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, 2002
[ ] 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.
(Exact name of small business issuer as specified in its charter)
Delaware 94-3402831
(State or other jurisdiction of incorporation or (I.R.S. Employer
organization) Identification No.)
3450 Hillview Avenue, Palo Alto, California 94304
(Address of principal executive offices, including zip code)
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, 2002: 48,287,184 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-9 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 OR PLAN OF OPERATION
Management's discussion and analysis or plan of operation is provided as a
supplement to the accompanying consolidated financial statements and footnotes
to help provide an understanding of our financial condition, changes in
financial condition and results of operations. Accordingly, the following
discussion and analysis should be read in conjunction with our financial
statements and the related notes included elsewhere in this report.
INTRODUCTION
Amnis Systems Inc., a Delaware consolidated corporation, makes hardware and
software products for the creation, management and transmission of high-quality
digital video over computer networks. Our products are distributed worldwide
through a network of value added resellers, or VARs, system integrators and
original equipment manufacturers, or OEMs. Our products are used in diverse
applications such as interactive distance learning, corporate training, video
content distribution, video surveillance and telemedicine.
On April 16, 2001, we merged with Optivision, Inc., an operating company,
in an exchange of common stock accounted for as an acquisition under the
purchase method of accounting. As a result of the merger, Optivision became our
wholly-owned subsidiary.
The accompanying historical consolidated financial statements and notes for
the second quarter of 2002 reflect only the financial results of Amnis Systems
Inc., until the merger between Amnis Systems and Optivision which took place on
April 16, 2001.
As a result, Amnis Systems' second quarter 2002 and year to date June 30,
2002 historical operating results and financial condition are not comparable to
the same periods in 2001. In order to enhance comparability and make an analysis
of the three-month and six-month periods ended June 30, 2002 meaningful, the
following discussion of results of operations and changes in financial condition
and liquidity is based upon unaudited pro forma financial information for the
three-month and six-month periods ended June 30, 2001 as if the merger had
occurred on January 1, 2000. In order to maintain comparability and enhance
clarity, goodwill amortization has been excluded from the comparison. In
addition, the extraordinary item of debt forgiveness of $1,042,177 in 2002 and
the non-cash amortization of discount on note payable of $484,135 and $1,105,020
for the three and six months ended June 30, 2002, respectively, have been
excluded from the comparison. The unaudited pro forma Consolidated Statements of
Operations for each period are inserted at the beginning of "Results of
Operations" section as a reference for that discussion.
2
The unaudited pro forma comparisons of the Consolidated Statements of
Operations have been derived from, and should be read in conjunction with, our
historical financial statements, including the notes thereto. The unaudited pro
forma comparisons of the Consolidated Statements of Operations are presented for
informational purposes only and are not necessarily indicative of our financial
position or results of operations that would have occurred had the merger been
consummated as of the date indicated. In addition, the unaudited pro forma
comparisons of the Consolidated Statements of Operations are not necessarily
indicative of our future financial condition or operating results.
CAUTIONARY NOTE CONCERNING FORWARD-LOOKING STATEMENTS
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, which could cause actual results
to differ from those contained in the forward-looking statements, and which
include those risks set forth herein and those risks identified in our other
filings with the SEC. Words such as "anticipates," "estimates," "expects,"
"projects," "intends," "plans," "believes" and words and terms of similar
substance used in connection with any discussion of future operating or
financial performance identify such forward-looking statements.
The SEC encourages companies to disclose forward-looking information so
that investors can better understand a company's future prospects and make
informed investment decisions. However, 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. The
forward-looking statements contained in this report are based on management's
present expectations about future events. As with any projection or forecast,
they are inherently susceptible to uncertainty and changes in circumstances, and
we are under no obligation to (and expressly disclaims any such obligation to)
update or alter the forward-looking statements, whether as a result of such
changes, 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.
