UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended: June 30, 2001
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from _________________ to _________________
Commission File Number: 000-29645
AMNIS SYSTEMS INC.
(Formerly Graffiti-X, Inc.)
(Exact name of small business issuer as specified in its charter)
Delaware 33-0821967
(State or other jurisdiction of incorporation or (I.R.S. Employer Identification No.)
organization)
3450 Hillview Avenue, Palo Alto, California 94304
(Address of principal executive offices, including zip code)
Issuer's telephone number, including area code: (650) 855-0200
Not applicable
(Former name, former address and former fiscal year, if changed since last report)
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court. Yes [ ] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
The number of shares outstanding of each of the issuer's classes of common
equity as of August 13, 2001: 11,369,597 shares of Common Stock.
Transitional Small Business Disclosure Format (check one): [ ] Yes [X] No
1
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
This information is contained on pages F-1 through F-7 of this report and
is incorporated into this Item 1 by reference.
In our management's opinion, all adjustments necessary for a fair
presentation of the statements of the results for the interim period have been
included.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis should be read in conjunction with
our financial statements and the related notes included elsewhere in this
report.
This report contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended, with respect to future events, the
outcome of which is subject to certain risks, including the risk related factors
set forth below under the caption "Risk Factors That May Affect Future Operating
Results," in addition to the other information set forth herein.
The inclusion of forward-looking statements should not be regarded as a
representation by us, or any other person, that such forward-looking statements
will be achieved. We undertake no duty to update any of the forward-looking
statements, whether as a result of new information, future events or otherwise.
In light of the foregoing, readers are cautioned not to place undue reliance on
the forward-looking statements contained in this report.
Results of Operations
Revenues for the three months ended June 30, 2001 were $1,625,051, an
increase of approximately 121% over revenues of $734,315 for the three months
ended June 30, 2000.
Research and development expenses were $571,720 for the three months ended
June 30, 2001 as compared to $317,492 for the three months ended June 30, 2000.
Sales and marketing expenses for the three months ended June 30, 2001 were
$735,747 as compared to $579,497 for the three months ended June 30, 2000. The
period-to-period variation is primarily attributable to expenses incurred in
connection with the opening of our Hong Kong office.
General and administrative costs were $420,133 for the three months ended
June 30, 2001 as compared to $410,117 for the three months ended June 30, 2000.
2
Interest and other expense, net was $86,418 for the three months ended
June 30, 2001 as compared to $64,391 for the three months ended June 30, 2001.
The increase was primarily due to accruing interest on shareholder loans.
Liquidity and Capital Resources
At June 30, 2001, we had cash and cash equivalents of $140,666. We
currently have no material commitments other than those under our capital and
operating lease arrangements.
We will require additional funding during the next 12 months to finance
the growth of our current operations and achieve our strategic objectives. Our
management is actively pursuing increases to cash flows and additional sources
of financing and believes that such increases and additional financing will
generate sufficient cash flow to fund our operations through 2001. However, we
cannot make any assurances that such matters will be successfully consummated.
Risk Factors That May Affect Future Operating Results
There is substantial doubt about our ability to continue as a going concern
We have received a report from our independent auditors on our financial
statements as of December 31, 2000 and for the year ended December 31, 2000 that
includes an explanatory paragraph indicating that our net loss, accumulated
deficit and lack of working capital raise substantial doubt about our ability to
continue as a going concern. In addition, in each of their reports on
Optivision's financial statements as of December 31, 2000 and for the eight
months then ended and as of April 2000 and for the fiscal years ended April 30,
1999 and 2000, Optivision's auditors have included explanatory paragraphs
indicating that Optivision's recurring operating losses, stockholder's deficit
and working capital deficit cause substantial doubt about Optivision's ability
to continue as a going concern.
We have a history of losses, and we may not generate sufficient revenues in the
future to achieve or sustain profitability
We have generated limited revenues and incurred significant losses. As of
June 30, 2001, Amnis had an accumulated deficit of approximately $16.7 million.
To achieve profitability, we will need to generate and sustain substantially
higher revenues while maintaining reasonable cost and expense levels. We intend
to significantly increase our operating expenses, especially our marketing
expenses, and research and development expenses. Our future revenues could be
influenced by factors beyond our control such as technological changes and
developments, downturns in the economy and decreases in demand for digital video
networking and broadband Internet products. To the extent that our revenues do
not grow or even continue at their current level, we may not become profitable.
