4,000 Total $(1,930,000) $ 118,000 (1) Revenues are broken out geographically by ship from location.
COMPREHENSIVE INCOME (LOSS) Comprehensive income includes changes in the balance of items that are reported directly in a separate component of stockholders' equity on the condensed consolidated balance sheets. The reconciliation of net loss to comprehensive loss is as follows: 7 Three Months Ended June 30 ----------------------------------------- 2000 1999 Net income (loss): $(1,974,000) $ 111,000 Other comprehensive (loss) gain Foreign currency translation adjustments (50,000) (37,000) Total comprehensive income (loss) (2,024,000) 74,000 ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This Item 2, as well as other portions of this document, includes certain forward-looking statements about the Company's business, revenues, expenditures and operating and capital requirements. In addition, forward-looking statements may be included in various other Company documents to be issued concurrently or in the future and in oral or other statements made by representatives of the Company to investors and others from time to time. Forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from predicted results. Such risks include, among others - the Company's liquidity, - significant variability in operating results, including variability in product revenues and gross margins, - fluctuating demand for new and established products, - dependence on development of new products, - increasing expenses for marketing and development of new products, - historical lack of profitability, - rapid technological change that affects the ability of the Company to respond to customer or market demands, - risks associated with global operations, - the continued and future acceptance of the Company's products, - the rate of growth in the industries of the Company's products, 8 - the presence of competitors with greater technical, marketing and financials resources, and - the ability of the Company to successfully expand its operations. Any of such statements and this discussion should be read in conjunction with the discussion of "Risk Factors" in this Item 2 and the Company's audited consolidated financial statements, including the notes thereto, included in its annual report for the fiscal year ended March 31, 2000, on Form 10-KSB/A filed with the Commission on July 31, 2000. OVERVIEW The Company, through its domestic and international subsidiaries, develops and markets software application development tools and related technical services. Its main products are the OMNIS 7(3)(TM) client/server application development software group of products, ("Classic") and the more advanced OMNIS Studio(TM)(1) rapid application development (RAD) tools. The Company markets its products via direct telemarketing, direct corporate outside sales force and through its indirect channel consisting of VAR's, Distributors, and OEM relationships. The Company has operated at a loss for the last several years. The Company's new management team has taken steps to improve the Company's business prospects through: (i) more targeted marketing of its products; (ii) increased investment in infrastructure; and (iii) improving operational systems. The Company reduced cash used in operations from $2,514,000 in fiscal year 1999 to $849,000 in fiscal year 2000. The Company had negative cash flow used by operating activities of $1,186,000 in the three months ended June 30, 2000 compared to positive cash flow provided from operating activities of $267,000 in the three months ended June 30, 1999 and had a net loss of $1,974,000 in the three months ended June 30, 2000. There can be no assurance that the Company will be able to attain profitability in the near future or thereafter. While the Company is presently seeking additional financing, there can be no assurance that the Company will be able to raise additional capital at any time in the future on commercially reasonable terms, or at all. If the Company is unsuccessful in raising capital when needed, the Company could be required to cease operations. BUSINESS STRATEGY The Company's product development strategy is to continue to develop sophisticated application development tools to enable businesses to build mission-critical software applications which have the following characteristics: -------- 1 OMNIS is a registered trademark of OMNIS Software Limited. OMNIS Studio and OMNIS 7 and OMNIS Studio Web Client are trademarks of OMNIS Technology Corporation. All other products or service names mentioned herein are trademarks of their respective owners. 