3
RESULTS OF OPERATIONS
Second quarter of 2002 compared to second quarter of 2001
UNAUDITED PRO FORMA COMPARISON OF THE CONSOLIDATED STATEMENT OF OPERATIONS
June 30 June 30
For three months and six months ended, respectively 2002 2001 2002 2001
- ---------------------------------------------------- ------------ ------------ ------------ ------------
SALES $ 459,209 $ 1,625,051 $ 705,280 $ 2,958,909
COST OF GOODS SOLD 473,527 842,226 761,023 1,645,418
- ---------------------------------------------------- ------------ ------------ ------------
Gross margin (14,318) 782,825 (55,743) 1,313,491
OPERATING EXPENSES
Research and development 304,740 571,720 479,829 1,237,737
Sales and marketing 529,739 735,747 970,311 1,478,312
General and administrative 647,770 420,133 1,369,083 921,463
- ---------------------------------------------------- ------------ ------------ ------------ ------------
1,481,979 1,727,600 2,819,223 3,637,512
- ---------------------------------------------------- ------------ ------------ ------------ ------------
Loss from operations (1,496,297) (944,775) (2,874,966) (2,324,021)
OTHER INCOME (EXPENSE)
Interest expense, net (149,656) (86,418) (298,228) (270,845)
Other, net 30 (6,470) 40,513 36,019
- ---------------------------------------------------- ------------ ------------ ------------ ------------
Total other (expense) (149,626) (92,888) (256,115) (234,826)
- ---------------------------------------------------- ------------ ------------ ------------ ------------
Net loss $(1,645,923) $(1,037,663) $(3,132,681) $(2,558,847)
- ---------------------------------------------------- ------------ ------------ ------------ ------------
BASIC AND DILUTIVE LOSS PER COMMON SHARE (0.083) (0.091) (0.162) (0.225)
Revenues for the three months ended June 30, 2002 were $459,209, a decrease
of approximately 71% over revenues of $1,625,051 for the three months ended June
30, 2001. Revenues for the six months ended June 30, 2002 were $705,280, a
decrease of approximately 76% over revenues of $2,958,909 for the six months
ended June 30, 2001. Our revenues continue to be impacted by delayed
decision-making late in our sales cycle that postponed several large deals
beyond our first and second quarter. Our prior two quarters' sales were
$246,071 and $659,492 for the three-month periods ended March 30, 2002 and
December 31, 2001, respectively. Our pipeline of new business opportunities is
still growing and continues to bring us strong optimism about our long-term
future in spite of the tough short-term macro economic environment. (Historical
revenues were $1,227,032 for the three and six months ended June 30, 2001).
Research and development expenses were $304,740 for the three months ended
June 30, 2002, as compared to $571,720 for the three months ended June 30, 2001.
Research and development expenses were $479,829 for the six months ended June
30, 2002, as compared to $1,237,737 for the six months ended June 30, 2001.
This decrease is in line with cost reductions necessary as a result of the
4
economic slowdown and our revenue slowdown. We do expect modest increases in
future quarters to support development of the new network digital video
products. (Historical research and development expenses for the three and six
months ended June 30, 2002 were $304,470 and $479,829, respectively, compared to
$457,950 for the three months and six months ended June 30, 2001).
Sales and marketing expenses for the three months ended June 30, 2002 were
$529,739, due to a stronger emphasis on trade show activity and increases in our
sales organization, as compared to $735,747 for the three months ended June 30,
2001. Sales and marketing expenses for the six months ended June 30, 2002 were
$970,311, as compared to $1,478,312 for the six months ended June 30, 2001.
Again, this decrease is consistent with cost reductions necessary as a result of
the economic slowdown and our revenue slowdown. (Historical sales and marketing
expenses for the three and six months ended June 30, 2002 were $529,739 and
$970,311, respectively, compared to $609,469 for the three months and six months
ended June 30, 2001).
General and administrative costs were $647,770 for the three months ended
June 30, 2002, as compared to $420,133 for the three months ended June 30, 2001.
General and administrative costs were $1,369,083 for the six months ended June
30, 2002, as compared to $921,463 for the six months ended June 30, 2001. During
the second quarter of 2002 we recorded $77,256 of non-cash consulting contracts
for services covering strategic planning, mergers and acquisition activity and
corporate financing bringing the total for the six months to $355,007. Cash
expenses increased approximately 10%, compared to 2001, as a result of
increases in legal and audit expense associated with the change in accounting
for the merger in 2001 from pooling to purchase accounting and preparation of
related SEC filings. (Historical general and administrative expenses for the
three and six months ended June 30, 2002 were $647,770 and $1,369,083,
respectively, compared to $366,391 for the three and six month periods ended
June 30, 2001).
Interest and other expense, net was $149,626 for the three months ended
June 30, 2002, as compared to $92,888 for the three months ended June 30, 2001.
Interest and other expense, net was $256,115 for the six months ended June 30,
2002, as compared to $234,826 for the six months ended June 30, 2001. The
increase was primarily due to accruing interest on shareholder loans.
(Historical interest and other expense, net for the three and six months ended
June 30, 2002 were $633,761 and $1,361,135 (which includes the non-cash
amortization of discount on note payable of $1,154,461), respectively, compared
to $80,848 for the three and six months ended June 30, 2001).
