-----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, MrW4hY52HdClsyFJiql1LUjBgaxZIZJ3b+Dvm8RtPAfkovEllVTxA1GLN7p6iKXu sDLkPu+x4IVzGRnuVTqUzw== 0000950149-99-001358.txt : 19990730 0000950149-99-001358.hdr.sgml : 19990730 ACCESSION NUMBER: 0000950149-99-001358 CONFORMED SUBMISSION TYPE: 10KSB/A PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19990331 FILED AS OF DATE: 19990729 FILER: COMPANY DATA: COMPANY CONFORMED NAME: OMNIS TECHNOLOGY CORP CENTRAL INDEX KEY: 0000820738 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-PREPACKAGED SOFTWARE [7372] IRS NUMBER: 943046892 STATE OF INCORPORATION: DE FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10KSB/A SEC ACT: SEC FILE NUMBER: 000-16449 FILM NUMBER: 99673343 BUSINESS ADDRESS: STREET 1: 981 INDUSTRIAL WAY STREET 2: BUILDING B 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 10KSB/A 1 FORM 10KSB/A 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-KSB/A (Mark One) [X] Annual report pursuant to Section 13 or 15(d) of the Securities and Exchange Act of 1934 for the fiscal year ended March 31, 1999 [ ] Transition report pursuant to Section 13 or 15(d) of the Securities and Exchange Act of 1934 for the transition period From ________ to ________ COMMISSION FILE NO. 0-16449 OMNIS TECHNOLOGY CORPORATION (Exact name of registrant as specified in its charter) Delaware 981 Industrial Blvd Bldg. B 94-3046892 (STATE OF INCORPORATION) San Carlos, CA 94070-4117 (I.R.S.EMPLOYER (ADDRESS OF PRINCIPAL EXECUTIVE IDENTIFICATION NO.) OFFICES INCLUDING ZIP CODE) (650) 632-7100 REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE
- -------------------------------------------------------------------------------- Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common Stock, $.10 par value - -------------------------------------------------------------------------------- Check whether the issuer (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. [X] Yes [ ] No Check if disclosure of delinquent filers pursuant to Item 405 of Regulation S-B is not contained in this form, and no disclosure will be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB. [ ] Issuer's revenues for its most recent fiscal year: $ 5,858,624 The aggregate market value of the voting stock held by non-affiliates was $4,383,034 as of July 1, 1999, based on the last sales price reported for such date. As of July 1, 1999, the registrant had 9,679,829 shares of its Common Stock outstanding and 300,000 shares of its Series A Convertible Preferred Stock outstanding. 1 2 DOCUMENTS INCORPORATED BY REFERENCE: None. Transitional Small Business Disclosure Format (check one): [ ] Yes [X] No 2 3 PART I THIS ANNUAL REPORT ON FORM 10-KSB INCLUDES A NUMBER OF FORWARD-LOOKING STATEMENTS THAT REFLECT THE COMPANY'S CURRENT VIEWS WITH RESPECT TO FUTURE EVENTS AND FINANCIAL PERFORMANCE. THESE FORWARD-LOOKING STATEMENTS ARE SUBJECT TO CERTAIN RISKS AND UNCERTAINTIES, INCLUDING THOSE DISCUSSED IN "MANAGEMENT'S DISCUSSIONS AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS," BELOW THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM HISTORICAL RESULTS OR ANTICIPATED RESULTS. ITEM 1. BUSINESS THE COMPANY "We shape our tools, and thereafter our tools shape us." Marshall McLuhan, Understanding Media (1964) OMNIS Technology Corporation, a Delaware corporation (the "Company" or "OMNIS"), through its operating subsidiaries, OMNIS Software Inc., a California corporation, OMNIS Holdings Limited and OMNIS Software Limited, limited liability companies organized under the laws of England, and OMNIS Software GmbH, a German corporation, develops and markets software application development tools and related technical services. The main products developed and marketed by the Company are the OMNIS 7(3) client/server application development software group of products, and the more advanced OMNIS Studio rapid application development (RAD) tool. OMNIS Studio enables the independent or team-based developer to develop and deploy business applications for companies that access all leading server databases and ODBC-compliant databases. These products are used by independent developers, system integrators, value added resellers (VARs) and enterprises to deliver custom information management applications for a wide range of uses including financial management, decision support, executive information, sales and marketing, and multi-media authoring systems. In addition to these products, the Company provides technical support and training to assist its users in planning, analyzing, implementing and maintaining application software based on our proprietary technology. The Company is in the process of reducing the professional and technical services component of its business and is concentrating its efforts on the development and marketing of software products. The Company was incorporated under the laws of the State of Delaware on August 5, 1987 pursuant to a reorganization of predecessor companies originally incorporated under the laws of England in 1983. As used herein, the "Company" refers to OMNIS Technology Corporation and its consolidated subsidiaries. In the first quarter of fiscal year 1998, Blyth Software, Inc. changed its name to OMNIS Software Inc., Blyth Holdings Limited changed its name to OMNIS Holdings Limited, Blyth Software Limited changed its name to OMNIS Software Limited, and Blyth Software GmbH changed its name to OMNIS Software GmbH. In September 1997, the Company's stockholders approved a proposed change of the parent company's name from Blyth Holdings, Inc. to OMNIS Technology Corporation. In September 1997, the Company's stockholders approved a 1-for-10 reverse stock split of all the outstanding stock of the Company. All share and per share amounts herein reflect that stock split. In September 1998 the Company's stockholders approved an amendment to the Certificate of Incorporation of 3 4 the Company to increase the number of authorized shares of Common Stock of the Company from 4,000,000 shares to 20,000,000 shares. In December 1998 all of the then issued and outstanding shares of the Series A Preferred Stock of the Company was repurchased by the Company from Astoria Capital Partners, L.P. The Certificate of Amendment of the Certificate of Incorporation of the Company effectuating the increase of the number of authorized shares of Common Stock to 20,000,000 shares was filed with the Delaware Secretary of State on February 9, 1999. The Certificate Regarding Series A Preferred Stock of the Omnis Technology Corporation was filed with the Delaware Secretary of State on February 25, 1999, eliminating the class of Series A Preferred Stock then in effect. In March 1999 the Board of Directors of the Company authorized the issuance of 300,000 shares of a new Series A Convertible Preferred Stock. On March 31, 1999 the Company filed with the Secretary of State of Delaware a Certificate of Designations setting forth the rights, preferences and privileges of such stock. STOCK PLANS WARRANTS. Under the Company's 1993 Directors' Warrant Plan (the "Directors Plan"), warrants to purchase shares of common stock have been granted to outside directors. The Company originally reserved 40,000 shares of common stock for issuance under the Directors Plan. In September, 1998, stockholders of the Company amended the Directors Plan to increase the number of shares reserved for issuance to 300,000 shares. Under the Company's 1993 Advisors' Warrant Plan (the "Advisors Plan"), warrants to purchase shares of common stock have been granted to advisors; under the Advisors' Plan, such warrants terminated sixty (60) days after an advisor ceased to be an Advisor to the Company. The Company originally reserved 12,000 shares of common stock for issuance under the Advisors Plan. In September, 1998, stockholders of the Company amended the Advisors Plan to increase the number of shares reserved for issuance to 100,000 shares. In connection with the issuance of convertible debentures in 1995, 1996 and 1997, the Company granted certain additional warrants to purchase shares of common stock. The warrants expire at various dates between 1999 and 2002. STOCK PURCHASE PLAN. In 1994 the Company adopted its 1994 Employee Stock Purchase Plan (the "Purchase Plan") to allow its employees to purchase shares of the Company's common stock through payroll deductions under the Purchase Plan. The Company originally reserved 22,500 shares of common stock for issuance under the Purchase Plan. In September, 1997, stockholders of the Company amended the Purchase Plan to increase the number of shares reserved for issuance to 40,000 shares. In September, 1998, stockholders of the Company amended the Purchase Plan to increase the number of shares reserved for issuance to 250,000 shares. STOCK OPTION PLANS. The Company has employee stock options outstanding under three different stock option plans. Under the Company's Amended and Restated 1987 Stock Option Plan (the "1987 Plan"), incentive stock options to purchase shares of common stock were granted to directors, officers, key employees and consultants. The 1987 Plan had a ten year term which expired in 1997. Options granted and outstanding under the 1987 Plan remain in force until exercised by the holder, terminated as a result of the holder terminating employment, or the term expires or otherwise terminates under the terms of the 1987 Plan. In anticipation of the termination of the 1987 Plan, stockholders of the Company approved the 1996 Stock Option Plan (the "1996 Plan") for either non-qualified or incentive stock options. Generally options under the 1996 Plan vest over a four year period. The Company originally reserved 45,000 shares of common stock for issuance under the 1996 Plan. In September, 1997, stockholders of the Company 4 5 amended the Plan to increase the number of shares reserved for issuance to 130,000 shares. In September, 1998, stockholders of the Company amended the 1996 Plan to increase the number of shares reserved for issuance to 600,000 shares. In April 1999, the Board of Directors determined that it was in the best interests of the Company to adopt the Omnis Technology Corporation 1999 Stock Option Plan (the "1999 Plan") to consolidate options to be issued to directors, officers, key employees, consultants and advisors under a single option plan and to terminate the Directors Plan, the Advisors Plan and the 1996 Plan, except as to warrants and options then issued and outstanding under such plans. The 1999 Plan was adopted by the Board of Directors and 1,500,000 shares of the common stock of the Company were reserved for issuance under the 1999 Plan. The Board of Directors plans to present the 1999 Plan for approval to the stockholders of the Company at their 1999 annual meeting. Subject to the approval of the stockholders, in April 1999 the Company granted incentive stock options to its employees to acquire a total of 411,000 shares of the common stock of the Company at an exercise price of $1.02 per share, with the right to exercise such options vesting over a three-year period. RECENT DEVELOPMENTS Fiscal 1999 was a year of change and consolidation for OMNIS. At the beginning of the year the financial difficulties resulting from the losses incurred by the Company in fiscal year 1998 dictated a rigorous cost cutting policy. The Company's new management team has taken steps to improve the Company's cash flow through more aggressive marketing of its products; more focused research and development expenditures on products that have a shorter return or "payback" period; improvement of operational efficiencies; and a significant reduction in operating expenses. With these improvements the Company reduced cash used in operations from $6,180,000 in fiscal year 1998 to $2,514,000 in fiscal year 1999. At March 31, 1999, the Company had stockholders' equity of $1,262,000 and working capital of $390,000, both significant improvements over stockholders' deficit and negative working capital of $1,255,000 and $3,016,000, respectively, at March 31, 1998. In addition to the substantial reduction in operating expenses and refocused development and marketing efforts, the improved financial performance resulted principally from (1) substantial changes in the ownership and management of the Company; (2) the raising of $1.2 million to settle all past due claims of creditors and provide working capital; and (3) issuance of common and preferred stock in exchange for debt and accrued interest of $1.1 million. These changes, among others, resulted in the Company returning to profitability in the third and fourth quarters of fiscal 1999. The Company had formed a committee of its creditors (the "Creditor Committee") in February 1998 to structure a workout agreement pursuant to which the Company would repay its creditors over time, with the objective of avoiding further litigation or formal bankruptcy proceedings; and a workout agreement was entered into in June 1998. The Company began repayment to the creditors in the quarter ending September 30, 1998 and fully repaid such creditors by March 31, 1999. In October, 1997, the Company had raised $1 million in secured debt financing from Astoria Capital Partners, L.P. ("Astoria"), a significant stockholder of the Company, which was secured by substantially all of the assets of the Company. In April 1998, the Company also agreed to sell up to 126,000 shares of Series A preferred stock of the Company to Astoria at a price of $8.00 per share. Under the share purchase agreement Astoria had the right to purchase the shares at its option at any time prior to October 1, 1998. Under the agreement each share of preferred stock was convertible into 10 shares of common stock. Between April 1 and October 1, 1998, Astoria purchased a total of 124,564 shares of Series A Preferred Stock from the Company pursuant to the share purchase agreement. The proceeds from these purchases were used by the Company to fund its general operations. On December 31, 1998, the Company repurchased the 124,564 shares of Series A Preferred Stock from Astoria for an aggregate 5 6 purchase price of $100 (or $.0008 per share). The Certificate Regarding Series A Preferred Stock of the Omnis Technology Corporation was filed with the Delaware Secretary of State on February 25, 1999, eliminating the class of Series A Preferred Stock then in effect. In order to increase the capital of the Company to obtain additional working capital and to eliminate its principal indebtedness, on March 19, 1999 the Board of Directors of the Company authorized the issuance of 300,000 shares of a new Series A Convertible Preferred Stock (the "Preferred Shares") and 7,600,000 shares of common stock of the Company (the "Common Shares") (collectively the Preferred Shares and the Common Shares shall be referred to as the "Shares"). The Restated Articles of Incorporation of the Company vest in the Board of Directors the authority to issue such Shares. On March 31, 1999 the Company filed with the Secretary of State of Delaware a Certificate of Designations setting forth the rights, preferences and privileges of the new Preferred Stock. Pursuant to the terms of a Letter of Intent entered into by and between the subject parties as of February 22, 1999, on March 31, 1999 the Company entered into a series of stock purchase agreements with Astoria Capital Partners, L.P., Gwyneth Gibbs, president of the Company, and certain members of the Board of Directors or their affiliates. Under the terms of a stock purchase agreement with Astoria, the Company agreed to issue and Astoria agreed to purchase 300,000 Preferred Shares at a purchase price of $1.6667 per share for an aggregate Preferred Share purchase price of $500,000; and to purchase 2,543,344 Common Shares at a purchase price of $0.25 per share for an aggregate Common Share purchase price of $635,836 (collectively the "Astoria Shares"). The consideration for the Astoria Shares was the cancellation of the 1997 secured indebtedness of the Company to Astoria. The stock purchase agreement grants certain registration rights and rights of first refusal to Astoria. The Company also entered into a separate Common Stock Purchase Agreement with Astoria pursuant to which Astoria purchased an additional 1,000,000 Common Shares at a price of $0.25 per share for an aggregate cash purchase price of $250,000. The Common Stock Purchase Agreement also grants certain registration rights and rights of first refusal to Astoria. Pursuant to the terms of stock purchase agreements entered into with certain members of the Board of Directors, including Mrs. Gibbs (the "Board of Directors Agreements"), the Company also agreed to issue an additional 4,000,000 Common Shares in the aggregate at a price of $0.25 per share, for aggregate purchase price of $1,000,000. The Board of Directors Agreements do not grant any registration rights or rights of first refusal to the parties. These transactions were approved by the disinterested directors of the Company pursuant to Delaware law. The proceeds from the sale of the Common Shares to the Board of Directors was primarily used to satisfy the entire indebtedness owed to the Omnis Class 2 Creditors pursuant to the 1998 workout agreement previously entered into between the Company and such creditors. The $250,000 in proceeds from the sale of the 1,000,000 Common Shares to Astoria will be used for Company working capital purposes, primarily to enhance and expand its sales and marketing activities. The major sales and marketing event being currently planned for the Company is a significant presence at the Linux World exhibition in San Jose, California in August 1999. In April 1999, the Board of Directors adopted the Omnis Technology Corporation 1999 Stock Option Plan (the "1999 Plan") in order to consolidate options to be issued to directors, officers, key employees, consultants and advisors under a single option plan and to terminate prior stock plans. The 1999 Plan was adopted by the Board of Directors and 1,500,000 shares of the common stock of the Company were reserved for issuance under the Plan. The Board of Directors will present the 1999 Plan for approval to the stockholders of the Company at their annual meeting. Subject to stockholder approval, in April 1999 the Company granted incentive stock options to its employees to acquire a total of 411,000 shares of the common stock of the Company at an exercise price of $1.02 per share, with the right to exercise such options vesting over a three-year period. 6 7 KEY MANAGEMENT CHANGES During the first half of fiscal year 1998-1999, the Chief Financial Officer of the Company, Mr. Kenneth Holmes, held the position of interim Chief Executive Officer and Chairman of the Board. Mr. Holmes left the Company in October 1998 citing time constraints and to pursue other interests, and the then Vice President of Research and Development, Mrs. Gwyneth Gibbs, was appointed President and interim Chief Executive Officer. In January 1999 Mr. Kevin Doyle, the Vice President of Marketing, left the Company to pursue other interests. In July 1998 Mr. David Colby and Mr. William Konrad resigned from the Board of Directors stating time constraints with other business interests were too demanding to permit them to serve as active directors of the Company. At that time the Board of Directors appointed Mr. Philip Barrett, Mr. Gerald Chew, Mr. Douglas Marshall and Mr. Geoffrey Wagner to serve on as directors of the Company. Mr. Kenneth Holmes then resigned from the Board of Directors in October 1998 in connection with his departure from the Company. Mr. Richard Hanschen was appointed Chairman of the Board at that time. Mr. Hanschen then resigned as the Chairman of the Board and as a director of the Company in December 1998. At that time Mr. Philip Barrett was appointed Chairman of the Board. Mrs. Gwyneth Gibbs, the President and interim Chief Executive Officer of the Company, was appointed as an additional director of the Company in February 1999. The members of the Board of Directors of the Company as of March 31, 1999 and currently are Mr. Philip Barrett, Mr. Gerald Chew, Mrs. Gwyneth Gibbs, Mr. Douglas Marshall and Mr. Geoffrey Wagner. In February 1999 the Board of Directors appointed a Compensation Committee and an Audit Committee of the Board. The Compensation Committee is generally responsible for evaluating and recommending to the Board of Directors of the Company the granting of stock options to employees, including officers, and other eligible persons, and the setting of compensation for the executive officers of the Company. The executive officers of the Company have been delegated the responsibility of administering compensation programs (other than stock based) for the other employees of the Company, subject to overall budget review and approval by the Board of Directors. Messrs. Chew and Marshall are the members of the Compensation Committee. The Audit Committee is generally responsible for recommending engagement of the Company's independent public accountants and is generally responsible for approving the services performed by such independent public accountants and for reviewing and evaluating the Company's accounting principles and its system of internal accounting controls. Messrs. Barrett and Wagner are the members of the Audit Committee. On November 10, 1998 the independent public accounting firm of Deloitte & Touche LLP resigned as the independent public accountants of the Company. On March 15, 1999 the independent public accounting firm of Grant Thornton LLP, the United States member firm of Grant Thornton International, was engaged as the independent public accountants of the Company. During the 1999 fiscal year the law firm of Wilson, Sonsini, Goodrich & Rosati also withdrew as legal counsel for the Company. The law firm of Landels Ripley & Diamond, LLP of San Francisco has since been retained as general legal counsel for the Company; and the law firm of Finnegan, Henderson, Farabow, Garret & Dunner, LLP of Washington, D.C. and Palo Alto, California has been retained as patent counsel for the Company. 7 8 INDUSTRY BACKGROUND EVOLUTION OF CLIENT/SERVER COMPUTING The evolution of computing has been characterized by several distinct stages. In the 1970s, mainframe and minicomputer systems with character-oriented user terminals emerged as the principal structure for enterprise computing. This was followed in the 1980s by the introduction of personal computers and workstations which primarily addressed personal productivity applications such as word processing and spreadsheets. In the late 1980s local and enterprise-wide networks connecting these desktop systems became increasingly prevalent, initially for accessing file storage archives (file servers) and electronic mail communications. Building on this infrastructure, client/server computing emerged as an important new architecture for corporate computing in the early 1990s. In the client/server computing model, application software is divided into two components: a "client" handling functions such as the user interface, local data storage, manipulation and presentation, and a "server" handling tasks such as data management and access, storage, and retrieval for multiple clients. Generally the client software runs in a single-user desktop system, while the server operates utilizing a shared mainframe, minicomputer or workstation, and messages linking client and server are exchanged through connecting networks. In the last several years the Internet has become a new alternative for the dissemination and collection of information, with clients accessing data using applications known as "browsers". The adoption of the client/server model by large enterprises has created a strong market for application development tools to develop custom computer programs for use in internal client/server environments and across the Internet. The demand is to maximize the function and scalability of developed applications and their rapid deployment throughout the business, while at the same time reducing application development times and using finite software development resources. Software development tools based on object-oriented programming models are generally recognized as the most efficient solution to enterprise application development. Object-oriented programming languages aggregate functions and data into classes and objects. Object-based application development tools then provide a set of software components and libraries for the creation and storage and manipulation of objects in the relevant programming language. This structure enables re-use of the software in the development of other applications. By contrast traditional non-object or imperative mode programming models require the developer to "start from scratch" with each new application, which is extremely inefficient. The demand is also strong for "crossware" applications, or software applications that can operate across the Internet with a wide variety of systems or platforms (such as Windows, Windows NT, Macintosh and Linux), databases (such as Oracle, Informix and Sybase), object types built with standard and custom object languages, and component formats (such as Java Beans from JavaSoft and ActiveX from Microsoft Corporation). OMNIS STRATEGY AND PRODUCTS The Company's product strategy is to develop sophisticated crossware object-based application development tools to enable independent software developers and enterprises to build custom software applications that have the following features: - Integrate with existing systems and execute across a variety of platforms, databases and components. 8 9 - Extend the client/server model across the Internet. - Deliver superior object-oriented functionality at a lower cost than applications developed using other software development tools. - Develop reusable program components. Our goal is to maintain a high level of technological innovation and, through aggressive marketing and distribution, to significantly increase the number of software developers and enterprises using OMNIS products. The Company is a technology leader in the development and deployment of component engineering software. Its OMNIS 7(3) and OMNIS Studio product lines provide powerful tools for the prompt development and deployment of Internet and client/server applications for such markets as health care and pharmaceuticals, legal and administration, human resources and accounting, manufacturing, education and government. These products provide the capability to reuse software objects and to integrate objects from different programming languages. OMNIS 7(3) . OMNIS 7(3)(TM) has been the Company's main product line for a number of years and continues to be an important source of revenue. OMNIS 7(3) is a cross-platform application development tool for the development of form-based client/server applications. The OMNIS 7(3) programming language combines a 4GL (fourth generation object-oriented programming language) and its own "dot notation", a hierarchical language that permits the user to manipulate any object down to its individual attributes and events.(1) OMNIS 7(3) contains a proprietary set of plug-ins or Data Access Modules (DAMs) that provide access to all industry-leading databases, including Oracle(R), Sybase(R), DB2(R), and Informix(R), as well as most ODBC-compliant databases such as MS SQL Server(TM). From within one integrated design environment, the OMNIS SQL Browser enables access to different types of server database and moves objects and data from one database to another. In addition OMNIS 7(3) includes its own relational database that provides a secure data storage system for local database applications. The OMNIS Version Control System (VCS) and OMNIS Change Management System (CMS) provide format and library storage, version tracking, and application life-cycle support. OMNIS 7(3) applications can be deployed under Windows 3.1, Windows 95/98, NT, Power Macintosh and 68030 or 68040 Macs. The OMNIS Web Enabler SDK permits the application to be adapted to access information via the Internet using Internet Mail (SMTP/POP3) to send and receive e-mail; File Transfer Protocol (FTP) to exchange files with the Internet site and to integrate resources from several locations; HyperText Transfer Protocol (HTTP) to retrieve Web pages, and to respond to requests for HTML from browsers; Low-level Socket communications (TCP/IP) with other socket-based programs on a local network, intranet or the Internet; as well as the use of GIF and JPEG file formats. OMNIS 7(3) is currently available in two editions, the Workgroup and Enterprise editions. OMNIS 7(3) Workgroup includes the OMNIS relational database and the OMNIS Web Enabler SDK. OMNIS 7(3) Enterprise includes all of the components of the Workgroup plus the DAMs (to access any server database using the SQL Browser) and the OMNIS VCS. - --------------- (1) OMNIS is a registered trademark of OMNIS Software Limited. OMNIS Studio and OMNIS 7 are trademarks of OMNIS Technology Corporation. All other products or service names mentioned herein are trademarks of their respective owners. 9 10 The license fees for OMNIS 7(3) vary with the configuration of the product and have United States developer list prices ranging from $500 to $2,700, which are subject to change. OMNIS 7(3) applications can be deployed with data access services via the OMNIS 7(3) database or configured with data access services to leading databases (such as 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 7(3) generally range from $20 to $165 per user, subject to change, depending upon quantities purchased and the distribution channel involved. The Company intends to continue to maintain OMNIS 7(3) for the foreseeable future, but does not anticipate adding significant enhancements to the OMNIS 7(3) functions. In general the Company licenses OMNIS 7(3) only to existing OMNIS users desiring to upgrade to the latest version of OMNIS 7(3). OMNIS Studio is generally the appropriate application for new users. OMNIS STUDIO. OMNIS Studio(R) is the Company's premium product line and was the first commercially available application development tool that integrated ActiveX and Java Beans components. OMNIS Studio is an object-oriented rapid application development tool (RAD), offering efficient visual assembly of components and objects. OMNIS Studio has most of the functions of the OMNIS 7(3) product plus numerous new features and enhancements, including new classes and window objects, a new and more integrated design environment, a new set of design tools, and new object-oriented features and programming techniques. These improvements in OMNIS Studio generally result in a shorter learning curve, more-streamlined application development, and smoother deployment and maintenance of the software than OMNIS 7(3). OMNIS Studio currently provides cross-platform support for Windows95 and Windows98, Windows NT, Windows 3.1 and MacOS; local and portable data caching; a powerful code inspector; a report writer; a multiple-mode debugger; and support for localization and multi-lingual implementation. OMNIS Studio includes conversion facilities to assist in converting OMNIS 7(3) applications to OMNIS Studio; and the Company has recently introduced an additional conversion tool to encourage existing OMNIS 7(3) to change to OMNIS Studio. A Linux version of OMNIS Studio is being developed, with a beta version planned for July 1999 and a first release in September 1999. This will enable OMNIS developers to create and deliver their application in Linux environments in addition to existing platforms. No Linux version of OMNIS 7(3) will be developed. In addition certain of the external components of OMNIS Studio are presently available in open source format to provide working examples for developers interested in programming their own components for use with OMNIS Studio. The OMNIS Studio Web Client was announced in late 1998 and released in April 1999. The OMNIS Studio Web Client(TM) is designed to use object-oriented programming for the development of Internet based forms, using drag and drop and wizards, and can include controls like dropdown lists, tabs and sidebars to ease navigation through the solution in a web browser. With this program OMNIS applications can be viewed on the Internet using a standard web browser, such as newer versions of Microsoft Internet Explorer or Netscape Navigator. The server application is developed using standard OMNIS technology and runs a proprietary OMNIS engine that is located between the web server and the database. The license fees for OMNIS Studio depend on the level of technical support chosen. The current United States developer list price is $1,499 and is subject to change. When customers deploy an OMNIS application a deployment license is required for each end-user. The global list prices for the deployment licenses of OMNIS Studio generally range from $20 to $165 per user, subject to change, depending upon quantities purchased and the distribution channel involved. In the case of applications delivered for Internet or Intranet deployment, using the OMNIS Web Client technologies, the license is on a per concurrent end-user basis. 