9 --Provide integration with existing systems and execute across a variety of platforms and databases. --Allow the extension of the Client/Server model across the Internet into the ASP and emerging WAP markets. --Deliver superior object-oriented functionality at a lower cost than any of its competitors. --Enable its customers to provide solutions faster than the Company's competitors. --Encourage the development of reusable program components and reduce the cost of solution delivery. The Company's growth strategy is focused on continuing to garner revenue from its existing customer base, reconnecting with prior corporate customers and at the same time attracting a large number of new customers. The Company has a loyal core group of software developers among its customer base, many of whom have used the Company's products for several years and who are interested in expanding the number of applications which are developed using the Company's products. In order to capitalize on the commitment of existing customers as well as introducing OMNIS Studio to new developers the Company has implemented the following: o In recognition of the importance of the initial user installation experience Omnis has significantly improved the ease of installation by providing a more intuitive interface and by creating Wizards (such as our "Application Builder") to illustrate how quickly meaningful applications can be created. o The sales price of an OMNIS Studio developers kit has been reduced to eliminate cost as a barrier to product adoption. Omnis now offers a range of support programs coupled with moderate runtime license fees. These support programs are designed to give existing developers a defined path to migrate from our Classic products to OMNIS Studio and to provide new developers with the help they need to become productive Omnis programmers as quickly as possible. o A complete Website redesign to allow for downloading evaluation versions of OMNIS as well as an on-line store allowing the purchase of development kits directly from our Website. In addition the Company provides enhanced web-based functionality for our developer community as well as an on-line database of solutions that our developers offer potential customers. o A tactical marketing effort which emphasizes efficient advertising in targeted developer communities and attendance at appropriate trade shows. This provides the Company with exposure to the potential customer base and, combined with leads generated from downloads at our website, provides a database of sales leads that our inside sales team can pursue. The North American team also prequalifies corporate opportunities for appropriate follow-up by our North American technical sales team. The Company believes its OMNIS Studio products are easy to use and easy to learn and enable developers to assemble their applications with drag-and-drop ease via an elegant and intuitive user interface. The Company believes that the practical and 10 visual interface of OMNIS Studio, along with its component and web integration, allows developers from many different backgrounds and skill levels to build more types of applications more quickly and less expensively by following common rules for assembly. The license fees for OMNIS Studio Developer Kits were substantially reduced in fiscal year 2000 and generally have a United States list price of $149. The Company has shifted its revenue model to a support-based program, with a variety of supported developer programs. The Company has also instituted special support programs for the North American market: o Incubator Partner Program - The Incubator Program is designed to attract new developers and to provide a migration path for Classic developers to transition their applications to OMNIS Studio. This program provides North American technical voice support, subsidized training and, upon completion of training, subsidized runtime licenses for applications which are developed within the first 12 months of participation in the program. In addition the program provides access to the Omnis Developer Portal where developers can share information, code snippets and where additional wizards are provided as a part of the program. o Preferred Partner Program: Incubator "graduates" and established Studio developers can participate in the Preferred Program offering many of the same benefits of the Incubator Programs with additional functionality. In particular, Preferred Partners have access to more robust OMNIS Studio enhancements and externals, appropriate for the more experienced user. OMNIS Studio applications can be deployed with data access services through the Omnis Proprietary database (generally suitable for smaller departmental applications) or configured with data access services to leading databases(e.g., DB2, Oracle, Sybase and Informix). When customers deploy an application a deployment license is required for each end-user. The global list prices for the database deployment licenses of OMNIS Studio, depend upon quantities purchased and the distribution channel used. 11 RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 2000, AND JUNE 30, 1999 REVENUES Total net revenues for the three months ended June 30, 2000, were $986,000, representing a decrease of 28.1% as compared to total net revenues of $1,371,000 for the three months ended June 30, 1999. This decrease is due primarily to the reduction in selling price of development kits and runtimes and the repositioning of the OMNIS Studio product line. Product revenues decreased during the three months ended June 30, 2000, to $814,000 from $1,104,000 in the three months ended June 30, 1999. This decrease is due to a reduction in sales price of OMNIS Studio development kit and license fees to motivate existing customers to upgrade from Omnis 7 as well as attract new developers. Service revenues for the three months ended June 30, 2000 decreased 35.6% to $172,000 from $267,000 for the