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 2002, we had cash and cash equivalents of $44,593, compared to
$608,890 at March 31, 2002. During the three months ended June 30, 2002, our
negative working capital position improved by approximately $1.4 million. In
June 2002, we received the proceeds from the issuance of $450,000 in principal
amount of convertible notes. The moratorium creditors debt was reduced by
approximately $1.5 million, of which $1.1 million in debt forgiveness was
recognized with the final payment under the related work out agreement. Mr.
5
Liccardo, our president, chief executive officer and chairman of the board,
converted $2,050,000 in principal amount of a convertible note into shares of
our common stock. These improvements were offset by a reduction in cash and
current assets of $648,000, an increase in other current liabilities of $430,000
and a reduction in the discount on convertible note payable of $1.031 million.
In December 2001, pursuant to a financing agreement between us and Bristol
Investment Fund, Ltd. for a total of $1,000,000 of convertible debentures and up
to $1,385,000 of investment options and warrants, we received a first tranche of
financing through the issuance of a $500,000 convertible debenture. Bristol
Investment Fund, Ltd. is committed to provide us with the second tranche of
financing in the amount of $500,000 through the issuance of a convertible
debenture within ten business days after the effective date of a registration
statement covering the resale of the shares issuable upon conversion of the
debentures and exercise of the related warrants and investment options.
Management proposes to file the amended registration statement in August, but
cannot be certain as to how long it will take for SEC approval or whether such
approval will ever be obtained. Receipt of this additional convertible debenture
financing and financing through the exercise of the related investment options
and warrants will be critical for us to continue operations through 2002.
We had continuing operating losses of $3,307,829, excluding goodwill
amortization of $17,877,694 for the year ended December 31, 2001. Operating
losses were $1,378,669 for the first quarter of 2002 and $1,496,297 for the
second quarter 2002. Although we currently expect to break even in 2004, we
expect to incur operating losses over the next two years of between $4 million
and $6 million in total. So, in order to sustain our operations, finance our
growth and achieve our strategic objectives until then, we currently estimate
that we will need additional funding of between $4 million and $6 million in
total. Management has implemented measures to increase cash flows through
increases in revenue and cost-cutting measures and is actively pursuing
additional sources of funding. 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. If additional financing is not available or is not available
on acceptable terms, we will have to curtail our operations.
6
PART II - OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
RECENT SALES OF UNREGISTERED SECURITIES
During the three months ended June 30, 2002, we issued and sold securities
not registered under the Securities Act of 1933, as amended, as follows:
(1) In May 2002, we issued to an unaffiliated corporate service
provider 250,000 shares of our common stock for public relations and corporate
communications services to be rendered to us over a four month period.
(2) In June 2002, we issued and sold to two unaffiliated accredited
investors two 12% two-year convertible notes in the aggregate principal amount
of $450,000 convertible at each holder's option at any time into shares of our
common stock at the lesser of 70% of the average of the lowest three intraday
trading prices of our common stock during the 20 trading day period ending one
trading day prior to the date of conversion or $0.385 per share, and warrants
exercisable for up to 135,000 shares of our common stock at an exercise price of
approximately $0.13 per share, subject to adjustment.
(3) In June 2002, in connection with the convertible note financing
transaction, we issued to two qualified corporate investors 2,062,500 shares of
our common stock pursuant to the exercise of the reset option included in the
units, as amended, issued to these investors in February 2002.
(4) In June 2002, we issued to Michael A. Liccardo, our president,
chief executive officer and chairman of the board of directors (i) 26,623,377
shares of our common stock pursuant to the conversion of $2,050,000 of principal
of the convertible note that we had issued to Mr. Liccardo on January 14, 2002,
and (ii) a replacement note of $1,612,763.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
AMENDMENT TO CERTIFICATE OF INCORPORATION INCREASING THE NUMBER OF
AUTHORIZED SHARES OF COMMON STOCK. By written consent dated as of June 20,
2002, stockholders owning 31,806,463 shares of our common stock, or
approximately 66.5% of our then outstanding common stock, approved an amendment
to our certificate of incorporation to increase the number of authorized shares
of our common stock from 100,000,000 to 400,000,000.
APPROVAL OF 2002 STOCK PLAN. By written consent dated as of June 20, 2002,
a stockholder owning 27,868,677 shares of our common stock, or approximately
58.3% of our then outstanding common stock, approved our 2002 Stock Plan. The
Plan authorizes our board of directors to grant options and stock purchase
rights to purchase up to a total of 20,000,000 shares of our common stock to our
employees, directors and consultants, and employees, directors and consultants
of our subsidiaries.