10 11 YEAR 2000 COMPLIANCE Many existing computer programs use only two digits to define the applicable year in a date field. These programs were designed without considering the impact of the upcoming change in the century. If not corrected, many computer applications could fail or create erroneous results by or at the year 2000. Year 2000 compliance means that neither performance nor functionality of a computer system is affected by dates prior to, during or after the Year 2000. In particular (i) no value for current date will cause any interruption in operation; (ii) date based functionality must operate consistently for dates prior to, during and after Year 2000; (iii) in all interfaces and data storage, the century in any date must be specified explicitly or by unambiguous algorithm or inferencing rules wherever possible; and (iv) Year 2000 must be recognized as a leap year. The Company only certifies the latest versions of the OMNIS 7 and OMNIS Studio product lines, which are OMNIS 7(3) version 7.0 and above and OMNIS Studio 2.0 and above, as Year 2000 compliant as herein defined. All new versions of OMNIS products will be tested to ensure continued compliance. Earlier versions of OMNIS 7(3) and OMNIS Studio will store date data correctly, but may fail on some date calculations under certain circumstances, some of which involve the year 2000. OMNIS users have been advised of this issue and the Company provides for the downloading of the latest version of the date functions applicable to the particular platform. Provided that developers use the current version of OMNIS 7(3) or OMNIS Studio in the manner designed they will generate Year 2000 compliant OMNIS applications. It must be noted that both OMNIS Studio and OMNIS 7(3) provide a programming interface to other programs and external functions written by external developers and can access data stored in a remote databases. In all cases the date data passed to the remote database from the OMNIS storage contains the full 4 character year representation. However the Company cannot be responsible for compliance within individual applications written by external applications developers. The Company also does not accept any responsibility for Year 2000 compliance with respect to any hardware on which its products are used or any other software, including but not limited to operating system software, server databases, data file systems and other software utilities. The Company believes it has designed its current products to effectively handle the Year 2000 issue. The majority of the Company's internal applications were built using OMNIS products which the Company believes are Year 2000 compliant. Therefore, the Company believes that it has substantially mitigated its risks on the Year 2000 issue with its internal applications. The Company is in the process of completing the testing and assessment of Year 2000 compliance for all third party hardware and software and non-information technology (IT) systems used by the Company. The Company expects to have such testing and assessment completed no later than October 31, 1999. The Company will upgrade or replace all third party hardware or software and non IT systems in use that are not compliant. The Company intends to establish, but has not yet established, a contingency plan detailing actions that will be taken in the event that any such upgrade or replacement is not compliant or that the assessment of the Year 2000 issue is not successfully completed on a timely basis. The internal costs of such Year 2000 compliance is not known at this time. There can be no assurance that the Company is or will be fully Year 2000 compliant or that Year 2000 compliance issues will not arise with respect to products furnished by third party manufacturers, the Company's own products, or suppliers that may result in unforeseen costs or delays to the Company and therefore have a material adverse effect on the Company. SALES, MARKETING AND DISTRIBUTION SALES The Company licenses its products to independent developers, value added resellers (VARs), system integrators, and the internal development staffs of enterprises that develop and deploy custom computer applications for a wide range of uses including financial management, decision support, 11 12 executive information, sales and marketing, and multi-media authoring systems. The primary focus of the Company's sales and marketing efforts are independent developers of commercial or custom computer programs for third parties. The introduction of the OMNIS Studio Web Client technology in April 1999, and the anticipated release later this year of a Linux version of OMNIS Studio are expected to attract new customers. The Company sells its products in North America primarily through account representatives who pursue leads generated by the Company's marketing department and respond to incoming calls from current and new customers. All North American account representative personnel are located at the corporate offices in San Carlos, California. The Company also sells its products in Europe primarily through a direct sales force operating from sales offices in the United Kingdom, Germany, Scandinavia, and Benelux. The Company has plans to expand sales growth by making additional sales to its current customer base and increasing the number of new customers. An important part of the Company's growth strategy is to widen market penetration and sales through VARs, service providers and other partnerships. Because applications developed by these partners require users of the applications to purchase deployment licenses from the Company, the Company intends to develop additional revenue by encouraging these partners to expand their development efforts using the Company's software development tools. INTERNATIONAL DISTRIBUTION The Company has non-exclusive distributor relationships in a number of countries as well as an exclusive distribution relationship in France. All of the Company's distributors provide primary customer service and support for their markets. The Company increased its distributor network in 1998 with the appointment of distributors in Greece and South Africa, and is in the process of extending this distributor network to access additional international markets. Distributors in Latin America and in the Pacific Rim are managed from the San Carlos, California office, while distributors in Europe, Middle East and Africa are managed from the United Kingdom office. The Company has committed and continues to commit significant management time and financial resources to developing direct and indirect international sales and support channels. There can be no assurance however that the Company will be able to maintain or increase international market demand for its products. To the extent that the Company is unable to do so in a timely manner, the Company's international sales will be limited, and the Company's business operating results and financial condition could be materially and adversely affected. International operations are subject to inherent risks, including 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 the Company or its distributors or resellers will be able to sustain or increase international revenues from licenses or related technical services, or that the foregoing factors will not have a material adverse effect on the Company's future international revenues and consequently on the Company's business, operating results and financial condition. 12 13 MARKETING In support of its sales efforts, the Company conducts numerous marketing programs including public relations efforts, trade conferences, seminars, direct mail campaigns, and direct customer communications. The Company conducts user conferences in the United States, the United Kingdom, and Germany and periodically conducts meetings with customer groups to obtain direct feedback of customers' needs. The Company also provides a variety of collateral marketing materials and demonstration applications to stimulate customer interest. TECHNICAL SUPPORT SERVICES The Company also provides levels of technical support and product training for its customers. Registered users of the Company's products can purchase an annual comprehensive subscription service to obtain maintenance releases and associated technical support and documentation. Other services under this program include telephone technical support during regular business hours, applications notes, and access to an electronic bulletin board where users can exchange development ideas and commentary. The customer resource library provides in-depth analyses of specific product features, example code, programming short cuts, and optimization techniques. The Company's technical support team, comprised of experienced OMNIS developers, focuses on problem solving and resolution in networking, connectivity, security and other technical issues. Technical support representatives are regularly trained in basic and advanced uses of OMNIS products. The Company operates the technical support function through a consolidated database, combining customer information from the United States, United Kingdom, and German support center databases into single database structure. The global support strategy includes a worldwide support center in the United Kingdom, which supports the Company's United States, Canadian and United Kingdom customers and certain of the foreign distributors of the Company. A support center in Germany provides support for the Company's direct customers in Europe and the Company's European based distributors. The Company provides technical information and support via its Website to better provide technical support to its customers. The Company is in the process of reducing the professional development and technical services component of its operations relative to its efforts to develop and market software products. CUSTOMERS The Company has customers in a wide range of industries, including financial services, pharmaceuticals, manufacturing, telecommunications, aerospace, defense and education. In fiscal year 1999 no customer accounted for more than 10% of total net revenues. As is the case with many companies in the software industry, the Company generally ships product as orders are received. As a result the Company has historically operated with little backlog. Because of this short cycle between receipt of an order and shipment, the Company does not believe that its backlog as of any particular date is material. The Company's products are designed to enable the development of applications which operate in traditional client/server environments as well as across the Internet. Some of the Company's customers purchase copies of the Company's products for evaluation purposes. There can be no assurance that these customers will broadly implement new projects or that they will purchase additional products from the Company. The Company's future financial performance will depend on the growth of the Company's sector of the computing market and on its ability to compete effectively in this market. There can be no assurance that this market will continue to grow or that the Company will be able to respond effectively to customer requirements and competitive offerings in this market. 13 14 As these markets evolve, the Company anticipates that competition is likely to increase from both existing and future market participants, most of whom are larger companies and have greater financial, technical, marketing, sales and distribution resources and a larger installed base of customers than the Company. Moreover, if such competition were to enter the Company's market, it might be required to increase defensive measures to maintain its position in these target markets. This increased effort could adversely affect operating results due to increased marketing programs, price declines, longer sales cycles, and increased product development expenses, among other matters. There can be no assurance that the Company could compete effectively with such new products. PRODUCT DEVELOPMENT Since its inception in the United Kingdom, the Company has benefited from having a global perspective in terms of customers, technological perspective, and product development. Since 1985 the Company's corporate research and development facilities have been based in England. The Company believes that developing new products is best accomplished with a cross-disciplinary approach, combining the talents and perspectives of a multi-faceted virtual development team that includes developers, customers, VARs, sales and marketing, quality assurance, and technical service representation. In the course of planning products, the Company's product development team filters industry trends, ideas from customers and potential customers, partners and potential partners, feedback from the Company's own sales, marketing, technical support staffs, and general business information and then analyzes the potential risks and benefits of pursuing a given strategy. The software industry is characterized by rapid technological advances, frequent new product introductions, rapid enhancements of existing products through new releases, and changing customer requirements. The future success of the Company will largely depend on its ability to enhance its current products and to successfully develop new products which keep pace with technology trends, competitive offerings and evolving customer requirements. In particular the Company believes it must continue to enhance the basic functionality of its products and extend the product line to keep pace with the leading advances in hardware, operating systems, programming languages, databases, and Internet-related technologies. Any failure of the Company to anticipate new technology developments and customer needs or any significant delays in product development and introduction could result in a loss of competitiveness and revenues. Because of the complexity of software products, new product introductions may contain undetected software errors that, notwithstanding quality assurance testing by the Company, are discovered only after a product has been installed and used by customers. Although the Company has not experienced any material adverse effects from such errors to date, there can be no assurance that errors will not be discovered in the future which would cause delays in shipments, loss of revenues or require significant design changes that could adversely affect the Company's competitive position and operating results. There can be no assurance that any of the Company's product development efforts will lead to a commercially viable product, and the Company is unable to predict whether or when proposed new products, product enhancements, or product extensions might be released or whether, when released, such products will achieve market acceptance. The Company markets its products to customers for the development, deployment, and management of client/server applications. The Company's license agreements with its customers typically contain provisions designed to limit the Company's exposure to potential product liability claims. It is possible however that the limitation of liability provisions contained in the Company's license agreements may not be enforceable as a result of existing or future laws or ordinances or unfavorable judicial decisions in the applicable jurisdiction. Although the Company has not experienced any product liability claims to date, the sale and support of its products by the Company inherently includes the risk of such claims, which if made are likely to be substantial in light of the use of its products in business-critical applications. A successful product liability claim brought against the Company could have a material adverse effect upon the Company's business, operating results, and financial condition. 14 15 COMPETITION The applications development tools software market is rapidly changing and intensely competitive. The Company currently encounters competition from several direct competitors, including Sybase Corporation, Forte Software Inc., Magic Software Enterprises and Centura Software Corporation (formerly Gupta Corporation). In addition, the Company competes indirectly with several other companies. These include (i) the relational database vendors, such as Oracle Corporation and Informix Software, Inc., who provide application development tools primarily for customers who use their database technology; (ii) 4GL application tools vendors such as Progress Software Corporation and Cognoscente Software International Incorporated; (iii) CASE tools vendors such as Knowledgeware Inc. and Intersolv Inc.; (iv) shrink-wrap database software suppliers such as Lotus, Delphi, and ACIUS; and (v) developers in Java as competition for the OMNIS web client technology. The Company believes that its ability to compete depends on factors both within and outside its control, including the timing and success of new products developed by the Company and its competitors, product performance and price, distribution, and customer support. There can be no assurance that the Company will be able to compete successfully with respect to these factors. In particular, competitive pressures from existing and new competitors who offer lower prices or introduce new products, including "native" products that fully utilize the capabilities of a particular operating platform, could result in delays in purchase decisions by or loss of sales to potential customers or cause the Company to institute price reductions, any of which would adversely affect the Company's results of operations. In particular, software licenses which permit developers to develop configurable applications and deliver those applications to end-users, have been and may continue to be subject to significant pricing pressures which could have an adverse effect on the Company's business and results of operations. There can be no assurance that the Company will be able to maintain its price structure or that entry of future competitors in the Company's current market will not result in pricing pressures in the future. Additional competitive factors influencing the market for the Company's products include product functionality and features, platforms, performance, vendor and product reputation, product and service quality. These items may also result in market confusion, delays in purchases, intensified competition, price restructuring, or price reductions. The Company believes that the broad functionality of its products, including its cross platform capability and its important features for group development, application deployment and maintenance has enabled the Company to compete effectively to date, particularly for professional development environments in major enterprises. As the market evolves, the Company anticipates that competition is likely to increase from both existing and future market participants, most of whom are larger companies and have greater financial, technical, marketing, sales and distribution resources and a larger installed base of customers than the Company. Moreover, as competition continues to enter the crossware market which is the principal market in which the Company participates, the Company might be required to increase defensive measures to maintain its position in these target markets. This increased effort could adversely affect operating results due to increased marketing programs, price declines, longer sales cycles, and increased product development expenses among other matters. There can be no assurance that the Company could compete effectively with such new products. INTELLECTUAL PROPERTIES AND OTHER PROPRIETARY RIGHTS 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. Omnis(R) is a United States registered trademark of OMNIS Software Limited (formerly Blythe Software Limited), a subsidiary of OMNIS Technology Corporation. Omnis Studio and OMNIS 7 are trademarks of OMNIS 15 16 Technology Corporation. In addition to trademark and copyright protections, the Company licenses its products to end users on a "right to use" basis pursuant to a perpetual license agreement that restricts use of products to a specified number of users. The Company generally relies on shrink-wrap licenses which become effective when a customer opens the package. Because they are not negotiated with or signed by the licensees, in order to retain exclusive ownership rights to its software and technology, the Company generally provides its software in object code only, with contractual restrictions on copying, disclosure and transferability. There can be no assurance that these protections will be adequate, or that the Company's competitors will not independently develop technologies that are substantially equivalent or superior to the Company's technologies. Copyright and other protection for intellectual property may be unavailable or restricted in certain foreign countries. In addition, shrink-wrap licenses may be unenforceable under the laws of certain jurisdictions. Nevertheless, the Company believes that its copyright and license protections are important. However, because of the rapid pace of technological change in the computer software industry, factors such as the product knowledge, ability, and experience of the Company's personnel, brand name recognition, customer support, and ongoing product maintenance and enhancement may be more significant in maintaining the Company's competitive advantage. The Company is in the process of preparing appropriate patent applications for certain of its Studio Web Client and other technologies. At this time the Company has not filed any final patent applications and has not been granted any patents on any of its proprietary technologies and there is no assurance that any such patents will be granted. Patent protection may become important in the protection of the commercial viability of the Company's innovative products and the failure to obtain such patent protection could have an adverse effect on the commercial viability of such products. The Company's success therefore may in part depend on its ability to obtain strong patent protection or licenses to strong patents in the future. It is not possible to anticipate the breadth or degree of protection that patents would afford any product of the Company or the underlying technologies. There can be no assurance that any patents issued or licensed to the Company will not be successfully challenged in the future or that any OMNIS product will not infringe the patents of third parties. The level of research and development efforts in areas related to the OMNIS products makes it possible that third parties will obtain patents or other proprietary rights that may be necessary or useful to its products. In recent years the practice of applying for and issuing software patents in the United States and other jurisdictions has accelerated and the scope and validity of such patents are frequently in dispute. In cases where third parties are the first to invent a particular product or technology, it is possible that such parties would obtain patents that would be sufficiently broad to prevent the Company from marketing the same or similar products. Although the Company is not presently aware that any patents necessary to its products have been issued for which licenses are not available to the Company, it is possible that applications for such patents have been made or that such patents have been issued. The scope and validity of such patents, if issued, the extent to which the Company may desire or need to obtain licenses under such patents, and the cost and availability of such licenses are currently unknown. There can be no assurance others may not independently develop or obtain technology similar to that of the Company. 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 expensive litigation or royalty arrangements. If required, such royalty arrangements may not be available on reasonable terms, or at all. The Company is currently involved in litigation related to copyright infringement. See Item 3, "Legal Proceedings". 16 17 PRODUCTION The Company uses subcontractors in the United Kingdom to perform its manufacturing operations, which include duplication and preparation of software media, documentation, and packaging. The principal materials used in the manufacture of the Company's products are CD-ROMs, boxes, binders, and multicolor printed materials which the Company obtains from its manufacturers. The Company utilizes certain of its distributors in some international markets to localize the products, including conversion of the product and product documentation to native languages, where necessary. The production of the resulting localized product is then handled by the distributor for that market. The Company requires that quality control tests be performed on all duplicated disks and finished products. Quality control personnel work in the United Kingdom operation to help ensure product quality. The Company produces software and documentation based upon forecasts of monthly sales. EMPLOYEES At June 24, 1999, the Company had 37 employees, including 14 in product development, 9 in sales and marketing, 7 in customer support and consulting, and 7 in finance and administration. Of these 37 employees, 31 employees are based in Europe, and 6 are located in the United States. The Company's employees are not represented by any collective bargaining organization, and the Company has never experienced a work stoppage. Further, the Company believes its relationships with its employees are good. The Company's success depends to a significant extent upon a number of key management and technical personnel, the loss of one or more of whom could adversely affect its business. In addition the Company believes that its future success will depend to a significant extent on its ability to recruit, hire and retain highly skilled management and employees for product development, sales, marketing, and customer service. Competition for such personnel in the software industry is intense, and there can be no assurance that the Company will be successful in attracting and retaining such personnel. EXECUTIVE OFFICERS OF THE REGISTRANT The following sets forth certain information regarding the executive officers of the Company as of June 24, 1999:
Name Age Position - ---- --- -------- Philip Barrett 43 Chairman of the Board Gwyneth Gibbs 55 President and interim Chief Executive Officer Geoffrey Wagner 42 Secretary David R. Seaman 46 Chief Technical Officer Larry A. Barcot 50 Vice President, North American Sales Matthew R. Simmons 25 Vice President, North American Operations
17 18 Mr. Barrett was appointed Chairman of the Company in February 1999. He is the former President and owner of Oregon Pro Sport, a company that manages professional sports teams including the Cascade Surge. Oregon Pro Sport was founded by Mr. Barrett in January 1995 and sold in November 1998. Prior to that time Mr. Barrett was the President and a partial owner of Supra Products, Inc. Mr. Barrett commenced his employment with Supra Products, Inc. in September 1984 and worked in the sales, finance and marketing divisions of that company until he became its President and partial owner in 1992. Supra Products was sold in September 1994 to Berwind Industries, Inc. Ms. Gibbs was appointed President and interim Chief Executive Officer of the Company in October 1998, and was elected to the Board of Directors in February 1999. She joined the Company in October 1994, was initially responsible for Research and Development in Europe and subsequently was assigned worldwide responsibility for Research and Development in January 1998. Prior to joining the Company, Mrs. Gibbs was Technical Director of an intelligent database start-up for 6 years, and before that held a number of positions in UK development organizations. Mr. Wagner was appointed Secretary of the Company in February 1999. He is currently the General Partner of Rockport Group L.P. In September 1990 Mr. Wagner co-founded the Rockport Group L.P. and has been a General Partner since its inception. Rockport Group, L.P. invests its capital in a variety of industries, including technology, healthcare and apparel. Prior to 1990 Mr. Wagner held sales executive positions at several leading Wall Street firms including five years at Bear, Stearns & Co., Inc. and five years at Kidder, Peabody & Co., Inc. Mr. Seaman is the Chief Technical Officer of the Company. He has served as a Vice President of the Company since June 1990 and has served as Research and Development Director since June 1982. He served as Managing Director of Blyth Software, Ltd. (now OMNIS Software Ltd.) from September of 1990 until June of 1993. Mr. Barcot is the Vice President of North American Sales and has served in this position since April 1998. Mr. Barcot had been involved in the technology industry since 1976. Since 1984, Mr. Barcot has provided consulting and software development services for companies on an international basis with the majority of software development projects completed using tools from OMNIS Software. Mr. Simmons is the Vice President of North American Operations and has served in this position since January 1999. He joined the Company in August 1995, and has held a variety of positions within the UK Sales and Marketing division. Prior to joining the Company, Mr. Simmons worked for a Rapid Application Development tool vendor for 18 months. ITEM 2. PROPERTIES During the initial part of fiscal year 1999 the Company had leased approximately 22,178 square feet of office space in San Bruno, California under a lease which expired in May 2002 and had base monthly rental payments of $58,772 plus a percentage of operating costs and property taxes. The base monthly rent increased to $60,990 per month during 1998. The Company negotiated a termination of this lease in August 1998 and now occupies 3,800 square feet of office space in San Carlos, California under a lease which expires on August 31, 2000 and has a base monthly rent of $7,440. The Company owns property in the United Kingdom which it uses for its research and development. The Company also leased 2,738 square feet of office space for its European sales headquarters office in Bracknell, England. The lease, which expired in February 2001, had monthly rental 18 19 payments of $4,997 plus $2,096 for common area maintenance. The Company has agreed an early termination of this lease with the landlord and moved on June 15, 1999 to new offices near Watford, England. This will result in substantial savings on rent and service charges over a full year. The Company also leases 2,370 square feet of office space (formerly its London sales office) in London, England. The lease, which expires on November 1, 2012, has monthly rental payments of $3,820. During the year, the Company sublet all of the London office space for which it has been receiving a rental of $2,216 per month plus 100% reimbursement for common area maintenance. As a result of a rent review, this has been increased to $3,820 per month, backdated to November 1997. The sublease terminates on December 25, 1999. The Company leases property in Germany which it uses as a sales office. The space is 457 square meters and has monthly rental payments of $6,678. The lease will expire May 14, 2007, with a Company option to terminate the lease in May 2002. The Company believes that these facilities are more than adequate to meet its requirements for fiscal year 2000. All of the foregoing rental obligations are in the local currency but for these purposes are stated in United States Dollars as of March 31, 1999. ITEM 3. LEGAL PROCEEDINGS LITIGATION COMPASS ACTIONS. 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 believes that the Compass' copyright infringement suit has no merit and has vigorously defended against those claims. 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 current infringement suit brought by Compass ("Execution Sale"). Compass then requested the applicable court to set aside the Execution Sale. The court granted the request and the Company has appeal this judgment. The appeal has been briefed and is awaiting a date for oral argument. The Company has also filed an separate lawsuit against Compass alleging additional acts of infringement related to the 1994 case. BTN - GERMANY. The Company entered into a professional development services agreement with BTN Versandhandel GmbH of Leiferde, Germany for the development of an OMNIS application. The Company developed and delivered a version of the application to BTN. BTN failed to pay the Company as agreed, claiming there were flaws in the application and the project was suspended by the Company awaiting their payment. BTN commenced legal action against the Company in Germany claiming damages of approximately DM250,000 for failure to perform under the services agreement. The Company has countersued BTN claiming the balance owed under the contract of approximately DM60,000. The Company believes that the claim by BTN is meritless and intends to aggressively pursue its counterclaim against BTN. 19 20 CREDITORS As a result of the losses and negative cash flows incurred by the Company in fiscal year 1998, the Company was unable to meet its obligations. The Company negotiated with a group of its creditors to structure a workout agreement pursuant to which the Company would repay the creditors over time, thereby possibly avoiding further litigation and collection activities or formal bankruptcy proceedings. The workout plan was agreed to by this group of creditors and was approved on June 19 1998. The Company began repayment to customers in the quarter ending September 1998. All these creditors were paid off in full at the end of March 1999. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters have been submitted during the fourth quarter of fiscal year 1999 covered by this report to the stockholders of the Company, through the solicitation of proxies of otherwise. PART II ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS In February 1998, The Nasdaq Stock Exchange de-listed the Company from the Nasdaq SmallCap Market. The Company's Common Stock is currently traded on the Nasdaq Bulletin Board ("BB") under the symbol "OMNS". It is not known at this time when or if the Company will be re-listed on the Nasdaq SmallCap Market. The following table sets forth the high and low closing prices for the Company's Common Stock for fiscal years 1998 and 1999, as adjusted for the 1 for 10 reverse stock split of the Company's common stock in September 1997:
HIGH LOW FISCAL YEAR 1998 CLOSING CLOSING - ---------------- ------- ------- April 1 to June 30, 1997 $11.880 $4.690 July 1 to September 30, 1997 $11.250 $6.250 October 1 to December 31, 1997 $ 6.500 $0.500 January 1 to March 31, 1998 $ 0.875 $0.313 HIGH LOW FISCAL YEAR 1999 CLOSING CLOSING - ---------------- ------- ------- April 1 to June 30, 1998 $ 0.906 $0.587 July 1 to September 30, 1998 $ 0.906 $0.375 October 1 to December 31, 1998 $ 0.562 $0.187 January 1 to March 31, 1999 $ 0.375 $0.100
On July 1, 1999, the closing price for the Company's Common Stock on the Nasdaq Bulletin Board was $2.25 and there were approximately 143 holders of record of the Company's Common Stock. This does not include stockholders whose Common Stock is held in street name. 20 21 The Company has never declared or paid dividends on its Common Stock. The Company intends to retain earnings, if any, for the operation and expansion of the Company's business, and therefore does not anticipate paying any cash dividends in the foreseeable future. See Item 6 - "Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources." ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW The Company through its subsidiaries develops and markets software application development tools and related technical services. The main products developed and marketed by the Company are the OMNIS 7(3) client/server application development software group of products, and the more advanced OMNIS Studio rapid application development (RAD) tools. OMNIS Studio enables the independent or team-based developer to develop and deploy business applications for companies that access all leading server databases, including Oracle(R), Sybase(R), DB2(R), and Informix(R), as well as all ODBC-compliant databases, such as MS SQL Server(TM). These products are used by independent developers, systems integrators, value-added resellers (VARs) and internal development staffs of enterprises to deliver custom computer applications for a wide range of uses including financial management, decision support, executive information, sales and marketing, and multi-media authoring systems. In addition to these products, the Company provides technical support and training to assist its users in planning, analyzing, implementing and maintaining application software based on the our proprietary technology. The Company is in the process of reducing the technical services component of its business and is concentrating its efforts on the development and marketing of software products. Management's Discussion and Analysis of Financial Condition and Results of Operations, as well as other portions of this document, include certain forward-looking statements about the Company's business and new products, revenues, expenditures and operating and capital requirements. In addition, forward-looking statements may be included in various other Company documents to be issued concurrently or in the future and in oral or other statements made by representatives of the Company to investors and others from time to time. Forward-looking statements are subject to risks and uncertainties that could cause actual results to differ from predicted results. Such risks include, among others, the Company's continuing liquidity problems, significant variability in operating results, including variability in product revenues and gross margins, fluctuating demand for new and established products, dependence on development of new products, increasing expenses for marketing and development of new products, historical lack of profitability, rapid technological change that affects the ability of the Company to respond to customer or market demands, risks associated with global operations, the continued and future acceptance of the Company's products, the rate of growth in the industries of the Company's products, the presence of competitors with greater technical, marketing and financial resources, and the ability of the Company to successfully expand its operations. Any of such statements and the following discussion should be read in conjunction with the "RISK FACTORS" section below and the Company's audited consolidated financial statements, including the notes thereto, included in this annual report. RESULTS OF OPERATIONS The following table sets forth, as a percentage of revenues, certain consolidated statement of operations data for the periods indicated (subtotals not adjusted for rounding): 21 22 Percent Of Total Net Revenues:
Fiscal Year Ended March 31 -------------------------- 1999 1998 ---- ---- Net revenues: Product 73% 53% Services 27 47 ---- ---- Total net revenues 100 100 Operating expenses: Cost of product 6 6 Cost of services 6 39 Selling and marketing 34 84 Research and development 24 36 General and administrative 39 38 ---- ---- Total operating expenses 109 204 Operating loss (9) (104) Other income (expense), net (6) (1) ---- ---- Net loss (15%) (105%) ---- ---- ---- ---- Gross margins: Gross margin on product revenues 67% 88% Gross margin on service revenues 21% 18%
TOTAL NET REVENUES. Total net revenues decreased 26% to $5.9 million in fiscal year 1999 from $8 million in fiscal year 1998. International revenues, accounted for 58% and 39% of total net revenues in fiscal years 1999 and 1998, respectively. See Note 12 of the Notes to Consolidated Financial Statements. This decrease in net revenues resulted from a planned reduction in professional consulting and other technical services provided by the Company and were offset to a limited degree by an increase in software product licensing revenues. The Company's revenues are derived from two sources: fees from software product licensing and fees for professional services, including consulting, training, maintenance, and product support. Product revenues increased 1% to $4.3 million in fiscal year 1999 from $4.2 million in fiscal year 1998. Service revenues decreased 58% to $1.6 million in fiscal 1999 from $3.8 million in fiscal year 1998. The decrease in service revenues in fiscal year 1999 as compared to fiscal year 1998 was due to a planned reduction of the provision of consulting services to third parties. In fiscal years 1999 and 1998, no customer accounted for more than 10% of total revenues. The Company sells its products in United States Dollars in North America, British Pounds Sterling in the United Kingdom and German Deutsche Marks in Germany. Because the Company recognizes revenues and expenses in United States Dollars, British Pounds Sterling, and German Deutsche Marks but reports its financial results in United States Dollars, changes in exchange rates may cause variances in the 35 23 Company's period-to-period revenues and results of operations in future periods. Foreign exchange gains and losses have not been material to the Company's performance to date. COST OF PRODUCT REVENUES. Cost of product revenues is comprised of direct costs associated with software product sales including software packaging, documentation, and physical media costs. Cost of product revenues as a percentage of product revenues was 8% in fiscal year 1999 as compared to 12% in fiscal year 1998. The decrease in cost as a percentage of total net revenues was mainly due to decrease in the number of employees in the production department. COST OF SERVICES REVENUES. Cost of services revenues includes consulting, technical support, maintenance services, and training, which consist primarily of personnel costs. Cost of services revenues as a percentage of net service revenues decreased to 22% in fiscal year 1999 from 82% in fiscal year 1998. The decrease in cost of services revenues as a percentage of services revenues in fiscal 1999 as compared to fiscal years 1998 was primarily due to the planned reduction in consulting services in year 1999. SELLING AND MARKETING EXPENSES. Selling and marketing expenses decreased to $2.0 million in fiscal year 1999 from $6.7 million in fiscal year 1998, representing 34% and 84% of total net revenues during such periods, respectively. The decrease in selling and marketing was primarily due to significant decreases in the number of Company employee and consultant costs in the Company's marketing group at the end of 1998. The Company had refocused its sales and marketing department in an attempt to generate revenues related to its new OMNIS Studio product line, including an increased trade show presence, additional advertising and marketing collateral generation, and an increased market awareness campaign. The Company is no longer following this increased marketing campaign and expects selling and marketing expenses to remain significantly lower in future periods. RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses decreased to $1.4 million in fiscal year 1999 from $2.8 million in 1998, due to the consolidation of the Company's world-wide research and development activities into its development facility in England during 1998. Costs for the development of new software products and substantial enhancements to existing software products are expensed as incurred until technological feasibility has been established, at which time any additional costs would be capitalized in accordance with SFAS 86 then in force. The Company did not capitalize any research and development costs in fiscal year 1999 or 1998 because the Company believes its current process for developing software is essentially completed concurrently with the establishment of technological feasibility (as defined by SFAS 86). At the end of fiscal year 1997, the Company had fully amortized the previously capitalized internal software development costs and no such costs were recognized during fiscal years 1998 or 1999. GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses decreased to $2.3 million in fiscal year 1999 from $3.1 million in fiscal year 1998. These decreases are related to stringent cost controls and other cost conservation methods introduced during fiscal year 1998 and continued in fiscal year 1999. OTHER INCOME (EXPENSE), NET. Other income (expense) is primarily comprised of interest income, interest expense, gains and losses on foreign currency transactions, and other income. Interest income reflects earnings from the Company's cash position. Interest expense primarily relates to the Company's $1 million note payable and capital leases. Interest expense was $249,000 in fiscal year 1999 and $146,000 in fiscal year 1998. INCOME TAX EXPENSE. Income tax expense was $4,000 in fiscal year 1999, compared to $17,000 in fiscal year 1998. At March 31, 1999, the Company had net operating loss carry forwards of approximately $37.6 million for federal income tax purposes, $8.6 million for state tax purposes and $5.9 million for foreign taxes. The Tax Reform Act of 1986, as amended, and the California Conformity Act of 23 24 1987 impose substantial restrictions on the utilization of net operating loss and tax credit carry forwards in the event of an "ownership change," as defined by the Internal Revenue Code. In fiscal year 1999 an "ownership change" of the Company occurred for purposes of these rules; and the Company therefore is limited to approximately $146,000 per year of federal and California net operating loss carry forwards accrued through that date (a total of $2.9 million federal and $0.7 million for California tax purposes). INFLATION. The Company believes that inflation has not had a material impact on the Company's operating results to date and does not expect inflation to have a material impact on the Company's operating results in fiscal year 2000. LITIGATION. COMPASS ACTIONS. 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 believes that the Compass' copyright infringement suit has no merit and has vigorously defended against those claims. 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 current infringement suit brought by Compass ("Execution Sale"). Compass then requested the applicable court to set aside the Execution Sale. The court granted the request and the Company has appeal this judgment. The appeal has been briefed and is awaiting a date for oral argument. The Company has also filed an separate lawsuit against Compass alleging additional acts of infringement related to the 1994 case. BTN - GERMANY. The Company entered into a professional development services agreement with BTN Versandhandel GmbH of Leiferde, Germany for the development of an OMNIS application. The Company developed and delivered a version of the application to BTN. BTN failed to pay the Company as agreed, claiming there were flaws in the application and the project was suspended by the Company awaiting their payment. BTN commenced legal action against the Company in Germany claiming damages of approximately DM250,000 for failure to perform under the services agreement. The Company has countersued BTN claiming the balance owed under the contract of approximately DM60,000. The Company believes that the claim by BTN is meritless and intends to aggressively pursue its counterclaim against BTN. See Item 3 - "Legal Proceedings". 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 customers, and distributors which often purchase in significant quantities, and therefore, the timing of the receipt of such orders could cause significant fluctuations in operating results. Historically, the Company has often recognized a substantial portion of its license revenues in the last month of the quarter. Service revenues tend to fluctuate as technical service projects, which may continue over several quarters, are undertaken or completed. Operating results may also fluctuate due to factors such as the demand for the Company's products, the size and timing of customer orders, changes in the proportion of revenues attributable to licenses and service fees, commencement or conclusion of significant technical service projects, changes in 24 25 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. 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. Accordingly, the Company believes that period-to-period comparisons of its operating results are not necessarily meaningful and should not be relied upon as indications of future performance. In addition, revenues in quarters after a new product release may be significantly affected by the amount of upgrade revenue, which tends to increase soon after the release of a new product and then decline rapidly. 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. Once a product is developed, the Company must rapidly bring it into production, a process that requires long lead times on some product components and accurate forecasting of production volumes, among other matters, in order to achieve acceptable product costs. The Company participates in a dynamic high technology industry and believes that changes in any of the following areas could have a material adverse effect on the Company's future financial position or results of operations: advances and trends in new technologies; competitive pressures in the form of new products or price reductions on current products; the volume, mix, and timing of orders; changes in product mix; changes in overall demand for products and services offered by the Company; changes in certain strategic partnerships or customer relationships; litigation or claims against the Company based on intellectual property, regulatory or other factors; risks associated with changes in domestic or international economic and/or political conditions or regulations either in the industries the Company serves or generally; availability of necessary components, and the Company's ability to attract and retain employees necessary to support growth. NEED FOR LIQUIDITY; PRIOR LOSSES. The Company expects to devote substantially all of its revenues to finance continuing operations for the foreseeable future. There can be no assurance that the 25 26 Company will generate revenues in the future sufficient to sustain operations or growth of the Company's business when and as required, or that other sources of capital or revenues will be available to the Company for these purposes. Although the Company was profitable in the third and fourth quarters of fiscal year 1999, the Company has operated at a loss for the last several years. There can be no assurance that the Company will achieve or sustain profitability in future periods. See Item 6 - Management's Discussion And Analysis Of Financial Condition And Results Of Operations - "Liquidity And Capital Resources". 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 may need to seek additional equity capital which would be dilutive to current stockholders. The Company is not currently attempting to raise additional capital, but such activity may be required to continue operations. There can be no assurance that the Company will be able to raise additional capital on commercially reasonable terms should the Company need additional funds in the future. See Item 6 - Management's Discussion And Analysis Of Financial Condition And Results Of Operations - "Liquidity And Capital Resources". KEY PERSONNEL AND MANAGEMENT. The success of the Company depends to a significant extent upon a number of key management and technical personnel, the loss of one or more of whom could adversely affect its business. In addition the Company believes that its future success will depend to a significant extent on its ability to recruit, hire and retain highly skilled management and employees for product development, sales, marketing, and customer service. Competition for such personnel in the software industry is intense, and there can be no assurance that the Company will be successful in attracting and retaining such personnel. Management of the Company will also be required to manage any growth of the Company in a manner that requires a significant amount of management time and skill. There can be no assurance that the Company will be successful in managing any future growth or that any failure to manage such growth will not have a material adverse effect on the Company's business, operating results or financial condition. DEPENDENCE ON PRINCIPAL PRODUCTS. Any factor adversely affecting sales of the Company's principal products, including but not limited to OMNIS Studio and OMNIS Studio Web Client, would have a material adverse effect on the Company. The future financial performance of the Company will depend in significant part upon the successful development, introduction and customer acceptance of new or enhanced versions of its principal products and other products. There can be no assurance that the Company will be successful in marketing its principal products or any new or enhanced products the Company may develop in the future. In addition competitive pressures or other factors may result in price erosion that could have a material adverse effect on the Company's results of operation. INTELLECTUAL PROPERTY PROTECTION. The OMNIS products include technologies developed by the Company. The Company relies primarily on a combination of trade secret, copyright and trademark laws and contractual provisions to protect its proprietary rights in such technologies. There is no assurance that such laws and contractual provisions will adequately protect the intellectual properties and other proprietary rights of the Company. The Company is in the process of preparing appropriate patent applications for certain of its Studio Web Client and other technologies. At this time the Company has not filed any final patent applications and 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 26 27 in the future or that any OMNIS product will not infringe the patents of third parties. See Part 1 - Business - "Intellectual Properties and Other Proprietary Rights". INTERNATIONAL OPERATIONS. Additionally, the Company operates on a global basis with offices or distributors in Europe and Asia as well as in North America. International operations are subject to inherent risks, including costs and difficulties in staffing and managing foreign operations; difficulties in obtaining and managing local distributors; the costs and difficulties in localizing products into languages other than English for foreign markets; political or economic instability, unexpected regulatory changes and fluctuations in interest or exchange rates in the specific countries in which the Company distributes its products or in international markets in general; longer receivables collection periods and greater difficulty in accounts receivable collection; import/export duties and quotas; reduced protection for intellectual property rights in some countries; and potentially adverse tax consequences. Also, as the Company continues to operate more internationally, seasonality may become an increasing factor in its financial performance. There can be no assurance that these factors or any combination of these factors will not adversely affect the international revenues or overall financial performance of the Company. DELAYS IN SALES AND COMMITMENTS. The Company's products are typically used to develop applications that are critical to a customer's business and the purchase of the Company's products is often part of a customer's larger business process, reengineering initiative, or implementation of client/server computing. As a result, the license and implementation of the Company's software products generally involves a significant commitment of management attention and resources by prospective customers. Accordingly, the Company's sales process is often subject to delays associated with a long approval process that typically accompanies significant initiatives or capital expenditures. For these and other reasons, the sales cycle associated with the license of the Company's products is often lengthy and subject to a number of significant delays over which the Company has little or no control. There can be no assurance that the Company will not experience these and additional delays in the future. Therefore, the Company believes that its quarterly operating results are likely to vary significantly in the future. CHANGES IN PRICING STRUCTURE. The Company has recently announced a reduction in certain portions of its pricing structure for fiscal year 1999 and beyond. There is no guarantee that this reduction in price will lead to increased unit volume or other additional revenue streams to replace this lost revenue, which could lead to a significant cash flow strain on the core operations of the Company. Additionally, the Company is relying on increased revenues related to its new OMNIS Studio product line, which have not generated revenues as originally projected by the Company. There is no assurance that this product line will generate the revenues needed to sustain the Company in coming quarters and beyond. The Company has committed to decreasing sales conflicts with its partners particularly in the service revenue area and has already taken a number of steps in this regard. This has had and will continue to have a negative effect on service revenues as compared to previous quarters and years. There can be no guarantee that the Company will be able replace the decreasing service revenues with new product revenues. YEAR 2000 ISSUES. The Company recognizes that it must ensure that its products and operations will not be adversely impacted by year 2000 software failures which can arise in software applications which use a date field of only two digits to define the applicable year ("Year 2000 issues"). These programs were designed and developed without considering the impact of the upcoming change in the century. If not corrected, many computer applications could fail or create erroneous results by or at the year 2000. The Company believes it has designed its products to effectively handle the Year 2000 issue. The majority of the Company's internal applications were built using OMNIS products which the Company believes are Year 2000 compliant. Therefore, the Company believes that it has mitigated its risks on the Year 2000 issue with its internal applications. There can be no assurance that the Company is fully Year 2000 compliant or that Year 2000 compliance issues will not arise with respect to products furnished by third party manufacturers, the Company's own products, or suppliers that may result in unforeseen costs or interruptions or delays to the Company or its customers and therefore have a material adverse effect on the Company. See Item 1 - Business - "Year 2000 Compliance". 27 28 FORWARD LOOKING STATEMENTS. The Private Securities Litigation Reform Act of 1995 contains certain safe harbors regarding forward-looking statements. From time to time information provided by the Company or statements made by its directors, officers or employees may contain "forward-looking" information subject to numerous risks and uncertainties. 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. Such forward-looking statements are based on a number of assumptions and involve a number of risks and uncertainties, and therefore actual results could materially differ. These risks and uncertainties include, among others, the Company's continuing liquidity problems, significant variability in operating results, including variability in product revenues and gross margins, fluctuating demand for new and established products, dependence on development of new products, increasing expenses for marketing and development of new products, historical lack of profitability, rapid technological change that affects the ability of the Company to respond to customer or market demands, risks associated with global operations, the continued and future acceptance of the Company's products, the rate of growth in the industries of the Company's products, the presence of competitors with greater technical, marketing and financial resources, and the ability of the Company to successfully expand its operations. LIQUIDITY AND CAPITAL RESOURCES At March 31, 1999, the Company's principal sources of liquidity consisted of cash and cash equivalents of $271,000. In October, 1997, the Company had raised $1 million in secured debt financing from Astoria Capital Partners, L.P. ("Astoria"), a significant stockholder of the Company, which was secured by substantially all of the assets of the Company. In April 1998, the Company also agreed to sell up to 126,000 shares of Series A preferred stock of the Company to Astoria at a price of $8.00 per share. Under the share purchase agreement Astoria had the right to purchase the shares at its option at any time prior to October 1, 1998. Under the agreement each share of preferred stock was convertible into 10 shares of common stock. Between April 1 and October 1, 1998, Astoria purchased a total of 124,564 shares of Series A Preferred Stock from the Company pursuant to the share purchase agreement. The proceeds from these purchases were used by the Company to fund its general operations. On December 31, 1998, the Company repurchased the 124,564 shares of Series A Preferred Stock from Astoria for an aggregate purchase price of $100 (or $.0008 per share). The Certificate Regarding Series A Preferred Stock of the Omnis Technology Corporation was filed with the Delaware Secretary of State on February 25, 1999, eliminating the class of Series A Preferred Stock then in effect. In order to increase the capital of the Company to obtain additional working capital and to eliminate its principal indebtedness, on March 19, 1999 the Board of Directors of the Company authorized the issuance of 300,000 shares of a new Series A Convertible Preferred Stock (the "Preferred Shares") and 7,600,000 shares of common stock of the Company (the "Common Shares") (collectively the Preferred Shares and the Common Shares shall be referred to as the "Shares"). The Restated Articles of Incorporation of the Company vest in the Board of Directors the authority to issue such Shares. On March 31, 1999 the Company filed with the Secretary of State of Delaware a Certificate of Designations setting forth the rights, preferences and privileges of the new Preferred Stock. Pursuant to the terms of a Letter of Intent entered into by and between the subject parties as of February 22, 1999, on March 31, 1999 the Company entered into a series of stock purchase agreements with Astoria Capital Partners, L.P., Gwyneth Gibbs, president of the Company, and certain members of the Board of Directors or their affiliates. Under the terms of a stock purchase agreement with Astoria, the Company agreed to issue and Astoria agreed to purchase 300,000 Preferred Shares at a purchase price of $1.6667 per share for an aggregate Preferred Share purchase price of $500,000; and to purchase 2,543,344 Common Shares at a 28 29 purchase price of $0.25 per share for an aggregate Common Share purchase price of $635,836 (collectively the "Astoria Shares"). The consideration for the Astoria Shares was the cancellation of the 1997 secured indebtedness of the Company to Astoria. The stock purchase agreement grants certain registration rights and rights of first refusal to Astoria. The Company also entered into a separate Common Stock Purchase Agreement with Astoria pursuant to which Astoria purchased an additional 1,000,000 Common Shares at a price of $0.25 per share for an aggregate cash purchase price of $250,000. The Common Stock Purchase Agreement also grants certain registration rights and rights of first refusal to Astoria. Pursuant to the terms of stock purchase agreements entered into with certain members of the Board of Directors, including Mrs. Gibbs (the "Board of Directors Agreements"), the Company also agreed to issue an additional 4,000,000 Common Shares in the aggregate at a price of $0.25 per share, for aggregate purchase price of $1,000,000. The Board of Directors Agreements do not grant any registration rights or rights of first refusal to the parties. These transactions were approved by the disinterested directors of the Company pursuant to Delaware law. The proceeds from the sale of the Common Shares to the Board of Directors primarily was used to satisfy the entire indebtedness owed to the Omnis Class 2 Creditors pursuant to the 1998 workout agreement previously entered into between the Company and such creditors. The $250,000 in proceeds from the sale of the 1,000,000 Common Shares to Astoria will be used for Company working capital purposes, primarily to enhance and expand its sales and marketing activities. The major sales and marketing event being currently planned for the Company is a significant presence at the Linux World exhibition in San Jose, California in August 1999. On June 2, 1996 the Company sold $7.35 million of 8% Convertible Debentures (the "Notes") under Regulation S of the Securities Act of 1933, as amended. As of June 2, 1997, all of the Notes had either been redeemed or converted and an aggregate of 1,120,221 shares of Common Stock had been issued upon conversion of Notes. See Note 6 of the Notes to the Consolidated Financial Statements. The Company's working capital position increased to $390,000 at March 31, 1999 from a deficit of $3 million at March 31, 1998. 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 cash flow through (i) more aggressive marketing of its products; (ii) focusing research and development expenditures on products that have a shorter return or "payback" period; (iii) improving operational efficiencies and (iv) significantly reducing operating expenses. With these improvements, the Company reduced cash used in operations from $6,180,000 in fiscal year 1998 to $2,514,000 in fiscal year 1999 and the Company currently is generating positive cash flow. There can be no assurance that the Company will be able to achieve profitability in the near future or at all. In February 1998, The Nasdaq Stock Exchange de-listed the Company from the Nasdaq SmallCap Market. The Company is now traded on the Nasdaq Bulletin Board (BB). This has had a negative impact on the liquidity of the Company's outstanding common shares. It is not known at this time when or if the Company will be re-listed on the Nasdaq SmallCap Market. 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 may need to seek additional equity capital which would be dilutive to current stockholders. The Company is not currently attempting to raise additional capital, but such activity may be required to continue operations. There can be no assurance that the Company will be able to raise additional capital on commercially reasonable terms should the Company need additional funds in the future. 29 30 ITEM 7. FINANCIAL STATEMENTS The consolidated financial statements of the Company, including the notes thereto, together with the independent auditors' reports thereon are presented beginning on Page F-1. 30 31 ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE The information required by this Item 8 was reported by the Company in the Forms 8-K dated November 12, 1998 and March 19, 1999 and which are herein incorporated by reference pursuant to Section 304 of Regulation S-B. PART III ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS, AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT ELECTION OF DIRECTORS The Bylaws of the Company provide that the Board of Directors shall be composed of seven Directors divided into three classes composed of two members in each of Classes I and II and three members in Class III. The Directors are elected to serve staggered three-year terms, with the term of one class of Directors expiring each year. In July 1998 Mr. David Colby and Mr. William Konrad resigned from the Board of Directors stating time constraints with other business interests were too demanding to permit them to serve as active directors of the Company. At that time the Board of Directors appointed Mr. Philip Barrett, Mr. Gerald Chew, Mr. Douglas Marshall and Mr. Geoffrey Wagner to serve as directors of the Company. Mr. Kenneth Holmes then resigned from the Board of Directors in October 1998 in connection with his departure from the Company. Mr. Richard Hanschen was appointed Chairman of the Board at that time. Mr. Hanschen then resigned as the Chairman of the Board and as a director of the Company in December 1998. At that time Mr. Philip Barrett was appointed Chairman of the Board. Mrs. Gwyneth Gibbs, the President and interim Chief Executive Officer of the Company, was appointed as an additional director of the Company in February 1999. The members of the Board of Directors of the Company as of March 31, 1999 and currently are Mr. Philip Barrett, Mr. Gerald Chew, Mrs. Gwyneth Gibbs, Mr. Douglas Marshall and Mr. Geoffrey Wagner. The term of the following Class I Directors will expire at the 1999 Annual Meeting of Stockholders:
Name of Director Age* Principal Occupation Director Since - ---------------- ---- -------------------- -------------- Douglas Marshall(1) 43 Vice President of Marketing - Bank of America 1998 Geoffrey Wagner(2) 42 General Partner, Rockport Group L.P., a private investment firm 1998
There are no arrangements or understandings between any Director or executive officer and any other person pursuant to which he or she is or was to be selected as a Director or officer of the Company. The term of the following Class III Director will expire at the 2000 Annual Meeting of Stockholders:
Name of Director Age* Principal Occupation Director Since - ---------------- ---- -------------------- -------------- Gwyneth Gibbs 56 President and Interim Chief Executive Officer of the Company 1999
The term of the following Class II Directors will expire at the 2001 Annual Meeting of Stockholders:
Name of Director Age* Principal Occupation Director Since - ---------------- ---- -------------------- -------------- Gerald Chew(1) 39 Executive Vice President of Ancora Capital & Management Group, 1998 LLC, and Managing Director of The Cairn Group, a management consulting firm Philip Barrett(2) 43 Chairman of the Board 1998
- ----------------------- * As of July 15, 1999. (1) Member of the Compensation Committee (2) Member of the Audit Committee Except as follows, each nominee or director has been engaged in his principal occupation set forth above during the past five years; there is no family relationship between any director or executive officer of the Company. 31 32 Mr. Barrett was appointed Chairman of the Company in February 1999. He is the former President and owner of Oregon Pro Sport, a company that manages professional sports teams including the Cascade Surge. Oregon Pro Sport was founded by Mr. Barrett in January 1995 and sold in November 1998. Prior to that time Mr. Barrett was the President and a partial owner of Supra Products, Inc. Mr. Barrett commenced his employment with Supra Products, Inc. in September 1984 and worked in the sales, finance and marketing divisions of that company until he became its President and partial owner in 1992. Supra Products was sold in September 1994 to Berwind Industries, Inc. Mr.Chew is currently Executive Vice President of Ancora Capital & Management Group, LLC since June 1998 and Managing Director of The Cairn Group since February 1997. From August 1996 to February 1997, he was Chief Operating Officer of SpotMagic, Inc. From November 1992 to July 1996, Mr. Chew served as Executive Director of Strategy Development for U S WEST, Inc. Since December 1995, Mr. Chew has served as Director of MDSI Mobile Data Solutions, Inc. Mr. Chew also serves as a Director of a number of private companies. Mrs. Gibbs was appointed President and interim Chief Executive Officer of the Company in October 1998, and was elected to the Board of Directors in February 1999. She joined the Company in October 1994, was initially responsible for Research and Development in Europe and subsequently was assigned worldwide responsibility for Research and Development in January 1998. Prior to joining the Company, Mrs. Gibbs was Technical Director of an intelligent database start-up for 6 years, and before that held a number of positions in UK development organizations. Mr. Marshall is currently Vice President with Bank of America where he has held a number of marketing positions including Vice President of Advertising and Marketing Communications as well as product development and management roles. Prior to joining Bank of America in August of 1994, Mr. Marshall served as Marketing Director and Northwest Region manager for US Travel, a global travel management company. From June 1984 to July 1998, Mr. Marshall held a number of marketing positions with Seafirst Bank, a Seattle, Washington-based subsidiary of Bank of America Corporation. Mr. Wagner was appointed Secretary of the Company in February 1999. He is currently the General Partner of Rockport Group L.P. In September 1990 Mr. Wagner co-founded the Rockport Group L.P. and has been a General Partner since its inception. Rockport Group, L.P. invests its capital in a variety of industries, including technology, healthcare and apparel. Prior to 1990 Mr. Wagner held sales executive positions at several leading Wall Street firms including five years at Bear, Stearns & Co., Inc. and five years at Kidder, Peabody & Co., Inc. BOARD MEETINGS AND COMMITTEES The Board of Directors of the Company held a total of twelve meetings and did not take any action by written consent during the fiscal year ended March 31, 1999. No Director serving during the fiscal year attended fewer than 75% of the aggregate of all meetings of the Board of Directors and the committees of the Board upon which such Director served, except Mr. Marshall. The Company has a Compensation Committee and an Audit Committee of the Board; the Board of Directors does not have any nominating committee or any committee performing such functions. The Compensation Committee is generally responsible for evaluating and recommending to the Board of Directors of the Company the granting of stock options to employees, including officers, and other eligible persons, and the setting of compensation for the executive officers of the Company. The executive officers of the Company have been delegated the responsibility of administering compensation programs (other than stock based) for the other employees of the Company, subject to overall budget review and approval by the Board of Directors. During the fiscal year ended March 31, 1999, the Compensation Committee of the Board of Directors consisted of Messrs. Hanschen and Konrad from April 1, 1998 through July 17, 1998, and consisted of Directors Barrett and Chew and, while he was a director, Mr. Hanschen, until February of 1999, when the Board of Directors appointed Messrs. Chew and Marshall to such committee. Messrs. Chew and Marshall are currently the members of such committee. The Compensation Committee conducted two meetings during the past fiscal year. The Audit Committee is generally responsible for recommending engagement of the Company's independent public accountants and is generally responsible for approving the services performed by such independent public accountants and for reviewing and evaluating the Company's accounting principles and its system of internal accounting controls. During the last fiscal year, the Audit Committee of the Board of Directors consisted of Messrs. Hanschen and Konrad from April 1, 1998 through July 17, 32 33 1998, and consisted of Messrs. Marshall and Wagner from July 17, 1998 until February of 1999. In February 1999 the Board of Directors appointed Messrs. Barrett and Wagner to such committee. Messrs. Barrett and Wagner are currently the members of the Audit Committee, and such Audit Committee conducted five meetings during the past fiscal year. DIRECTOR COMPENSATION The Company reimburses Directors for travel and other out-of-pocket expenses incurred in attending Board meetings but no cash compensation is otherwise paid to Directors. The 1993 Directors' Warrant Plan (the "Director Plan") was adopted by the Board of Directors in September 1993 and was approved by the stockholders in August 1994. The Director Plan provided for automatic non-discretionary grants of warrants to non-employee Directors ("Outside Directors"). Each Outside Director elected on or after the date of adoption of the Director Plan was automatically granted a warrant to purchase 30,000 shares of Common Stock upon the date he or she became a Director of the Company (an "Initial Warrant") pursuant to a vesting schedule related to the term of such Director. Directors Mr. Barrett, Mr. Chew, Mr. Marshall, and Mr. Wagner each received such a grant when they were appointed to the Board of Directors. Thereafter, each Outside Director was automatically granted a warrant to purchase 5,000 shares of Common Stock on September 1 of each year, provided that he or she had served for at least six (6) months as of such date and was then serving as an Outside Director ("Subsequent Warrant"). In April 1999, the Board of Directors determined that it was in the best interests of the Company to adopt the Omnis Technology Corporation 1999 Stock Option Plan (the "1999 Plan") to consolidate options to be issued to directors, officers, key employees, consultants and advisors under a single option plan and to terminate the Director Plan, the 1993 Advisors Plan and the 1996 Stock Option Plan, except as to warrants and options then issued and outstanding under such plans. The 1999 Plan was adopted by the Board of Directors and 1,500,000 shares of the common stock of the Company were reserved for issuance under the 1999 Plan. The Board of Directors plans to present the 1999 Plan for approval to the stockholders of the Company at their 1999 annual meeting. As of July 27, 1999, warrants to purchase approximately 131,375 shares of the Company's Common Stock under the Director Plan were outstanding. Current Executive Officers of the Company found under the caption "Executive Officers of the Registrant" in Part I hereof is also incorporated by reference into this Item 9. 33 34 COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT Section 16(a) of the Securities Exchange Act of 1934 requires the Company's officers and Directors, and persons who own more than ten percent of a registered class of the Company's equity securities, to file reports of ownership on Form 3 and changes in ownership on Form 4 or 5 with the Securities and Exchange Commission (the "SEC") and the National Association of Securities Dealers, Inc. Such officers, Directors and ten-percent stockholders are also required by SEC rules to furnish the Company with copies of all forms that they file pursuant to Section 16(a). Based solely on its review of the copies of such forms received by it, the Company believes that all Section 16(a) filing requirements applicable to its officers, Directors and ten-percent stockholders were complied with in a timely fashion, except Astoria Capital Partners LP filed two late reports, each of which was related to one transaction, and failed to file Form 5 related to the fiscal year ended March 31, 1999, Mr. Wagner filed two late reports, each of which was related to one transaction, and Mr. Barrett failed to file Form 5 related to the fiscal year ended March 31, 1999. ITEM 10. EXECUTIVE COMPENSATION SUMMARY COMPENSATION The following table shows, as to the Chief Executive Officer and each of the other current executive officers and former executive officers whose salary plus bonus exceeded $100,000, information concerning compensation awarded to, earned by or paid for services to the Company in all capacities during the last three fiscal years: 34 35 SUMMARY COMPENSATION TABLE
Long-term Compensation Annual Compensation Awards ----------------------------------------------------------------------- Other Annual All Other Name and Principal Position Year Salary($) Bonus($) Compensation($) Options Compensation($) - --------------------------- ---- --------- -------- --------------- ------------ --------------- Gwyneth Gibbs(1) 1999 79,874 33,209 22,855 5,000 -- Interim Chief Executive 1998 77,117 -- 23,386 -- -- Officer, Vice President 1997 65,542 -- 22,276 1,000 -- David R. Seaman(2) 1999 143,253 -- 51,256 5,000 -- Chief Technical Officer and 1998 142,069 -- 35,150 2,000 -- Research and Development 1997 126,580 -- 56,009 1,000 -- Director Larry Barcot(3) 1999 80,000 30,000 -- 240,000 -- 1998 -- -- -- -- -- 1997 -- -- -- -- -- Matthew Simmons(4) 1999 45,004 -- 81,211 3,500 -- 1998 32,690 -- 63,645 -- -- 1997 24,578 -- 17,696 500 -- Kevin Doyle(5) 1999 79,167 32,500 -- 300,000 -- 1998 -- -- -- -- -- 1997 -- -- -- -- -- Kenneth Holmes(6) 1999 53,098 56,667 -- 100,000 -- 1998 53,447 26,681 -- -- -- 1997 -- -- -- -- --
- ----------------------- (1) Mrs. Gibbs joined the Company in October 1994, was initially responsible for Research and Development in Europe and subsequently was assigned worldwide responsibility for Research and Development in January 1998. Mrs. Gibbs was appointed President and interim Chief Executive Officer of the Company in October 1998, and was elected to the Board of Directors in February 1999. Prior to joining the Company, Mrs. Gibbs was Technical Director of an intelligent database start-up for 6 years, and before that held a number of positions in UK development organizations. Mrs. Gibbs is paid in U.K. pounds sterling, which have been converted into U.S. dollars at the exchange rate in effect on March 31 of the applicable fiscal year. "Other Annual Compensation" represents amounts contributed to the OMNIS Software Limited Retirement Scheme on Mrs. Gibbs' behalf (an aggregate of $20,482 in 1997, $21,459 in 1998 and $20,921 in 1999). (2) Mr. Seaman, 46*, is the Chief Technical Officer of the Company. He has served as a Vice President of the Company since June 1990 and has served as Research and Development Director since June 1982. He served as Managing Director of Blyth Software, Ltd. (now OMNIS Software Ltd.) from September of 1990 until June of 1993. Mr. Seaman is paid in U.K. pounds sterling, which have been converted into U.S. dollars at the exchange rate in effect on March 31 of the applicable fiscal year. "Other Annual Compensation" represents the value of the use of an automobile and amounts paid or reimbursed for automobile use ($16,805 in 1997, $3,343 in 1998 and $12,875 in 1999) and amounts contributed to the OMNIS Holdings Limited Retirement Benefits Scheme and the OMNIS Software Limited Retirement Scheme on Mr. Seaman's behalf (an aggregate of $39,204 in 1997, $31,807 in 1998 and $38,381 in 1999). (3) Mr. Barcot, 50*,is the Vice President of North American Sales and has served in this position since April 1998. Mr. Barcot had been involved in the technology industry since 1976. Since 1984, Mr. Barcot has provided consulting and software development services for companies on an international basis with the majority of software development projects completed using tools from OMNIS Software. 36 (4) Mr. Simmons, 25*, is the Vice President of North American Operations and has served in this position since January 1999. He joined the Company in August 1995, and has held a variety of positions within the UK Sales and Marketing division. Prior to joining the Company, Mr. Simmons worked for a Rapid Application Development tool vendor for 18 months. Mr. Simmons is paid in U.K. pounds sterling, which have been converted into U.S. dollars at the exchange rate in effect on March 31 of the applicable fiscal year. "Other Annual Compensation" represents the value of the use of an automobile and amounts paid or reimbursed for automobile use ($10,059 in 1998 and $3,603 in 1999), a mobile phone ($322 in 1999), amounts contributed to the OMNIS Software Limited Retirement Scheme on Mr. Simmons' behalf (an aggregate of $419 in 1998 and $1,807 in 1999) and commissions ($17,696 in 1997, $57,683 in 1998 and $71,135 in 1999). (5) Mr. Doyle, 43*, served as Vice President of Marketing for the Company since he joined the Company in April of 1998 until his employment terminated as of January 15, 1999. Prior to joining the Company, Mr. Doyle has had over 22 years of technology consulting experience, including over 14 years experience developing and delivering solutions using the products of OMNIS Software. Mr. Doyle was a founder of the Macintosh Consultants Network, formed in 1988. (6) Mr. Holmes, 33*, served as Chairman, interim Chief Executive Officer, and Chief Financial Officer of the Company from February 1998, and Director of Finance from his joining the Company in August of 1997, until he resigned from the Board of Directors in October 1998. Prior to joining the Company, Mr. Holmes served as Assistant Controller of NeXT Software, Inc. from July 1996 to March 1997. From March 1994 to July 1996, Mr. Holmes was Controller at ENlighten Software Solutions, Inc., a worldwide independent supplier of software for system administration. Mr. Holmes was an accountant with KPMG Peat Marwick LLP from August 1991 through March 1994. (*) Ages are as of July 15, 1999. STOCK OPTION GRANTS AND EXERCISES The following table shows, as to the individuals named in the Summary Compensation Table above (the "Named Executive Officers"), information concerning stock options granted during the fiscal year ended March 31, 1999. This table also sets forth hypothetical gains or "option spreads" for the options at the end of their respective ten-year terms, as calculated in accordance with the Rules of the Securities and Exchange Commission. Each gain is based on an arbitrarily assumed annualized rate of compound appreciation of the market price at the date of the grant of 5% and 10% from the date the option was granted to the end of the option term. The 5% and 10% rates of appreciation are specified by the rules of the Securities and Exchange Commission and do not represent the Company's estimate or projection of future Common Stock prices. The Company does not necessarily agree that this method properly values an option. Actual gains, if any, on option exercises are dependent on the future performance of the Company's Common Stock and overall market conditions. 36 37
Option Grants in the Last Fiscal Year Potential Realizable Individual Grants(1) Value at Assumed Annual ------------------------------------------------------------------- Rates of Stock Price % of Total Options Appreciation of Number of Securities Granted to Exercise Option Term(3) Underlying Options Employees in Price Expiration ----------------------- Name Granted(1)(#) Fiscal Year(2) ($/Sh) Date 5%($) 10%($) - ---- -------------------- --------------- -------- ---------- ----------------------- David R. Seaman 5,000 0.68% 0.75 5/19/08 2,358 5,977 Gwyneth Gibbs 5,000 0.68% 0.75 5/19/08 2,358 5,977 Larry Barcot 240,000 32.81% 0.78 4/1/08 117,880 298,731 Matt Simmons 3,500 0.48% 0.75 5/19/08 1,651 4,184 Kevin Doyle (4) 300,000 41.01% 0.78 4/1/08 147,350 373,414 Kenneth Holmes (5) 100,000 13.67% 0.75 5/19/08 47,167 119,531
(1) Options granted under the Company's 1987 Stock Option Plan or 1996 Stock Option Plan are granted with an exercise price not less than at 100% of fair market value of the Company's Common Stock at the date of grant and generally vest over a four-year period. (2) During the fiscal year ended March 31, 1999, the Company granted a total of 731,500 options and warrants to employees subject to certain vesting schedules and other conditions. (3) This column sets forth hypothetical gains or "option spreads" for the options at the end of their respective ten-year terms, as calculated in accordance with the rules of the Securities and Exchange Commission. Each gain is based on an arbitrarily assumed annualized rate of compound appreciation of the market price at the date of grant of 5% and 10% from the date the option was granted to the end of the option term. The 5% and 10% rates of appreciation are specified by the rules of the Securities and Exchange Commission and do not represent the Company's estimate or projection of future performance of the Company's Common Stock and overall market conditions. (4) The Employment Agreement dated as of April 1, 1998 between the Company and Mr. Doyle terminated on January 15, 1999, except that in the event the average of the closing price of a share of Common Stock on each of the days from September 21, 1999 through September 30, 1999 meets or exceeds $6, then a certain number of shares will vest based on a sliding scale from 75,000 shares related to a price of $6 per share up to a maximum of 300,000 shares related to a price of $18 per share, in which case Mr. Doyle will have 3 months after September 30, 1999 to exercise the option with respect to any such vested shares. (5) Mr. Holmes resigned in October of 1998 prior to the vesting of any options granted to him. (#) Employees who are eligible may participate in the 1994 Stock Purchase Plan ("Purchase Plan") to purchase up to $25,000 of shares of the Common Stock of the Company during each calendar year at 85% of fair market value as described in more detail below in "Other Employee Benefit Plans--1994 Employee Stock Purchase Plan." None of Mrs. Gibbs, Mr. Seaman, Mr. Simmons or Mr. Barcot elected to purchase shares under the Purchase Plan during fiscal 1999. As of July 27, 1999, Mrs. Gibbs, Mr. Seaman, Mr. Simmons and Mr. Barcot are eligible to participate in the Purchase Plan. No options were exercised by the Named Executive Officers during the last fiscal year. The following table shows, as to the Named Executive Officers, the value of unexercised options at March 31, 1999. None of these options were in-the-money as of March 31, 1999. AGGREGATED FISCAL YEAR-END OPTION VALUES
Number of Securities Underlying Unexercised Options/SARS at March 31, 1999(#)(1) ------------------------------------- Name Exercisable Unexercisable Value - ---- ----------- ------------- ----- Gwyneth Gibbs 2,395 5,605 $* David R. Seaman 11,610 6,390 * Matthew Simmons 291 3,810 * Larry Barcot 0 240,000 * Kevin Doyle(2) 0 300,000 * Kenneth Holmes(3) 0 0 *
37 38 - ----------------------- (1) The Company has not granted any stock appreciation rights and its stock plans do not provide for the granting of such rights. (2) The Employment Agreement dated as of April 1, 1998 between the Company and Mr. Doyle terminated on January 15, 1999, except that in the event the average of the closing price of a share of Common Stock on each of the days from September 21, 1999 through September 30, 1999 meets or exceeds $6, then a certain number of shares will vest based on a sliding scale from 75,000 shares related to a price of $6 per share up to a maximum of 300,000 shares related to a price of $18 per share, in which case Mr. Doyle will have 3 months after September 30, 1999 to exercise the option with respect to any such vested shares. (3) Mr. Holmes resigned in October of 1998 prior to the vesting of any options granted to Mr. Holmes. (*) The value is negative. OTHER EMPLOYEE BENEFIT PLANS Employment Contracts The Service Agreement effective April 1, 1990 between the Company and Mr. Seaman retains Mr. Seaman as the Company's Chief Technical Officer for an initial term of four (4) years, which is automatically renewed for subsequent two year terms unless the agreement is terminated by either party by delivery of six months prior notice. The Service Agreement was automatically renewed for two year terms in April 1994, April 1996, and April 1998. It provides for an annual base salary of 48,000 pounds sterling, with annual increases based on a United Kingdom consumer index throughout the term of the agreement. In addition, Mr. Seaman is entitled to an annual incentive bonus of 25% of his base salary if certain annual profitability goals are achieved (no bonuses have been paid to date), to an automobile and payments or reimbursements for automobile expenses, and to Company contributions to a retirement plan on his behalf. See "OMNIS Holdings Limited Retirement Benefits Scheme" and "OMNIS Software Limited Retirement Benefits Scheme." The Employment Agreement effective April 1, 1998 between the Company and Mr. Barcot provides employment on an at-will basis with an annual salary of $80,000. In addition, Mr. Barcot is entitled to receive up to 150% of his annual salary if certain profitability goals are achieved and to options for 240,000 shares of the Company's common stock vesting over six years, though such shares may vest earlier on September 30, 1999 if the Company's average closing sale price of its common stock for the ten trading days ending on September 30, 1999 ("Average Closing Sale Price") meets or exceeds certain levels. The Employment Agreement dated as of April 1, 1998 between the Company and Mr. Doyle terminated on January 15, 1999, except that in the event the average of the closing price of a share of Common Stock on each of the days from September 21, 1999 through September 30, 1999 meets or exceeds $6, then a certain number of shares will vest based on a sliding scale from 75,000 shares related to a price of $6 per share up to a maximum of 300,000 shares related to a price of $18 per share, in which case Mr. Doyle will have 3 months after September 30, 1999 to exercise the option with respect to any such vested shares. OMNIS Holdings Limited Retirement Benefits Scheme The Company, through its United Kingdom subsidiary, OMNIS Holdings Limited (formerly Blyth Holdings Limited), sponsors a retirement plan, the OMNIS Retirement Benefits Scheme ("OHL Retirement Plan"). The only participant in the OHL Retirement Plan is David R. Seaman. Participation in the OHL Retirement Plan is frozen; no additional employees may participate. The OHL Retirement Plan provides retirement benefits upon attainment of normal retirement age and incidental benefits in case of death or termination of employment prior to retirement. A participant's normal retirement benefit is 66.66% of his final remuneration, reduced if the participant has less than ten years of service with OMNIS Holdings Limited. OMNIS Holdings Limited makes annual contributions under the OHL Retirement Plan to fund promised retirement benefits. The OHL Retirement Plan is partially insured through the Sun Life Assurance Society. The assets held under the OHL Retirement Plan which are not used to pay insurance premiums are held in trust for investment purposes for the benefit of the OHL Retirement Plan. OMNIS Holdings Limited retains the right to terminate the OHL Retirement Plan at any time upon thirty days prior written notice. 38 39 OMNIS Software Limited Retirement Benefits Scheme The Company also sponsors a retirement plan called the OMNIS Software Ltd. Retirement Benefits Scheme ("OMNIS Software Retirement Plan") for substantially all employees of OMNIS Software Limited (formerly Blyth Software Limited). The OMNIS Software Retirement Plan provides retirement benefits upon attainment of normal retirement age and incidental benefits in case of death or termination of employment prior to retirement. OMNIS Software Limited makes annual contributions under the OMNIS Software Retirement Plan to fund promised retirement benefits. In addition, participants are entitled to make voluntary contributions under the OMNIS Software Retirement Plan to increase their benefits. Currently, OMNIS Software Limited contributes an amount equal to 1/8% of each participants' compensation under the OMNIS Software Retirement Plan. OMNIS Software Limited retains the right to terminate the OMNIS Software Retirement Plan at any time upon thirty days prior written notice. 401 (k) Employee Savings Plan The Company established a 401 (k) Employee Savings and Retirement Plan (the "401 (k) Plan") in November 1992. The 401 (k) Plan is a qualified profit sharing plan and salary deferral program under the Federal tax laws and is administered by the Company. All employees of the Company (except for certain specifically excluded classifications as defined in the 401 (k) Plan) are eligible to participate in the 401 (k) Plan on the first day of each quarter upon attainment of age 21. Participants may defer from 1% to 15% of their total salary (including bonuses and commissions) each pay period through contributions to the 401 (k) Plan. The Company makes a matching contribution of 10% of the amount contributed by the participant up to a maximum of 15% of the salary deferral. All salary deferral and Company matching contributions are credited to separate accounts maintained in trust for each participant and are invested, at the participant's direction, in one or more of the investment funds available under the 401 (k) Plan. All account balances are adjusted at least annually to reflect the investment earnings and losses of the trust fund. Each participant is fully vested in the portion of his or her account under the 401 (k) Plan which such participant contributed. The portion contributed by the Company vests over live years. Distribution may be made from a participant's account upon termination of employment, retirement, disability, death or in the event of financial hardship or attainment of age 59-1/2. The federal tax laws limit the amount which may be added to a participant's account for any one year under a qualified plan such as the 401 (k) Plan to the lesser of (i) $30,000 or (ii) 25% of the Participant's compensation (net of salary deferral contributions) for the year. In addition, not more than $9,500 of compensation may be deferred by a participant through salary deferral contributions in any one calendar year. This program was suspended in fiscal year 1998 and the Company plans to reinstate it in fiscal year 2000, if appropriate under the circumstances. 1994 Employee Stock Purchase Plan The 1994 Employee Stock Purchase Plan (the "Purchase Plan") was adopted by the Board of Directors in May 1994 and the stockholders of the Company in August 1994. As a result of a 1-for-10 reverse split approved by the stockholders at the 1997 Annual Meeting (the "Reverse Split"), the total of 400,000 shares of Common stock then reserved for issuance under the Purchase Plan were split into 40,000 shares. In July 1998 the Board of Directors amended the Purchase Plan to increase the number of shares of common stock of the Company reserved for issuance under the Plan to 250,000 and this amendment was approved by the stockholders in the 1998 Annual Meeting. As of March 31, 1999 the number of shares of common stock of the Company elected to be purchased by participating employees of the Company was 39,340 when adjusted for the reverse stock split in 1997 under the terms of the Plan. Administration. The Purchase Plan, which is intended to qualify under Section 423 of the Code, is administered by the Board of Directors or its Compensation Committee (the "Plan Administrator"). The Compensation Committee of the Board of Directors currently acts as Plan Administrator of the Purchase Plan. All questions of interpretation or application of the Purchase Plan are determined by the Plan Administrator, and its decisions are final, conclusive and binding upon all participants. 39 40 Eligibility and Participation; Withdrawal. Company employees are eligible to participate in the Purchase Plan if they are customarily employed for at least 20 hours per week and more than five months per year. Moreover, the Board may designate that such employees of its subsidiaries are eligible to participate in the Purchase Plan. However, no employee may be granted the right to purchase more than $25,000 of common stock in any calendar year determined with reference to the grant date of the right to purchase during the applicable offering period. Eligible employees become participants in the Purchase Plan by filing with the payroll office of the Company a subscription agreement authorizing payroll deductions prior to the applicable offering date of up to 10 percent of the employee's compensation for an Offering Period (as defined below). An employee may withdraw from the Purchase Plan at any time by giving written notice to the Company. In such a case, all of the payroll deductions credited to the employee's account and not yet used to purchase common stock are refunded. Offering Periods. The Purchase Plan is implemented by consecutive and overlapping offering periods of two years ("Offering Periods") with a new Offering Period commencing on the first trading day on or after October 1 and April 1 of each year. The Plan Administrator may change the commencement date and duration of Offering Periods without obtaining stockholder approval. Purchase Price. The purchase price per share at which shares are sold to employees under the Purchase Plan is 85 percent of the lower of the fair market value of the Company's common stock (a) on the date of commencement of the Offering Period or (b) on the applicable Exercise Date within such Offering Period. The applicable "Exercise Date" is the last day of the particular six-month exercise period within the Offering Period. The fair market value of the Company's common stock on a given date is determined with reference to the closing sale price for the Company's common stock or the average of the closing bid and ask prices for the common stock on the date of such determination pursuant to standards set forth in the Plan. In the absence of an established market for the common stock, the fair market value shall be determined in good faith by the Board of Directors. Additional information required in this item is incorporated by reference from Item 9 entitled "Directors, Executive Officers, Promoters, and Control Persons; Compliance with Section 16(a) of the Exchange Act" and Item 12 entitled "Certain Relationships and Related Transactions." 40 41 ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth as of July 27, 1999, certain information with respect to the beneficial ownership of the Company's voting securities by (i) any person (including any "group" as that term is used in Section 13 (d) (3) of the Exchange Act) known by the Company to be the beneficial owner of more than 5% of any class of the Company's voting securities, (ii) each Director and each nominee for Director, (iii) each of the named executive officers identified in the Summary Compensation Table appearing herein, and (iv) all Directors and executive officers of the Company as a group.
