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: September 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 94-3402831
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or 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 November 14, 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.
INDEX TO FINANCIAL STATEMENTS
Unaudited Condensed Consolidated Balance Sheet as of September 30, 2001 and June
30, 2001
Unaudited Condensed Consolidated Statement of Operations for the three-month
periods ended September 30, 2001 and September 30, 2000 and for the nine
months ended September 30, 2001 and September 30, 2000
Unaudited Condensed Consolidated Statement of Cash Flows for the nine-month
periods ended September 30, 2001 and September 30, 2000
Notes to Unaudited Consolidated Financial Statements
AMNIS SYSTEMS INC.
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
==================================================================================================
Sep 30, 2001 June 30, 2001
- --------------------------------------------------------------------------------------------------
ASSETS
CURRENT ASSETS:
Cash $ 8,358 $ 140,666
Accounts receivable, net of allowance for doubtful
accounts of $300,375 497,216 499,290
Inventories 462,690 511,483
Prepaid expenses and other 45,774 25,696
- --------------------------------------------------------------------------------------------------
Total current assets 1,014,038 1,177,135
- --------------------------------------------------------------------------------------------------
PROPERTY AND EQUIPMENT
Machinery and equipment 2,104,886 2,106,361
Demonstration equipment 490,548 487,026
Furniture and fixtures 521,288 525,293
Leasehold improvements 351,111 351,111
- --------------------------------------------------------------------------------------------------
3,467,833 3,469,791
Less: Accumulated depreciation and amortization (3,251,086) (3,193,953)
- --------------------------------------------------------------------------------------------------
Property and equipment, net 216,747 275,838
- --------------------------------------------------------------------------------------------------
OTHER ASSETS 96,700 93,270
- --------------------------------------------------------------------------------------------------
$ 1,327,485 $ 1,546,243
==================================================================================================
LIABILITIES AND STOCKHOLDERS' (DEFICIT)
CURRENT LIABILITIES:
Bank overdraft $ 122,508 $ 0
Financing obligations collateralized by accounts receivable 916,345 1,018,525
Stockholders' notes payable 3,559,375 2,694,375
Accounts payable - moratorium 1,561,500 1,561,500
Accounts payable - other 568,439 510,406
Deferred rent 199,195 199,195
Accrued liabilities 1,868,387 1,386,992
Other current liabilities 60,368 59,442
- --------------------------------------------------------------------------------------------------
Total current liabilities 8,856,117 7,430,435
STOCKHOLDERS' (DEFICIT):
Common stock, $0.0001 par value:
Authorized - 100,000,000 shares in September and June, 2001
Issued and outstanding - 11,369,597 1,137 1,137
Additional Paid-in Capital 10,993,675 10,993,675
Accumulated deficit (18,523,444) (16,879,004)
- --------------------------------------------------------------------------------------------------
Total stockholders' deficit (7,528,632) (5,884,192)
- --------------------------------------------------------------------------------------------------
Total liabilities and stockholder's deficit $ 1,327,485 $ 1,546,243
==================================================================================================
F-1
AMNIS SYSTEMS INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
=============================================================================================================
September 30 September 30
-------------------------- --------------------------
For three months and nine months ended, respectively 2001 2000 2001 2000
=============================================================================================================
SALES $ 477,354 $ 664,675 $ 3,436,263 $ 2,398,508
COST OF GOODS SOLD 421,104 504,852 2,066,522 1,603,120
- -------------------------------------------------------------------------------------------------------------
Gross margin 56,250 159,823 1,369,741 795,388
OPERATING EXPENSES
Research and development 427,344 508,138 1,665,081 1,182,886
Sales and marketing 697,113 525,843 2,175,425 1,825,878
General and administrative 459,001 522,461 1,380,464 1,312,933
- -------------------------------------------------------------------------------------------------------------
1,583,458 1,556,442 5,220,970 4,321,697
- -------------------------------------------------------------------------------------------------------------
Loss from operations (1,527,208) (1,396,619) (3,851,229) (3,526,309)
OTHER INCOME (EXPENSE)
Interest expense, net (124,857) (71,108) (395,820) (226,422)
Other, net 7,625 645 43,763 64,272
- -------------------------------------------------------------------------------------------------------------
Total other (expense) (117,232) (70,463) (352,057) (162,150)
- -------------------------------------------------------------------------------------------------------------
Net loss $(1,644,440) $(1,467,082) $(4,203,286) $(3,688,459)
=============================================================================================================
BASIC LOSS PER COMMON SHARE (0.135) (0.127) (0.344) (0.319)
F-2
AMNIS SYSTEMS INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
=======================================================================================================
September 30
--------------------------
For the nine months ended 2001 2000
=======================================================================================================
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(4,203,286) $(3,688,459)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 208,844 446,357
