UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB/A
Amendment No. 1
(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-11 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 third quarter of 2001 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' third quarter and year to date September 30,
2001 historical operating results and financial condition are not comparable to
the same periods in 2000. Accordingly, in order to enhance comparability and
make an analysis of the three-month and nine-month periods ended September 30,
2001 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 nine-month periods ended September 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. The unaudited pro forma Consolidated Statements of Operations
for each period are inserted at the beginning of the "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
UNAUDITED PRO FORMA COMPARISON OF THE CONSOLIDATED STATEMENT OF OPERATIONS
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) (70,464) (352,057) (162,151)
- -------------------------------------------------------------------------------------------------------------
Net loss $(1,644,440) $(1,467,083) $(4,203,286) $(3,688,460)
=============================================================================================================
BASIC AND DILUTIVE LOSS PER COMMON
SHARE $ (0.145) $ (0.129) $ (0.370) $ (0.326)
Historical results and comparisons are not commented on since we had no
operations in 2000 and in 2001 we had operations beginning April 16, 2001.
Please see the attached financial statements for our historical results.
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.
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, research and
development 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.
4
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,
lawsuit 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 $162,151 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 $70,464 in the
prior year.
Our historical financials reflect the acquisition of Optivision as of April
16, 2001, which was accounted for by the purchase method of accounting. As a
part of purchase accounting, based on the five day average market value of our
common stock on April 16, 2001, Optivision recorded goodwill in the amount of
$17,877,694. A five year amortization was adopted and $1,638,789 amortization
was recorded for the period through September 30, 2001. At September 30, 2001,
a review of the carrying value of the goodwill was performed. Optivision's
current operations and expected future sales have been affected by significant
negative industry and economic trends. Specifically, Optivision has not been
able to raise adequate and timely funding for operations, and thus its research
and development of new products have fallen behind in a rapidly changing
technological industry. As a result, we changed our estimate of the useful life
of the goodwill associated with the acquisition of Optivision to fully amortize
the amount of goodwill during the quarter ended September 30, 2001.
5
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
99.1 Certification pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002.
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 15, 2002 AMNIS SYSTEMS INC.
By: /s/ Lawrence L. Bartlett
------------------------------------------
Lawrence L. Bartlett
Vice President and Chief Financial Officer
6
INDEX TO FINANCIAL STATEMENTS
Unaudited Condensed Consolidated Balance Sheet as of
September 30, 2001 and June 30, 2001 . . . . . . . . . . . . . . . . F-1
Unaudited Condensed Consolidated Statement of Operations
for the three-month and for the nine-month periods ended
September 30, 2001 and September 30, 2000. . . . . . . . . . . . . . F-2
Unaudited Condensed Consolidated Statement of Cash Flows
for the nine-month periods ended September 30, 2001 and
September 30, 2000 . . . . . . . . . . . . . . . . . . . . . . . . . F-3
Notes to Unaudited Consolidated Financial Statements . . . . . . . . F-4 - F-11
7
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 45,959 25,881
- ----------------------------------------------------------------------------------------------------------------------
Total current assets 1,014,223 1,177,320
- ----------------------------------------------------------------------------------------------------------------------
INVESTMENTS 0 0
- ----------------------------------------------------------------------------------------------------------------------
GOODWILL 0 17,132,790
- ----------------------------------------------------------------------------------------------------------------------
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
- ----------------------------------------------------------------------------------------------------------------------
$ 1,327,670 $ 18,679,218
======================================================================================================================
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):
Preferred stock, 20,000,000 authorized; none outstanding in September or June 2001
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 13,064,289 13,064,289
Accumulated deficit (20,593,873) (1,816,643)
- ----------------------------------------------------------------------------------------------------------------------
Total stockholders' deficit (7,528,447) 11,248,783
- ----------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholder's deficit $ 1,327,670 $ 18,679,218
======================================================================================================================
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 $ 0 $ 1,704,386 $ 0
COST OF GOODS SOLD 421,104 0 1,067,064 0
- -------------------------------------------------------------------------------------------------------
Gross margin 56,250 0 637,322 0
OPERATING EXPENSES
Research and development 427,344 0 885,294 0
Sales and marketing 697,113 0 1,306,582 0
General and administrative 459,001 1,037 825,392 4,333
Amortization of goodwill 17,132,790 0 17,877,694 0
- -------------------------------------------------------------------------------------------------------
18,716,248 1,037 20,894,962 4,333
- -------------------------------------------------------------------------------------------------------
Loss from operations (18,659,998) (1,037) (20,257,640) (4,333)
OTHER INCOME (EXPENSE)