three months ended June 30, 1999. The majority of this decrease is due to the Company's decision to phase out its consulting offerings. Maintenance revenue, which primarily consists of email and telephone support to the Company's customers, decreased slightly during the period ending June 30, 2000, due to the decrease in the annual support fee being charged to customers. COST OF SALES Cost of product revenues is comprised of direct costs associated with software product sales including software packaging, documentation, and physical media costs. Cost of service revenues is comprised of customer support (maintenance) expenses, including technical support salaries and related expenses, and consulting related costs, including consultant salaries and related costs incurred in delivering customer consulting and training services. Cost of product revenues as a percentage of product revenues increased slightly from 3.7% in the three months ended June 30, 1999 to 4.2% in the three months ended June 30, 2000 as a direct result of the decrease in average sales price of the Company's products. Cost of service revenues increased as a percentage of service revenues from 20% in the three months ended June 30, 1999, to 134% in the three months ended June 30, 2000. This is due to the establishment of a technical support department in the US this year that offers real time telephone support to its North American customers. Previously, only email support was available from the engineering office in the United Kingdom. SALES AND MARKETING EXPENSE Sales and marketing expenses increased to $1,365,000 for the three months ended June 30, 2000 as compared to $530,000 for the three months ended June 30, 1999. The increase in sales and marketing expenses was primarily due to increases in targeted advertising, direct mail programs, trade show participation and strategic marketing programs with partners. RESEARCH AND DEVELOPMENT EXPENSE Research and development costs increased to $580,000 for the three months ended June 30, 2000, as compared to $385,000 for the three months ended June 30, 1999, primarily due to an increase of staff at its Research and Development Center in the United Kingdom. The Company continues to invest in the development of its newer product line, OMNIS Studio, aimed at sales opportunities that the Company believes will expand its installed base of customers. GENERAL AND ADMINISTRATIVE EXPENSE General and administrative expenses increased to $706,000 for the three months ended June 30, 2000, as compared to $243,000 for the three months ended June 30, 1999. General and administrative expense for the three months ended June 30,2000 included the recognition of 12 non-cash compensation expense of $269,000 that resulted from the issuance of certain options at below fair market value. This increase was also due to an increase in headcount. OTHER INCOME (EXPENSE) Other income (expense) is comprised primarily of interest income earned on cash and cash equivalents, interest expense, and any gain or loss on foreign currency transactions. Interest income increased to $16,000 for the three months ended June 30, 2000, from $3,000 for the three months ended June 30, 1999, primarily due to higher average balances of cash and cash equivalents. Interest expense increased to $61,000 for the three months ended June 30, 2000, from $6,000 for the three months ended June 30, 1999 primarily due to the $3.0 million promissory note obtained from a significant stockholder. PROPERTIES The Company leases 3,800 square feet of office space in San Carlos, California pursuant to a lease which expires on August 31, 2000 and has base monthly rent of $7,706. The Company owns property in the United Kingdom which it uses for its research and development activities. The Company also leases 1,300 square feet of office space for its European sales headquarters office in Harefield, England. The lease, which expires on June 23, 2002, has monthly rental payments of $3,141 plus $477 for common area maintenance. Until March 2000, the Company leased 2,370 square feet of office space (formerly its London sales office) in London, England. The lease had monthly rental payments of $3,820. Until December 1999, the Company sublet all of the London office space for which it received a rental of $3,820 per month, plus 100 percent reimbursement for common area maintenance. The sublease terminated on December 25, 1999. The Company then negotiated a termination of this lease in March 2000. A premium of $76,523 had to be paid in order to avoid any future contractual liability, of which approximately $15,000 is expected to be reclaimed from the leasees for repairs and renovations. The Company leases property in Germany which it uses as a sales office. The space is 457 square meters and has monthly rental payments of $21,470. The lease will expire May 14, 2007, with a Company option to terminate the lease in May 2002. The Company believes that these facilities are adequate to meet its requirements for fiscal year 2001. RISK FACTORS QUARTERLY FLUCTUATIONS. The Company has experienced significant quarterly fluctuations in operating results and anticipates such fluctuations in the future. The Company generally ships orders as received and, as a result, typically has little