Number of Percent of Number of Percent of Shares of Total of Shares of Total of Preferred Preferred Common Common Name and Address(1) Stock(2) Stock(2) Stock Stock - -------------------- --------- --------- --------- --------- Astoria Capital Partners L.P. .................................. 300,000 100.0% 3,543,344 36.2% 735 Second Avenue San Francisco, CA94118 Philip Barrett(3) ............................................................................. 1,661,666 17.0% Gerald Chew(4) ................................................................................ 11,666 * Gwyneth Gibbs(5) .............................................................................. 84,250 * Douglas Marshall(6) ........................................................................... 11,666 * Geoffrey Wagner(7) ............................................................................ 2,291,666 23.4% David Seaman(8) ............................................................................... 24,448 * Matt Simmons(9) ............................................................................... 174,829 1.8% Larry Barcot(10) .............................................................................. 61,066 * Kevin Doyle(11) ............................................................................... 0 0.0% Kenneth Holmes ................................................................................ 0 0.0% All Directors and executive officers as a group (8 persons)(12) ............................... 4,321,257 44.1%
- ----------------------- * Less than 1% (1) Except as otherwise indicated below, the persons whose names appear in the table above have sole voting and investment power with respect to all shares of stock shown as beneficially owned by them, subject to community property laws, where applicable. (2) "Preferred Stock" refers to the Series A Convertible Preferred Stock, which is convertible into 1.667 shares of the Common Stock. (3) Includes Warrants to purchase 11,666 shares of Common Stock convertible within 60 days of July 27, 1999 held by Mr. Barrett and 1,650,000 shares of Common Stock owned by Philip and Debra Barrett Charitable Remainder Trust, of which Mr. Barrett is a trustor and a trustee. Grant of warrants subject to qualification with State securities laws. (4) Represents Warrants to purchase shares of Common Stock convertible within 60 days of July 27, 1999 held by Mr. Chew. Grant of warrants subject to qualification with State securities laws. (5) Includes options to purchase 4,250 shares of Common Stock exercisable within sixty (60) days of July 27, 1999 held by Mrs. Gibbs. (6) Represents Warrants to purchase shares of Common Stock convertible within 60 days of July 27, 1999 held by Mr. Marshall. Grant of warrants subject to qualification with State securities laws. 41 42 (7) Includes warrants to purchase 11,666 shares of Common Stock convertible within 60 days of the Record Date held by Mr. Wagner, 1,420,000 shares of Common Stock owned by Rockport Group LP, of which Mr. Wagner is the sole general partner, 850,000 shares of Common Stock owned by RCJ Capital Partners LP, of which Rockport Group LP is the sole general partner; Director Geoffrey Wagner is the sole general partner of Rockport Group LP, and 10,000 shares of Common Stock purchased on April 5, 1999 by a trust of which the reporting person's wife is the sole beneficiary; the reporting person disclaims beneficial ownership of such 10,000 shares except to the extent of his pecuniary interest in such shares. Grant of warrants subject to qualification with State securities laws. (8) Includes options to purchase 13,666 shares of Common Stock exercisable within sixty (60) days of July 27, 1999 held by Mr. Seaman. (9) Includes options to purchase 1,549 shares of Common Stock exercisable within sixty (60) days of July 27, 1999 held by Mr. Simmons. (10) Represents options to purchase 56,666 shares of Common Stock exercisable within sixty (60) days of July 27, 1999 held by Mr. Barcot. (11) The Employment Agreement dated as of April 1, 1998 between the Company and Mr. Doyle terminated on January 15, 1999, except that in the event the average of the closing price of a share of Common Stock on each of the days from September 21, 1999 through September 30, 1999 meets or exceeds $6, then a certain number of shares will vest based on a sliding scale from 75,000 shares related to a price of $6 per share up to a maximum of 300,000 shares related to a price of $18 per share, in which case Mr. Doyle will have 3 months after September 30, 1999 to exercise the option with respect to any such vested shares. (12) Includes the shares, options, and warrants described in footnotes 3 through 10. ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS In October 1997, the Company closed an interim debt financing of $1,000,000 with Astoria Capital Partners L.P. ("Astoria"). This debt financing was secured by substantially all of the Company's assets and was originally scheduled to be repaid by December 31, 1997. Astoria then extended the due date of the notes payable to September 30, 1998. The Company formed a committee of its creditors (the "Creditor Committee") in February 1998 to structure a workout agreement pursuant to which the Company would repay its creditors over time, with the objective of avoiding further litigation or formal bankruptcy proceedings; and a workout agreement was entered into in June 1998. The Company began repayment to the creditors in the quarter ending September 30, 1998 and fully repaid such creditors by March 31, 1999. In April 1998, the Company agreed to sell up to 126,000 shares of Series A Convertible Preferred Stock of the Company (the "Convertible Preferred Stock"), at a price of $8.03 per share, to Astoria, at its option, at such price per share at anytime prior to October 1, 1998. Each share of Convertible Preferred Stock would convert into 10 shares of common stock. Between April 1 and October 1, 1998, Astoria purchased a total of 124,564 shares of Convertible preferred stock from the Company. The proceeds were used to fund the Company's operations. On December 31, 1998, the Company repurchased the 124,564 shares of Convertible Preferred Stock from Astoria for an aggregate purchase price of $100 (or $.0008 per share). The Certificate Regarding Preferred Stock of the Omnis Technology Corporation was filed with the Delaware Secretary of State on February 25, 1999, eliminating the class of Convertible Preferred Stock then in effect. In order to increase the capital of the Company to obtain additional working capital and to eliminate its principal indebtedness, on March 19, 1999 the Board of Directors of the Company authorized the issuance of 300,000 shares of a new Series A Convertible Preferred Stock (the "Preferred Shares") and 7,600,000 shares of common stock of the Company (the "Common Shares") (collectively the Preferred Shares and the Common Shares shall be referred to as the "Shares"). The Restated Articles of Incorporation of the Company vest in the Board of Directors the authority to issue such Shares. On March 31, 1999 the Company filed with the Secretary of State of Delaware a Certificate of Designations setting forth the rights, preferences and privileges of the new Preferred Shares. Pursuant to the terms of a Letter of Intent entered into by and between the subject parties as of February 22, 1999, on March 31, 1999 the Company entered into a series of stock purchase agreements with Astoria Capital Partners, L.P., Gwyneth Gibbs, president of the Company, and certain members of the Board of Directors or their affiliates. Under the terms of a stock purchase agreement with Astoria, the Company agreed to issue and Astoria agreed to purchase 300,000 Preferred Shares at a purchase price of $1.6667 per share for an aggregate Preferred 42 43 Share purchase price of $500,000; and to purchase 2,543,344 Common Shares at a purchase price of $0.25 per share for an aggregate Common Share purchase price of $635,836 (collectively the "Astoria Shares"). The consideration for the Astoria Shares was the cancellation of the 1997 secured indebtedness of the Company to Astoria. The stock purchase agreement grants certain registration rights and rights of first refusal to Astoria. The Company also entered into a separate Common Stock Purchase Agreement with Astoria pursuant to which Astoria purchased an additional 1,000,000 Common Shares at a price of $0.25 per share for an aggregate cash purchase price of $250,000. The Common Stock Purchase Agreement also grants certain registration rights and rights of first refusal to Astoria. Pursuant to the terms of stock purchase agreements entered into with certain members of the Board of Directors, including Mrs. Gibbs (the "Board of Directors Agreements"), the Company also agreed to issue an additional 4,000,000 Common Shares in the aggregate at a price of $0.25 per share, for an aggregate purchase price of $1,000,000. The Board of Directors Agreements do not grant any registration rights or rights of first refusal to the parties. These transactions were approved by the disinterested directors of the Company pursuant to Delaware law. The Board of Directors Agreements include a stock purchase agreement between the Company and RCJ Capital Partners, LP (of which Rockport Group LP is the sole general partner, and Director Geoffrey Wagner is the sole general partner of Rockport Group LP), for RCJ Capital Partners, LP to purchase 850,000 shares of the Common Stock of the Company for a total price of $212,500 for such shares, a stock purchase agreement between the Company and Rockport Group, LP, of which Director Geoffrey Wagner is the sole general partner, for Rockport Group, LP to purchase 1,420,000 shares of the Common Stock of the Company for a total price of $355,000 for such shares, and a stock purchase agreement between the Company and Philip and Debra Barrett Charitable Remainder Trust, of which Director Philip Barrett is a trustee and trustor, for Philip and Debra Barrett Charitable Remainder Trust to purchase 1,650,000 shares of the Common Stock of the Company for a total price of $412,500. The proceeds from the sale of the Common Shares to the Board of Directors was primarily used to satisfy the entire indebtedness owed to the Omnis Class 2 Creditors pursuant to the 1998 workout agreement previously entered into between the Company and such creditors. The $250,000 in proceeds from the sale of the 1,000,000 Common Shares to Astoria will be used for Company working capital purposes, primarily to enhance and expand its sales and marketing activities. Additional information required by this Item is incorporated by reference from Item 10 entitled "Executive Compensation." ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K (a) The following documents are filed as a part of this Annual Report on Form 10-KSB: 1. Consolidated Financial Statements required to be filed by Item 7 of Form 10-KSB. See Consolidated Financial Statements of the Company at page F-1. 43 44 2. Exhibits:
Exhibit Number Description - -------------- ----------- 3.1 Restated Certificate of Incorporation, as amended and corrected through February 9, 1999.(7) 3.2 Certificate of Amendment of Certificate of Incorporation dated February 9, 1999. 3.3 Certificate of Designations dated March 31, 1998, as corrected.(7) 3.4 Certificate Regarding Series A Preferred Stock of the Omnis Technology Corporation dated February 25, 1999. 3.5 Certificate of Designations dated March 31, 1999.(14) 3.6 Bylaws, as amended.(15) 10.1 Definitive Trust Deed dated October 26, 1983 among Blyth Holdings Limited, Blyth Software Limited and Geoffrey Paul Smith, Paul Nelson Wright and Suntrust Limited (relating to pension scheme).(1) 10.2 Service Agreement dated July 30, 1990 between OMNIS Technology Corporation and David Seaman.(2) 10.3 Deed of Guarantee dated June 1, 1993 between OMNIS Technology Corporation and A. Levy & Son Limited.(3) 10.4 Form of Subscription Agreement for purchase of Units of the Company's securities.(3) 10.5 Form of Stock Purchase Warrant sold to purchaser of Units of the Company's securities.(3) 10.6 Common Stock Purchase Agreement dated March 31, 1993 between OMNIS Technology Corporation and General Reinsurance Corp.(4) 10.7 Form of Indemnification Agreement entered into between the Company and all of its directors and certain of its officers.(4) 10.8 OMNIS Technology Corporation Amended and Restated 1987 Stock Option Plan, as amended.(4) 10.9 OMNIS Technology Corporation 1993 Directors' Warrant Plan and form of Director's Warrant.(9) 10.10 OMNIS Technology Corporation 1994 Employee Stock Purchase Plan, as amended.(10) 10.11 Registration Rights Agreement effective as of January 3, 1994, between the Company and Migration Software Systems Limited.(4)
44 45 10.12 Warrant to Purchase Shares of Common Stock dated January 3, 1994 granted to Migration Software Systems Limited.(4) 10.13 Warrant to Purchase Common Stock issued to Swartz Investments, Inc.(5) 10.14 Form of Registration Rights Agreement among the Company, Purchasers of 8% Convertible Debentures due March 31, 1997 and Swartz Investments, Inc.(5) 10.15 Form of Warrant to Purchase Common Stock issued to certain persons affiliated with Swartz Investments, LLC.(6) 10.16 Form of Registration Rights Agreement among the Company and Swartz Investments, LLC and its designees.(6) 10.17 Note Purchase Agreement dated as of October 14, 1997.(7) 10.18 Note Purchase Agreement dated as of October 31, 1997.(7) 10.19 Series A Convertible Preferred Stock Purchase Agreement dated as of April 1, 1998.(7) 10.20 Employee Agreement between the Company and Kevin Doyle dated April 1, 1998.(7) 10.21 Employee Agreement between the Company and Larry Barcot dated April 1, 1998.(7) 10.22 Shareholder Rights Agreement dated April 1, 1998.(7) 10.23 The 1996 Stock Plan and form of Option Agreement.(8) 10.23 The 1993 Advisors' Warrant Plan and form of warrant.(9) 10.24 Omnis Technology Corporation 1999 Stock Option Plan and form of Stock Option Agreement. 10.25 Series A Convertible Preferred Stock Purchase Agreement dated December 31, 1998.(13) 10.26 Stock Purchase Agreement with Astoria Capital Partners, L.P. ("Astoria") dated March 31, 1999.(14) 10.27 Common Stock Purchase Agreement with Astoria dated March 31, 1999.(14) 10.28 Common Stock Purchase Agreement with Gwyneth Gibbs dated March 31, 1999.(14) 10.29 Common Stock Purchase Agreement with Philip and Debra Barrett Charitable Remainder Trust dated March 31, 1999.(14) 10.30 Common Stock Purchase Agreement with RCJ Capital Partners dated March 31, 1999.(14)
45 46 10.31 Common Stock Purchase Agreement with Rockport Group, L.P. dated March 31, 1999.(14) 16.1 Letter dated November 11, 1998 from Deloitte & Touche LLP to the Securities and Exchange Commission.(12) 21.1 Subsidiaries of the Company.(2) 23.1 Independent Auditors' Consent. 23.2 Independent Auditors' Consent. 27.1 Financial data schedule.(16)
-------------- (1) Incorporated by reference to the Annual Report on Form 10-K filed by the Company with the Commission on July 13, 1990. (2) Incorporated by reference to the Annual Report on Form 10-K filed by the Company with the Commission on June 28, 1991. (3) Incorporated by reference to the Annual Report on Form 10-K filed by the Company with the Commission on June 26, 1992. (4) Incorporated by reference to the Annual Report filed by the Company with the Commission on June 28, 1994. (5) Incorporated by reference to the Current Report on Form 8-K filed by the Company with the Commission on April 7, 1995. (6) Incorporated by reference to the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 1996. (7) Incorporated by reference to the Current Report on Form 8-K filed by the Company with the Commission on June 16, 1998. (8) Incorporated herein by reference to the Registrant's Annual Report on Form 10-K, as amended, for the fiscal year ended March 31, 1997, filed by the Registrant with the Commission on July 29, 1997. (9) Incorporated herein by reference to the Registrant's Registration Statement on Form S-8 (Registration Number 33-81008) filed June 30, 1994. (10) Incorporated herein by reference to the Registrant's Registration Statement on Form S-8 (Registration Number 333-38449) filed October 22, 1997. (11) Incorporated by reference to the Current Report on Form 8-K filed by the Company with the Commission on March 19, 1998. (12) Incorporated by reference to the Current Report on Form 8-K filed by the Company with the Commission on November 12, 1998. 46 47 (13) Incorporated by reference to the Current Report on Form 8-K filed by the Company with the Commission on January 15, 1999. (14) Incorporated by reference to the Current Report on Form 8-K filed by the Company with the Commission on April 5, 1999. (15) 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. (b) Reports were filed by the Company on Form 8-K during the last quarter of the period covered by this report as follows: (1) FORM 8-K - JANUARY 15, 1999. This Form 8-K reported the purchase by the Company from Astoria Capital Partners, L.P. of 124,564 shares of Series A Preferred Stock for an aggregate purchase price of $100 on December 31, 1998. (2) FORM 8-K - MARCH 19, 1999. This Form 8-K reported the engagement of Grant Thornton LLP as the independent public accountants of the Company. 47 48 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Dated: July 29, 1999 OMNIS TECHNOLOGY CORPORATION By: /s/ GWYNETH M. GIBBS ------------------------------- Gwyneth M. Gibbs President and Interim Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
Signatures Title Date - ---------- ------ ---- /s/GWYNETH M. GIBBS - ------------------------------- Gwyneth M. Gibbs President and Interim Chief Executive Officer 7/29/99 /s/PHILIP D. BARRETT - ------------------------------- Philip D. Barrett Chairman 7/29/99 /s/GEOFFREY P. WAGNER - ------------------------------- Geoffrey P. Wagner Director 7/29/99 /s/GERALD F. CHEW - ---------------------- Gerald F. Chew Director 7/29/99 /s/DOUGLAS MARSHALL - ---------------------- Douglas Marshall Director 7/29/99
48 49 EXHIBIT INDEX
Exhibit Number Description - -------------- ----------- 3.1 Restated Certificate of Incorporation, as of October 10, 1997. (7) 3.2 Certificate of Amendment of Certificate of Incorporation dated February 9, 1999. 3.3 Certificate of Designations dated March 31, 1998, as corrected.(7) 3.4 Certificate Regarding Series A Preferred Stock of the Omnis Technology Corporation dated February 25, 1999. 3.5 Certificate of Designations dated March 31, 1999.(14) 3.6 Bylaws, as amended.(15) 10.1 Definitive Trust Deed dated October 26, 1983 among Blyth Holdings Limited, Blyth Software Limited and Geoffrey Paul Smith, Paul Nelson Wright and Suntrust Limited (relating to pension scheme).(1) 10.2 Service Agreement dated July 30, 1990 between OMNIS Technology Corporation and David Seaman.(2) 10.3 Deed of Guarantee dated June 1, 1993 between OMNIS Technology Corporation and A. Levy & Son Limited.(3) 10.4 Form of Subscription Agreement for purchase of Units of the Company's securities.(3) 10.5 Form of Stock Purchase Warrant sold to purchaser of Units of the Company's securities.(3) 10.6 Common Stock Purchase Agreement dated March 31, 1993 between OMNIS Technology Corporation and General Reinsurance Corp.(4) 10.7 Form of Indemnification Agreement entered into between the Company and all of its directors and certain of its officers.(4) 10.8 OMNIS Technology Corporation Amended and Restated 1987 Stock Option Plan, as amended.(4) 10.9 OMNIS Technology Corporation 1993 Directors' Warrant Plan and form of Director's Warrant.(9) 10.10 OMNIS Technology Corporation 1994 Employee Stock Purchase Plan, as amended.(10) 10.11 Registration Rights Agreement effective as of January 3, 1994, between the Company and Migration Software Systems Limited.(4)
50 10.12 Warrant to Purchase Shares of Common Stock dated January 3, 1994 granted to Migration Software Systems Limited.(4) 10.13 Warrant to Purchase Common Stock issued to Swartz Investments, Inc.(5) 10.14 Form of Registration Rights Agreement among the Company, Purchasers of 8% Convertible Debentures due March 31, 1997 and Swartz Investments, Inc.(5) 10.15 Form of Warrant to Purchase Common Stock issued to certain persons affiliated with Swartz Investments, LLC.(6) 10.16 Form of Registration Rights Agreement among the Company and Swartz Investments, LLC and its designees.(6) 10.17 Note Purchase Agreement dated as of October 14, 1997.(7) 10.18 Note Purchase Agreement dated as of October 31, 1997.(7) 10.19 Series A Convertible Preferred Stock Purchase Agreement dated as of April 1, 1998.(7) 10.20 Employee Agreement between the Company and Kevin Doyle dated April 1, 1998.(7) 10.21 Employee Agreement between the Company and Larry Barcot dated April 1, 1998.(7) 10.22 Shareholder Rights Agreement dated April 1, 1998.(7) 10.23 The 1996 Stock Plan and form of Option Agreement.(8) 10.23 The 1993 Advisors' Warrant Plan and form of warrant.(9) 10.24 Omnis Technology Corporation 1999 Stock Option Plan and form of Stock Option Agreement. 10.25 Series A Convertible Preferred Stock Purchase Agreement dated December 31, 1998.(13) 10.26 Stock Purchase Agreement with Astoria Capital Partners, L.P. ("Astoria") dated March 31, 1999.(14) 10.27 Common Stock Purchase Agreement with Astoria dated March 31, 1999.(14) 10.28 Common Stock Purchase Agreement with Gwyneth Gibbs dated March 31, 1999.(14) 10.29 Common Stock Purchase Agreement with Philip and Debra Barrett Charitable Remainder Trust dated March 31, 1999.(14) 10.30 Common Stock Purchase Agreement with RCJ Capital Partners dated March 31, 1999.(14)
51 10.31 Common Stock Purchase Agreement with Rockport Group, L.P. dated March 31, 1999.(14) 16.1 Letter dated November 11, 1998 from Deloitte & Touche LLP to the Securities and Exchange Commission.(12) 21.1 Subsidiaries of the Company.(2) 23.1 Independent Auditors' Consent. 23.2 Independent Auditors' Consent. 27.1 Financial data schedule.