Interest expense, net (124,857) 0 (200,637) 0
Other, net 7,625 0 2,558 0
- -------------------------------------------------------------------------------------------------------
Total other (expense) (117,232) 0 (198,079) 0
- -------------------------------------------------------------------------------------------------------
Net loss $(18,777,230) $(1,037) $(20,455,719) $(4,333)
=======================================================================================================
BASIC AND DILUTED LOSS PER COMMON SHARE (1.652) (0.000) (1.263) (0.000)
F-2
AMNIS SYSTEMS INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
=================================================================================================================
September 30
--------------------------------------
For the nine months ended 2,001 2000
- -----------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (20,455,719) $ (4,333)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 17,972,941 0
Provision for doubtful accounts - 0
Provision for excess and obsolete inventories 57,128 0
Issuance of common stock for services 21,000 0
Decrease (increase) in accounts receivable 510,385 0
Decrease (increase) in inventories 494,083 736
Decrease (increase) in prepaid expenses and other assets (25,762) 0
Decrease (increase) in deposits (3,430) 0
Increase (decrease) in accounts payable 31,453 0
Increase (decrease) in accrued liabilities (466,736) 0
Increase (decrease) in other accrued liabilities (13,391) 0
Increase (decrease) in deferred rent - 0
Net cash used in operating activities (1,878,048) (3,597)
- -----------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash acquired from business combination 11,720
Purchases of property and equipment (12,702) 0
- -----------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (982) 0
- -----------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Bank overdraft 122,508
Borrowings from stockholders 987,178 0
Payments on financing obligations collateralized by accounts receivable (222,298) 0
Proceeds from issuance of common stock 1,000,000 0
Payment on notes payable - 0
0
- -----------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities 1,887,388 0
- -----------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash 8,358 (3,597)
CASH AND CASH EQUIVALENTS, beginning of year - 3,697
- -----------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, end of quarter $ 8,358 $ 100
=================================================================================================================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for interest $ 102,810 $ 0
=================================================================================================================
NON CASH INVESTING AND FINANCING ACTIVITIES
Common stock exchanged for acquisition of Optivision, Inc. common stock $ 12,221,884
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
Cancellation of shares of common stock 1,974
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 third 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 financial statements be
read in conjunction with the aforementioned audited 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., a Delaware corporation, and its wholly-owned
subsidiary, Optivision, Inc. ("Company" combined) make 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. We consider our operations to be one segment for
reporting purposes.
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 business combination with
Optivision, has resulted in a substantial deficit that is compounded
by its current liabilities exceeding its current assets by $7,841,894
at September 30, 2001 and negative cash flow from operations of
$1,878,048 for the nine months ended September 30, 2001. 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 the nine months ended September 30, 2001, our top four
customers accounted for 50% of our net revenues.
As of September 30, 2001, approximately 45% of our accounts
receivable were concentrated with five 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 September 30, 2001.
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 September 30, 2001:
Raw Materials $ 255,173
Work-in-process 696,571
----------------------------------------------------------------
951,744
Reserve for inventory obsolescence and
demonstration inventory refurbishing costs (489,054)
----------------------------------------------------------------
$ 462,690
================================================================
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 - STOCKHOLDERS' NOTES PAYABLE:
Certain stockholders' loaned Optivision funds beginning in April 1999.
These unsecured loans were all due in one year and bear interest at a
rate of 10% per annum. The Company assumed the liability of these
stockholder notes payable in connection with the merger. 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
================================================================================
NOTE 5 - LOSS PER SHARE:
The basic and diluted loss per share was calculated based on a
weighted average number of shares outstanding of 11,369,597 and
16,190,853 for the 3 months and 9 months ended September 30, 2001 and
26,297,135 and 26,268,616 for the 3 months and 9 months ended at
September 30, 2000, 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 6 - SUBSEQUENT EVENTS:
In October 2001, the Company issued to an investor 555,555 shares of
our common stock for a total of $200,000 in cash.
On December 28, 2001, the Company issued and sold a 12% two-year
secured convertible debenture in the principal amount of $500,000,
investment options for the purchase of up to $500,000 of common stock,
and warrants exercisable for up to 1,100,000 shares of common stock
The terms of this financing also provide for the issuance and sale of
an additional 12% two-year secured convertible debenture in the
principal amount of $500,000 and related investment options for the
purchase of up to $500,000 of common stock. The conversion price of
the debentures is equal to the lesser of $0.385 per share or a
floating average related to stock price fluctuations. Similarly, the
exercise price of the warrants is equal to the lesser of $0.385 per
share or a floating average related to stock price fluctuations, and
is also subject to adjustment for, among other things, stock splits,
combination or reclassification of the Company's capital stock and the
like.