or no backlog. Quarterly revenues and operating results, therefore, depend on the volume and timing of orders received during the quarter, which are difficult to forecast. Furthermore, the Company has typically sold to large corporate enterprises, significant 13 partners, and distributors which often purchase in significant quantities, and therefore, the timing of the receipt of such orders could cause significant fluctuations in operating results. Historically, the Company has often recognized a substantial portion of its license revenues in the last month of the quarter. Operating results may also fluctuate due to factors such as the demand for the Company's products, the size and timing of customer orders, changes in the proportion of revenues attributable to licenses and service fees, commencement or conclusion of significant consulting projects, changes in pricing policies by the Company or its competitors, the number, timing, and significance of product enhancements and new product announcements by the Company and its competitors, the ability of the Company to develop, introduce, and market new and enhanced versions of the Company's products on a timely basis, changes in the level of operating expenses, changes in the Company's sales incentive plans, budgeting cycles of its customers, customer order deferrals in anticipation of enhancements or new products offered by the Company or its competitors, nonrenewal of maintenance agreements, product life cycles, software bugs and other product quality problems, personnel changes, changes in the Company's strategy, the level of international expansion, seasonal trends and general domestic and international economic and political conditions, among others. Accordingly, the Company believes that period-to-period comparisons of its operating results are not necessarily meaningful and should not be relied upon as indications of future performance. EXPENSE LEVELS. The Company's expense levels are based, in significant part, on the Company's expectations as to future revenues and are therefore relatively fixed in the short term. If revenue levels fall below expectations, net income is likely to be disproportionately adversely affected because a proportionately smaller amount of the Company's expenses vary with its revenues. There can be no assurance that the Company will be able to achieve profitability on a quarterly or annual basis in the future. Due to all the foregoing factors, it is likely that in some future quarter the Company's operating results will be below the expectations of public market analysts and investors. In such event, the price of the Company's Common Stock would likely be materially adversely affected. FUTURE OPERATING RESULTS. The Company's future operating results will depend, to a considerable extent, on its ability to rapidly and continuously develop new products that offer its customers enhanced performance at competitive prices. Inherent in this process are a number of risks. The development of new, enhanced software products is a complex and uncertain process requiring high levels of innovation from the Company's designers as well as accurate anticipation of customer and technical trends by the marketing staff. The Company's operating results will also be affected by the volume, mix, and timing of orders received during a period and by conditions in the industries that it serves as well as the general economy. Additionally, the Company operates on a global basis with offices or distributors in Europe, and Asia, as well as North America. Changes in the economies, trade policies, and fluctuations in interest or exchange rates may have an impact on its future financial 14 results. Also, as the Company continues to operate more globally, seasonality may become an increasing factor in its financial performance. The Company's products are typically used to develop applications that are critical to a corporate customer's business and the purchase of the Company's products is often part of a customer's larger business process, reengineering initiative, or implementation of client/server or web-based computing. As a result, the license and implementation of the Company's software products generally involves a significant commitment of management attention and resources by prospective customers. Accordingly, the Company's sales process is often subject to delays associated with a long approval process that typically accompanies significant initiatives or capital expenditures. For these and other reasons, the sales cycle associated with the license of the Company's products is often lengthy and subject to a number of significant delays over which the Company has little or no control. There can be no assurance that the Company will not experience these and additional delays in the future. Therefore, the Company believes that its quarterly operating results are likely to vary significantly in the future. The development and introduction of new or enhanced products also requires the Company to manage the transition from older, displaced products in order to minimize disruptions in customer ordering patterns and excessive levels of older product inventory and to ensure that adequate supplies of new products can be delivered to meet customer