-------------- (1) Incorporated by reference to the Annual Report on Form 10-K filed by the Company with the Commission on July 13, 1990. (2) Incorporated by reference to the Annual Report on Form 10-K filed by the Company with the Commission on June 28, 1991. (3) Incorporated by reference to the Annual Report on Form 10-K filed by the Company with the Commission on June 26, 1992. (4) Incorporated by reference to the Annual Report filed by the Company with the Commission on June 28, 1994. (5) Incorporated by reference to the Current Report on Form 8-K filed by the Company with the Commission on April 7, 1995. (6) Incorporated by reference to the Company's Annual Report on Form 10-K for the fiscal year ended March 31, 1996. (7) Incorporated by reference to the Current Report on Form 8-K filed by the Company with the Commission on June 16, 1998. (8) Incorporated herein by reference to the Registrant's Annual Report on Form 10-K, as amended, for the fiscal year ended March 31, 1997, filed by the Registrant with the Commission on July 29, 1997. (9) Incorporated herein by reference to the Registrant's Registration Statement on Form S-8 (Registration Number 33-81008) filed June 30, 1994. (10) Incorporated herein by reference to the Registrant's Registration Statement on Form S-8 (Registration Number 333-38449) filed October 22, 1997. (11) Incorporated by reference to the Current Report on Form 8-K filed by the Company with the Commission on March 19, 1998. (12) Incorporated by reference to the Current Report on Form 8-K filed by the Company with the Commission on November 12, 1998. (13) Incorporated by reference to the Current Report on Form 8-K filed by the Company with the Commission on January 15, 1999. (14) Incorporated by reference to the Current Report on Form 8-K filed by the Company with the Commission on April 5, 1999. (15) 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. 52 (b) Reports were filed by the Company on Form 8-K during the last quarter of the period covered by this report as follows: (1) FORM 8-K - JANUARY 15, 1999. This Form 8-K reported the purchase by the Company from Astoria Capital Partners, L.P. of 124,564 shares of Series A Convertible Preferred Stock for an aggregate purchase price of $100 on December 31, 1998. (2) FORM 8-K - MARCH 19, 1999. This Form 8-K reported the engagement of Grant Thornton LLP as the independent public accountants of the Company. EX-3.2 2 CERTIFICATE OF AMENDMENT DATED 02/09/1999 1 EXHIBIT 3.2 CERTIFICATE OF AMENDMENT OF CERTIFICATE OF INCORPORATION OF OMNIS TECHNOLOGY CORPORATION Omnis Technology Corporation (f/k/a Blyth Holdings, Inc.), a corporation organized and existing under the laws of Delaware ("Corporation"), does hereby certify as follows: FIRST: That the Board of Directors of the Corporation by unanimous vote of its members, filed with the minutes of the Board, duly adopted a resolution setting forth a proposed amendment to the Restated Certificate of Incorporation of said Corporation, declaring said amendment to be advisable and calling for the submission of the matter to the stockholders of the Corporation for consideration and approval. The resolution setting forth the proposed amendment is as follows: "RESOLVED: That Paragraph 4.1 of Article Fourth of the Restated Certificate of Incorporation of this Corporation be amended to read as follows: 4.1 This corporation is authorized to issue two classes of stock to be designated, respectively, "common" and "preferred". The number of common shares authorized is Twenty Million (20,000,000), each with a par value of $0.10. The number of preferred shares authorized is Three Hundred Thousand (300,000), each with a par value of $1.00." SECOND: That thereafter, pursuant to the resolution of the Board of Directors of the Corporation, this amendment of the Restated Certificate of Incorporation of the Corporation was approved by a majority of the stockholders of the Corporation at a special meeting of the stockholders on September 9, 1998 pursuant to notice duly made and given. THIRD: That said amendment was duly adopted in accordance with the provisions of Section 242 of the General Corporation Law of the State of Delaware. IN WITNESS WHEREOF, Omnis Technology Corporation has duly caused this Certificate of Amendment to be signed and acknowledged by its duly authorized officer this 9th day of February, 1999. OMNIS TECHNOLOGY CORPORATION By: /s/ GWYNETH GIBBS -------------------------------- Gwyneth Gibbs, President and Interim Chief Financial Officer EX-3.4 3 CERTIFICATE REGARDING SERIES DATED 09/25/1999 1 EXHIBIT 3.4 CERTIFICATE REGARDING SERIES A PREFERRED STOCK OF OMNIS TECHNOLOGY CORPORATION Omnis Technology Corporation, a corporation organized and existing under the General Corporation Law of the State of Delaware ("Corporation"), in accordance with Section 151(g) of said Law and Article Fifth of the Restated Certificate of Incorporation of the Corporation, does hereby certify as follows: 1. No shares of Series A Preferred Stock of the Corporation remain outstanding. 2. The Board of Directors of the Corporation by unanimous vote of its members on February 8, 1999, filed with the minutes of the Board, duly adopted the following resolution regarding the Series A Preferred Stock of the Corporation: "RESOLVED: That none of the authorized shares of Series A Preferred Stock of the Corporation are outstanding, and none will be issued subject to the Certificate of Designation previously filed with respect to such series; and therefore said Series A Preferred Stock shall be eliminated pursuant to Section 151(g) of the General Corporation Law of the State of Delaware effective immediately." IN WITNESS WHEREOF, Omnis Technology Corporation has duly caused this Certificate to be signed and acknowledged by its duly authorized President and Secretary this 24th day of February, 1999. OMNIS TECHNOLOGY CORPORATION By: /s/ GWYNETH GIBBS ----------------------------- Gwyneth Gibbs, President By: /s/ GEOFFREY P. WAGNER ----------------------------- Geoffrey P. Wagner, Secretary EX-10.24 4 OMNIS TECHNOLOGY 1999 STOCK OPTION PLAN 1 EXHIBIT 10.24 OMNIS TECHNOLOGY CORPORATION 1999 STOCK OPTION PLAN 1. Purpose. This Omnis Technology Corporation 1999 Stock Option Plan (the "Plan") is established to create additional incentives for certain valued employees, directors, consultants and advisors of Omnis Technology Corporation, a Delaware corporation (the "Company") or any parent or subsidiary thereof and to promote the financial success and progress of the Company and the Corporate Group. It is intended that (i) options which qualify as incentive stock options ("Incentive Options") under Section 422 of the Internal Revenue Code of 1986 as amended or superseded, and (ii) options which are nonincentive stock options ("Nonincentive Options") may be granted under this Plan. 2. Effective Date and Term of the Plan. a. This Plan shall become effective on the date of its adoption by the Board of Directors of the Company (the "Board"), provided the Plan is approved by the shareholders of the Company within twelve months before or after that date. If the Plan is not so approved by the shareholders of the Company, all options granted under this Plan shall be rescinded and shall be void. b. This Plan shall terminate upon the earlier of (i) ten (10) years from the date the Plan is adopted by the Board or approved by the shareholders, whichever is earlier, or (ii) the date on which all shares available for issuance under this Plan shall have been issued pursuant to the exercise of options granted hereunder, or (iii) by action of the Board pursuant to Section 14 hereof. All options outstanding on the date of termination of this Plan shall continue in force and effect in accordance with the provisions of the agreements evidencing such options, and shall continue to include by reference all of the relevant provisions of this Plan notwithstanding such termination. 3. Certain Definitions. Unless the context otherwise requires, the following defined terms (and all other capitalized terms defined in this Plan) shall govern the construction of this Plan, and any stock option agreements entered into pursuant to this Plan: a. "Code" means the Internal Revenue Code of 1986 as amended or superseded. b. "Common stock" shall mean the Common Stock of the Company, $0.10 par value. c. "Corporate Group" means the Company and any successor thereof, any and all parent corporations of the Company, and any and all subsidiary corporations of the Company as of the relevant date of determination. For purposes of this Plan, "parent" or "parent corporation" and "subsidiary" or "subsidiary corporation" shall have the same meanings as defined in Sections 424(e) and 424(f) of the Code. d. "Permanent and total disability" shall have the same meaning as defined in Section 22(e)(3) of the Code. e. "Exchange Act" means the Securities Exchange Act of 1934 as amended or superseded. 2 f. Except as otherwise expressly provided herein, "fair market value" means: (i) If the common stock of the Company is then listed on a Public Market (as hereinafter defined), then the "fair market value" of the shares of such common stock of the Company shall be the closing price of such stock on the principal exchange or securities market on which such stock is then listed or admitted to trading on the last trading day immediately prior to the relevant date, as reported by the Wall Street Journal or such other source as the Board deems reliable. If there are no reported sales of such stock of the Company on such principal exchange or securities market on said date, then the closing price for such stock on such exchange or market on the next preceding trading day for which quotations do exist shall be determinative of fair market value, as reported by the Wall Street Journal or such other source as the Board deems reliable. (ii) If the common stock of the Company is quoted on the NASDAQ System (but not on the National Market System or Small Cap System thereof) or is regularly quoted by a recognized securities dealer but selling prices are not reported, then the "fair market value" of the shares of such common stock of the Company shall be the mean of the closing bid and asked prices for such stock on the last trading day immediately prior to the relevant date, as reported by the Wall Street Journal or such other source as the Board deems reliable; provided however that the Board may use other good faith methods to determine "fair market value" of the common stock in the event that the Board determines that such selling prices or bid and asked prices are not a reliable indicator of fair market value due to low or sporadic volume trading or comparable factors during the relevant period. (iii) In the absence of an established market for the Common Stock of the Company, then the "fair market value" of the shares of such common stock of the Company shall be as determined by the Board in good faith as of the relevant date, or pursuant to such other or additional standards as required by applicable law. g. "For cause" means (i) conviction of a crime involving moral turpitude or any felony; (ii) the repeated failure to perform or material neglect or incompetence in the performance of the regular duties of the Optionee as an employee of the Company or other member of the Corporate Group; (iii) knowing participation in any fraud or other material act of malfeasance related to the business of the Company or other member of the Corporate Group; or (iv) the imparting, disclosure or use of any confidential information in material violation of any then applicable employment agreement or nondisclosure agreement to which the Company or other member of the Corporate Group is a party; except as otherwise provided by the terms of the relevant Option Agreement. Nothing in this Plan is intended to change the nature of the at-will employment of an Optionee with the Company or other member of the Corporate Group. h. "Option" collectively means an Incentive Option or a Nonincentive Option granted to an Optionee hereunder pursuant to an Option Agreement. i. "Option Agreement" means the written agreement between the Company and an Optionee granting an Option hereunder. j. "Option Price" with respect to any particular Option means the exercise price at which the Optionee may acquire each share of the Option Shares under such Option. k. "Option Shares" mean the shares of the common stock of the Company issued or issuable by the Company pursuant to the exercise of an Option granted hereunder; all stock or securities received in replacement of the Option Shares in connection with a recapitalization, reorganization, merger or other transaction subject to Section 5(b) hereof; all stock or other securities received as stock dividends or as a result 3 of any stock splits; and all new, substituted or additional stock or other securities to which an Optionee may be entitled by reason of the exercise of an Option or the ownership of the Option Shares. l. "Optionee" means the eligible person to whom an Option is granted hereunder, and any permissible transferee thereof pursuant to Section 6(e) of this Plan. Any permissible transferee shall be bound by all of the terms and conditions and obligations of this Plan and the relevant Option Agreement. m. "Public Market" means a market where the common stock of the Company is listed on a national securities exchange (as that term is used in the Exchange Act) or a national securities market, including without limitation the National Market System of the National Association of Securities Dealers, Inc. Automated Quotation System ("NASDAQ") or the NASDAQ Small Cap Market as then constituted. n. "Ten Percent Shareholder" means a person who owns, either directly or indirectly by virtue of the ownership attribution provisions set forth in Section 424(d) of the Code, at the time such person is granted an Option, stock possessing more than ten percent (10%) of the total combined voting power or value of all classes of stock of the Company or of its parent or subsidiary corporation or corporations. 4. Eligibility. The persons who shall be eligible to be granted Options pursuant to this Plan shall be the employees, officers, directors, consultants and/or advisors of the Company or any parent or subsidiary thereof, as the Board shall select from time to time in its sole discretion. 5. Shares Subject to Plan. a. The stock issuable under this Plan shall be shares of the authorized but unissued or reacquired common stock of the Company. The aggregate number of shares of common stock which may be issued under this Plan shall be One Million Five Hundred Thousand (1,500,000) shares, subject to adjustment as provided in Section 5(b) hereof. In the event that any outstanding Option for any reason expires or is terminated or cancelled in whole or in part, the Option Shares allocable to any unexercised portion of such Option shall be available for subsequent grants hereunder. b. In the event the Company shall change the outstanding shares of its common stock into a different number or class of shares by means of any merger, consolidation, recapitalization, reorganization, reclassification, stock split, reverse stock split, stock dividend, combination, exchange or other comparable change in the corporate structure of the Company effected without receipt of consideration, then the Board shall make appropriate adjustments to the number and/or class of Option Shares and the Option Price per share of the stock subject to each outstanding and unexercised Option and with regard to the maximum number and/or class of shares of common stock of the Company issuable under this Plan, in order to prevent the dilution of benefits provided under such Options and this Plan. For these purposes (i) changes occurring on account of the issuance of shares of stock by the Company at any time upon the exercise of any stock options, rights or warrants or upon the conversion of any convertible securities or debt or other issuance of stock by the Company in a private or public offering for consideration shall not require any adjustment in the number or class of shares or the Option Price, and (ii) in the case of Incentive Options, any and all adjustments provided for hereunder shall fully comply with Sections 422 and 424 of the Code. c. Neither the grant of an Option nor any other provision hereof shall in any way affect the right of the Company to adjust, reclassify, restructure, reorganize or otherwise change its capital or business structure or to merge, consolidate, dissolve, liquidate or sell or transfer or otherwise dispose of all or any part of its stock, business or assets at any time. 6. Grant of Options; Option Agreements. Each Option granted pursuant to this Plan shall be authorized by the action of the Board and shall be evidenced by an Option Agreement between the Company and the person to whom such Option is granted, in the form and substance satisfactory to the Board from time 4 to time and consistent with and pursuant to this Plan. Without limiting the foregoing, each Option Agreement shall be deemed to include and incorporate by reference each and all of the following terms and conditions: a. Grant Date. The date stated in the Option Agreement as the grant date of the Option shall be the "Grant Date" of the Option for all purposes hereof. Notwithstanding the foregoing, an Option shall not be effective and legally enforceable hereunder until the completed execution and delivery of the written Option Agreement by the Optionee and a duly authorized officer of the Company. b. Term of Option. The Board shall have the power to set the time or times within which each Option shall be exercisable or the event or events upon the occurrence of which all or a portion of each Option shall be exercisable and the term of each Option; provided however that no Option shall be exercisable after the expiration of ten (10) years from the date such Option is granted; or in the case of a Ten Percent Shareholder, after the expiration of five (5) years from the date such Option is granted. c. Right to Exercise; Vesting. The right to exercise an Option shall vest at the rate of at least twenty percent (20%) per year over five (5) years from the Grant Date of the Option in all events, subject to reasonable conditions such as the continued employment of the Optionee and specifically subject to Section 6(h) of this Plan. Except as otherwise expressly provided in the relevant Option Agreement and subject to the expiration or earlier termination of the Option, the vesting period of the Option shall be for a period of four (4) years as follows: (i) The Optionee shall have no right to exercise any part of the Option at any time prior to the expiration of the one (1) year from the Grant Date of the Option; (ii) The Option shall become exercisable with respect to Twenty-Five Percent (25%) of the Option Shares upon the expiration of one (1) year from the Grant Date of the Option; and (iii)The Option thereafter shall become exercisable with respect to an additional Two and Eight Point Thirty Three Hundredths Percent (2.0833%) of the Option Shares for each month following the expiration of one (1) year from the Grant Date of the Option. Exercisable installments may be exercised by the Optionee in whole or in part and to the extent not exercised shall accumulate and be exercisable as provided. The Company shall not be required to issue fractional shares at any time; and any fractional shares remaining in an Option following any exercise thereof shall be rounded down to the next nearest whole number of Shares. d. Option Price. The Option Price for each Option shall be as determined in the sole discretion of the Board from time to time; provided however that: (i) The Option Price for Incentive Options shall be not less than 100 percent of the fair market value of the Option Shares on the Grant Date of the Option; except that the Option Price for Incentive Options of a Ten Percent Shareholder shall not be less than 110 percent of the fair market value of the Option Shares on the Grant Date of the Option. (ii) The Option Price for Nonincentive Options shall be not less than 85 percent of the fair market value of the Option Shares on the Grant Date of the Option; except that the Option Price for Nonincentive Options of a Ten Percent Shareholder shall not be less than 110 percent of the fair market value of the Option Shares on the Grant Date of the Option. e. Non-Transferability. No Option shall be transferable or assignable by the Optionee other than by will or the laws of descent and distribution, and an Option may be exercised during the lifetime of the Optionee solely by the Optionee; provided however that in the case of Nonincentive Options, the Optionee 5 may transfer all or part of a Nonincentive Option by instrument to an inter vivos or testamentary trust in which such Option is to be passed to beneficiaries upon the death of the Optionee, or by gift to "immediate family" members as that term is defined in 17 C.F.R. Section 240.16a-1(e)(as amended or superseded), provided further that such Option shall remain subject to all of the terms and conditions of this Plan and the relevant Option Agreement, including but not limited to the Option termination provisions hereof. Subject to the foregoing, all transfers or assignments or attempted transfers or assignments of any Option or Option Agreement shall be void ab initio. f. Exercise of the Option. Except as otherwise provided in the relevant Option Agreement, in order to exercise an Option with respect to all or any part of the Option Shares for which an Option is then exercisable, Optionee (or the executor, administrator, heir or devisee of Optionee after the death of Optionee) must do the following: (i) Provide the Secretary of the Company with written notice of such exercise, specifying the number of Option Shares for which the Option is being exercised; (ii) Pay the Option Price for the Option Shares being purchased in one or more of the following forms: (1) full payment in cash or check of the Option Price in United States Dollars for the Option Shares being purchased; (2) full payment in shares of common stock of the Company having a fair market value on the Exercise Date equal to the Option Price for the Option Shares being purchased, and held for such period required for purposes of Section 16(b) of the Exchange Act to the extent applicable; or (3) full payment by a combination of such shares of common stock of the Company valued at fair market value on the Exercise Date and cash or check payable to the order of the Company, equal in the aggregate to the Option Price for the Option Shares being purchased; and (iii) Furnish to the Company appropriate documentation that the person or persons exercising the Option, if other than Optionee, have the right to exercise such Option. For these purposes, the "Exercise Date" of the Option shall be the date on which the Secretary of the Company receives written notice of the exercise of such Option, together with full payment of the Option Price for the Option Shares being purchased. In the event the Board determines in its sole discretion that the shares of common stock of the Company cannot be reasonably valued at fair market value as of the Exercise Date, then full payment of the Option Price for the Option Shares shall be made only in cash or check payable to the order of the Company. The certificate or certificates for the Option Shares shall be registered in the name of Optionee, or if applicable, in the name of the estate, heirs or devisees of Optionee. g. Rule 16b-3. Options granted to individuals subject to Section 16 of the Exchange Act must comply with the applicable provisions of SEC Rule 16b-3 (as amended or superseded) and shall contain such additional conditions or restrictions as may be required thereunder to qualify for the maximum exemption from Section 16 of the Exchange Act with respect to Plan transactions. h. Tax Withholding. At the time an Option is exercised in whole or in part, or at any time thereafter as requested by the Company, the Optionee shall authorize payroll withholding and otherwise shall agree to make adequate payments to the Company for all federal, state and other jurisdiction tax withholding obligations of the Company or any parent or subsidiary thereof which may arise in connection with the Option, if any, including without limitation obligations arising upon (i) the grant of such Option, (ii) the exercise of such Option in whole or in part, (iii) the transfer of any Option Shares or other property or consideration of any kind in connection with the exercise of such Option, (iv) the operation of any law or regulations providing for the imputation of interest or any other income or payment, or (v) the lapsing of any restriction with respect to any Option Shares. 6 i. Earlier Termination of Option Term. An Option shall terminate prior to the expiration date of the Option as follows: (i) Termination For Cause. If the Company terminates the employment of an Optionee for cause, then the Option shall terminate and cease to be exercisable upon the earlier of (1) the termination of the employment of the Optionee or (2) the expiration date of the Option. No additional right to exercise the Option with respect to any Option Shares shall vest from and after the date the employment of the Optionee is terminated. (ii) Voluntary Termination. If the Optionee voluntarily terminates his or her employment with the Company, then the Option shall terminate and cease to be exercisable upon the earlier of (1) the expiration of thirty (30) days from the date the employment of the Optionee is terminated or (2) the expiration date of the Option. No additional right to exercise the Option with respect to any Option Shares shall vest from and after the date the employment of the Optionee is terminated. (iii) Termination Without Cause. If the Company terminates the employment of the Optionee without cause (other than in the case of death or permanent and total disability), then the Option shall terminate and cease to be exercisable upon the earlier of (1) the expiration of sixty (60) days from the date the employment of the Optionee is terminated or (2) the expiration date of the Option. No additional right to exercise the Option with respect to any Option Shares shall vest from and after the date the employment of the Optionee is terminated. (iv) Removal of Director For Cause. If an Optionee is removed as a director for cause as defined by applicable law, then any Option granted to the Optionee in his or her capacity as a director shall terminate and cease to be exercisable upon the earlier of (1) the termination of the directorship of the Optionee or (2) the expiration date of such Option. No additional right to exercise such Option with respect to any Option Shares shall vest from and after the date the directorship of the Optionee is terminated. (v) Death of Optionee. In the event of the death of Optionee during the term of the Option, then the executors or administrators of the estate of the Optionee or the heirs or devisees of the Optionee (as the case may be) shall have the right to exercise the Option to the extent the Optionee was entitled to do so at the time of his or her death; provided however that the Option shall terminate and cease to be exercisable upon the earlier of (1) the expiration of one (1) year from the date of the death of the Optionee or (2) the expiration date of the Option. No additional right to exercise the Option with respect to any Option Shares shall vest from and after the date of the death of the Optionee. (vi) Disability of Optionee. In the event of the permanent and total disability of Optionee during the term of the Option, then Optionee shall have the right to exercise the Option to the extent Optionee was entitled to do so at the time of the termination of his or her employment or directorship or engagement with the Company by reason of such disability; provided however that the Option shall terminate and cease to be exercisable upon the earlier of (1) the expiration of one (1) year from the date of such termination of employment or directorship or engagement or (2) the expiration date of the Option. No additional right to exercise the Option with respect to any Option Shares shall vest from and after the date of the termination of the employment or directorship or engagement of the Optionee. (vii) Employment by Corporate Group. For purposes of this Section, if during the term of the Option the Optionee transfers as an employee from the Company to another member of the Corporate Group, the employment of the Optionee shall not be deemed to have terminated or ceased 7 hereunder and all references to the Company herein shall be deemed to include such member of the Corporate Group. For purposes hereof the employment of the Optionee shall be deemed to have terminated either upon actual termination of employment or upon the employer of Optionee ceasing to be a member of the Corporate Group, unless said employer or its successor assumes the Option pursuant to the terms hereof. j. Common Stock Voting Rights. This Plan and any Option Agreement hereunder shall be in full compliance with Section 260.140.1 of the Rules of the California Commissioner of Corporations (as amended or superseded) regarding the voting rights of common stock. k. Other Provisions. An Option Agreement may contain such other terms, provisions and conditions, including but not limited to provisions accelerating the right to exercise an Option, special forfeiture conditions, rights of repurchase, rights of first refusal and restrictions on transfer of Option Shares issued hereunder, not inconsistent with the provisions of this Plan or applicable law, as may be determined by the Board in its sole discretion. 7. Restrictions on Grant or Stock Issuance. a. The grant of Options and the issuance of Option Shares shall be conditioned upon and subject to compliance with all of the applicable requirements of federal and state laws with respect to such securities on the relevant dates of determination; and to the entering into of such covenants, representations and warranties by the Optionee as required under applicable laws in the judgment of the Company or its counsel in its sole discretion with respect to the grant of the Option and the issuance of the Option Shares thereunder. Without limiting the foregoing, the Company has no obligation to file a registration statement under the Securities Act of 1933 or under any similar act or law for the registration or qualification of any Option or any of the Option Shares or to otherwise assist any Optionee in complying with any exemption from registration. b. The certificate or certificates representing the Option Shares acquired by exercise of the Option shall bear such legends as determined by the Company in its sole and absolute discretion, including without limitation any applicable federal or state securities law or corporate law restrictions and legends. In order to ensure compliance with the restrictions set forth in this Plan and the Option Agreement, the Company also may issue appropriate stop-transfer instructions to its transfer agent, if any, and if the Company transfers its own securities, the Company may make appropriate notations to the same effect in its own records. 8. No Rights as a Shareholder. No person shall have any rights as a shareholder with respect to any of the Option Shares subject to an Option until the date of the issuance of a stock certificate(s) for the Option Shares for which the Option has been exercised. No adjustments shall be made for dividends or distributions or other rights for which the record date is prior to the date such stock certificate(s) are issued, except as provided in Section 5(b) of this Plan. 9. No Rights in Other Capacities. Nothing in this Plan or in any Option Agreement shall confer upon any Optionee any right to continue as an employee or director or consultant or advisor of the Company (or any other member of the Corporate Group) or interfere in any manner with any right of the Company (or any other member of the Corporate Group or other relevant entity) to terminate the employment or directorship or engagement of an Optionee at any time. No Optionee shall have any authority to act on behalf of the Company in any capacity with respect to his or her own participation in this Plan or with respect to his or her own Option Agreement or Option granted hereunder. 10. Use of Proceeds. The proceeds received by the Company from the payment of the Option Price pursuant to exercise of an Option shall be used for such corporate purposes as determined by the Board in its discretion. 8 11. Lock-Up Restrictions. In connection with any underwritten public offering of stock or other securities made by the Company pursuant to an effective registration statement filed under applicable federal securities acts, the Optionee shall fully comply with and cooperate with the Company and any managing underwriter in connection with any stock "lock-up" or "standstill" agreements or similar restrictions on the offer or sale or contract to sell or other transfer or assignment or pledge or loan or other encumbrance of the shares of the common stock of the Company (including without limitation any of the Option Shares) generally applicable to similarly situated shareholders or optionholders of the Company. 