-----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, SacbFCcrV7Kwgyf7Z0XaC4Q9oBVJk4nv8FZRqGqqd8UV9Ccu20oHZM1R541QPBcl 6l956/RBQtNRFJhubfUBCQ== 0000950149-99-000377.txt : 19990310 0000950149-99-000377.hdr.sgml : 19990310 ACCESSION NUMBER: 0000950149-99-000377 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990309 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: 10QSB SEC ACT: SEC FILE NUMBER: 000-16449 FILM NUMBER: 99561016 BUSINESS ADDRESS: STREET 1: 981 INDUSTRIAL WAY CITY: SAN CARLOS STATE: CA ZIP: 94070-4117 BUSINESS PHONE: 6506327100 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 10QSB 1 QUARTERLY REPORT FOR THE QUARTER ENDED 12/31/1998 1 DRAFT U.S. SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-QSB (Mark One) [X ] Quarterly Report under Section 13 or 15(d) of the Securities Exchange Act of 1934 FOR THE QUARTER ENDED DECEMBER 31, 1998 OR [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from _______________ to ________________ Commission File number 0-16449 OMNIS TECHNOLOGY CORPORATION (Exact name of registrant as specified in its charter) Delaware 94-3046892 (State of incorporation) (IRS Employer Identification No.) 981 Industrial Road Building B San Carlos, CA 94070-4117 (Address of principal executive offices) (650) 632-7100 (Registrant's telephone number) Check whether the issuer (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days: Yes [X] No [ ] As of December 31, 1998 there were 2,129,205 shares of registrant's Common Stock, $.10 par value, outstanding. 1 2 Transitional Small Business Disclosure Format: Yes [ ] No [X] OMNIS TECHNOLOGY CORPORATION AND SUBSIDIARIES INDEX PART I. FINANCIAL INFORMATION
Page No. Item 1. Financial Statements: Condensed Consolidated Balance Sheets - December 31, 1998 and March 31, 1998 3 Condensed Consolidated Statements of Operations - Three and nine months ended December 31, 1998 and 1997 4 Condensed Consolidated Statements of Cash Flows - Three and nine months ended December 31, 1998 and 1997 5 Notes to Condensed Consolidated Financial Statements 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 7 PART II. OTHER INFORMATION Item 1. Legal Proceedings 14 Item 2. Changes in Securities 14 Item 3. Defaults upon Senior Securities 14 Item 4. Submission of Matters to a Vote of Security Holders 14
2 3 Item 5. Other Information 15 Item 6. Exhibits and Reports on Form 8-K 15 Signatures 16
PART I. FINANCIAL INFORMATION ITEM 1. Financial Statements OMNIS TECHNOLOGY CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS ASSETS
December 31, 1998 March 31, 1998 ------------------------- ----------------- (Unaudited) Current Assets: Cash and equivalents $ 127,000 $ 242,000 Trade accounts receivable, less allowance for doubtful accounts and returns of $158,732 and $161,895, respectively 859,000 602,000 Inventory 20,000 74,000 Other current assets 419,000 625,000 ------------ ------------ Total current assets 1,425,000 1,543,000 ------------ ------------ Property, furniture and equipment, net 1,000,000 1,472,000 Other assets 10,000 400,000 ------------ ------------ Total assets $ 2,435,000 $ 3,415,000 ============ ============ LIABILITIES AND STOCKHOLDERS' DEFICIENCY Current Liabilities: Accounts payable and accrued liabilities $ 1,269,000 $ 2,387,000 Current portion of long term debt 1,118,000 1,310,000 Deferred revenue 531,000 862,000 ------------ ------------ Total current liabilities 2,918,000 4,559,000 ------------ ------------ Long term debt 957,000 111,000 ------------ ------------ Total liabilities 3,875,000 4,670,000 ------------ ------------ Stockholders' Deficiency: Common stock 213,000 212,000 Paid-in capital 42,846,000 42,881,000 Accumulated deficit (44,722,000) (44,499,000) Foreign currency translation adjustment 223,000 151,000 ------------ ------------ Total stockholders' deficiency (1,440,000) (1,255,000) ------------ ------------ Total liabilities and stockholders' deficiency $ 2,435,000 $ 3,415,000 ============ ============
3 4 OMNIS TECHNOLOGY CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
Three Months Ended Nine Months Ended December 31 December 31 1998 1997 1998 1997 ------------ ------------ ------------ ------------ Net revenues: Products $ 1,175,000 $ 491,000 $ 2,954,000 $ 3,432,000 Services 434,000 909,000 1,304,000 3,179,000 ------------ ------------ ------------ ------------ Total net revenues 1,609,000 1,400,000 4,258,000 6,611,000 Costs and expenses: Cost of product revenues 67,000 104,000 262,000 376,000 Cost of service revenues 96,000 735,000 298,000 2,877,000 Selling and marketing 505,000 1,305,000 1,579,000 6,287,000 Research & development 360,000 718,000 1,057,000 2,545,000 General and administrative 399,000 810,000 2,027,000 2,379,000 ------------ ------------ ------------ ------------ Total costs and expenses 1,427,000 3,672,000 5,223,000 14,464,000 ------------ ------------ ------------ ------------ Operating income (loss) 182,000 (2,272,000) (965,000) (7,853,000) ------------ ------------ ------------ ------------ Other income (expense): Interest income 2,000 3,000 5,000 80,000 Interest expense and other, net (51,000) (10,000) (259,000) (71,000) ------------ ------------ ------------ ------------ (49,000) (7,000) (254,000) 9,000 ------------ ------------ ------------ ------------ Income (loss) before income taxes 133,000 (2,279,000) (1,219,000) (7,844,000) Income tax expense 0 2,000 4,000 16,000 ------------ ------------ ------------ ------------ Net income (loss) $ 133,000 $ (2,281,000) $ (1,223,000) $ (7,860,000) ============ ============ ============ ============ Net income (loss) per common share $ 0.06 $ (1.07) $ (0.58) $ (3.77) Weighted average number of common shares outstanding 2,125,863 2,123,224 2,125,852 2,082,195 Net income (loss) per share -- fully diluted $ 0.05 $ (0.76) $ (0.44) $ (2.60) Number of fully diluted shares 2,798,366 3,019,765 2,798,366 3,019,765
4 5 OMNIS TECHNOLOGY CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW (UNAUDITED)
Nine Months Ended December 31 1998 1997 ----------- ----------- Cash Flows from Operating Activities: Net loss $(1,223,000) $(7,860,000) Adjustments to reconcile net loss to net cash used for operating activities: Depreciation and amortization expense 341,000 543,000 Legal fees capitalized to stock issuance cost (35,000) -- Convertible debenture interest capitalized -- 131,000 Change in assets and liabilities: Trade accounts receivable (257,000) 708,000 Inventory 54,000 (63,000) Loss on disposal of property 95,000 (326,000) Other assets 596,000 (400,000) Accounts payable and accrued liabilities (1,111,000) 778,000 Deferred revenue (331,000) (42,000) Bank overdraft (117,000) (7,000) ----------- ----------- Net cash used for operating activities (1,988,000) (6,538,000) ----------- ----------- Cash Flows from Investing Activities: Purchases of property, furniture and equipment (24,000) (580,000) Proceeds from sale of fixed assets 57,000 30,000 ----------- ----------- Net cash provided by investing activities 33,000 (550,000) ----------- ----------- Cash Flows from Financing Activities: Net repayments of line of credit -- -- Net proceeds from preferred stock issuance 1,000,000 -- Net proceeds from stock issuance 1,000 71,000 Net proceeds from issuance of debt 764,000 1,186,000 ----------- ----------- Net cash provided by financing activities 1,765,000 1,257,000 ----------- ----------- Effect of Exchange Rate Changes on Cash 75,000 (115,000) Net decrease in cash and equivalents (115,000) (5,946,000) Cash and equivalents at beginning of period 242,000 6,150,000 ----------- ----------- Cash and Equivalents at end of period $ 127,000 $ 204,000 =========== =========== NON CASH INVESTING AND FINANCING ACTIVITIES Conversion of convertible subordinated debentures into common stock $ -- $ 1,880,000 =========== ===========
5 6 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, 1998. The results of operations for the period ended December 31, 1998 are not necessarily indicative of results to be expected for any other interim period or the fiscal year ending March 31, 1999. 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. However, the Company's reported diluted net loss per share for all periods presented is based on the weighted average number of common shares outstanding during the period as the effect of such securities would be anti-dilutive. 3. In October 1997, the Company closed an interim debt financing of $1,000,000 with a significant stockholder. This debt financing is secured by substantially all the Company's assets and is scheduled to be repaid by March 31, 1999. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Overview." 4. 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. Each share of Preferred Stock converts into 10 shares of common stock, has voting and registration rights, is entitled to cumulative 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 that agreement, the Company sold the first 49,826 shares of Series A Preferred Stock, with net proceeds of approximately $400,000. Additionally, the same stockholder purchased 12,456 shares in May 1998 for net proceeds of approximately $100,000. The remaining 62,282 shares were purchased by this stockholder in July, 1998 for net proceeds of approximately $500,000. These proceeds have been used to fund the Company's operations. On December 31, 1998, 124,564 shares of these Preferred Stock was redeemed by the Company for an aggregate price of $100 (or $.0008 per share). Difference on the issue price and reacquisition price remain in the equity section of the Company's balance sheet as part of accumulated deficit. 6 7 OMNIS TECHNOLOGY CORPORATION AND SUBSIDIARIES THIS REPORT ON FORM 10-QSB INCLUDES A NUMBER OF FORWARD-LOOKING STATEMENTS THAT REFLECT THE COMPANY'S CURRENT VIEWS WITH RESPECT TO FUTURE EVENTS AND FINANCIAL PERFORMANCE. THESE FORWARD-LOOKING STATEMENTS ARE SUBJECT TO CERTAIN RISKS AND UNCERTAINTIES, INCLUDING THOSE DISCUSSED IN "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" AND THE COMPANY'S ACTUAL RESULTS MAY DIFFER MATERIALLY FROM HISTORICAL OR ANTICIPATED RESULTS. ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations OVERVIEW OMNIS Technology Corporation develops and markets tools that enable software application development. The Company markets its products primarily through its indirect channel consisting of VAR's, Distributors, and OEM relationships. OMNIS Technology Corporation has experienced significant losses in each of the past three years, although the Company is showing a small profit in the quarter ended December 31, 1998. As a result of this and other factors, the Company has expended a significant amount of cash resources during the last three years. The Company raised $1 million through a private debt financing in October 1997 and raised $1 million in Preferred Stock from a significant stockholder, all of which has been used to fund the Company's operations. The Company currently relies upon collections from accounts receivable and has very little available cash and has no reserves in the event operations do not produce needed resources to fund operations and repay the debt. As of February 22, 1999, the Company entered into a letter of intent (the "Letter of Intent") with a significant shareholder and certain members of the current Board of Directors (collectively, the "New Investors") to provide additional capital for the Company and to restructure certain debt of the Company. The Letter of Intent provides, among other things, that approximately 7,400,000 shares of common stock of the Company will be issued at a price of $0.25 per share. The exact terms and conditions of the agreement are still subject to negotiation between the parties but will include terms, conditions and obligations which are typical and customary of such transactions. There is no assurance that the contemplated financing will be consummated or that in the event it is not, that another financing source could be obtained on the same or similar terms. If the Company is unsuccessful in raising additional capital when needed, the Company may be required to cease operations and its secured creditors would have a first claim on substantially all of the Company's assets. The Company has negotiated a repayment plan with a creditor committee (the "Creditor Committee") representing the majority of its U.S.-based unsecured creditors relating to past debts owed by the Company ("Workout Plan"). 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 have not agreed to the Workout Plan as proposed may, at their option, continue to seek payment from the Company individually, or may join the Workout Plan at a later date. A significant percentage of the Company's creditors were paid off upon finalization of the Workout Plan. The remaining balance of the participants in the Workout Plan were paid an aggregate of approximately $70,000 on their approximately $400,000 in claims. The Company's next scheduled payment was made on December 31, 1998, and will be due quarterly thereafter. If the Company should not be able to meet these repayments in future periods, the Company will be in default under the Workout Plan and the Creditor Committee may terminate the Workout Plan. Accordingly, in the event of such a breach, there is a significant risk that the Company's creditors could force the Company to file for bankruptcy protection. 7 8 During the past year, the Company has significantly reduced its headcount in attempts to reduce operating costs. During the quarter ending December 31, 1998, the Company's worldwide headcount remained relatively constant, and the Company has no plans significantly to increase headcount in the near term. RESULTS OF OPERATIONS THREE AND NINE MONTHS ENDED DECEMBER 31, 1998, AND DECEMBER 31, 1997 REVENUES Total net revenues for the three months ended December 31, 1998 were $1,609,000, representing an increase of 15% as compared to total net revenues of $1,400,000 for the three months ended December 31, 1997. Total net revenues for the nine months ended December 31, 1998 were $4,258,000, representing a decrease of 36% as compared to total net revenues of $6,611,000 for the nine months ended December 31, 1997. This decrease is due primarily to the reduction in service revenues, particularly as a result of the Company's decision made in 1997 to reduce its emphasis on consulting service in order to reduce conflicts with certain of its channel partners. Product revenues increased during the three months ended December 31, 1998 to $1,175,000 from $491,000 in the three months ended December 31, 1997. Product revenues decreased during the nine months ended December 31, 1998 to $2,954,000 from $3,432,000 in the nine months ended December 31, 1997. This decrease is mainly due to the Company's reduction in sales workforce in the past year. During the three and nine months ending