Since there are multiple components of the debenture, value was added
to each component (warrants and debenture) based on their respective
value. A discount on the debenture was calculated 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 is
$305,195, and will be amortized over the two year life of the
debenture.
F-7
AMNIS SYSTEMS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
On January 30, 2002, the Company 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 of $1,561,500. In accordance with the work-out agreement,
the debt was settled in June 2002.
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 current 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. 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.
Between February 14, 2002 and February 21, 2002, the Company entered
into financing agreements for the sale of 2,250,000 shares of its
common stock. The stock was sold in units, which include ten shares of
common stock, subject to adjustment related to stock price
fluctuations, and one warrant, for $8.00 each. Each warrant allows the
holder to purchase three shares of common stock at $0.90 per share
subject to such customary adjustment for stock splits, combinations or
reclassifications of the Company's capital stock and the like. The
total selling price of these units was $1,800,000.
In March 2002, the Company issued and sold to a corporate investor
275,890 shares of its common stock at $1.00 per share in exchange for
the cancellation of certain loans that the investor had made to the
Company (including all accrued interest thereon).
During 2002, the Company settled with its employees for unpaid
compensation by issuing additional stock options in lieu of cash in
the amount of $1,254,051.
In May 2002, the Company issued 250,000 shares of its common stock to
a corporate service provider in exchange for certain consulting
services to be rendered to the Company over a four month period.
On June 18, 2002, two of the financing agreements entered into in
February 2002 were amended. The number of shares per unit has
increased to 21 and may be further increased by an amount as defined
in the agreement. The warrant was amended to reduce the exercise price
to $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.
No additional proceeds were received.
F-8
AMNIS SYSTEMS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
On June 17, 2002, the Company's Board of Directors adopted the 2002
Stock Plan. 20,000,000 shares are authorized for issuance of which
none have been granted through June 17, 2002.
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 that 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 of extinguishment of debt of $73,610, and the remaining
unamorized 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 of $450,000 and common
stock purchase warrants exercisable for up to 135,000 shares of common
stock, 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. 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 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.
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.
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
total approximately $200,000. The landlord has agreed to meet with the
Company to negotiate lease renewal and payment of past due amounts.
From January 1 through August 5, 2002, the Company issued 1,254,880
shares of common stock to various corporate service providers in
exchange for services valued at $609,534 to be rendered over varying
contract lengths.
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 7 - 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.
The following unaudited pro forma information summarizes the year to
date results of operations as if the business combination were
affected as of January 1, 2000:
F-9
AMNIS SYSTEMS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
2001 2000
Net Sales $ 3,436,263 $ 2,398,508
Amortization of goodwill 16,500,926 2,475,140
Net Loss $ (20,704,212) $ (6,163,600)
----------------------------------------------------------------------
Basic and Dilutive Loss per Share $ (1.82) $ (0.54)
----------------------------------------------------------------------
F-10
AMNIS SYSTEMS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
NOTE 8 - RESTATEMENT OF FINANCIAL STATEMENTS:
The unaudited interim consolidated financial statements 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 Combinations" for a pooling of interests.
The information below shows the results included in these financial
statements and those previously reported under the pooling of
interests method:
Purchase Pooling of
Method Interest
For the nine months ended September 30, 2001:
Net Sales $ 1,704,386 $ 3,436,263
Net Loss $(20,455,719) $(4,203,286)
Basic and Dilutive Loss per Share $ (1.26) $ (0.34)
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For the nine months ended September 30, 2000:
Net Sales $ - $ 2,398,508
Net Loss $ (4,333) $(3,688,460)
Basic and Dilutive Loss per Share $ 0.00 $ (0.32)
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NOTE 9 - CHANGE IN ESTIMATE OF LIFE OF GOODWILL:
Optivision's current operations and expected future sales have been
affected by significant negative industry and economic trends.
Specifically, it has not been able to raise adequate and timely
funding for operations, and thus its research and development of new
products has fallen behind in a rapidly changing technological
industry. As a result, the Company changed its estimate of the useful
life of the goodwill associated with its acquisition of Optivision to
fully amortize the amount of goodwill during the quarter ended
September 30, 2001. The activity during the year is as follows:
Goodwill from acquisition $ 17,877,694
Amortization (1,638,789)
Amortization due to change in estimate (16,238,905)
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Goodwill at September 30, 2001 $ -
F-11