Our quarterly operating results fluctuate
Our quarterly operating results have varied significantly in the past and
are likely to vary significantly in the future. These variations result from a
number of factors, including:
3
. the timing of purchases of our products by system integrators and
other large customers;
. the uncertain timing and level of market acceptance of new products
we introduce;
. the loss of major customers;
. product introductions and other actions taken by our competitors;
. changing networking standards in the digital video industry and our
ability to anticipate and react to such changes in a timely manner;
. changes in sales and distribution environments and costs;
. reductions in pricing by us or our competitors;
. fluctuations in manufacturing yields and delays in product shipments;
. personnel changes; and
. general economic conditions.
Historically, the prices of video encoders and decoders and network video
appliance products have decreased over the life of individual products, while
the complexity of new product introductions has increased. As a result, we have
reduced prices for our products and we expect to reduce prices in the future.
In addition, we have increased research, development and marketing expenditures
in response to competitive conditions and the development of new technologies
and products, and we expect to increase such expenditures in the future.
Accordingly, we believe that period-to-period comparisons of our results of
operations are not meaningful and should not be relied upon as indicators of
future performance. Additionally, if our operating results fall below the
expectations of investors or market analysts in future periods, our share price
will likely decline.
We depend on several large customers for a significant portion of our revenues,
and the loss of one or more of these customers, or a significant decrease in
revenue from any of these customers, could have a disproportionate impact on our
revenues and income
Historically, a substantial portion of our revenues has come from large
purchases by a small number of customers. If we lose one or more of our key
customers or experience a delay or cancellation of a significant order or a
decrease in the level of purchases from any of our key customers, our net
revenues could decline and our operating results and business could be harmed.
In addition, our net revenues could decline and our operating results and
business could be harmed if we experience any difficulty in collecting amounts
due from one or more of our key customers. During the eight months that ended
December 31, 2000, Optivision's top four customers accounted for 44% of our net
revenues. Additionally, during the six months that
4
ended June 30, 2001, four customers accounted for 61% of net revenues.
Approximately 45% of our accounts receivable were concentrated with five of our
customers.
We depend on the efforts of third party resellers and suppliers, and these
relationships may not continue
We use a network of value added resellers, consisting primarily of system
integrators and original equipment manufacturers with established distribution
channels to assist with the marketing of our products and installation and
servicing of our streaming video network products. Our future profits or losses
depend on our ability to maintain old relationships and develop new
relationships with system integrators and original equipment manufacturers, and
on their marketing efforts and installation and support services. A decline in
the financial prospects of particular resellers or any of their customers,
inadequate installation and support services by resellers or our inability to
contract with additional resellers could damage our profitability or cause
additional losses.
We have been and will continue to be dependent on third parties for the supply
and manufacture of all of our component and electronic parts, including standard
and custom-designed components. We purchase components and electronic parts
pursuant to purchase orders in the ordinary course of business and do not
maintain supply agreements. We are substantially dependent on the ability of
third-party manufacturers and suppliers to meet our design, performance and
quality specifications. If our third-party suppliers cannot supply us with
systems or parts within our timeframes or allocate the supply of certain high
demand components, we could be unable to meet our delivery schedules and
requirements on a timely and competitive basis, which would harm our operations.
The digital video and networking market is characterized by rapid technological
changes and multiple evolving standards, and if we fail to enhance our existing
products, develop new and more technologically advanced products and
successfully market these products, our result of operations will suffer
The markets for our products are characterized by rapidly changing technology,
evolving industry standards and frequent new product introductions. We believe
that our future success will depend on our continued ability to maintain
expertise in the technologies associated with the Moving Picture Expert Group,
or MPEG, and streaming video network and broadband Internet video applications.
In addition, we believe that our future success will depend, in part, on our
continued ability to enhance our current products and to introduce new products
and features to meet changing customer requirements and evolving industry
standards. Our present products are based on the MPEG standard. Although MPEG
has evolved as the de-facto standard for compression and decompression of
digital video, other industry standards could replace the current MPEG standard
in the future. In addition, we or our competitors may announce products that
have the potential to shorten the life cycle of, or replace, our products. We
have made such announcements in the past and may do so in the future. Such
announcements could cause customers not to buy our products or to defer
decisions to buy our products. In addition, products or technologies developed
by others could render our products or technologies non-competitive or obsolete.