7
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
4.1* Form of Convertible Note dated as of June 18, 2002 issued by the
Issuer to each of Alpha Capital Aktiengesellschaft and Stonestreet Limited
Partnership
4.2* Form of Warrant issued pursuant to each Amended Unit
Subscription Agreement dated as of June 18, 2002 between the Issuer and each of
Alpha Capital Aktiengesellschaft and Stonestreet Limited Partnership
4.3* Form of Warrant issued pursuant to each Convertible Note dated
as of June 18, 2002 between the Issuer and each of Alpha Capital
Aktiengesellschaft and Stonestreet Limited Partnership
10.1* 2002 Stock Plan
10.2* Form of Amended Unit Subscription Agreement dated as of June 18,
2002 between the Issuer and each of Alpha Capital Aktiengesellschaft and
Stonestreet Limited Partnership
10.3* Form of Subscription Agreement to Convertible Note dated as of
June 18, 2002 between the Issuer and each of Alpha Capital Aktiengesellschaft
and Stonestreet Limited Partnership
99.1 Certification pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002.
* Previously filed on Form 8-K on June 27, 2002
(b) REPORTS ON FORM 8-K
We filed the following current reports on Form 8-K during the quarter
ended June 30, 2002:
(1) On May 9, 2002, we filed a second amendment to the Current Report
on Form 8-K that we had filed on May 1, 2001, in which we reported Item 7
"Financial Statements and Exhibits" and filed the following financial
statements:
(i) The audited balance sheet of Optivision as of December 31,
2000 and statements of operations, stockholders' deficit and cash flows for the
eight months then ended, together with the report of Hood & Strong LLP thereon,
and the unaudited balance sheets, statements of operations and cash flows for
the eight months ended December 31, 1999, together with the report of
Hood and Strong thereon;
(ii) The audited balance sheets of Optivision as of April 30, 2000
and 1999 and statements of operations, stockholders' deficit and cash flows for
the fiscal years then ended, together with the report of Hood & Strong LLP
thereon; and
8
(iii) Our unaudited pro forma condensed balance sheet as of
December 31, 2000 and unaudited pro forma condensed statements of operations for
the years ended December 31, 2000 and April 30, 2000.
(2) On June 27, 2002, we filed a Current Report on Form 8-K in which we
reported Item 5 "Other Events".
9
SIGNATURES
In accordance with the requirements of the Exchange Act, the issuer caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Date: August 14, 2002 AMNIS SYSTEMS INC.
By: /s/ Lawrence L. Bartlett
---------------------------------------------
Lawrence L. Bartlett
Vice President, Secretary and Chief Financial
Officer
10
INDEX TO FINANCIAL STATEMENTS
Unaudited Condensed Consolidated Balance Sheet
as of June 30, 2002 and March 31, 2002 . . . . . . . . . . . . . . . . . . . F-1
Unaudited Condensed Consolidated Statement of Operations
for the six and three-month periods ended June 30, 2002 and June 30, 2001 . . F-2
Unaudited Condensed Consolidated Statement of Cash Flows
for the six-month periods ended June 30, 2002 and June 30, 2001 . . . . . . . F-3
Notes to Unaudited Consolidated Financial Statements. . . . . . . . . . . F-4 to F-9
11
AMNIS SYSTEMS INC.