demand. Because the Company is continuously engaged in this product development and transition process, its operating results may be subject to considerable fluctuations, particularly when measured on a quarterly basis. KEY PERSONNEL AND MANAGEMENT. The success of the Company depends to a significant extent upon a number of key management and technical personnel, the loss of one or more of whom could adversely affect its business. In addition the Company believes that its future success will depend to a significant extent on its ability to recruit, hire and retain highly skilled management and employees for product development, sales, marketing, and customer service. Competition for such personnel in the software industry is intense, and there can be no assurance that the Company will be successful in attracting and retaining such personnel. Management of the Company will also be required to manage any growth of the Company in a manner that requires a significant amount of management time and skill. There can be no assurance that the Company will be successful in managing any future growth or that any failure to manage such growth will not have a material adverse effect on the Company's business, operating results or financial condition. DEPENDENCE ON PRINCIPAL PRODUCTS. Any factor adversely affecting sales of the Company's principal products, including but not limited to OMNIS Studio and Omnis Studio Web Client, would have a material adverse effect on the Company. The future financial performance of the Company will depend in significant part upon the successful development, introduction and customer acceptance of new or enhanced versions of its principal products and other products. There can be no assurance that the Company will be successful in marketing its principal products or any new or enhanced products the Company may develop in the future. In addition competitive pressures or other 15 factors may result in price erosion that could have a material adverse effect on the Company's results of operation. INTELLECTUAL PROPERTY PROTECTION. The Omnis products include technologies developed by the Company. The Company relies primarily on a combination of trade secret, copyright and trademark laws and contractual provisions to protect its proprietary rights in such technologies. There is no assurance that such laws and contractual provisions will adequately protect the intellectual properties and other proprietary rights of the Company. The Company has filed a final United States patent application for certain of its Studio Web Client technologies. The Company has initiated procedures for preparing and filing additional provisional and final patent applications as appropriate for its developing technologies. The Company has not been granted any patents on any of its proprietary technologies and there is no assurance that any such patents will be granted. Patent protection may become important in the protection of the commercial viability of the Company's innovative products and the failure to obtain such patent protection could have an adverse effect on the commercial viability of such products. The Company's success therefore may in part depend on its ability to obtain strong patent protection or licenses to strong patents in the future. It is not possible to anticipate the breadth or degree of protection that patents would afford any product of the Company or the underlying technologies. There can be no assurance that any patents issued or licensed to the Company will not be successfully challenged in the future or that any Omnis product will not infringe the patents of third parties. As the number of software products available in the market increases and the functions and features of these products further overlap, the Company anticipates that software products may become increasingly subject to infringement claims. There can be no assurance that third parties will not assert infringement claims against the Company in the future with respect to any current or future product. Any such assertion, whether with or without merit, could require the Company to enter into costly litigation or royalty arrangements. If required, such royalty arrangements may not be available on reasonable terms, or at all. INTERNATIONAL OPERATIONS. Additionally, the Company operates on a global basis with offices or distributors in Europe and Asia as well as in North America. International operations are subject to inherent risks, including costs and difficulties in staffing and managing foreign operations; difficulties in obtaining and managing local distributors; the costs and difficulties in localizing products into languages other than English for foreign markets; political or economic instability, unexpected regulatory changes and fluctuations in interest or exchange rates in the specific countries in which the Company distributes its products or in international markets in general; longer receivables collection periods and greater difficulty in accounts receivable collection; import/export duties and quotas; reduced protection for intellectual property rights in some countries; and potentially adverse tax consequences. Also, as the Company continues to operate more internationally, seasonality may become an increasing factor in its financial performance. There can be no assurance that these factors or any combination of these factors will not adversely affect the international revenues or overall financial performance of the Company. 