5
Digital video products generally, and video network and broadband Internet
video products and technologies specifically, are relatively young and evolving
markets. Our future growth will depend on our ability to predict the evolution
of these markets as well as new streaming video applications, and to
successfully penetrate those markets. Because of the early stage of the
development of the digital video market, the demand for, and market acceptance
of, our products, is subject to a high degree of uncertainty. If market growth
rates do not meet our expectations, or if we are unsuccessful in identifying and
penetrating those segments of the digital video market which provide the
greatest opportunity for growth, our business would suffer.
Our future success also depends upon our ability to develop, launch and
market new technologies and products. We have devoted, and will continue to
devote, substantial effort and expenses to the development of new technologies
and products. However, we cannot assure you that we will be able to complete
testing and successfully launch our new products. The digital video market
generally and the broadband Internet video market specifically are in the early
state of development and the demand for, and market acceptance of, our
technologies and products under development is subject to a high degree of
uncertainty. If we cannot develop and launch our new products, or if we fail to
achieve market acceptance of our new products, our future growth would suffer.
We believe that our future success will largely depend upon our ability to
continue to enhance our existing products and to successfully develop and market
new products in a cost-effective and timely basis. Reliability, quality or
compatibility problems with our products could significantly delay or reduce
market acceptance of our products, could require the devotion of significant
time and resources to addressing errors, could divert our engineering and other
resources form other tasks and development efforts, and could damage our
reputation and adversely affect our ability to retain our existing customers and
to attract new customers. If we fail to develop new products efficiently or if
our new products are defective, our business would suffer.
Competition may decrease our market share, net revenues and gross margins
Competition in the streaming video products market is intense, and we
expect competition to increase. To compete effectively, we must continue to
respond promptly and effectively to changing customer preferences, and feature
and pricing requirements, and rapid technological change. Our principal
competitors include Minerva Networks Inc., Optibase Ltd. and Vbrick Systems Inc.
Some of our actual and potential competitors have greater name recognition,
access to a larger customer base and significantly greater financial, marketing,
technical and other resources than we do. Our competitors also sell products
that provide some of the benefits of the products that we sell, and we could
lose sales to our competitors. Moreover, the digital video products industry is
undergoing a period of consolidation in which companies, including some of our
competitors, are participating in business combinations. These combinations may
result in the emergence of competitors who have larger market shares, customer
base, sales forces and product offerings and greater technology marketing
expertise than we do. As a result, our competitors may be able to adapt more
quickly to new or emerging technologies and changes in customer requirements or
to devote greater resources to the promotion and sale of their products than us.
We may not be able to compete successfully
6
against current and future competitors, or to make technological advances
necessary to improve or even maintain our competitive position. Additionally, we
cannot make any assurances that our products will achieve market acceptance.
We also expect price competition to escalate in the video networking
industry. We have consistently attempted to minimize the effect of price
reductions in the market by introducing more sophisticated products at the top
of our product line, and thereby attempt to maintain higher selling prices.
However, competition in the future may force us to lower product prices and add
new products and features at lower prices, or we may otherwise be unable to
introduce new products at higher prices. We cannot assure you that we will be
able to compete successfully in this kind of price competitive environment, and
lower prices and reduced demand for our products would reduce our ability to
generate revenue. Failure by us to mitigate the effect of these pressures
through cost reductions of our products or changes in our product mix could have
a material adverse effect on our business and we may not be able to achieve or
maintain profitability.
We may need capital in the future, and if we are unable to obtain adequate funds
on terms acceptable to us, we may not be able to execute our business plan
We may require substantial additional capital to finance our future
growth, hire additional qualified personnel, implement further marketing and
sales activities, and fund our ongoing research and development activities. Our
capital requirements will depend on many factors, including acceptance of and
demand for our products, the extent to which we invest in new technology and
research and development projects, and the status and timing of competitive
developments. To the extent that our existing sources of liquidity and cash
flow from operations are insufficient to fund our activities, we may need to
raise additional capital. If additional funds are raised through the issuance
of equity securities, the percentage of equity ownership of our existing
stockholders will be reduced. In addition, holders of these equity securities
may have rights, preferences or privileges senior to those of the holders of our
common stock. If additional funds are raised through the issuance of debt
securities, we may incur significant interest charges, and these securities
could also impose restrictions on our operations. Additional financing may not
be available when needed on terms favorable to us or at all. If adequate funds
are not available or are not available on acceptable terms, we may be unable to
develop or enhance our products, take advantage of future opportunities or
respond to competitive pressures, which could seriously harm our business.