Provision for doubtful accounts 37,650 (2,615)
Provision for excess and obsolete inventories 339,752 (444,015)
Issuance of common stock for services 21,000 -
Decrease (increase) in accounts receivable 100,066 353,201
Decrease (increase) in inventories 304,205 (192,889)
Decrease (increase) in prepaid expenses and other assets 4,463 6,433
Decrease (increase) in deposits (3,430) 1,563
Increase (decrease) in accounts payable (314,542) (91,646)
Increase (decrease) in accrued liabilities 337,510 142,601
Increase (decrease) in deferred revenue 12,548 (48,888)
Increase (decrease) in deferred rent 0 (33,688)
Net cash used in operating activities (3,155,220) (3,552,045)
- -------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (39,388) (28,974)
- -------------------------------------------------------------------------------------------------------
Net cash used in investing activities (39,388) (28,974)
- -------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings from stockholders 2,127,177 2,234,694
Proceeds from financing obligations collateralized by accounts receivable 1,057,040 657,839
Payments on financing obligations collateralized by accounts receivable (1,279,294) (929,381)
Proceeds from issuance of common stock 1,044,382 1,566,420
Payment on notes payable (83,613) (93,667)
Bank Overdraft 122,508 0
- -------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities 2,988,200 3,435,905
- -------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash (206,408) (145,114)
CASH AND CASH EQUIVALENTS, beginning of year 214,766 300,271
- -------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, end of quarter $ 8,358 $ 155,157
=======================================================================================================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for interest $ 156,625 $ 141,176
=======================================================================================================
NON CASH INVESTING AND FINANCING ACTIVITIES
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
F-3
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
September 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-QSB 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 September 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.
Company 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.
F-4
Amnis Systems Inc.
Notes to Consolidated Financial Statements
(Continued)
================================================================================
Note 1 Description of Company (Continued)
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. The stockholders' equity of the
Company, after the April 16th merger with Optivision, Inc. (Optivision), has
resulted in a substantial deficit that is compounded by its working capital
deficit of $ 7,842,079 at September 30, 2001 and negative cash flow from
operations. 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 adjustments
that might result from the outcome of these uncertainties.
Note 2 Summary of Significant Accounting Policies
Principles of Consolidation
The financial statements include the accounts of Amnis Systems Inc. and its
wholly-owned subsidiary Optivision, Inc. All significant intercompany accounts
and transactions have been eliminated in consolidation.
Risks due to Concentration of Significant Customers
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 Optivision'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 nine months that ended September 30, 2001, four
customers accounted for 50% of net revenues. As of September 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 Company's
current estimated requirements and these are reserved for at September 30, 2001.
Due to competitive and market pressures, it is reasonably possible that
estimates could change in the future. Inventories consist of the following:
F-5
Amnis Systems Inc.
Notes to Consolidated Financial Statements
(Continued)
================================================================================
Note 2 Summary of Significant Accounting Policies (Continued)
Inventories (continued)
Raw Materials $ 255,173
Work-in-process 696,571
- --------------------------------------------------------------
951,744
Reserve for inventory obsolescence
and demonstration inventory
refurbishing costs (489,053)
- --------------------------------------------------------------
$ 462,691
==============================================================
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 Consolidation
The Company was formed on July 29, 1998. On April 16, 2001 the Company merged
with Optivision, Inc., an operating company, in an exchange of common stock
accounted for as a pooling of interest.
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 Payable
Certain stockholders loaned Optivision funds beginning in April 1999. These
unsecured loans were all due in one year and bear interest rates of 10%. The
Company assumed the liability of these stockholder notes payable in connection
with the merger described in Note 3. The loans are currently past due and any
unpaid interest has been accrued. The carrying value of these notes payable
approximates their fair value.
F-6
Amnis Systems Inc.
Notes to Consolidated Financial Statements
(Continued)
================================================================================
Note 5 Loss per Share
The basic loss per share was calculated based on a weighted average number of
shares outstanding of 12,216,267 and 11,556,657 at September 30, 2001 and 2000,
respectively. The effect of potentially dilutive instruments is not computed
because it is anti-dilutive.
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. Optivision filed a
cross-complaint to nullify its contract with the plaintiff. In a recent hearing,
Thornbury Estates was ordered to post a $50,000 bond in order to proceed with
its complaint. Subsequent to September 30, 2001 a settlement offer was reached.