16 DELAYS IN SALES AND COMMITMENTS. The Company's products are typically used to develop applications that are critical to a customer's business and the purchase of the Company's products is often part of a customer's larger business process, reengineering initiative, or implementation of client/server computing. As a result, the license and implementation of the Company's software products generally involves a significant commitment of management attention and resources by prospective customers. Accordingly, the Company's sales process is often subject to delays associated with a long approval process that typically accompanies significant initiatives or capital expenditures. For these and other reasons, the sales cycle associated with the license of the Company's products is often lengthy and subject to a number of significant delays over which the Company has little or no control. There can be no assurance that the Company will not experience these and additional delays in the future. Therefore, the Company believes that its quarterly operating results are likely to vary significantly in the future. CHANGES IN PRICING STRUCTURE. The Company has instituted reductions in certain portions of its pricing structure. There is no guarantee that this reduction in price will lead to increased unit volume or other additional revenue streams to replace this lost revenue, which could lead to a significant cash flow strain on the core operations of the Company. Additionally, the Company is relying on increased revenues related to its OMNIS Studio product line, which have not generated revenues as originally projected by the Company. There is no assurance that this product line will generate the revenues needed to sustain the Company in coming quarters and beyond. The Company has committed to decreasing sales conflicts with its partners particularly in the service revenue area and has already taken a number of steps in this regard. This has had and will continue to have a negative effect on service revenues as compared to previous quarters and years. There can be no guarantee that the Company will be able replace the decreasing service revenues with new product revenues. FORWARD LOOKING STATEMENTS. Certain of the matters discussed in this report may constitute "forward-looking" statements for purposes of the Securities Act of 1933, as amended, and the Exchange Act of 1934, as amended, and, as such, may involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of the Company to be materially different from future results, performance or achievements expressed or implied by such forward-looking statements. Any statements made herein that are not statements of historical fact are forward-looking statements including, but not limited to, statements concerning the characteristics and growth of the Company's markets or customers, the Company's objectives or plans for future operations and products and the Company's expected liquidity and capital resources. When used in this report, the words "anticipates," "estimates," "believes," "continues," "expects," "projections," "forecasts," "intends," "may," "might," "could," "should," and similar expressions are intended to be among the statements that identify forward-looking statements. Such forward-looking statements are based on a number of assumptions and involve a number of risks and uncertainties, and therefore actual results could materially differ. These risks and uncertainties include, among others, the Company's 17 continuing liquidity problems, significant variability in operating results, including variability in product revenues and gross margins, fluctuating demand for new and established products, dependence on development of new products, increasing expenses for marketing and development of new products, historical lack of profitability, rapid technological change that affects the ability of the Company to respond to customer or market demands, risks associated with global operations, the continued and future acceptance of the Company's products, the rate of growth in the industries of the Company's products, the presence of competitors with greater technical, marketing and financial resources, and the ability of the Company to successfully expand its operations. LIQUIDITY AND CAPITAL RESOURCES At June 30, 2000, the Company's principal sources of liquidity consisted of cash and cash equivalents of $762,000, as compared to $432,000 at June 30, 1999. The Company's working capital position was a deficit of $1,086,000 at March 31, 2000 and a deficit of $2,991,000 at June 30, 2000 compared to $477,000 at June 30, 1999. On December 23, 1999, the Company obtained a $3,000,000 line of credit from Astoria Capital Partners, L.P. ("Astoria") pursuant to the terms of a Credit Facility Agreement dated as of December 21, 1999 (the "Credit Facility Agreement"). The line of credit had a term of six months and was extended by the further agreement of the Company and Astoria on April 30, 2000 for an additional period of four months. Under these arrangements the Company may