If we are unable to attract, train and retain qualified engineers, marketing,
sales and technical support personnel, we may not be able to develop our
business
Our future success also depends to a substantial degree upon our ability to
attract, train, motivate and retain other highly qualified engineering,
technical, sales, marketing, management and other personnel, to support our
marketing efforts, new customers and the expanding needs of existing customers,
as well as for our continued research and development operations. There is
considerable competition for the services of people with experience in the
digital video field who have the necessary skills and understanding of our
products. This is particularly the case in Northern California where
competition for such personnel is intense. If we are not able to hire
7
and retain the necessary personnel, our business will not develop and our
operating results will be harmed.
We depend on a limited number of key personnel who would be difficult to
replace, and if we lose the services of these individuals or cannot hire
additional qualified personnel, our business could be seriously harmed
Our future success depends in large part on the continued services of our
senior management, and key technical and sales personnel. In particular, we are
highly dependent on the services of Michael A. Liccardo, our Chairman, President
and Chief Executive Officer, Lawrence L. Bartlett, our Vice President, Chief
Financial Officer and Secretary, Richard A. Falcone our Vice President of
Worldwide Sales and Marketing, and Girish Chandran, our Vice President of
Engineering. We do not carry key person life insurance on our senior management
or key personnel. Any loss of the services of Messrs. Liccardo, Bartlett,
Falcone or Chandran, other members of senior management or other key personnel
could seriously harm our business.
If our products contain undetected software or hardware errors, we could incur
significant unexpected expenses, experience product returns and lost sales and
by subject to product liability claims
Our products use software and other technologies which are complex and,
despite testing, may contain errors. Any errors in our exiting or new products
could result in, among other things, a delay in recognition or loss of revenues,
loss of market share, failure to achieve market acceptance, and material claims
against us by customers. If unanticipated expenses, problems or difficulties,
technical or otherwise, prevent us from successfully marketing our products, we
will continue to experience losses, perhaps at an increasing level.
We are headquartered in Northern California and our business could be severely
impacted by power shortages and earthquakes
We conduct our business and operations out of our headquarters located in
Palo Alto, California, including research and development, customer support, and
final assembly and tests of our products. Despite precautions taken by us,
power shortages, earthquakes, fire or other unanticipated problems could, among
other things, hinder our research and development efforts, delay the shipment of
our products, affect our ability to receive and fulfill orders, and severely
harm our business.
Our stock price may be volatile and the trading market for our common stock is
limited
The market price for our common stock, like that of the securities of many
companies in the technology and emerging growth sectors, has fluctuated
substantially and may continue to be highly volatile in the future. We believe
that the following factors, in addition to other risk factors described above,
will continue to significantly affect the market price of our common stock:
. announcements of technological innovations or new commercial products
by us and our competitors;
8
. developments concerning research and development, manufacturing, and
marketing alliances or collaborations by us and our competitors;
. developments in our industry;
. general market and economic conditions and other factors, including
factors unrelated to our operating performance or the operating
performance of our competitors; and
. period-to-period fluctuations in our operating results and the
operating results of our competitors.
In addition, stock markets have recently experienced extreme price and
volume fluctuations. These fluctuations have especially affected the stock
market price of many technology companies, and, in many cases, are unrelated to
the operating performance of the particular companies. We believe that these
broad market fluctuations may continue to negatively affect the market price of
our common stock.
From time to time, there has been limited trading volume with respect to
our common stock which is traded in the over-the-counter market, but we cannot
make any assurances that there will continue to be a trading market in our
common stock.
9
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On April 26, 2001, Thornbury Estates, Ltd. filed a civil breach of contract
action for finder's fees and consulting fees in Superior Court, Santa Clara
County, California, against us and Optivision. Thornbury Estates is seeking
monetary relief in the amount of approximately $175,000. We have reviewed and
investigated the allegations in the complaint and believe we have meritorious
defenses. Optivision filed a cross-complaint to nullify its contract with the
plaintiff. Thornbury Estates moved for a court order for a pre-judgment right to
attach. This order was denied and, in a recent hearing, Thornbury Estates was
ordered to post a $50,000 bond in order to proceed with its complaint. The
action has been stayed pending the filing of the bond and is subject to
dismissal if the bond is not posted. We intend to vigorously defend Optivision
and ourselves in this matter.