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
===================================================================================================
June 30, 2002 March 31, 2002
- ---------------------------------------------------------------------------------------------------
ASSETS
CURRENT ASSETS:
Cash $ 44,593 $ 608,890
Accounts receivable, net of allowance for doubtful
accounts of $236,000 for June 30 and March 31, 2002 118,585 38,879
Inventories 604,802 656,232
Prepaid expenses and other 196,583 308,315
- ---------------------------------------------------------------------------------------------------
Total current assets 964,563 1,612,316
- ---------------------------------------------------------------------------------------------------
PROPERTY AND EQUIPMENT
Machinery and equipment 1,899,335 1,894,221
Demonstration equipment 456,752 456,648
Furniture and fixtures 496,433 494,700
Leasehold improvements 351,111 351,111
- ---------------------------------------------------------------------------------------------------
3,203,631 3,196,680
Less: Accumulated depreciation and amortization (3,063,884) (3,052,388)
- ---------------------------------------------------------------------------------------------------
Property and equipment, net 139,747 144,292
- ---------------------------------------------------------------------------------------------------
OTHER ASSETS 0 84,890
- ---------------------------------------------------------------------------------------------------
$ 1,104,310 $ 1,841,498
===================================================================================================
LIABILITIES AND STOCKHOLDERS' (DEFICIT)
CURRENT LIABILITIES:
Bank overdraft $ 93,374 $ 0
Financing obligations collateralized by accounts receivable 628,148 576,832
Stockholders' notes payable 105,000 105,000
Accounts payable - moratorium 0 1,461,500
Accounts payable - other 490,213 347,092
Accrued salaries 170,109 112,220
Accrued vacation 220,999 200,427
Accrued interest payable 63,644 87,364
Convertible notes payable 1,612,763 3,547,917
Discount on convertible note payable (831,860) (1,862,657)
Deferred rent 52,079 80,486
Deferred revenue 36,368 39,163
Other accrued expenses 309,538 256,990
- ---------------------------------------------------------------------------------------------------
Total current liabilities 2,950,375 4,952,334
LONG-TERM LIABILITIES
Sublease deposits 0 72,800
Convertible notes payable 950,000 500,000
Discount on convertible note payable (478,423) (267,045)
- ---------------------------------------------------------------------------------------------------
Total Liabilities 3,421,952 5,258,089
- ---------------------------------------------------------------------------------------------------
STOCKHOLDERS' (DEFICIT):
Preferred stock, 20,000,000 authorized; none outstanding
in June, 2002 and March, 2002
Common stock, $0.0001 par value:
Authorized - 400,000,000 and 100,000,000 shares in Jun. 2002
and Mar. 2002, respectively
Issued and outstanding - 47,863,933 and 17,960,414 for
Jun. 2002 and Mar. 2002, respectively 4,787 1,796
Additional Paid-in Capital 22,670,755 20,486,915
Accumulated deficit (24,993,184) (23,905,302)
- ---------------------------------------------------------------------------------------------------
Total stockholders' deficit (2,317,642) (3,416,591)
- ---------------------------------------------------------------------------------------------------
Total liabilities and stockholder's deficit $ 1,104,310 $ 1,841,498
===================================================================================================
F-1
AMNIS SYSTEMS INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
========================================================================================================================
June 30 June 30
-------------------------------- --------------------------------
For three months and six months ended, respectively 2002 2001 2002 2001
- ------------------------------------------------------------------------------------------------------------------------
SALES $ 459,209 $ 1,227,032 $ 705,280 $ 1,227,032
COST OF GOODS SOLD 473,527 645,960 761,023 645,960
- ------------------------------------------------------------------------------------------------------------------------
Gross margin (14,318) 581,072 (55,743) 581,072
OPERATING EXPENSES
Research and development 304,470 457,950 479,829 457,950
Sales and marketing 529,739 609,469 970,311 609,469
General and administrative 647,770 366,391 1,369,083 366,391
Goodwill amortization 0 744,904 0 744,904
- ------------------------------------------------------------------------------------------------------------------------
1,481,979 2,178,714 2,819,223 2,178,714
- ------------------------------------------------------------------------------------------------------------------------
Loss from operations (1,496,297) (1,597,642) (2,874,966) (1,597,642)
OTHER INCOME (EXPENSE)
Interest expense, net (633,791) (75,662) (1,403,248) (75,662)
Other, net 30 (5,186) 42,113 (5,186)
- ------------------------------------------------------------------------------------------------------------------------
Total other (expense) (633,761) (80,848) (1,361,135) (80,848)
- ------------------------------------------------------------------------------------------------------------------------
Net loss before taxes and extraordinary item (2,130,058) (1,678,490) (4,236,101) (1,678,490)
Income Tax (1,600)
Loss before extraordinary item $ (2,130,058) $ (1,678,490) $ (4,236,101) $ (1,678,490)
- ------------------------------------------------------------------------------------------------------------------------
Net extraordinary item-forgiveness of debt 1,042,177 0 1,042,177 0
- ------------------------------------------------------------------------------------------------------------------------
NET LOSS $ (1,087,881) $ (1,678,490) $ (3,195,524) $ (1,678,490)
========================================================================================================================
BASIC AND DILUTIVE LOSS PER COMMON SHARE -
BEFORE EXTRAORDINARY ITEM $ (0.095) $ (0.159) $ (0.213) $ (0.090)
BASIC AND DILUTIVE LOSS PER COMMON SHARE ON
EXRAORDINARY ITEM $ 0.046 $ 0.000 $ 0.052 $ 0.000
- ------------------------------------------------------------------------------------------------------------------------