December 31, 1998, product revenues represented 73% and 69% of total net revenues as compared to 35% and 52% of total net revenues during the same three and nine month periods in the prior year. Service revenues for the three months ended December 31, 1998 decreased 52% to $434,000 from $909,000 for the three months ended December 31, 1997. Service revenues for the nine months ended December 31, 1998, decreased 59% to $1,304,000 from $3,179,000 for the nine months ended December 31, 1997. The majority of this decrease is due to the Company's decision to de-emphasize its consulting offerings. The Company expects service revenues related to consulting projects to continue to decrease in future periods as it focuses on higher margin product related revenue and shifts consulting opportunities to its external partners. COST OF SALES Cost of product revenues is comprised of direct costs associated with software product sales including software packaging, documentation, and physical media costs. Cost of service revenues is comprised of customer support (maintenance) expenses, including technical support salaries and related expenses, and consulting related costs, including consultant salaries and related costs incurred in delivering customer consulting and training services. 8 9 Cost of product revenues as a percentage of product revenues decreased to 6% in the three months ended December 31, 1998 compared to a percentage of 21% for the three months ended December 31, 1997. Cost of product revenues as a percentage of product revenues decreased slightly from 11% in the nine months ended December 31, 1997 to 9% in the nine months ended December 31, 1998. Cost of service revenues decreased as a percentage of service revenues from 81% in the three months ended December 31, 1997 to 22% in the three months ended December 31, 1998. Cost of service revenues decreased as a percentage of service revenues from 91% in the nine months ended December 31, 1997 to 23% in the nine months ended December 31, 1998. This decrease was primarily due to a significant reduction in headcount in the consulting division, resulting in significantly better utilization of the Company's consulting resources. Currently the Company retains very few consultants and the Company's remaining consultants are typically fully utilized. In addition, the Company has very little, if any, management specific to the consulting division, thereby reducing overhead costs. Additionally, the Company's technical support group continues to generate favorable gross margins, and represents the majority of the related revenues and costs within service revenues. SALES AND MARKETING EXPENSE Sales expenses decreased to $421,000 for the three months ended December 31, 1998 as compared to $898,000 for the three months ended December 31, 1997. Sales expenses decreased to $1,253,000 for the nine months ended December 31, 1998, as compared to $2,968,000 for the nine months ended December 31, 1997. The decrease in sales expenses was primarily due to decreases in headcount. In the third quarter of fiscal 1998, the Company had a reduction-in-force which included a significant number of sales related employees. The Company has no plans to significantly replace this headcount in the near term. Marketing expenses for the three months ended December 31, 1998 were $84,000 as compared to $407,000 for the three months ended December 31, 1997. Marketing expenses for the nine months ended December 31, 1998, were $327,000, as compared to $3,319,000 for the nine months ended December 31, 1997. This decrease in marketing expense was primarily due to a reduction of costs associated with the reduction in Company's lead generation effort, including trade shows and advertising, in the three and nine months ended December 31, 1998 as compared to the three and nine months ended December 31, 1997 as well as the absence of start-up costs associated with the introduction of new products and public relations costs which the Company incurred during the three and nine months ended December 31, 1997. In the third quarter of fiscal 1998, the Company had a reduction-in-force which included a significant number of marketing related employees. The Company expects modest increases in marketing expenses during future periods as it rebuilds its marketing efforts towards its past and present customer base with partner focused programs designed to acquire new customers. RESEARCH AND DEVELOPMENT EXPENSE Research and development costs decreased to $360,000 for the three months ended December 31, 1998 as compared to $718,000 for the three months ended December 31, 1997, primarily due to 9 10 decreased headcount in its U.S. based operations. Research and development costs decreased to $1,057,000 for the nine months ended December 31, 1998, as compared to $2,545,000 for the nine months ended December 31, 1997, also primarily due to decreased headcount in its U.S. based operations. The Company has streamlined its development resources, eliminating projects that do not relate to its core technologies and projects for which the Company can not forecast revenues in the near future or at all. Additionally the Company consolidated its development team in its development facility in the U.K. 