On December 1, 2000, Icon Networks, Inc., a California corporation, filed a
complaint for breach of contract and warranty and unfair competition in Superior
Court, Los Angeles County against Optivision seeking compensatory damages to be
proven, but in excess of $200,000, punitive damages, equitable and
restitutionary relief, costs of suit and further relief as the court may deem
proper. We believe that the suit is without merit and that it was filed in
retaliation to Optivision referring the debt owed to it by Icon Networks to a
collection agency. Optivision has filed a cross-complaint for breach of
contract, account stated, open book account, and goods and services rendered,
seeking damages of $91,243.45 plus attorneys' fees and costs of suit.
ITEM 2. CHANGES IN SECURITIES
Recent Sales of Unregistered Securities
During the three months ended June 30, 2001, we issued and sold securities
not registered under the Securities Act of 1933, as amended, as follows:
(1) In April 2001, we issued 8,000 shares of our common stock to an
individual in consideration for certain administrative and accounting services
rendered to us, in reliance upon an exemption from registration pursuant to
Section 4(2) of the Securities Act of 1933.
(2) In April 2001, in connection with our acquisition of Optivision, we
issued to the security holders of Optivision in exchange for securities in
Optivision, 4,459,063 shares of our common stock, options to purchase 3,896,768
shares of our common stock and warrants to purchase 1,350,000 shares of our
common stock, in reliance upon an exemption from registration pursuant to
Section 3(a)(10) of the Securities Act of 1933.
10
(3) In June 2001, we issued to a corporate service provider 5,000 shares of
our common stock for certain marketing and promotional services rendered to us,
in reliance upon an exemption from registration pursuant to Section 4(2) of the
Securities Act of 1933.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
None.
(b) Reports on Form 8-K
On May 1, 2001, we filed a Current Report on Form 8-K in which we
reported our acquisition of Optivision, which was amended by a Current Report on
Form 8-K/A filed on July 2, 2001.
11
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Date: August 14, 2001 AMNIS SYSTEMS INC.
By: /s/ Lawrence L. Bartlett
-----------------------------
Lawrence L. Bartlett
Vice President and Chief
Financial Officer
12
INDEX TO FINANCIAL STATEMENTS
Unaudited Condensed Consolidated Balance Sheet as of June 30, 2001 and March 31,
2001
Unaudited Condensed Consolidated Statement of Operations for the three-month
periods ended June 30, 2001 and June 30, 2000 and for the six months ended
June 30, 2001 and June 30, 2000
Unaudited Condensed Consolidated Statement of Cash Flows for the six-month
periods ended June 30, 2001 and June 30, 2000
Notes to Unaudited Consolidated Financial Statements
13
Amnis Systems, Inc.
Consolidated Balance Sheet
(unaudited)
- ------------------------------------------------------------------------------------------------------------
June 30, 2001 March 31, 2001
- ------------------------------------------------------------------------------------------------------------
<s> <c> <c>
Assets
Current Assets:
Cash $ 140,666 $ 8,986
Accounts receivable, net of allowance for doubtful
accounts of $300,375 499,290 1,007,601
Inventories 511,483 1,013,901
Prepaid expenses and other 25,696 20,197
- ------------------------------------------------------------------------------------------------------------
Total current assets 1,177,135 2,050,685
- ------------------------------------------------------------------------------------------------------------
Property and Equipment
Machinery and equipment 2,106,361 2,085,924
Demonstration equipment 487,026 470,976
Furniture and fixtures 525,293 551,810
Leasehold improvements 351,111 351,565
- ------------------------------------------------------------------------------------------------------------
3,469,791 3,460,275
Less: Accumulated depreciation and amortization (3,193,953) (3,160,983)
- ------------------------------------------------------------------------------------------------------------
Property and equipment, net 275,838 299,292
- ------------------------------------------------------------------------------------------------------------
Other Assets 93,270 93,270
- ------------------------------------------------------------------------------------------------------------
$ 1,546,243 $ 2,443,247
- ------------------------------------------------------------------------------------------------------------
Liabilities and Stockholders' (Deficit)
Current Liabilities:
Bank overdraft $ 0 $ 105,364
Financing obligations collateralized by accounts receivable 1,018,525 1,138,643
Stockholders' notes payable 2,694,375 2,822,197
Accounts payable - moratorium 1,561,500 1,561,500
Accounts payable - other 510,406 403,788
Deferred rent 199,195 199,195
Accrued liabilities 1,386,992 2,042,587
Other current liabilities 59,442 73,759
- ------------------------------------------------------------------------------------------------------------
Total current liabilities 7,430,435 8,347,033
Stockholders' (Deficit):
Common stock, $0.0001 par value:
Authorized - 100,000,000 shares in June and March, 2001
Issued and outstanding - 11,369,597 shares and 11,356,597 shares
in June and March, respectively 1,137 1,136
Additional Paid-in Capital 10,993,675 9,936,420
Accumulated deficit (16,879,004) (15,841,342)
- ------------------------------------------------------------------------------------------------------------
Total stockholders' deficit (5,884,192) (5,903,786)
- ------------------------------------------------------------------------------------------------------------
Total liabilities and stockholder's deficit $ 1,546,243 $ 2,443,247
- ------------------------------------------------------------------------------------------------------------
F-1
Amnis Systems, Inc.