BASIC AND DILUTIVE LOSS PER COMMON SHARE $ (0.049) $ (0.159) $ (0.161) $ (0.090)
========================================================================================================================
F-2
AMNIS SYSTEMS INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
=======================================================================================================
June 30
--------------------------
For the six months ended 2002 2001
- -------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(3,195,524) $(1,678,490)
Adjustments to reconcile net loss to
net cash used in operating activities:
Common stock issued for services 355,007 21,000
Interest expense exchanged for common stock 25,890
Interest expense exchanged for debt 458,385
Employee salaries exchanged for stock options 1,217,473
Depreciation and amortization 29,937 777,874
Amortization of discount on note payable 1,180,840
Loss on disposal of property and equipment 1,627
Loss on extinguishment of debt 73,610
Gain on extinguishment of debt (1,115,787)
Provision for allowance for doubtful accounts 64,375
Provision for excess and obsolete inventories 65,546 151,772
Decrease in accounts receivable 188,557 508,311
(Increase) Decrease in inventories (46,292) 350,646
Increase in prepaid expenses and other assets (28,774) (5,684)
Decrease in accounts payable moratorium (445,713)
Decrease in accounts payable (442,653) (26,579)
Decrease in accrued salaries (596,177) (54,176)
Increase (decrease) in accrued vacation (53,834) 26,116
Increase (decrease) in accrued interest (317,460) 27,266
Decrease in deferred rent (56,813)
Decrease in deferred revenue (22,727) (14,317)
Increase (decrease) in other accrued liabilities 7,303 (947,337)
Decrease in sublease deposits (72,800)
- -------------------------------------------------------------------------------------------------------
Net cash used in operating activities (2,726,004) (863,598)
- -------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash acquired from business combination 11,720
Purchases of property and equipment (19,518) (9,516)
- -------------------------------------------------------------------------------------------------------
Net cash used in investing activities (19,518) 2,204
- -------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings from stockholders 122,178
Proceeds from financing obligations collateralized by accounts receivable 914,431
Payments on financing obligations collateralized by accounts receivable (1,315,566) (120,118)
Proceeds from issuance of common stock 2,281,865 1,000,000
Costs incurred to secure capital (182,456)
Proceeds from notes receivable 500,000
Proceeds from issuance of convertible debt 450,000
Bank Overdraft 93,374
- -------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities 2,741,648 1,002,060
- -------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH (3,874) 140,666
CASH AND CASH EQUIVALENTS, beginning of year 48,467
- -------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, end of period $ 44,593 $ 140,666
=======================================================================================================
NON CASH INVESTING AND FINANCING ACTIVITIES:
Common stock exchanged for acquisition of Optivision, Inc common stock $ $12,221,884
Common stock issued for services 355,007 21,000
Accrued salaries exchanged for common stock 1,217,473
Debt and accrued interest exchanged for common stock 275,890
Convertible note payable exchanged for common stock 2,050,000
Note payable and interest in exchange for convertible note payable 3,547,917
Convertible note payable exchanged for convertible note payable 1,612,763
Discount on convertible note payable 755,560
Cancellation of shares of common stock 1,974
=======================================================================================================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for income taxes $ 2,400
Cash paid for interest $ 195,842 $ 59,725
=======================================================================================================
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 second quarter ended June 30,
2002 were of a recurring nature except for extinguishment of debt. 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, 2001 and 2000, 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, 2002 are not necessarily indicative of the results
to be expected for the full year.
NOTE 1 - DESCRIPTION OF COMPANY:
Amnis Systems Inc., a Delaware corporation, and its wholly owned
subsidiary, Optivision, Inc. ("Company" combined) makes hardware and
software products for the creation, management and transmission of
compressed high-quality digital video over broadband computer
networks. Our network video products are distributed primarily in the
United States of America, Europe, and Pacific Rim countries through a
network of value added resellers, or VARs, system integrators and
original equipment manufacturers, or OEMs. Our products are used in
diverse applications such as distance learning, corporate training,
video courier services, surveillance, telemedicine and visual
collaboration.
NOTE 2 - GOING CONCERN:
We are 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
================================================================================
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, 2001 business combination with Optivision, has
resulted in a substantial deficit that is compounded by its current liabilities
exceeding its current assets by $2,186,285 at June 30, 2002 and negative cash
flow from operating activities of $2,726,004 for the six months ended June 30,
2002. 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 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
a. Principles of Consolidation
-----------------------------
The financial statements include the accounts of Amnis Systems
Inc. and its wholly-owned subsidiary Optivision, Inc. from the
date of acquisition, April 16, 2001. All significant intercompany
accounts and transactions have been eliminated in consolidation.
b. 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 2001, our top four customers accounted for 52% of our net
revenues. Additionally, as of December 31, 2001, approximately
44% of our accounts receivable were concentrated with five
customers. During the six months ended June 30, 2002, our top
five customers accounted for 52% of our net revenues.