12. Mandatory Notice of Disposition. The Optionee shall transfer or dispose of any of the Option Shares only in compliance with the provisions of this Plan and the Option Agreement. Without limiting the other provisions of this Plan or the Option Agreement, in the event the Optionee disposes of any of the Option Shares within two (2) years of the Grant Date of the Option or within one (1) year after the transfer of the Option Shares to the Optionee in connection with an exercise of the Option, whether such disposition is made by sale, exchange, gift or otherwise, then the Optionee shall notify the Chief Financial Officer of the Company of such disposition in writing within thirty (30) days from the date of such disposition. Said written notice shall state the date of such disposition, and the type and amount of the consideration received for such Option Share or Option Shares by the Optionee in connection therewith. In the event of any such disposition, the Company shall have the right to withhold from the Optionee or to require the Optionee to immediately pay to the Company the aggregate amount of taxes, if any, which the Company is required to withhold under federal or state or other applicable law as a result of the granting or exercise of the subject Option or the disposition of the subject Option Shares. 13. Modification, Extension and Renewal of Options. Subject to the terms and conditions and within the limitations of this Plan, the Board may modify, extend or renew outstanding Options granted under this Plan, or accept the surrender of outstanding Options (to the extent not theretofore exercised) and authorize the granting of new Options in substitution therefor (to the extent not theretofore exercised). Notwithstanding the foregoing, no modification of any Option shall, without the consent of the Optionee, alter or impair any rights or obligations under any Option theretofore granted under this Plan. 14. Termination or Amendment of Plan. a. The Board may at any time terminate or amend this Plan prior to the expiration of this Plan, provided however that without the approval of the shareholders of the Company there shall be: (i) no increase in the total number of shares of stock which may be issued under this Plan (except by operation of the provisions of Section 5(b) hereof), and (ii) no change in the classes of persons eligible to be granted Options. b. No amendment of this Plan may adversely affect any then outstanding Option or any unexercised portion thereof without the consent of the Optionee; provided however that subject to Section 14(a) hereof the Board expressly reserves the right to amend the terms and provisions of this Plan and of any outstanding Options under this Plan to the extent necessary to qualify such Options for such favorable federal income tax treatment (including deferral of taxation upon exercise) as may be afforded employee stock options under amendments to the Code or other statutes or regulations which become effective after the effective date of this Plan. 15. Financial Statements. Subsequent to the Effective Date of the Plan, the Optionees shall receive financial statements from the Company on at least an annual basis to the extent required by the then applicable Rules of the Commissioner of Corporations for the State of California or as otherwise required by law. 16. Notices. All notices, requests, demands and other communications required or permitted to be given pursuant to this Plan or any Option Agreement (collectively "notices") shall be in writing and shall be delivered (i) by personal delivery, (ii) by nationally recognized overnight air courier service or (iii) 9 by deposit in the United States Mail, postage prepaid, registered or certified mail, return receipt requested. A notice shall be deemed to have been given on the date delivered, if delivered personally or by overnight air courier service; or five (5) days after mailing if mailed. All notices shall be addressed if to the Company at its principal place of business in the State of California, United States of America, to the attention of the Secretary or Chief Financial Officer of the Company; and if to the Optionee or his or her representative at the last address of Optionee shown on the records of the Company. Either party may by written notice to the other party specify a different address to which notices shall be given, by sending notice thereof to the other party in the foregoing manner. 17. Administration. This Plan shall be administered by the Board or by a duly appointed committee of the Board having such powers as shall be specified by the Board; and further subject to Section 16(b) of the Exchange Act and SEC Rule 16b-3 (as amended or superseded) with respect to any Option granted to an individual subject to such rules. Any references in this Plan to the Board shall also be deemed to refer to such committee of the Board if appointed for such purposes with the relevant powers. The Board may also at any time terminate the functions of such committee and reassume all powers and authority previously delegated to the committee. The Board is authorized to establish such rules and regulations as it may deem appropriate for the proper administration of this Plan and to make such determinations under, and issue such interpretations of, this Plan and any Option Agreement or Option granted hereunder as it may deem necessary or advisable. All questions of interpretation of this Plan or any Option Agreement or Option granted hereunder shall be determined by the Board and shall be final and binding upon all persons having an interest in this Plan or any Option Agreement or Option granted hereunder. No member of the Board shall vote on any matter concerning his or her own participation in this Plan. No member of the Board shall be liable for any action or interpretation made in good faith hereunder. 18. General Provisions. a. This Plan constitutes the entire Omnis Technology Corporation 1999 Stock Option Plan, subject to termination or amendment as herein provided. In the event of any conflict between the terms or provisions of this Plan and any Option Agreement for any Option granted hereunder, the terms and provisions of this Plan shall control. b. This Plan shall be construed in accordance with and governed by the laws of the State of California without reference to the principles of conflicts of law. c. Whenever possible, each provision of this Plan shall be interpreted in such manner as to be effective and valid under applicable law. In the event that any provision of this Plan shall be held by the final judgment of a court of competent jurisdiction to be invalid or unlawful or unenforceable, then the remaining provisions of this Plan shall remain in full force and effect and shall be construed to give the fullest effect to the purpose of this Plan and the intended qualification of this Plan pursuant to Section 422 of the Code and pursuant to Section 25102(o) of the California Corporations Code and the respective regulations and rules thereunder (as amended or superseded). d. When the context requires, the plural shall include the singular and the singular the plural and any gender shall include any other gender. Section headings are for convenience only and are not part of this Plan. 19. Copies of Plan. A complete copy of this Plan as then in effect shall be delivered to each Optionee at or before the time such person executes and delivers the relevant Option Agreement. 10 Dated: April 13, 1999 DATE OF ADOPTION OF THIS PLAN BY THE BOARD OF DIRECTORS OF THE COMPANY: APRIL 13, 1999 11 OMNIS TECHNOLOGY CORPORATION INCENTIVE STOCK OPTION AGREEMENT [FORM] This Incentive Stock Option Agreement ("Agreement") is made and entered into on _____________________ ("Grant Date") by and between Omnis Technology Corporation, a Delaware corporation (the "Company"), and _____________________ ("Optionee"). W I T N E S S E T H: A. The Board of Directors of the Company ("Board") has adopted the Omnis Technology Corporation 1999 Stock Option Plan to create additional incentives for certain valued employees, directors, consultants and advisors of the Company or its parent or subsidiary and to promote the financial success and progress of the Company and such parents and subsidiaries. For purposes hereof the "Plan" and all section references therein shall be defined as said 1999 Stock Option Plan as amended or superseded during the term of this Agreement. B. Optionee is a valued employee of the Company or a parent or subsidiary thereof, and this Incentive Stock Option Agreement is executed pursuant to, and is intended to carry out the purposes of, the Plan in connection with the grant by the Company to Optionee of an incentive stock option as defined by Section 422 of the Internal Revenue Code of 1986, as amended or superseded (the "Code"). C. This Agreement and its terms are confidential and shall not be disclosed at any time by Optionee except as otherwise herein provided. NOW, THEREFORE, it is agreed as follows: 1. Grant of Option. Subject to and upon the terms, conditions and restrictions set forth in this Agreement and the Plan, the Company hereby grants to Optionee as of the Grant Date an incentive stock option ("Option") to purchase up to ___________________ (______) shares ("Option Shares") of the common stock of the Company during the Term hereof (as defined in Section 3 hereof) at an Option Price of ___________________ ($___) per share. For these purposes "Option Shares" also shall include such stock or other securities as defined by the Plan. 2. Right to Exercise; Vesting. Subject to the expiration or earlier termination of the Term of the Option, Optionee shall have the right to exercise the Option in accordance with the following ____________ (__) year vesting schedule: (i) Optionee shall have no right to exercise any part of the Option at any time prior to the expiration of the one (1) year from the Grant Date of the Option; (ii) The Option shall become exercisable with respect to _______________ Percent (__%) of the Option Shares upon the expiration of one (1) year from the Grant Date of the Option; and (iii) The Option thereafter shall become exercisable with respect to an additional ___________________________________________ Percent (______%) of the Option Shares for each month following the expiration of one (1) year from the Grant Date of the Option. Exercisable installments may be exercised by Optionee in whole or in part and to the extent not exercised shall accumulate and be exercisable as provided. The Company shall not be required to issue fractional shares at 12 any time; and any fractional shares remaining in the Option following any exercise thereof shall be rounded down to the next nearest whole number of Shares. 3. Option Term. Subject to earlier termination as provided for in the Plan, the specified term of the Option ("Term") shall be the period commencing as of the Grant Date and ending on the expiration of ________ (___) years from the Grant Date. Upon the expiration of the Term or earlier termination of the Option as provided for in the Plan, the Option shall cease to be exercisable and shall be of no further force or effect. Such events of earlier termination include but are not limited to termination of the employment of Optionee. 4. Non-Transferable. The Option shall not be transferable or assignable by Optionee other than by will or the laws of descent and distribution, and the Option may be exercised during the lifetime of Optionee solely by Optionee. Subject to the foregoing, all transfers or assignments or attempted transfers or assignments of the Option or this Agreement shall be void ab initio. 5. Plan; Controlling Terms. a. The Option granted hereunder and this Agreement shall be governed by and subject to each and all of the terms and provisions of the Plan, which is hereby incorporated by reference in its entirety. All capitalized or other terms not defined herein shall have the same meaning as in the Plan. In the event of any conflict between the Plan and this Agreement, the Plan shall control. Optionee acknowledges receipt of a copy of the Plan and the opportunity to review the Plan and to consult with his or her legal advisors concerning the Plan and this Agreement. b. OPTIONEE ACKNOWLEDGES AND AGREES THAT THE PLAN CONTAINS IMPORTANT TERMS AND PROVISIONS THAT WILL APPLY TO AND CONTROL THE OPTION AND THIS AGREEMENT. THOSE TERMS INCLUDE WITHOUT LIMITATION IMPORTANT CONDITIONS AND LIMITATIONS ON THE RIGHT OF OPTIONEE TO EXERCISE THE OPTION; IMPORTANT RESTRICTIONS ON THE RIGHT OF OPTIONEE TO TRANSFER THE OPTION OR THE OPTION SHARES RECEIVED UPON EXERCISE OF THE OPTION; EARLY TERMINATION OF THE OPTION FOLLOWING THE OCCURRENCE OF CERTAIN EVENTS, INCLUDING TERMINATION OF THE EMPLOYMENT OF OPTIONEE FOR ANY REASON; PROCEDURES FOR EXERCISING THE OPTION; TAX WITHHOLDING AND NOTICE OBLIGATIONS; AND OTHER SUBSTANTIAL RESTRICTIONS AND OBLIGATIONS IN ADDITION TO THOSE IN THIS AGREEMENT. 6. Tax Status of Option. a. The Option is intended to be an incentive stock option as defined by Section 422 of the Code for United States tax purposes, but the Company does not represent or warrant that the Option so qualifies. Optionee should consult with his or her own tax advisors regarding the tax effects of the Option and the requirements for favorable tax treatment under Section 422 and other provisions of the Code and other tax consequences of the Option under applicable law, including but not limited to holding period requirements. In the event that the aggregate exercise price of the Option Shares under the Option and all other incentive stock options held by Optionee (whether granted by the Company or any parent or subsidiary corporation thereof) exceeds the dollar amount or other limitation then applicable under the Code when such options are first exercisable, all or part of the Option may not qualify as an incentive stock option under the Code. b. Optionee hereby acknowledges that the rules and requirements of Section 83 of the Code, including without limitation the election available under Section 83(b) thereof, may be applicable to the receipt of Option Shares by Optionee pursuant to this Agreement and the Plan. In the event that the Option or any part thereof is not classified as an incentive stock option under Section 422 of the Code, Optionee 13 acknowledges that the exercise of the Option and the filing or failure to file an election under Code Section 83(b) in timely manner may result in adverse tax consequences to Optionee. 7. Limitations on Share Transfer; Mandatory Notice of Disposition. Optionee shall transfer or dispose of the Option Shares only in accordance with the provisions of this Agreement and the Plan. Without limiting the foregoing, mandatory notice of disposition of any Option Shares must be made to the Company as provided in the Plan and such disposition may be subject to tax withholding or payments by Optionee. 8. Securities Laws; Restrictions on Grant or Issuance. THE RESTRICTIONS ON THE TRANSFER OF THE OPTION OR THE OPTION SHARES SHALL BE IN ADDITION TO ANY OTHER LIMITATIONS ON TRANSFER OR EXERCISE OF THE OPTION OR ISSUANCE OR TRANSFER OF THE OPTION SHARES IMPOSED BY APPLICABLE FEDERAL AND STATE SECURITIES LAWS. THE GRANT OF THE OPTION AND THE EXERCISE OF THE OPTION AND THE ISSUANCE OF THE OPTION SHARES UPON EXERCISE OF THE OPTION AND ANY RESALE OR OTHER TRANSFER OF SUCH OPTION SHARES BY OPTIONEE SHALL BE SUBJECT TO COMPLIANCE WITH ALL APPLICABLE REQUIREMENTS OF FEDERAL OR STATE LAW WITH RESPECT TO SUCH SECURITIES. Notwithstanding any contrary provision of this Agreement: a. Optionee understands that since the Option is not transferable, and since the Option Shares have not been and may not be registered or exempt under applicable statutes, Optionee may bear the economic risk of the investment for an indefinite period of time. The Option Shares may not be sold or otherwise disposed of until such time as the Option Shares are registered under the Securities Act of 1933 ("Securities Act") or the Option Shares may be sold pursuant to an applicable exemption from the registration requirements of the Securities Act. Optionee understands that the Company has no obligation to file a registration statement under the Securities Act for the Option or the Option Shares or to otherwise assist Optionee in complying with any exemption from registration. b. Optionee represents and warrants that the Option is being acquired and the Option Shares will be acquired upon exercise for his or her own account and not with a view to or for sale in connection with any distribution of such securities. Optionee further acknowledges that any investment in the Common Stock of the Company is inherently speculative and illiquid and subject to material risks. c. As a condition to the exercise of the Option, the Company may require Optionee to satisfy any qualifications that may be necessary or appropriate in the sole judgment of the Company or its counsel to evidence compliance with any applicable law or regulation and to make any written representation or warranty with respect thereto as may be requested by the Company. d. Notwithstanding any contrary provision hereof, the inability of the Company with reasonable efforts to obtain approval from any regulatory body having authority deemed by the Company to be necessary for the lawful issuance and sale of any Option Shares pursuant to the Option shall relieve the Company of any liability in respect of the non-issuance or sale of the Option Shares as to which such approval shall not have been obtained. 14 9. Assignment; Binding Effect. a. The Company may transfer or assign any of its rights or obligations under this Agreement or the Plan. Optionee shall have no right to transfer or assign any of the rights and obligations of Optionee under the Option or this Agreement, subject to Section 4 hereof in the case of a will or the laws of descent and distribution. b. Subject to the foregoing, this Agreement shall inure to the benefit of and be binding upon each of the parties hereto and the officers, directors, employees, shareholders, owners, agents, representatives, parents, subsidiaries, affiliates, successors and assigns of the Company, and the spouses, representatives, executors, administrators, heirs, devisees, agents, successors and assigns of Optionee. 10. Representations and Warranties. a. Optionee represents and warrants that he or she has read the Plan and this Agreement and has had the opportunity to consult with his or her legal advisors concerning the legal and tax effects of the Plan and this Agreement and the Option. b. Each party represents and warrants that such party has the full right, power, legal capacity and authority to enter into and execute this Agreement and to discharge all of its obligations under the terms hereof, and that such party does not have any outstanding obligation and is not a party to any outstanding agreement which obligation or agreement is inconsistent with this Agreement. This Agreement has been duly executed and delivered by said party, and constitutes its valid and legally binding agreement and obligation and is enforceable in accordance with its terms. 11. Miscellaneous. a. This Agreement together with the Plan sets forth the entire agreement of the parties relating to the subject matter hereof, subject to the provisions of the Plan; and the Plan and this Agreement shall supersede any prior discussions, understandings and agreements concerning the grant of stock options or the issuance of option stock between the parties, provided however that this Agreement shall not supersede and shall be in addition to any separate fully executed written stock option agreement between the parties pursuant to any separate stock option grant by the Company. This Agreement may be amended by further written agreement signed by each of the parties. b. This Agreement shall be construed in accordance with and governed by the laws of the State of California without reference to the principles of conflicts of law. c. Whenever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law. In the event that any provision of this Agreement shall be held by the final judgment of a court of competent jurisdiction to be invalid or unlawful or unenforceable, then the remaining provisions of this Agreement shall remain in full force and effect and shall be construed to give the fullest effect to the purpose of the Plan and this Agreement and the intended qualification of the Plan and this Agreement pursuant to Section 422 of the Code and pursuant to Section 25102(o) of the California Corporations Code and the respective regulations and rules thereunder (as amended or superseded). d. No remedy conferred by this Agreement or the Plan shall be exclusive of any other remedy, and each and all such remedies shall be cumulative. The waiver of any breach or violation of this Agreement in whole or in part shall not operate as a waiver of any subsequent breaches or violations of the same or a different kind. Any exercise or failure to exercise by a party of any rights or remedies under this 15 Agreement shall not operate as a waiver of the right of such party to exercise the same or different rights or remedies in a subsequent event. e. Both parties agree to execute any additional documents or instruments necessary or appropriate to fully effectuate out the purposes of this Agreement and which are consistent with the Plan. f. Section headings in this Agreement are for the convenience of the parties and are not part of the agreement of the parties and shall not be used in the construction hereof. Whenever in this Agreement the context requires, references to the plural shall include the singular and the singular the plural, and each gender shall include all other genders. No provision in this Agreement shall be interpreted or construed against any party because such party or its counsel was the drafter thereof. g. THIS AGREEMENT AND THE TERMS AND CONDITIONS HEREOF ARE CONFIDENTIAL AND OPTIONEE SHALL NOT DISCLOSE ANY OF THE TERMS OR CONDITIONS HEREOF TO ANY OTHER EMPLOYEE OF THE COMPANY OR TO ANY OTHER PERSON FOR ANY PURPOSE, OTHER THAN TO THE SPOUSE, LEGAL COUNSEL OR ACCOUNTING AND FINANCIAL ADVISORS OF OPTIONEE, OR TO THE APPROPRIATE EMPLOYEES OR REPRESENTATIVES OF THE COMPANY AS NECESSARY IN CONNECTION WITH THE ENFORCEMENT, MODIFICATION OR EXERCISE OF THIS AGREEMENT, OR AS REQUIRED IN CONNECTION WITH LEGAL PROCEEDINGS IN WHICH OPTIONEE IS A PARTY OR WITNESS. IN WITNESS WHEREOF, the Company has caused this Agreement to be executed and delivered in duplicate on its behalf by its duly authorized officer, and Optionee has also executed and delivered this Agreement in duplicate, all on the date first above written. OMNIS TECHNOLOGY CORPORATION By: ____________________________ Name: ______________________ Title: _____________________ OPTIONEE __________________________________ Name: ____________________________ 16 CONSENT OF SPOUSE I, ______________________________, the spouse of __________________________________("Optionee"), have read and approved the foregoing Incentive Stock Option Agreement between Omnis Technology Corporation ("Company") and my spouse and the Omnis Technology Corporation 1999 Stock Option Plan. In consideration of granting of the Option to my spouse to purchase shares of the common stock of the Company under the terms and conditions in the Agreement and the Plan, I hereby appoint my spouse as my attorney-in-fact in respect to the exercise of any rights under the Agreement and the Plan and any stock issued thereunder, and agree to be fully bound by the provisions of the Agreement and the Plan insofar as I may have any rights under such Agreement and the Plan or in any stock issued thereunder under any community property laws or similar laws relating to marital property then in effect. I further acknowledge that in the event of the exercise of such Option, such shares of the common stock of said Company shall be issued in the name of my spouse and that the Company shall have no other obligations with respect thereto. Dated: ___________________________ __________________________________ Name: ____________________________ 17 OMNIS TECHNOLOGY CORPORATION AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED MARCH 31, 1999 AND 1998 AND INDEPENDENT AUDITORS' REPORTS 18 INDEPENDENT AUDITORS' REPORT To the Board of Directors and Stockholders of OMNIS Technology Corporation: We have audited the accompanying consolidated balance sheet of OMNIS Technology Corporation and subsidiaries as of March 31, 1999, and the related consolidated statements of operations, stockholders' equity (deficiency), and cash flows for the year then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of OMNIS Technology Corporation and subsidiaries at March 31, 1999, and the consolidated results of their operations and their cash flows for the year then ended in conformity with generally accepted accounting principles. GRANT THORNTON LLP San Francisco, California June 1, 1999 19 INDEPENDENT AUDITORS' REPORT To the Board of Directors and Stockholders of OMNIS Technology Corporation: We have audited the accompanying consolidated balance sheet of OMNIS Technology Corporation and subsidiaries as of March 31, 1998 and the related consolidated statements of operations, stockholders' equity (deficiency), and cash flows for the year then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of OMNIS Technology Corporation and subsidiaries at March 31, 1998, and the results of their operations and their cash flows for the year then ended in conformity with generally accepted accounting principles. The accompanying 1998 financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements included in the Company's Form 10-KSB for the year ended March 31, 1998, the Company has incurred losses and negative cash flows from operations, has a working capital and stockholders' deficiency at March 31, 1998, limited cash resources, and significant past due amounts due to creditors. These matters, among others, raise substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 1 to such financial statements. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. DELOITTE & TOUCHE LLP San Jose, California May 22, 1998 20 OMNIS TECHNOLOGY CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS MARCH 31, (in thousands, except share amounts) - --------------------------------------------------------------------------------
ASSETS 1999 1998 CURRENT ASSETS: Cash and cash equivalents $ 271 $ 242 Accounts receivable (less allowances for doubtful accounts of $150 in 1999 and $162 in 1998) 764 602 Inventories 13 74 Other current assets 609 625 -------- -------- Total current assets 1,657 1,543 Property, furniture and equipment, net 890 1,472 Other assets 10 400 -------- -------- Total assets $ 2,557 $ 3,415 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY) CURRENT LIABILITIES: Obligations under line of credit $ -- $ 145 Current portion of long-term debt 82 1,165 Accounts payable 240 1,735 Accrued liabilities 533 652 Deferred revenue 412 862 -------- -------- Total current liabilities 1,267 4,559 Long-term debt 28 111 -------- -------- Total liabilities 1,295 4,670 ======== ======== Commitments and contingencies (Note 10) Stockholders' equity (deficiency): Preferred stock - $1.00 par value; 300,000 shares authorized; issued and outstanding: 300,000 shares 300 -- Common stock - $.10 par value; 20,000,000 shares authorized; issued and outstanding: 1999, 9,679,829 shares; 1998, 2,125,827 shares 967 212 Paid-in capital 45,180 42,881 Accumulated deficit (45,386) (44,499) Accumulated other comprehensive income 201 151 -------- -------- Total stockholders' equity (deficiency) 1,262 (1,255) -------- -------- Total liabilities and stockholders' equity (deficiency) $ 2,557 $ 3,415 ======== ========
See notes to consolidated financial statements. 21 OMNIS TECHNOLOGY CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS YEAR ENDED MARCH 31, (in thousands, except share and per share amounts) - --------------------------------------------------------------------------------
1999 1998 Net revenues: Product $ 4,277 $ 4,198 Services 1,582 3,785 ----------- ----------- Total net revenues 5,859 7,983 ----------- ----------- Operating expenses: Cost of product revenues 333 505 Cost of service revenues 347 3,104 Selling and marketing 2,002 6,714 Research and development 1,418 2,875 General and administrative 2,297 3,066 ----------- ----------- Total operating expenses 6,397 16,264 ----------- ----------- Operating loss (538) (8,281) Other income (expense): Interest income 7 83 Interest expense and other, net (352) (137) ----------- ----------- Total other income (expense) (345) (54) ----------- ----------- Loss before income taxes (883) (8,335) Income tax expense (4) (17) ----------- ----------- Net loss $ (887) $ (8,352) =========== =========== Net loss per share - basic and diluted $ (0.41) $ (4.07) =========== =========== Weighted average common shares outstanding 2,148,499 2,052,285 =========== ===========
See notes to consolidated financial statements 22 OMNIS TECHNOLOGY CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY) YEARS ENDED MARCH 31, 1999 and 1998 (in thousands, except share amounts)
Series A Preferred Stock Common Stock ------------------------ --------------------- Paid-in Shares Amount Shares Amount Capital Balances, April 1, 1997 -- $ -- 1,737,353 $ 174 $ 41,038 Common stock options and warrants exercised -- -- 2,500 -- 10 Common stock issued upon conversion of debt (net of issuance costs of $148) -- -- 372,283 37 1,773 Common stock issued -- -- 13,691 1 60 Net loss -- -- -- -- -- Foreign currency translation adjustment -- -- -- -- -- Comprehensive loss -- -- -- -- -- -------- --------- --------- ---------- --------- Balances, March 31, 1998 2,125,827 212 42,881 Preferred stock issued 124,564 125 -- -- 875 Redemption of preferred stock (124,564) (125) -- -- 125 Common and preferred stock issued upon conversion of debt 300,000 300 2,543,344 254 582 Stock issued in conjunction with private placement (net of issuance costs of $35) 5,000,000 500 715 Common stock issued 10,658 1 2 Net loss -- -- -- -- -- Foreign currency translation adjustment -- -- -- -- -- Comprehensive loss -- -- -- -- -- -------- ---------- --------- ---------- --------- Balances, March 31, 1999 300,000 $ 300 9,679,829 $ 967 $ 45,180 ======== ========== ========= ========== =========
Total Accumulated Stock Other Holders' Accumulated Comprehensive Comprehensive Equity Deficit Income Loss (Deficiency) Balances, April 1, 1997 $ (36,147) $ 267 $ 5,332 Common stock options and warrants exercised -- -- 10 Common stock issued upon conversion of debt (net of issuance costs of $148) -- -- 1,810 Common stock issued -- -- 61 Net loss (8,352) -- $ (8,352) (8,352) Foreign currency translation adjustment -- (116) (116) (116) ---------- Comprehensive loss -- -- $ (8,468) ---------- ---------- =========== ---------- Balances, March 31, 1998 (44,499) 151 (1,255) Preferred stock issued -- -- 1,000 Redemption of preferred stock -- -- -- Common and preferred stock issued upon conversion of debt -- -- 1,136 Stock issued in conjunction with private placement (net of issuance costs of $35) -- -- 1,215 Common stock issued -- -- 3 Net loss (887) -- $ (887) (887) Foreign currency translation adjustment -- 50 50 50 ----------- Comprehensive loss -- -- $ (837) ---------- ---------- =========== ---------- Balances, March 31, 1999 $ (45,386) 201 $ 1,262 ========== ========== ==========
See notes to consolidated financial statements. 23 OMNIS TECHNOLOGY CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS YEAR ENDED MARCH 31 (in thousands) - --------------------------------------------------------------------------------
1999 1998 Cash flows from operating activities: Net loss $ (887) $(8,352) Adjustments to reconcile net loss to net cash used for operating activities: Depreciation and amortization expense 423 653 Noncash convertible debenture interest -- 131 Loss on disposal of property 100 -- Changes in assets and liabilities: Trade accounts receivable (163) 1,102 Inventories 61 (55) Other current assets 16 44 Accounts payable and accrued liabilities (1,614) 363 Deferred revenue (450) (66) ------- ------- Net cash used for operating activities (2,514) (6,180) ------- ------- Cash flows from investing activities: Purchases of property, furniture and equipment (17) (423) Proceeds from sale of fixed assets 77 81 Other assets 390 (400) ------- ------- Net cash provided by (used for) investing activities 450 (742) ------- ------- Cash flows from financing activities: Net borrowings (repayments) on line of credit (145) 100 Repayments of debt (30) (246) Proceeds from issuance long-term debt -- 1,098 Proceeds from preferred stock issuance 1,000 -- Net proceeds from common stock issuance 1,218 61 Exercise of stock options and warrants -- 10 ------- ------- Net cash provided by financing activities 2,043 1,023 ------- ------- Effect of exchange rate changes on cash 50 (9) ------- ------- Increase (decrease) in cash and equivalents 29 (5,908) Cash and equivalents - beginning of year 242 6,150 ------- ------- Cash and equivalents - end of year $ 271 $ 242 ======= ======= Cash paid for: Interest $ 141 $ 34 Income taxes $ 3 $ 13