draw up to $500,000 from the line of credit per month as set forth in the Credit Facility Agreement. In connection with the issuance of the line of credit, the Company issued a Promissory Note in the principal amount of up to $3,000,000 to Astoria Capital Partners, L.P. dated as of December 21, 1999 and amended on April 30,2000. All principal and accrued interest on the Promissory Note is due and payable on August 31, 2000 or upon a Change of Control (as such term is defined in the Credit Facility Agreement), if earlier. The Promissory Note bears interest at 8 percent per annum and has a default rate of interest of 10 percent per annum. The Promissory Note is secured by certain assets of the Company.While any debt is outstanding or the line of credit remains in effect, except for any debt owing to the Astoria or debt issued contemporaneously with paymentof the debt in full and termination of the line of credit, the Company may not incur any indebtedness without the written consent of Astoria, except theCompany may incur junior debt in the aggregate principal amount of up to$500,000 in connection with the purchase or lease of property (whether or not in the ordinary course of business). In addition, and also in connection with the issuance of the line of credit, the Company issued to Astoria a Non-Transferable Warrant (the "Warrant") to purchase shares of capital stock of the Company. The Warrant may be exercised, and shares of capital stock of the Company will be issued upon exercise of the Warrant, only in connection with one or more Qualifying Offerings (as such term is defined in the Warrant) of securities of the Company. The Warrant may be exercised for up to $3,000,000 of shares of the capital stock of the Company issued in one or more Qualifying Offerings at the price per share of such securities in each such Qualifying Offering, as further provided and qualified by the Warrant. The Company has granted to Astoria certain registration rights with respect to any shares of capital stock issued upon exercise of the Warrant as described in the Warrant. The Warrant terminates on August 31, 2001; 18 and in this connection the Company has no independent obligation to issue any securities, consummate any offering of its securities or accept any offer to issue or sell any of its securities on or before such date. The Company reduced cash used in operations from $2,514,000 in fiscal year 1999 to $849,000 in fiscal year 2000, the Company had negative cash flow used by operating activities of $1,186,000 in the three months ended June 30, 2000 compared to positive cash flow provided from for operating activities of $267,000 in the three months ended June 30, 1999. The Company had a net loss of $1,974,000 in the three months ended June 30, 2000. There can be no assurance that the Company will be able to attain profitability in the near future or thereafter. The Company does not currently have an established line of credit with a commercial bank. Such a credit facility may be difficult to obtain with the Company's historical operating results. Accordingly, in order to obtain additional funds in the future, the Company will need to seek additional equity capital which would be dilutive to current stockholders. The Company is currently attempting to raise additional capital which will be required to continue operations. There can be no assurance that the Company will be able to raise additional capital on commercially reasonable terms should the Company need additional funds in the future. 19 PART II. OTHER INFORMATION ITEM 1. Legal Proceedings COMPASS LITIGATION Compass Litigation. In March 1998 the Company was sued by Compass Software ("Compass") in the Federal District Court for the Eastern District of Washington claiming damages in the range of $2 Million for software copyright infringement and related claims. The Company obtained a full dismissal of that case with prejudice on November 29, 1999, and no appeal was filed by Compass within the time allowed by law. In this connection the Company previously had sued Compass in 1994 for illegally infringing and distributing the Company's software products. This matter was settled with an agreement that Compass would pay certain amounts and would not make illegal copies of the Company's software in the future. Compass failed to pay the promised amounts when due. The Company then obtained a judgment for breach of contract against Compass. As part of its efforts to enforce its judgment against Compass, the Company purchased, at a judgment lien sale, certain intangible property of Compass including the rights to the 1998 infringement suit brought by Compass ("Execution Sale"). Compass then requested the applicable trial court to set aside the Execution Sale. The trial court granted the request and the Company appealed the judgment. The court of appeal subsequently ruled in favor of the Company and directed the trial court to determine the amount of fees to be awarded to the Company. That amount had not been determined as of June 30, 2000. The Company also filed a second lawsuit against Compass alleging additional acts of infringement for periods after 1994. A trial was conducted in this case before Judge Barbara J. Rothstein of the United States District Court for the Western