Consolidated Statement of Operations
(unaudited)
=================================================================================================================================
June 30 June 30
----------------------------- -----------------------------
For three months and six months ended, respectively 2001 2000 2001 2000
- ----------------------------------------------------------------------------------------------------------------------------------
Sales $ 1,625,051 $ 734,315 $ 2,958,909 $ 1,733,833
Cost of Goods Sold 842,226 395,658 1,645,418 1,098,268
- ----------------------------------------------------------------------------------------------------------------------------------
Gross margin 782,825 338,657 1,313,491 635,565
Operating Expenses
Research and development 571,720 317,492 1,237,737 674,748
Sales and marketing 735,747 579,497 1,478,312 1,300,035
General and administrative 420,133 410,117 921,463 790,472
- ----------------------------------------------------------------------------------------------------------------------------------
1,727,600 1,307,106 3,637,512 2,765,255
- ----------------------------------------------------------------------------------------------------------------------------------
Loss from operations (944,775) (968,449) (2,324,021) (2,129,690)
Other Income (Expense)
Interest expense, net (86,418) (64,391) (270,845) (155,314)
Other, net (6,470) 51,639 36,019 63,627
- ----------------------------------------------------------------------------------------------------------------------------------
Total other (expense) (92,888) (12,752) (234,826) (91,687)
- ----------------------------------------------------------------------------------------------------------------------------------
Net loss $ (1,037,663) $ (981,201) $ (2,558,847) $ (2,221,377)
==================================================================================================================================
Basic Loss per Common Share (0.082) (0.089) (0.202) (0.202)
F-2
Amnis Systems, Inc.
Consolidated Statement of Cash Flows
(unaudited)
====================================================================================================================================
June 30
-------------------------------------
For the six months ended 2001 2000
- ------------------------------------------------------------------------------------------------------------------------------------
Cash Flows from Operating Activities:
Net loss $ (2,558,847) $ (2,221,377)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 146,567 288,587
Provision for doubtful accounts 37,650 10,988
Provision for excess and obsolete inventories 566,178 (492,200)
Issuance of common stock for services 21,000
Decrease (increase) in accounts receivable 103,448 139,534
Decrease (increase) in inventories 28,987 382,173
Decrease (increase) in prepaid expenses and other assets 19,084 52,381
Decrease in other assets 140,000 1,563
Increase (decrease) in accounts payable (372,575) (65,679)
Increase (decrease) in accrued liabilities (144,459) 376,067
Increase (decrease) in other current liabilities 11,623 (50,677)
Increase (decrease) in deferred rent 0 (19,307)
Net cash used in operating activities (2,001,344) (1,597,948)
- ------------------------------------------------------------------------------------------------------------------------------------
Cash Flows from Investing
Activities:
Purchases of property and equipment (36,201) (3,458)
- ------------------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (36,201) (3,458)
- ------------------------------------------------------------------------------------------------------------------------------------
Cash Flows from Financing Activities:
Borrowings from stockholders 1,122,178 1,207,197
Proceeds from financing obligations collateralized by accounts receivable 887,685 410,612
Payments on financing obligations collateralized by accounts receivable (1,007,758) (700,548)
Proceeds from issuance of common stock 1,044,382 567,470
Payment on notes payable (83,042) (66,584)
- ------------------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities 1,963,445 1,418,146
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash (74,100) (183,260)
Cash and Cash Equivalents, beginning of quarter 214,766 304,278
- ------------------------------------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents, end of quarter $ 140,666 $ 121,018
====================================================================================================================================
Supplemental Disclosures of Cash Flow Information:
Cash paid for interest $ 113,540 $ 128,201
====================================================================================================================================
Non Cash Transaction
Conversion of debt to common stock 2,800,000 500,000
Issuance of common stock for services at $1.00 per share 5,000
Issuance of common stock for services at $2.00 per share 16,000
Amnis Systems, Inc.