As of June 30, 2002, approximately 83% of our accounts receivable
were concentrated with seven of our customers.
c. 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 June 30, 2002. Due to
competitive and market pressures, it is reasonably possible that
additional provisions could be required in the future.
F-5
AMNIS SYSTEMS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
Inventories consist of the following at June 30, 2002:
Raw Materials $ 285,213
Work-in-process 387,366
Demonstration Inventory 78,502
-----------------------------------------------------------------
751,081
Reserve for inventory obsolescence and
demonstration inventory refurbishing costs (146,279)
-----------------------------------------------------------------
$ 604,802
=================================================================
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 4 - ACCOUNTS PAYABLE - MORATORIUM:
On January 30, 2002, we successfully negotiated a work-out agreement
plan with the creditors of Optivision Inc., under which the Company
will pay the creditors of Optivision Inc. $0.35 for every $1.00 owed
on debt listed on the balance sheet as Accounts Payable-moratorium. In
accordance with the work-out agreement, the debt was settled in June
2002 and an extraordinary gain of $1,115,787 was recorded for the
portion of the debt forgiven.
NOTE 5 - CONVERTIBLE NOTES PAYABLE:
On January 14 2002, the Company issued a convertible note in the
principal amount of $3,547,917 to Mr. Michael A. Liccardo, president,
chief executive officer, and chairman of the board of directors, in
exchange for the cancellation of certain loans aggregating $3,204,375
and related accrued interest of $343,542 that Mr. Liccardo had loaned
to Optivision Inc. to meet operating expenses. At any time, Mr.
Liccardo may elect to convert the note to common stock of the Company
at $0.35 per share, subject to adjustment related to the price of
subsequent securities issuances by the Company to third parties.
F-6
AMNIS SYSTEMS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
The convertible note bears interest at 10% per annum. Since the
Company's stock price exceeded the conversion price on the transaction
date, there is an embedded beneficial conversion feature present in
the convertible note which has been valued separately. As of January
14, 2002, the intrinsic value of the beneficial conversion feature is
greater than the proceeds allocated to the convertible note. On
January 14, 2002, the Company recorded a discount of $2,483,542. This
discount is being amortized from the date of issuance of the
convertible note through the stated redemption date. The carrying
value of this debenture approximates its fair value.
On June 18, 2002, Mr. Liccardo converted $2,050,000 in principal of
the convertible note issued on January 14, 2002 and, in connection
therewith, received 26,623,377 shares of common stock. The remaining
principal and accrued interest was transferred to a new convertible
note as of this date. The note provides that Mr. Liccardo may, at any
time, elect to convert the outstanding principal of $1,612,763 of the
convertible note and accrued interest thereon into a number of shares
of our common stock determined by dividing the outstanding principal
and interest on the note by $0.35. The $0.35 conversion price is
subject to adjustment to a lower conversion price through January 14,
2003, and is also subject to customary adjustment in the event of
stock splits, dividends, recapitalizations and the like.
The convertible note bears interest at 10% per annum. Since the
Company's stock price exceeded the conversion price on the transaction
date, there is an embedded beneficial conversion feature present in
the convertible note which has been valued separately. As of June 18,
2002, the intrinsic value of the beneficial conversion feature is
greater than the proceeds allocated to the convertible note. On June
18, 2002 the Company recorded a discount of $882,276. This discount is
being amortized from the date of issuance of the convertible note
through the stated redemption date.
As a result of the partial conversion $825,645 of the unamortized
portion of the discount on convertible note payable was written-off to
additional paid in capital. The exchange of the note resulted in a
loss on extinguishment of debt of $73,610, and the remaining
unamortized portion of the discount on convertible note payable of
$603,292 related to the original note was written-off to additional
paid in capital.
On June 18, 2002, the Company issued and sold two 12% two-year
Convertible Notes in the aggregate principal amount of $450,000 and
Common stock Purchase Warrants exercisable for up to 135,000 shares of
our common stock, subject to adjustment for, among other things,
capital issuances below $0.13 per share and for stock splits,
combination or reclassification of the Company's stock and the like to
Alpha Capital Aktiengesellschaft and Stonstreet Limited Partnership,
in a private financing transaction. Each Note is convertible at the
holder's option at any time into shares of our common stock at the
lesser of a 30% discount to the average of the lowest three intraday
trading prices of our common stock during the 20 trading day periods
ending on trading day prior to the date of conversion, or $0.385 per
share. Since there are multiple components of the debentures, value
was added to each component (warrants and debenture) based on their
respective value. A discount on the debenture was calculated
F-7
AMNIS SYSTEMS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
in two parts; first, the beneficial conversion feature on the
debenture was valued as the difference between the purchase price of
the conversion and the current trading price of the stock. Secondly,
the warrants were valued using the Black Scholes Model. The combined
total discount of $249,528 will be amortized over the two-year life of
the debentures.