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 decreased to $399,000 for the three months ended December 31, 1998 as compared to $810,000 for the three months ended December 31, 1997. General and administrative expenses decreased to $2,027,000 for the nine months ended December 31, 1998 as compared to 2,379,000 for the nine months ended December 31, 1997. The Company has relocated its headquarters to San Carlos, California, which has reduced lease-associated expense and expenditure of cash by $150,000 per quarter. Additionally the Company recognized a write-off related to the disposal of lease-hold improvements of the San Bruno office and other office equipment, resulting in a non-recurring charge of $78,000 during the quarter ended September 30, 1998. The Company is continuing its efforts to reduce its operating expenses where possible, including general and administrative expenses. OTHER INCOME (EXPENSE) Other income (expense) is comprised primarily of interest income earned on cash and cash equivalents, interest expense, and any gain or loss on foreign currency transactions. Interest income decreased to $2,000 and $5,000 for the three and nine months ended December 31, 1998, respectively, from $3,000 and $80,000 for the three and nine months ended December 31, 1997 respectively, primarily due to lower average balances of cash and cash equivalents. Interest and other net expense increased to $55,000 for the three months ended December 31, 1998, from $26,000 for the three months ended December 31, 1997, and $169,000 for the nine months ended December 31, 1998 compared to $90,000 for the nine months ended December 31, 1997. YEAR 2000 The Company is in the process of addressing the broad range of issues associated with the programming code in existing computer systems as the year 2000 approaches. The "Year 2000" issue is pervasive and complex, as many computer systems were not designed to handle any dates beyond the year 1999, and therefore computer hardware and software will need to be modified prior to the Year 2000 in order to remain functional. Systems that do not properly recognize such information could generate erroneous data or cause a system to fail. The Year 2000 issue creates potential risk for the Company from unforeseen problems in its own computer systems, and from third parties with whom the Company deals on financial and other transactions worldwide and in its own software products licensed 10 11 to customers. Failures of the Company and/or third parties' computer systems could have a material impact on the Company's business, operating results and financial condition. The Year 2000 issue could affect the Company's products. The Company is continuously reviewing its current product offerings and based upon its review to date, believes that its current products are Year 2000 compliant. However, the Company's current products are subject to ongoing analysis and review. Despite such analysis and review the Company's products may contain undetected errors or defects associated with Year 2000 date functions, which could result in delay or loss of revenue, diversion of development resources, damage to the Company's reputation, or increased service or warranty costs, any of which could materially adversely affect the business, operating results and financial condition. To the extent the Company's products prove to be non-compliant, or in the event of any dispute with any customer regarding whether the Company's products are compliant, the Company's business, results of operations and financial condition could be materially adversely affected. The existence of Year 2000 issues may give rise to legal claims against the Company, notwithstanding standard provisions in the Company's license agreements with its customers disclaiming all express and implied warranties against such defects. Such legal claims could have a materially adverse impact on the Company's business and results of operations. The Company is currently reviewing its internal systems, as appropriate, to determine what, if anything, is required to resolve the Year 2000 issue. Although the Company is not aware of any material operational issues of costs associated with its internal systems for the Year 2000, the Company may experience material unanticipated problems and costs caused by undetected errors or defects in the technology used in its internal systems, which include both the Company's software products and third-party software and hardware technology. The Company plans to initiate formal communications with all of its significant suppliers to determine their compliance status. Many companies