Notes to Consolidated Financial Statements
The accompanying unaudited interim
consolidated financial statements reflect
all adjustments that are, in the opinion
of management, necessary to present
fairly the financial position, results of
operations, and cash flows of the Company
for the periods indicated. All
adjustments for the quarter ended June
30, 2001 were of a recurring nature. The
accompanying unaudited interim
consolidated financial statements have
been prepared in accordance with the
instructions for Form 10-QSP and,
therefore, do not include all information
and footnotes necessary for a complete
presentation of the financial position,
results of operations, and cash flows for
the Company, in conformity with
accounting principles generally accepted
in the United States of America. The
Company has filed audited financial
statements that include all information
and footnotes necessary for such a
presentation of the financial position,
results of operations and cash flows for
the fiscal years ended December 31, 2000
and 1999, with the Securities and
Exchange Commission. It is suggested that
the accompanying unaudited interim
consolidated financial statements be read
in conjunction with the aforementioned
audited consolidated financial
statements. The unaudited interim
consolidated financial statements contain
all normal and recurring entries. The
results of operations for the interim
period ended June 30, 2001 are not
necessarily indicative of the results to
be expected for the full year.
Note 1 Description of Company Amnis Systems, Inc. (the Company, a
Delaware consolidated corporation),
develops, manufactures and delivers
networked streaming video solutions for
high quality video creation, management
and distribution. The Company's network
video products are distributed worldwide
both directly and through leading
industry partners.
Amnis products are used in diverse
applications such as distance learning,
corporate training, video courier
services, telemedicine, surveillance and
visual collaboration.
The Company is subject to a number of
business risks affecting companies at a
similar stage of development, including
competition from companies with greater
resources and alternative technologies,
the ability to obtain financing to fund
future operations, dependence on new
product introductions in a rapidly
changing technological environment,
dependence on a limited number of
customers, dependence on key employees
and the ability to attract and retain
additional qualified personnel.
The accompanying financial statements
have been prepared assuming that the
Company will continue as a going concern.
The stockholder equity of the Company,
after the April 16th merger with
Optivision, has resulted in a substantial
deficit that is compounded by its working
capital deficit of $6,253,300. These
factors raise substantial doubt about the
Company's ability to continue as a going
concern. There is no assurance that the
Company will be able to achieve
successful operations, obtain sufficient
financing or obtain a line of credit. The
accompanying financial statements do not
include any
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adjustments that might result from the
outcome of these uncertainties.
Note 2 Summary of Significant Principles of Consolidation
Accounting Policies
The financial statements include the
accounts of Amnis Systems, Inc. and its
wholly-owned subsidiary Optivison, Inc.
All significant intercompany accounts and
transactions have been eliminated in
consolidation
Amnis Systems, Inc.
Notes to Consolidated Financial Statements
(Continued)
Note 2 Summary of Significant Risks due to Concentration of Significant
Accounting Policies Customers
(Continued)
Historically, a substantial portion of our
revenues has come from large purchases by
a small number of customers. If we lose
one or more of our key customers or
experience a delay or cancellation of a
significant order or a decrease in the
level of purchases from any of our key
customers, our net revenues could decline
and our operating results and business
could be harmed. In addition, our net
revenues could decline and our operating
results and business could be harmed if we
experience any difficulty in collecting
amounts due from one or more of our key
customers. During Optivisions's fiscal
years ended April 30, 2000 and April 30,
1999, our top two customers accounted for
22% and 31% of our net revenues,
respectively. Additionally, as of April
30, 2000 and April 30, 1999, approximately
33% and 48% of our accounts receivable
were concentrated with three of our top
customers. During the eight months ended
December 31, 2000, Optivision's top four
customers accounted for 44% of our net
revenues and during the six months that
ended June 20, 2001, four customers
accounted for 61% of net revenues. As of
June 30, 2001 approximately 45% of our
accounts receivable were concentrated with
five of our customers.