District of Washington. On July 25, 2000, the District Court ruled that Compass reproduced and distributed unauthorized copies of Omnis Software using duplicates of existing serial numbers. The Court awarded statutory damages to Omnis in the amount of approximately $150,000 in addition to injunctive relief and attorney fees from Compass. It is not known at this time whether or not Compass will appeal this judgement. BTN - GERMANY LITIGATION. The Company entered into a professional development services agreement with BTN Versandhandel GmbH ("BTN") of Leiferde, Germany for the development of an Omnis application. The Company developed and delivered a version of the application to BTN. BTN failed to pay the Company as agreed, claiming there were flaws in the application and the project was suspended by the Company awaiting their payment. BTN commenced legal action against the Company in Germany claiming damages of approximately DM250,000 for failure to perform under the services agreement. The Company has countersued BTN claiming the balance owed under the contract of approximately DM60,000. The Company is defending against the BTN claim and is pursuing its counterclaim against BTN. ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS Pursuant to an Asset Purchase Agreement dated as of May 19, 2000 (the "Agreement"), the Company agreed to issue a total of up to 150,000 shares of its common stock to The Wainer Group, an Australian partnership (the "Wainer Group"), in exchange for all rights to a software system known as "Metamorph" and related rights and assets. The Agreement was entered into by and among the Company, the Wainer Group, Dirk Wainer, Shirley-Anne Wainer, Dennis Janossich and Joseph Bernard as to all matters, and Paradigm Designs Software Pty Ltd., an Australian corporation ("Paradigm"), as to certain matters (the "Metamorph Transaction"). Under the Agreement the Company is also required to pay a percentage royalty to the Wainer Group for certain sales of the Metamorph software during a period of 5 years. The Agreement further provides for certain software development work and related services to be performed by the Wainer Group for a period of months following the closing date of May 19, 2000 (the "Closing"). The Agreement also grants a nonexclusive license to Paradigm for use of the Metamorph software under certain circumstances. At the Closing the Company issued 112,500 shares of the Common Stock of the Company to the Wainer Group, with a trading value of $8.00 per share as of the Closing. The remaining 37,500 shares of the Common Stock will be issued to the Wainer Group by the Company if and when the required software development work has been completed by the Wainer Group. The Wainer Group shares are subject to additional terms and conditions as set forth in the Agreement. The shares of Common Stock issued in the Metamorph Transaction were and will be issued by the Company pursuant to an exemption from registration for nonpublic offerings under Section 4(2) of the Securities Act. None of the Wainer Group shares have been registered. The Company may be required to register such shares in the future in connection with certain other registrations of its Common Stock pursuant to the terms and conditions of the Wainer Group Piggyback Registration Rights attached as Exhibit G to the Agreement and made a part thereof. 20 ITEM 3. Defaults Upon Senior Securities None. ITEM 4. Submission of Matters to a Vote of Security Holders None. ITEM 5. Other Information None. ITEM 6. Exhibits and Reports On Form 8-K (a) Exhibits: 3.1 Restated Certificate of Incorporation, as amended and corrected.(1) 3.2 Certificate of Amendment of Certificate of Incorporation dated February 9, 1999(2) 3.3 Certificate of Designations dated March 31, 1999, as corrected.(3) 3.4 Bylaws, as amended.(4) 10.1 Asset Purchase Agreement dated as of May 19, 2000, by and among the Omnis Technology Corporation, the Wainer Group, DirkWainer, Shirley-Anne Wainer, Dennis Janossich and Joseph Bernard as to all matters, and Paradigm Designs Software Pty Ltd., as to certain matters.(5) 27.1 Financial Data Schedule (1) Incorporated herein by reference to the Current Report on Form 8-K filed by the Company with the Commission on June 16, 1998. (2) Incorporated herein by reference to the Company's Annual Report on Form 10-KSB/A, as amended, for the fiscal year ended March 31, 1999, filed by the Company with the Commission on July 29, 1999. (3) Incorporated herein by reference to the Current Report on Form 8-K filed by the Company with the Commission on April 15, 1999. (4) Incorporated herein by reference to the Annual Report on form 10-KSB, as amended, for the fiscal year ended March 31, 1998, filed by the Company with the Commission on June 29, 1998. (5) This is not a material contract but is being supplied in connection with the discussion of the Metamorph Transaction contained in this 10-QSB. 21 (b) No reports on Form 8-K were filed during the quarter ended June 30, 2000. SIGNATURES In accordance with the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Date: August 10, 2000 OMNIS TECHNOLOGY CORPORATION (Registrant) /s/ GWYNETH GIBBS ------------------------------------------ Gwyneth Gibbs, President and Interim Chief Executive Officer 22