NOTE 6 - LOSS PER SHARE:
The basic loss per share for the six months ended June 30, 2002 and
2001 was calculated based on a weighted average number of shares
outstanding of 19,862,250 and 18,641,437, respectively. The basic loss
per share for the three months ended June 30, 2002 and 2001 was
calculated based on a weighted average number of shares outstanding of
22,422,477 and 10,580,388, respectively. Since we have a loss for all
periods presented, net loss per share on a diluted basis is equivalent
to basic net loss per share because the effect of converting stock
options, warrants, convertible debt and other common stock equivalents
would be anti-dilutive.
NOTE 7 - FINANCING:
In connection with the Convertible note financing transaction entered
into on February 15, 2002, the Company amended, among other things,
the terms of the reset option and warrant which were part of the Units
issued on February 15, 2002. The amendment to the reset option
provided that, among other things, the number of shares comprising
each Unit was automatically increased by 11 shares and, at any time
and from time to time but only one time for each Unit, until June 18,
2005, at the option of each purchaser, the number of shares comprising
each Unit may be increased by the difference (rounded to the nearest
whole share) between (A) $8.00 divided by 70% of the average of the
lowest intraday trading prices for our common stock during the 20
trading day period ending one trading day prior to the date of
exercise of such option, and (B) 21. The amendment to each Warrant
reduced the exercise price to approximately $0.13, subject to
adjustment for, among other things, capital issuances below $0.13 per
share and for stock splits, combinations or reclassifications of the
Company's capital stock and the like. A total of 2,062,500 shares were
issued in connection with this amendment. No additional proceeds were
received.
On June 25, 2002, the Company amended its certificate of incorporation
to increase the total number of shares authorized to 420,000,000:
400,000,000 designated as common stock with par value of $0.0001 and
20,000,000 designated as preferred stock with par value of $0.0001
The Company settled with its employees for unpaid compensation by
issuing additional stock options in lieu of cash in the amount of
$237,978.
F-8
AMNIS SYSTEMS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
On May 22, 2002, the Company issued 250,000 shares of its common stock
for certain consulting services to be rendered to the Company over a
four month period.
On June 17, 2002 the Company's board of directors adopted the 2002
Stock Plan. 20,000,000 shares are authorized for issuances of which
none have been granted through August 13, 2002.
NOTE 8 - SUBSEQUENT EVENTS:
As of the end of July 2002, the Company has been unable to pay its
lease obligations, due to the departure of its sublessee, which now
totals approximately $200,000. The landlord has agreed to meet with
the Company to negotiate lease renewal and payment of past due
amounts.
On July 31, 2002, the Company settled with its employees for unpaid
compensation by issuing additional stock in lieu of cash in the amount
of $36,578.
In July 2002, the Company issued 100,000 shares of its common stock to
a corporate service provider in exchange for certain consulting
services to be rendered to the Company.
On August 8, 2002 pursuant to the Warrant Agreement with Bristol
Investment Fund dated December 28, 2001, the Company reduced the
exercise price of the warrant shares to $0.0436 per share and
increased the number of warrant shares purchasable at such exercise
price by 604,969.
NOTE 9 - BUSINESS COMBINATION:
On April 16, 2001, we effected a business combination with Optivision,
Inc. (Optivision) by exchanging 4,459,063 shares of our common stock
for all of the common stock of Optivision. The principal business of
Optivision is making hardware and software products for the creation,
management and transmission of compressed high quality video over
broadband computer networks. The purchase price of $12,221,884 was
determined by using a 5 day range of the average of the Company stock
price of $2.74 per share. The combination has been accounted for under
the purchase method of accounting and accordingly, the accompanying
financial statements include the results of operations of Optivision
subsequent to April 16, 2001.
Note 10 - RESTATEMENT OF FINANCIAL STATEMENTS:
The unaudited interim consolidated statement of operations and cash
flows for the period ended June 30, 2001 have been restated as a
result of the Company's determination that it did not meet all of the
criteria under Accounting Principles Board Opinion No. 16 "Business
Combination for a pooling of interest."
F-9