Inventories
Inventories are stated at the lower of
cost (first-in, first-out) or market.
Provision has been made to reduce obsolete
inventories to their net realizable value.
Inventories contain components and
assemblies in excess of the Companies
current estimated requirements and these
are reserved for at June 30, 2001.
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Due to competitive and market pressures,
it is reasonably possible that estimates
could change in the future. Inventories
consist of the following:
Raw Materials $ 253,087
Work-in-process 772,555
Demonstration inventory 69,538
----------
1,095,181
Reserve for inventory obsolescence
and demonstration inventory
refurbishing costs (583,698)
----------
$ 511,483
==========
Amnis Systems, Inc.
Notes to Consolidated
Financial Statements
(Continued)
Note 2 Summary of Significant Inventories (continued)
Accounting Policies
(Continued) Certain of the Company's products contain
components that are supplied by a limited
number of third parties. While the
Company has an inventory of these
components, any significant prolonged
shortage of these components, or the
failure of these suppliers to maintain or
enhance these components could materially
adversely affect the Company's results of
operations.
Note 3 Effects of Business The Company was formed on July 29, 1998.
Consolidation and On April 16,2001 the Company merged with
Conversion of Optivision, Inc., an operating company,
Stockhoder Debt in a stock exchange.
Under the terms of the merger, each
issued and outstanding share of
Optivision common stock was converted
into the right to receive 0.10 shares of
Company common stock rounded to the
nearest whole share; each outstanding but
unexercised option to purchase common
stock of Optivision was converted into an
option to acquire the number of shares of
Company common stock equal to the product
of 0.10 multiplied by the number of
shares of Optivision common stock that
would have been obtained before the
merger rounded to the nearest whole
share; each outstanding warrant to
purchase common stock of Optivision was
converted into a warrant to acquire the
number of shares of Company common stock
equal to the product of 0.10 multiplied
by the number of shares of Optivision
common stock that would have been
obtained before the merger, rounded to
the nearest whole share. Additional
information can be found in the Agreement
and Plan of Merger with Optivision, Inc.
Note 4 Stockholders' Notes Since April 1999, five individuals have
Payable loaned Optivision, Inc. and for which the
Company accepted liability in merger,
funds due in one year and including
interest rates of 10%. The carrying value
of these notes payable approximates
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their fair value.
Note 5 Loss per Share The basic loss per share was calculated
based on a weighted average number of
shares outstanding of 12,646,619 and
11,002,801 at June 30, 2001 and 2000,
respectively. The effect of potentially
dilutive instruments is not computed
because it is anti-dilutive.
Amnis Systems, Inc.
Notes to Consolidated Financial Statements
(Continued)
Note 6 Contingencies On April 26, 2001, Thornbury Estates,
Ltd. filed a civil breach of contract
action for finder's fees and consulting
fees in Superior Court, Santa Clara
County, California, against us and
Optivision. Thornbury Estates is seeking
monetary relief in the amount of
approximately $175,000. We have reviewed
and investigated the allegations in the
compliant and believe we have meritorious
defenses. Optivision filed a cross-
complaint to nullify its contract with
the plaintiff. Thornbury Estates moved
for a court order for a pre-judgement
right to attach. This order was denied
and, in a recent hearing, Thornbury
Estates was ordered to post a $50,000
bond in order to proceed with its
complaint. The action has been stayed
pending the filing of the bond and is
subject to dismissal if the bond is not
posted. We intend to vigorously defend
Optivision and ourselves in this matter.
On December 1, 2000, Icon Networks, Inc.,
a California corporation, filed a
complaint for breach of contract and
warranty and unfair competition in
Superior Court, Los Angeles County
against Optivision seeking compensatory
damages to be proven, but in excess of
$200,000, punitive damages, equitable and
restitutionary relief, costs of suit and
further relief as retaliation to
Optivision referring the debt owed to it
by Icon Networks to a collection agency.
Optivision has files a cross-complaint
for breach of contract, account stated,
open book account, and goods and services
rendered, seeking damages of $91,243.45
plus Attorney's fees and cost of suit.
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