Under the settlement offer Amnis is to issue Thronbury Estates an additional
50,000 share option with 100% vesting on January 31, 2002.
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, and further relief as the
court may deem proper. We believe that the suit is in retaliation to Optivision
referring the debt owed to it, $91,243.45, by Icon Networks to a collection
agency. The suit was settled on September 25, 2001 with $20,000 to be paid by
Optivision's liability insurance carrier to Icon and for two Cisco Ethernet
switches, valued between ten and twenty thousand dollars, to be sent to
Optivision.
F-7
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 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 nine months ended September 30, 2001 were $3,436,263, an
increase of approximately 43% over revenues of $2,398,508 for the nine months
ended September 30, 2000. Revenues for the three month period ended September
30, 2001 were $477,354 a decrease of 28% from the same period in the prior year
reflecting the effect of the economic slowdown. We have no reason to believe
revenues will increase from this level in the fourth quarter of this year.
Research and development expenses were $1,665,081 for the nine months ended
September 30, 2001 as compared to $1,182,886 for the nine months ended September
30, 2000. For the three months ended September 30, 2001 R & D expenses were
$427,344, 16% less than the same period in the prior year. This decrease is in
line with cost reductions necessary as a result of the revenue slowdown.
2
Sales and marketing expenses for the nine months ended September 30, 2001
were $2,175,425 as compared to $1,825,878 for the nine months ended September
30, 2000. The period-to-period variation is primarily attributable to expenses
incurred in connection with the opening of offices in Hong Kong and Munich.
Those increased costs continue to be reflected for the three months ended
September 30, 2001 with expenditures of $697,113 compared to $525,843 in the
prior year.
General and administrative costs were $1,380,464 for the nine months ended
September 30, 2001 as compared to $1,312,933 for the nine months ended September
30, 2000 reflecting increased legal costs associated with the merger, law suit
settlements and maintaining public reporting requirements. For the three months
ended September 30, 2001 general and administrative costs were $459,001 down
from $522,461 for the same period in the prior year as a result of decreased
expenditures necessitated by the revenue slowdown.
Interest and other expense, net was $352,057 for the nine months ended
September 30, 2001 as compared to $162,150 for the nine months ended September
30, 2000. The increase was primarily due to accruing interest on shareholder
loans and other increases in debt. For the three months ended September 30,
2001 interest and other expenses were $117,232 compared to $70,463 in the prior
year.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 2001, we had cash and cash equivalents of $8,358, a bank
over draft of $122,508 and have experienced a negative year to date cash flow of
$206,408. We also have continuing operating losses for the quarter of $1,527,208
and for the nine months ended September 30, 2001 of $3,851,229. We currently
have no material commitments other than those under our capital and operating
lease arrangements.
Based on the investment of $200,000 and commitments for additional
financing received since September 30, 2001 we will have sufficient funds to
maintain operations until early January 2002. In order to continue operations
beyond that point additional funding will be required. We will, also, require
additional funding to finance growth and achieve our strategic objectives.
Management is actively pursuing additional sources of funding. In addition
management is also looking to increases in cash flows through increases in
revenue and cost-cutting measures.
As stated above we need additional cash to support our investment in our
business. If we do not raise additional sufficient funds, we also may not be
able to fund expansion, take advantage of future opportunities, meet our
existing debt obligations or respond to competitive pressures or unanticipated
requirements. Financing transactions may include the issuance of equity or debt
securities, obtaining credit facilities, or other financing mechanisms.
However, the trading price of our common stock and the downturn in the U.S.
stock and debt markets could make it more difficult for us to obtain financing
through the issuance of equity or debt securities. Even if we are able to raise
the funds required, it is possible that we could incur unexpected costs and
expenses, fail to collect significant amounts owed to us, or experience
unexpected cash requirements that would force us to seek alternative financing.
Further, if we issue additional equity or debt securities, stockholders may
experience additional dilution or the new equity securities may have rights,
preferences or privileges senior to those of existing holders of our common
stock.
3
The risk factors described above are not the only ones facing our
company and they should be read in conjunction with all other risk factors
disclosed in our previous reports filed with the Securities and Exchange
Commission. Additional risks not presently known to us, or that we currently
deem immaterial, may also impair our business operations.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
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. The suit was settled on September 25, 2001.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
None.
(b) Reports on Form 8-K
On July 2, 2001 we filed a Current Report on Form 8-K/A amending our
Current Report on Form 8-K that we filed on May 1, 2001.
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: November 14, 2001 AMNIS SYSTEMS INC.
By: /s/ Lawrence L. Bartlett
----------------------------
Lawrence L. Bartlett
Vice President and Chief Financial Officer
4