are currently expending significant resources in order to address the Year 2000 issue. Expenditures to address the Year 2000 issue often involve the modification of legacy and other existing software systems rather than the development of new systems. Because of the size of such expenditures, companies may defer or cancel other new software development projects for which such companies might otherwise have purchased products from the Company. Any reductions in the Company's revenues resulting from such the Year 2000 issue could have a material adverse effect on the Company's business, results of operations and financial condition. In addition, the Company could be materially adversely affected by costs or complications relating to code changes, testing and implementation for its own systems or similar issues faced by its distributors, suppliers, customers, vendors and the financial service organizations with which the Company interacts. At this time, the Company has not yet determined the cost related to achieving Year 2000 compliance. There can be no assurance that the Company will have the resources to complete a satisfactory review, or to successfully achieve Year 2000 compliance in the near future, or at all, in light of the Company's financial condition and level of staffing. RISK FACTORS 11 12 The Company has experienced significant losses over the past three fiscal years. As a result, the report of the Company's independent auditors on the Company's financial statements for the fiscal year ended March 31, 1998, 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. In October, 1997, the Company 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, May, and July 1998, the Company sold convertible Preferred Stock resulting in net proceeds of approximately $1,000,000. All these 126,000 shares of Series A Preferred Stock were purchased by the Company in December 1998 at a purchase price of $100. In fiscal year 1997 and 1998, and continuing through the first six months of fiscal 1999, operations of the Company have generated negative cash flows. The Company's management team has taken steps to improve the Company's cash flow and the Company is showing a small profit in the third quarter of fiscal 1999. While the Company hopes to continue to be profitable in the next and later quarters, there can be no assurance that this will be the case. 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 has experienced significant quarterly fluctuations in operating results during this and previous quarters and expects that these fluctuations will continue in future periods. These fluctuations have been a result of several factors including pricing strategies employed by the Company and its competitors, the timing of new product releases or enhancements to existing products, and seasonality. A number of additional factors have, from time to time, caused and may in the future cause the Company's revenues and operating results to vary substantially from period-to-period. These factors include: pricing competition, delays in introduction of new products or product enhancements, size and timing of demand for existing products and shortening of product life cycle, inventory obsolescence, changes in the Company's management and sales and marketing organizations, and general economic conditions. In 1998, the Company 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 future periods. 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. 12 13 The Company's expense levels are based 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 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 Australia 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 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 management as well as accurate anticipation of customer and technical trends. Once a product is developed, the Company must rapidly bring it into production. In addition, there can be no assurance that any new products will achieve market acceptance at the price the Company sets for the product, if at all. If the Company is unable to develop and sell new products which are widely accepted by customers, the Company's business, financial condition, and results of operations would be unilaterally and adversely affected. The Company has recently been sued for copyright infringement. While the Company believes this suit has no merit, there can be no assurance that the Company will be successful in resolving this or any future lawsuits favorably to the Company. If the Company loses any of these judgments, it may be forced to cease operations and declare bankruptcy. Additionally, the Company has recently negotiated a Workout Plan with its US based unsecured creditors through the Creditor Committee. Should the Company default under the terms of the Workout Plan, it may be forced to cease operations and declare bankruptcy. In February 1998, The Nasdaq Stock Exchange de-listed the Company from the