24 OMNIS TECHNOLOGY CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS YEAR ENDED MARCH 31 (CONCLUDED) - -------------------------------------------------------------------------------- NONCASH TRANSACTIONS: During fiscal 1999, a note payable for $1,000,000 plus accrued interest of $135,836 were converted into 300,000 shares of preferred stock and 2,543,344 shares of common stock. See Note 6. During fiscal 1998, convertible debenture noteholders converted $1,828,000 of 8% debentures, plus accrued interest of $130,000, into 372,283 shares of common stock. Such amount has been recorded net of issuance costs of $148,000 in the consolidated statements of stockholders' equity (deficiency). See Note 6. Also, during fiscal 1998 the Company acquired assets under capital lease in the amount of $333,000. 25 OMNIS TECHNOLOGY CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 1999 AND 1998 - -------------------------------------------------------------------------------- 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES ORGANIZATION - OMNIS Technology Corporation and its subsidiaries (the "Company" or "OMNIS"), develops, markets, and supports software products for the development and deployment of applications for accessing multi-user databases in workgroup and enterprise-wide client/server computing environments. The Company's family of products is used by enterprises, system integrators, value added resellers (VARs) and independent developers to deliver custom information management applications for a wide range of users including financial management, decision support, executive information, sales and marketing, and multi-media authoring systems. In addition to these products, OMNIS provides technical support and training to help customers plan, analyze, implement, and maintain application software based on the Company's technology. The consolidated financial statements include OMNIS Technology Corporation and its wholly-owned subsidiaries, OMNIS Holdings Limited, OMNIS Software Limited, OMNIS Software Inc., and OMNIS Software GmbH. Significant accounting policies applied in the preparation of the accompanying consolidated financial statements of the Company follow: PRINCIPLES OF CONSOLIDATION - The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany balances and transactions are eliminated in consolidation. REVENUE RECOGNITION - In October 1997, the American Institute of Certified Public Accountants issued Statement of Position 97-2 ("SOP 97-2"), "Software Revenue Recognition" which provides guidance on generally accepted accounting principles for recognizing revenue on software transactions. SOP 97-2 requires that revenue from software arrangements be allocated to each element of the arrangement based on the relative fair values of the elements, such as software products, upgrades, enhancements, post contract customer support, installation, or training. Under SOP 97-2, the determination of fair value is based on the objective evidence which is specific to the vendor. If such evidence of fair value for each element of the arrangement does not exist, all revenue from the arrangement is deferred until such time that evidence of fair value does exist or until all elements of the arrangement are delivered. PRODUCT REVENUE - The Company recognizes revenue for product sales upon persuasive evidence of an arrangement, delivery of the software and determination that collection of a fixed or determinable fee is considered probable. SERVICE REVENUE - Service revenue is generated from consulting, technical support, and training. Each element is value based on the relative fair value specific to the vendor. Product support revenue is recognized ratably over the related contractual term, generally one year. Revenue from consulting and training is recognized when the services are provided. COST OF PRODUCT AND SERVICE REVENUES - Cost of product revenues includes cost of production materials and related documentation and amortization of capitalized software development costs. Cost of service revenues principally includes payroll and other costs associated with the customer support function. Other costs specifically identifiable with the revenue source have been classified accordingly. CASH EQUIVALENTS - The Company considers all highly liquid investments purchased with a maturity of three months or less to be cash equivalents. INVENTORIES - Inventories, principally finished goods, are stated at the lower of cost on a first-in, first-out (FIFO) basis, or market value. PROPERTY, FURNITURE AND EQUIPMENT - Property, furniture, and equipment are stated at cost. Capital leases are recorded at the present value of the minimum lease payments at the date of 26 acquisition. Depreciation and amortization is computed on a straight-line basis over the estimated useful lives of the assets or lease term, whichever is shorter, which range from 3 to 25 years. Leasehold improvements are amortized on a straight-line basis over the shorter of the lease term or the estimated useful lives of the assets. LONG-LIVED ASSETS - The Company has adopted Statement of Financial Accounting Standards No. 121, Accounting For The Impairment Of Long-Lived Assets And For Long-Lived Assets To Be Disposed Of (SFAS 121), which requires that long-lived assets, certain identifiable intangibles, and goodwill related to those assets used by an entity be reviewed for impairment whenever events or changes indicate that the carrying amount of an asset may not be recoverable. The Company's policy is to review the recoverability of all intangible assets at a minimum on an annual basis, and in addition whenever events or changes indicate that the carrying amount of an asset may not be recoverable. CAPITALIZED SOFTWARE DEVELOPMENT COSTS - Software development costs are capitalized when technological feasibility has been established. The Company did not capitalize any software development costs in fiscal 1999 or 1998 since the net realizability for most of the Company's current development efforts could not be determined. Amortization of capitalized software development costs charged to cost of product revenues was none for both years ended March 31, 1999 and 1998. INCOME TAXES - Income taxes are accounted for using the asset and liability approach for financial reporting which requires recognition of deferred tax liabilities and assets for the expected future tax consequences of temporary differences between the financial statement carrying amounts and the tax bases of assets and liabilities and net operating loss and tax credit carry forwards. Valuation allowances are established when necessary to reduce deferred tax assets to the amounts expected to be realized. STOCK-BASED COMPENSATION - The Company accounts for stock-based awards to employees using the intrinsic value method in accordance with APB No. 25, Accounting For Stock-Based Compensation. NET LOSS PER SHARE - Net loss per share is computed based on the weighted average number of common shares outstanding during the period. Net loss per share excludes dilution and is computed by dividing net loss by the weighted average of common stock outstanding for the period. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock. However, due to the Company's net loss position for all periods presented, diluted EPS excludes common equivalent shares, as their effect is anti-dilutive. CONCENTRATION OF CREDIT RISK AND SIGNIFICANT RISKS AND UNCERTAINTIES - Financial instruments which potentially subject the Company to a concentration of credit risk principally consist of cash, cash equivalents and accounts receivable. The Company places its cash and cash equivalents with what it believes are high quality financial institutions. The Company sells its products primarily to companies in North America and Europe. To reduce credit risk, management performs ongoing credit evaluations of its customers' financial condition. The Company maintains reserves for potential credit losses. The Company 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 may need to seek additional equity capital which would be dilutive to current stockholders. The Company is not currently attempting to raise additional capital, but such activity may be required to continue operations. There can be no assurance that the Company will be able to raise additional capital on commercially reasonable terms should the Company need additional funds in the future. 27 The Company's future operating results will depend, to a considerable extent, on its ability to rapidly and continuously develop new products that offer its customers enhanced performance at competitive prices. Inherent in this process are a number of risks. The development of new, enhanced software products is a complex and uncertain process requiring high levels of innovation from the Company's designers as well as accurate anticipation of customer and technical trends by the marketing staff. Once a product is developed, the Company must rapidly bring it into production and distribution in order to achieve acceptable product revenues. The Company participates in a dynamic high technology industry and believes that changes in any of the following areas could have a material adverse effect on the Company's future financial position or results of operations: advances and trends in new technologies; competitive pressures in the form of new products or price reductions on current products; the volume, mix, and timing of orders; changes in product mix; changes in overall demand for products and services offered by the Company; changes in certain strategic partnerships or customer relationships; litigation or claims against the Company based on intellectual property, regulatory or other factors; risks associated with changes in domestic or international economic and/or political conditions or regulations either in the industries the Company serves or generally; availability of necessary components, and the Company's ability to attract and retain employees necessary to support growth. ESTIMATES - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. FOREIGN CURRENCY TRANSLATION - All assets and liabilities of operations outside the United States are translated into U.S. dollars from their functional currency, which is the local currency, at year-end exchange rates. Income and expense items are translated at the average exchange rate for the year. Gains and losses resulting from translation are included in stockholders' equity. Gains and losses on foreign currency transactions have been included in the statements of operations. Such gains and losses have not been significant for the years ended March 31, 1999 and 1998. FAIR VALUE OF FINANCIAL INSTRUMENTS - The fair value of cash and cash equivalents, accounts receivable and accounts payable appropriate carrying value due to the short-term nature of such instruments. The fair value of long-term obligations approximates carrying value based on terms available for similar instruments. RECENT ACCOUNTING PRONOUNCEMENTS - In June 1997, the Financial Accounting Standards Board issued Statements of Financial Accounting Standards No. 130 Reporting Comprehensive Income, which requires that an enterprise report, by major components and as a single total, the change in its net assets during the period from non-owner sources; and No. 131 Disclosures about Segments of an Enterprise and Related Information, which establishes annual and interim reporting standards for an enterprises business segment and related disclosures about its products, services, geographic areas, and major customers. The Company operates in one segment. Adoption of these statements did not impact the Company's consolidated financial position, results of operations or cash flows. Both statements are effective for the Company's fiscal year ended March 31, 1999. In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," which defines derivatives, requires that all derivatives be carried at fair value, and provides for hedge accounting when certain conditions are met. SFAS No. 133 is effective for the Company in fiscal 2000. Although the Company has not fully assessed the implications of SFAS No. 133, the Company does not believe that the adoption of this statement will have a material impact on the Company's financial position or results of operations. 2. OTHER CURRENT ASSETS Other current assets at March 31 consist of: (in thousands) 28
1999 1998 Receivable from trust $ 259 $ -- Other receivable 148 198 VAT receivable -- 155 Prepaid insurance 80 84 Prepaid rent 53 100 Other 69 88 ------- ------- Total 609 625 ------- -------
3. PROPERTY, FURNITURE, AND EQUIPMENT Property, furniture and equipment at March 31 consist of: (in thousands)
1999 1998 Land and building $ 691 $ 716 Leasehold improvements -- 53 Office equipment, furniture and fixtures 2,887 5,289 Automobiles 120 124 ------- ------- Total 3,698 6,182 Accumulated depreciation and amortization (2,808) (4,710) ------- ------- Property, furniture and equipment - net $ 890 $ 1,472 ======= =======
4. ACCRUED LIABILITIES Accrued liabilities at March 31 consist of: (in thousands)
1999 1998 Salaries and benefits $ 131 $ 164 Professional fees 76 87 Other 326 401 ------- ------- Total $ 533 $ 652 ======= =======
5. LINE OF CREDIT The Company's wholly-owned subsidiary in Germany, OMNIS Software GmbH, has a bank line of credit that allows the subsidiary to borrow up to $35,000 at March 31, 1999, automatically upon overdraft of the subsidiary's operating bank account. Interest on the overdraft is at 10%. Borrowings under the line of credit are secured by all assets of OMNIS Software GmbH and a money market account. At March 31, 1999 and 1998, the borrowings under the lines of credit were none and $145,000 respectively. 29 6. LONG-TERM DEBT Long-term debt at March 31 consists of: (in thousands)
1999 1998 Capital lease obligations $ 72 $ 263 Note payable to finance company 38 13 Note payable to stockholder, interest at 10%, due June 30, 1998, secured by all of the company's assets -- 1,000 ------ ------ 110 1,276 Less current portion 82 1,165 ------ ------ Total long-term debt $ 28 $ 111 ------ ------ ------ ------
CONVERTIBLE DEBENTURE NOTES - On June 2, 1997, the Noteholders converted the remaining $1,828,000 of Notes, plus accrued interest of $130,000 into 372,283 shares of the Company's common stock. Such amount was recorded net of issuance costs of $148,000 in the first quarter of fiscal 1998. CONVERSION OF NOTE - In October 1997, the Company closed an interim debt financing of $1,000,000 with a significant stockholder of the Company. In March 1999, the promissory note plus accrued interest of $135,836 were converted into 300,000 shares of preferred stock and 2,543,344 shares of common stock for an aggregate purchase price of $1,135,836. 7. STOCKHOLDERS' EQUITY (DEFICIENCY) WARRANTS - In July 1998, the 1993 Director's Warrant Plan was amended to increase the number of shares of common stock reserved for issuance by 260,000 shares (from 40,000 shares to an aggregate of 300,000 shares). The 1993 Advisors' Plan was also amended to increase the number of common shares reserved for issuance by 82,500 shares (from 17,500 shares to an aggregate of 100,000 shares). The following summarizes warrants outstanding:
WARRANTS EXERCISE PRICE Warrants outstanding at April 1, 1997 100,562 $10.90 - $160.00 Granted 4,500 $ 4.13 - $ 6.88 Exercised (2,500) $ 4.13 Canceled (27,000) $33.75 - $ 85.00 ----------- Warrants outstanding at March 31, 1998 75,562 $ 4.13 - $160.00 Granted 125,000 $ 0.44 Exercised -- Canceled (16,833) $65.00 - $160.00 ---------- Warrants outstanding at March 31, 1999 183,729 $ 0.44 - $ 58.50 ---------- ----------
30 The warrants expire at various dates between 1999 and 2002. At March 31, 1999, there were 78,896 warrants exercisable. EMPLOYEE STOCK PURCHASE PLAN - The Company offers a benefit to its employees to purchase shares of the Company's common stock through its 1994 Employee Stock Purchase Plan (the "Plan"). The Company originally reserved 22,500 shares of common stock for issuance under the Plan. In September, 1998, stockholders of the Company amended the Plan to increase the number of shares reserved for issuance to 250,000 shares. The Plan permits eligible employees to purchase common stock through payroll deductions of up to a maximum of 10% of their eligible compensation at 85% of the fair market value at the beginning or end of each six-month purchase period. During fiscal years 1999 and 1998, 10,658 shares were issued at a weighted average price of $0.28 per share and 13,691 shares were issued at a weighted average price of $4.50 per share, respectively. The weighted average fair value of the fiscal 1999 and 1998 awards was considered insignificant. At March 31, 1999, 216,791 shares have been reserved for future issuance. CONVERTIBLE PREFERRED STOCK - The Company has outstanding 300,000 shares of convertible Series A preferred stock. Dividends shall be paid at the option of the Board of Directors at the rate of $0.125 per share per annum, in preference to all other stockholders. Preferred stock ranks senior to the company's common stock as to liquidation rights. Each share of preferred stock may be converted, at the option of the holder, into 1.667 shares of common stock. In effecting the conversion, any unpaid dividends on the preferred stock shall be disregarded. 8. STOCK OPTIONS The Company has employee stock options outstanding under three different stock option plans. Under the Company's Amended and Restated 1987 Stock Option Plan ("the 1987 Plan"), incentive stock options to purchase shares of common stock have been granted to directors, officers, key employees, and consultants. The 1987 Plan had a ten year term which expired in 1997. Options granted and outstanding under the 1987 Plan remain in force until either exercised by the holder, canceled when the holder terminates employment, or until the 10 year term expires. In anticipation of the termination of the 1987 Plan, the stockholders of the Company approved the 1996 Stock Plan ("the 1996 Plan"). The 1996 Plan has been administered by a committee of the Board which has been empowered to grant options to purchase up to 600,000 shares of common stock, of either non-qualified or incentive stock options. In April 1999, the Board of Directors adopted the Omnis Technology Corporation 1999 Stock Option Plan (the "1999 Plan") to consolidate options to be issued to directors, officers, key employees and consultants under a single option plan and terminated the Directors Plan, the Advisors Plan and the 1996 Plan, except as to warrants and options then issued and outstanding under such plans. 1,500,000 shares of the common stock of the Company were reserved for issuance under the 1999 Plan. The Board of Directors plans to present the 1999 Plan for approval to the stockholders of the Company at their 1999 annual meeting. Subject to the approval of the stockholders, in April 1999 the Company granted incentive stock options to its employees to acquire a total of 411,000 shares of the common stock of the Company at an exercise price of $1.02 per share, with the right to exercise such options vesting over a three-year period. Under these Plans, the exercise price for the option is determined at the time of the granting of the option, but in the case of incentive stock options, the exercise price shall not be less than the fair market value on the date of the grant. Generally, under these Plans, the right to exercise an option vests ratably and becomes exercisable over a fixed period of up to four years as designated in the relevant option agreement. The following tables summarize the activity under the 1987 and 1996 Plans through March 31, 1999: 31
Options Outstanding ------------------- Weighted Options Average Available Exercise For Grant Shares Price Balances, April 1, 1997 138,745 156,151 $ 17.20 Additional authorization 85,000 -- -- Granted (weighted average fair value: $1.14 per share) (126,075) 126,075 7.09 Canceled 245,577 (245,577) 9.71 -------- --------- Balances, March 31, 1998 343,247 36,649 $ 24.96 Additional authorization 470,000 -- -- Granted (weighted average fair value: $0.76 per share) (731,500) 731,500 0.77 Canceled 132,550 (132,550) 1.08 -------- --------- Balances, March 31, 1999 214,297 635,599 $ 2.11 -------- --------- -------- ---------
Additional information regarding options outstanding under both Plans as of March 31, 1999 is as follows:
Options Outstanding ------------------- Options Exercisable Weighted ------------------- Average Weighted Weighted Range Of Remaining Average Average Exercise Number Contractual Exercise Number Exercise Prices Outstanding Life (Years) Price Exercisable Price $0.75- 0.78 604,500 9.13 $ 0.78 -- $ -- 5.13- 8.75 7,900 8.17 6.63 2,977 6.68 15.63-23.75 3,620 4.85 20.35 3,358 20.47 33.13-52.50 19,579 6.01 37.88 18,226 38.23 - --------------- ------- ---- ------ ------- --------- $0.75-52.50 635,599 7.50 $ 2.11 24,561 $ 34.68
ADDITIONAL STOCK PLAN INFORMATION The Company accounts for its stock-based awards using the intrinsic value method in accordance with Accounting Principles Board No. 25, Accounting For Stock Issued To Employees, and its related interpretations. Accordingly, as the Company awards stock options with exercise prices equal to fair market value, no compensation expense has been recognized in the financial statements for employee stock arrangements. Statement of Financial Accounting Standards No. 123, Accounting For Stock-Based Compensation, ("SFAS 123") requires the disclosure of pro forma net loss and net loss per share had the Company adopted the fair value method as of the beginning of fiscal 1996. Under SFAS 123, the fair 32 value of stock-based awards to employees is calculated through the use of option pricing models, even though such models were developed to estimate the fair value of freely tradable, fully transferable options without vesting restrictions, which significantly differ from the Company's stock option awards. These models also require subjective assumptions, including future stock price volatility and estimated term. These calculations were made using the Black-Scholes option pricing model with the following weighted average assumptions: expected life, 36 months following vesting; stock volatility, 140% and 40% in 1999 and 1998 respectively; risk free interest rates, 5.7% and 5.9% in 1999 and 1998 respectively; and no dividends during the expected term. The Company's calculations are based on a multiple option valuation approach and forfeitures are recognized as they occur. If the computed fair values of the 1999 and 1998 awards had been amortized to expense over the vesting period of the awards, pro forma net loss would have been $1,168,000 ($0.54 per share) in 1999 and $8,396,000 ($4.09 per share) in 1998. However, the impact of outstanding non-vested stock options granted prior to 1996 has been excluded from the pro forma calculation; accordingly, the 1999 and 1998 pro forma adjustments are not indicative of future period pro forma adjustments, when the calculation will apply to all applicable stock options. 9. INCOME TAXES Income tax expense consists of: (in thousands)
1999 1998 Current: Federal $-- $-- State 3 13 Foreign 1 4 --- --- Total $ 4 $17 --- --- --- ---
Pretax foreign income (loss) was $624,000 and ($1,059,000) in 1999 and 1998, respectively. The effective tax rate differs from the federal statutory income tax rate principally due to the unavailability of net operating loss carryforwards or carrybacks and other permanent differences. Deferred income taxes reflect the net tax effects of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes, as well as operating loss carry forwards. Significant components of the Company's net deferred tax assets are as follows (in thousands):
1999 1998 Deferred tax assets Net operating losses $ 15,883 $ 14,927 Depreciation 702 516 Accruals and reserves recognized in different periods 1,278 1,069 Tax credits 690 753 Capitalized software -- 348 -------- -------- Total 18,553 17,613 Valuation allowance (18,553) (17,613) -------- -------- Net deferred tax assets $ -- $ -- -------- -------- -------- --------
33 The net operating losses included in deferred tax assets at March 31, 1998 includes $366,000 of tax benefits relating to the exercise and sale by employees of certain stock options. If the Company becomes profitable, the benefit associated with the stock compensation will be recorded as an adjustment to stockholders' equity. Due to uncertainties surrounding the timing of realizing the benefits of its net favorable tax attributes in future tax returns, the Company has placed a full valuation allowance against its net deferred tax assets at March 31, 1999 and 1998. The net change in the valuation allowance was an increase of $940,000 in 1999 and $3,785,000 in 1998. At March 31, 1999, the Company had net operating loss carryforwards of $37.6 million for federal income tax purposes, $8.7 million for state tax purposes, and $5.9 million for foreign tax purposes which expire at various dates through 2019. The Tax Reform Act of 1986, as amended, and the California Conformity Act of 1987 impose substantial restrictions on the utilization of net operating loss and tax credit carry forwards in the event of an "ownership change," as defined by the Internal Revenue Code. An "ownership change" took place in 1999, and the Company is limited to using approximately $146,000 per year of federal and California net operating loss carry forwards accrued through that date (a total of $2.9 million federal and $0.7 million California). 10. RETIREMENT PLANS The Company sponsors two defined contribution plans for its employees in the United Kingdom ("the UK"). Both plans have been approved by the UK's Department of Inland Revenue. The Company's subsidiary OMNIS Software Limited sponsors the OMNIS Retirement Benefits Scheme ("the ORB Plan"). The only participant in the ORB Plan is the Chief Technical Officer of OMNIS Software Limited. The ORB Plan provides retirement benefits upon attaining normal retirement age, and incidental benefits in the case of death or termination of employment prior to retirement. OMNIS Software Limited makes annual contributions based on the participant's salary to fund these retirement benefits. The ORB Plan is partially insured through the Sun Life Assurance Society. OMNIS Software Limited retains the right to terminate the ORB Plan at any time upon 30 days' written notice. OMNIS Software Limited sponsors the OMNIS Software Limited Retirement Benefits Scheme ("the OSL Plan") for substantially all of its employees in the United Kingdom. The OSL Plan provides retirement benefits upon attaining normal retirement age, and incidental benefits in the case of death or termination of employment prior to retirement. OMNIS Software Limited contributes an amount ranging from 5% to 8% of each participant's compensation to fund such benefits. In addition, participants are entitled to make voluntary contributions under the OSL Plan. The Company contributed a total of $85,000 and $153,000 to the ORB and OSL plans for the years ended March 31, 1999 and 1998, respectively. The Company sponsors the OMNIS Software Inc. 401(k) Savings and Retirement Plan ("the Plan") for its employees based in the United States. Employees meeting the eligibility requirements, as defined, may contribute specified percentages of their salaries. Under the Plan, which is qualified under Section 401(k) of the federal tax laws, the Company's Board of Directors, at its sole discretion, may make a discretionary profit-sharing contribution to the Plan. Moreover, the Company is not obligated, but may at 34 its discretion, pay certain administrative costs on behalf of the Plan. For the years ended March 31, 1999 and 1998, discretionary contributions of $3,000 and $14,000, respectively, were made to the Plan. 11. COMMITMENTS AND CONTINGENCIES LEASES The Company leases its facilities under non-cancelable operating lease agreements that expire or have an option to terminate in or before fiscal 2003. Rent expense on these leases is recognized ratably over the entire lease term. The Company is required to pay property taxes, insurance and normal maintenance costs. Future minimum rental commitments under equipment capital leases and non-cancelable operating leases as of March 31, 1999 are as follows: (in thousands)
Year Ending Capital Operating March 31, Leases Leases 2000 $ 63 $265 2001 17 127 2002 -- 88 2003 -- 15 ---- ---- Total minimum lease payments 80 $495 Less: Amount representing interest (8) ---- ---- ---- Lease obligations $ 72 ---- ----
Equipment under capital leases had a net book value of $64,000 and $263,000 at March 31, 1999 and 1998, respectively. Rent expense of $921,000 and $876,000 was incurred in 1999 and 1998, respectively. LITIGATION COMPASS ACTION. 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 believes that Compass' copyright infringement suit has no merit and will vigorously defend against those claims. 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 current infringement suit brought by Compass ("Execution Sale"). Compass then requested the applicable court to set aside the Execution Sale. The court granted the request and the Company has 35 appealed this judgment. The appeal has been briefed and is awaiting a date for oral argument. The Company has also filed a separate lawsuit against Compass alleging additional acts of infringement related to the 1994 case. BTN - GERMANY. The Company entered into a professional development services agreement with BTN Versandhandel GmbH of Leiferde, Germany for the development of an OMNIS application. The Company developed and delivered a version of the application to BTN. BTN failed to pay the Company as agreed, claiming there were flaws in the application and the project was suspended by the Company awaiting their payment. BTN commenced legal action against the Company in Germany claiming damages of approximately DM250,000 for failure to perform under the services agreement. The Company has countersued BTN claiming the balance owed under the contract of approximately DM60,000. The Company believes that the claim by BTN is meritless and intends to aggressively pursue its counterclaim against BTN. 12. SEGMENT INFORMATION For 1999, the Company adopted SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information." The Company is engaged in one industry segment, however it manages its businesses in two geographical locations: North America and Europe. The Company operates in one reportable segment, the development and sale of application and development software tool products to businesses. The following table presents information concerning the Company's North American and European operations. Revenue by geographic region: (In thousands)
1999 1998 Revenue by geographic region(1): United States of America $2,456 $4,905 United Kingdom 2,631 2,592 Germany 772 486 ------ ------ Total $5,859 $7,983 ------ ------ ------ ------
- ---------- (1) Revenues are broken out geographically by ship from location. 36 Operating income (loss) by geographic region(1): United States of America $(1,169) $(7,218) United Kingdom 651 (587) Germany (20) (476) ------- ------- Total $ (538) $(8,281) ------- ------- ------- ------- Total assets(1): United States of America $ 991 $ 1,817 United Kingdom 1,365 1,219 Germany 201 379 ------- ------- Total $ 2,557 $ 3,415 ------- ------- ------- ------- Export sales from North America(2): (included in total North America sales above): Mexico $ 141 $ 184 Others in Latin America 12 12 Asia 18 35 Australia 114 39 Canada 148 154 Europe 2 2 ------- ------- Total $ 435 $ 426 ------- ------- ------- -------
No customer accounted for revenues in excess of 10% in 1999 and 1998. (1) Revenues are broken out by ship from location. (2) Revenues broken out by ship to location of the customer. EX-23.1 5 GRANT THORNTON INDEPENDENT AUDITORS CONSENT 1 EXHIBIT 23.1 INDEPENDENT AUDITORS' CONSENT We have issued our reports dated June 1, 1999, accompanying the consolidated financial statements and schedules incorporated in the Annual Report of Omnis Technology Corporation on Form 10-KSB for the year ended March 31, 1999. We hereby consent to the incorporation by reference of said reports in Registration Statements of Omnis Technology Corporation on Form S-8 (File No. 33-65538, 33-81008, 33-46166, and 33-32677). /s/ GRANT THORNTON LLP - ------------------------- GRANT THORNTON LLP San Francisco, California June 23, 1999 EX-23.2 6 DELOITTE & TOUCHE INDEPENDENT AUDITORS CONSENT 1 EXHIBIT 23.2 INDEPENDENT AUDITORS' CONSENT We consent to the incorporation by reference in this Registration Statement No. 33-65538, 33-81008, 33-46166, and 33-32677 of OMNIS Technology Corporation (formerly Blyth Holdings, Inc.) on Form S-8 of our report dated May 22, 1998 (which expresses an unqualified opinion and includes an explanatory paragraph concerning certain factors which raise substantial doubt about the Company's ability to continue as a going concern) appearing in this Annual Report on Form 10-KSB of OMNIS Technology Corporation for the year ended March 31, 1999. /s/ DELOITTE & TOUCHE LLP - ------------------------- DELOITTE & TOUCHE LLP San Jose, California June 23, 1999 EX-27.1 7 FINANCIAL DATA SCHEDULE
5 THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM OMNIS TECHNOLOGY CORPORATION AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED MARCH 31, 1999 AND 1998 SET FORTH AS EXHIBITS TO THE 10-KSB OF THE COMPANY HEREIN AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. YEAR MAR-31-1999 APR-01-1998 MAR-31-1999 271,000 0 914,000 150,000 13,000 1,657,000 3,698,000 2,808,000 2,557,000 1,267,000 0 0 300,000 967,000 (5,000) 2,557,000 4,277,000 5,859,000 680,000 6,397,000 345,000 0 352,000 (887,000) 4,000 (887,000) 0 0 0 (887,000) (0.41) (0.41)
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