Nasdaq National Market. The Company is now traded on the Nasdaq bulletin board. This has had a negative impact on the liquidity of the Company's outstanding common shares. Additionally, due to the Company's poor financial performance, among other factors, the per share price of the Company's stock has been and is expected to continue to be negatively impacted in the near term and beyond. LIQUIDITY AND CAPITAL RESOURCES 13 14 At December 31, 1998, the Company's principal sources of liquidity consisted of cash and equivalents of $127,000, although the Company may, from time to time, have significantly less cash. The Company has taken several actions over the past four quarters that it expects will reduce future operating costs. Management expects that there will be expense and cash flow savings during the fourth quarter of fiscal 1999 as compared to the fourth quarter of fiscal 1998 as a result of these actions. 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. The Company currently has an outstanding promissory note of $1,000,000 and accrued interest with a significant stockholder. This debt financing is secured by substantially all the Company's assets and is scheduled to be repaid by March 31, 1999. While the Company expects it will be able to extend the due date of the note, there can be no assurance that it will be able to do so. If the Company is not able to extend the due date of the note it will not be able to pay the amount owed under the note and may be forced to file for bankruptcy protection. 14 15 OMNIS TECHNOLOGY CORPORATION AND SUBSIDIARIES PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS In March 1998, the Company was sued for copyright infringement. While the Company believes that this suit has no merit, this suit remains unresolved. See "Legal Proceedings" contained in the Company's annual report, Form 10-KSB, for the fiscal year ended March 31, 1998, as filed with the Securities Exchange Commission on June 29, 1998. The Company has reached an agreement with a group of its creditors and in an attempt to resolve its debts with unsecured creditors. Under the terms of this agreement, the Company must make payments to the creditors on quarterly intervals, and the next payment is due March. 31, 1999. Under the terms of this agreement, any creditors with pending litigation must dismiss their lawsuits upon the agreement's effective date, which was late August 1998. As of November 10, all of the Company's creditors have dismissed their lawsuits. ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS 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. Each share of Preferred Stock converts into 10 shares of common stock, has voting and registration rights, is entitled to cumulative 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 that agreement, the Company sold the first 49,826 shares of Series A Preferred Stock, with net proceeds of approximately $400,000. Additionally, the same stockholder purchased 12,456 shares in May 1998, for net proceeds of approximately $100,000. The remaining 62,282 shares were purchased by this stockholder in July, 1998 for net proceeds of approximately $500,000. These proceeds were used to fund the Company's operations. In connection with the sale of Series A Preferred Stock, the Company filed a Form D pursuant to the rules promulgated in the Securities Act of 1993, as amended. All 124,564 outstanding shares of Series A Preferred Stock were purchased by the Company in December 1998 at a purchase price of $100 (or $.0008 per share). In connection with the purchase of the Series A Preferred Stock, the Company filed a Form 8-K pursuant to the rules promulgated in the Securities Act of 1993, as amended. ITEM 3. DEFAULTS UPON SENIOR SECURITIES None. 15 16 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. ITEM 5. OTHER INFORMATION Kevin Doyle, who was appointed Vice President of Marketing in April 1998 left the Company in January 1999. ITEM 6. Exhibits and Reports on Form 8-K (a) Exhibits 27.1 Financial Data Schedule (b) Reports on Form 8-K The Company filed an 8-K report on November 12 1998, relating to Changes in the Company's Certifying Accountant. The Company filed a further 8-K report on January 15 1999, regarding the purchase of the outstanding shares of Series A Preferred Stock. 16 17 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Date:March 9, 1999 OMNIS TECHNOLOGY CORPORATION (Registrant) /s/ Gwyneth Gibbs -------------------------- Gwyneth Gibbs President, interim Chief Executive Officer, and interim Chief Financial Officer 18 EXHIBIT INDEX
EXHIBIT NO. ------- 27.1 Financial Data Schedule
EX-27.1 2 FINANCIAL DATA SCHEDULE
5 9-MOS MAR-31-1998 APR-01-1998 DEC-31-1998 127,000 0 859,000 0 20,000 419,000 0 0 2,435,000 2,918,000 0 0 0 2,129,000 (957,000) 2,435,000 0 4,258,000 560,000 5,223,000 0 0 (254,000) (1,219,000) 4,000 (1,223,000) 0 0 0 (1,223,000) 0 0
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